REG - Zegona Comm PLC - Final Results
04/04/2022 07:00
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RNS Number : 0571H Zegona Communications PLC 04 April 2022
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ZEGONA COMMUNICATIONS PLC ("Zegona")
LEI: 213800ASI1VZL2ED4S65
4 april 2022
ZEGONA ANNOUNCES 2021 RESULTS
London, England, Zegona Communications PLC (LSE: ZEG) announces results and
publishes its Annual Report for the year ended 31 December 2021. 1
Enquiries
Tavistock (Public Relations adviser - UK)
Tel: +44 (0)20 7920 3150
Lulu Bridges - lulu.bridges@tavistock.co.uk
Jos Simson - jos.simson@tavistock.co.uk (mailto:jos.simson@tavistock.co.uk)
About Zegona
Zegona was established in 2015 with the objective of investing in businesses
in the European Telecommunications, Media and Technology sector and improving
their performance to deliver attractive shareholder returns. Zegona is led by
former Virgin Media executives Eamonn O'Hare and Robert Samuelson.
ZEGONA COMMUNICATIONS PLC
Annual Report
For the Year Ended 31 December 2021
STRATEGIC REPORT | CHAIRMAN'S STATEMENT
I am pleased to present Zegona's annual report for 2021. This was a very
important year for the Company. We crystalised significant shareholder value
by completing the sale of Euskaltel and delivered on our commitment to return
capital to shareholders promptly and efficiently.
The completion of Zegona's journey in Spain validates its Buy-Fix-Sell
strategy
On 28 March 2021, MásMóvil, the fourth largest telecommunications operator
in Spain launched a tender offer to acquire 100% of Euskaltel for €11.17 per
share in cash. This valued Euskaltel's equity at €2.0 billion, which equated
to an Enterprise Value of €3.5 billion (over 10x EBITDA and 21x Operating
Cash Flow), a significant premium
to European telecommunications multiples 2 .
The sale of our Euskaltel investment represented the successful completion of
our Buy-Fix-Sell strategy in Spain. This journey included four M&A
transactions and two operational turnarounds. Our involvement in Telecable and
Euskaltel created significant value, delivering an 88% return on shareholders'
net invested capital 3 .
The success of our investment strategy in Spain, culminating in the sale of
Euskaltel to MásMóvil, demonstrated the strength and flexibility of our
Buy-Fix-Sell strategy. We engineered the combination of three northern Spanish
cable operators and leveraged our position as the leading shareholder in the
enlarged business to drive significant change. These changes included
restructuring the board, strengthening the senior management team, realising
material synergies, returning the business to growth and expanding nationally
across Spain through the launch of the Virgin brand.
As Euskaltel started to grow with improved operational and financial metrics,
we were able to initiate consolidation discussions from a position of
strength. The eventual transaction with MásMóvil received support from the
full Euskaltel Board and over 97% of Euskaltel's shareholders. The
transaction was completed in August 2021, and we received €428 million 4
(£370 million 5 ) in total cash proceeds.
Capital returned to shareholders with management reinvesting
A core component of our Buy-Fix-Sell strategy is our commitment to return
excess capital to shareholders promptly and efficiently. We did this in 2017
when we sold Telecable and we did the same again this year. Following the
announcement of MásMóvil's tender offer, we sought the views of our
shareholders before announcing in May 2021 our intention to return over 90%
(£335 million) of the cash proceeds. We initiated this capital return with a
£5.7 million dividend in June 2021 and the return of the full £335 million
was completed less than two months later with a tender offer to acquire Zegona
shares at £1.535 per share.
At the same time, the executive team agreed to reinvest a portion of the
Management Incentive as a signal of our commitment to the business and
confidence that we can once again deliver significant shareholder value by
implementing Zegona's Buy-Fix-Sell strategy. This reinvestment has resulted in
the management team becoming Zegona's largest shareholder. In addition, Robert
Samuelson (Chief Operating Officer) and I waived our entitlement to any bonus
in 2021 and Zegona will pay no bonuses to the senior team until we have made
another investment. Management continue to be strongly aligned with
shareholders, both through our significant ownership position and the
long-term incentive scheme that links our remuneration directly to growth in
shareholder value.
The next Buy-Fix-Sell Opportunity
After completing the Capital Return, Zegona is in a similar position to when
it was founded in 2015. The company has retained sufficient capital to provide
adequate time and resources to secure another attractive investment
opportunity within the European TMT sector.
The broader European TMT landscape continues to be large and fragmented, with
well over 100 operators, of which over half fit our desired investment size.
We continue to see a very healthy environment for acquisitions
across the industry, demonstrated by a significant increase in deal activity
with approximately 14 public telco businesses being acquired or subject to a
public offer in the last two years.
This healthy acquisition environment is being driven by a number of core
themes that we believe will present Zegona with attractive investment
opportunities. These include, core telco business delivering poor capital
returns, fixed/mobile convergence, in-market consolidation and large
multi-national operators divesting non-strategic assets.
We are actively pursuing a number of attractive opportunities and have
recently participated in a number of transaction processes. These are in
markets which we know well and where we are confident we can apply our
expertise and experience to again deliver superior returns for our
shareholders. However, we remain patient and disciplined and will not complete
a transaction unless we are confident that it meets our strict financial
criteria. We are currently working on a shortlist of attractive opportunities
and hope to be able to discuss these with shareholders in due course.
Annual general meeting
The next AGM will be held at 10 Snow Hill, London, EC1A 2AL at 1:00 pm on 28
June 2022. The AGM is an opportunity for shareholders to vote on certain
aspects of Zegona's business. The Directors will also be available to answer
any shareholder questions prior to and after the meeting.
Eamonn O'Hare
Chairman and Chief Executive Officer
3 April 2022
STRATEGIC REPORT | STRATEGY AND BUSINESS MODEL
Vision
· Execute our Buy-Fix-Sell strategy in the European TMT sector
· Focus on businesses that require active change and fundamental
improvement to realise their full value
· Target significant long-term growth in shareholder value
Opportunity
Changing market dynamics in the TMT industry create multiple investment
opportunities:
· Demand for data and speed: Data consumption is growing strongly with
customers willing to pay for speed and reliability. Gigabit broadband is
increasingly offered in many markets but network roll-outs and upgrades need
to be efficient.
· Digital convergence: The fixed/mobile divide is increasingly
disappearing for users, meaning significant growth in more valuable quad
play 6 customers who are combining mobile and fixed services. This has
driven an increase in merger and acquisition ("M&A") activity and
improvements in economics for converged players since mobile data delivery is
heavily dependent on high capacity fixed networks.
· Industry consolidation: The sector has seen heightened M&A
activity. Many private equity owners are looking to sell assets as economies
return to growth and industry players are focusing on their core regions,
delivering cost reductions and price repair to rebuild margins. Consolidation
has also created opportunity as businesses are spun out by the major industry
players to meet regulatory requirements and strategic objectives, creating
opportunity for Zegona.
· Infrastructure monetisation: The opportunity to enhance value through
separating off and monetising infrastructure assets, started with mobile
towers but has expanded to other assets including fixed networks. This
creates new commercial options, both through providing a route for incremental
value creation and in the remaining 'servco' operations which may not have
been the main focus of attention in the initial infrastructure led
transaction.
· Broad range of attractive assets: Our flexibility in terms of size,
geography and category opens a broad universe of attractive target assets
across the TMT market. We have identified many businesses of an appropriate
scale, including operators which are active in one or more of the mobile,
mid-sized cable, fixed fibre network, B2B 7 , and network infrastructure
sectors.
Advantage
A number of factors make Zegona well positioned to access attractive deals and
deliver value:
· Strong, aligned management team: Our management team has a proven
track record of delivering superior business performance and investor returns.
During 2017, it successfully sold Telecable and was then instrumental in
returning Euskaltel to growth. This enabled us to initiate consolidation
discussions with MásMovíl that lead to it acquiring Euskaltel in July 2021.
The team has extensive real-world experience in senior operational roles in
large public telecommunications companies and it interests are also strongly
aligned with shareholders through a long-term incentive scheme that links
remuneration directly to growth in shareholder value.
· Entrepreneurial focus: We have considerable freedom in the
projects we pursue and the ways we create value. Unlike most private equity
businesses, Zegona is free to choose the optimal period to hold assets and can
realise value using a range of approaches, of which a sale of the asset is
only one. This also permits a focus on fundamental business improvements that
are value accretive rather than relying on high leverage and multiple
expansion. We are also able to act quickly on acquisition opportunities while
still maintaining financial discipline. This is especially attractive to
potential sellers and a key differentiator.
· Major global investors: Zegona benefits from having a number of
global public equity asset managers 8 with a long-term outlook as
shareholders. The strong support which we have from such shareholders was
illustrated by our successful placement of over £100 million of equity in
February 2019 which enabled us to become Euskaltel's largest shareholder and
drive change within the business. We have an effective investor relations
programme which maintains regular contact with our major current and potential
shareholders.
Strategy
We seek to provide shareholders with an attractive total return, primarily
through appreciation in the value of Zegona's assets. Our strategy focuses on
making investments in strategically sound businesses within the European TMT
sector that require active change to realise their full value, thereby
creating significant long-term returns through fundamental business
improvements. The main elements of Zegona's strategy are set out below but our
overall approach is to deal with each opportunity and situation individually
as it arises. For example, in the case of the investment in Euskaltel, our
successful strategy was to increase our ownership position and work
constructively with the Euskaltel Board and management to improve the
performance of the business and make it more attractive to potential buyers,
thereby encouraging industry consolidation.
We evaluate potential investments using a disciplined set of financial and
strategic criteria. We focus on:
· Target businesses with an enterprise value range of £1-5
billion, although we may deviate outside of this range if we believe the
returns are sufficiently attractive;
· TMT, network-based communications and entertainment businesses,
primarily in Europe;
· Strategically sound businesses with established market positions
and limited expected downside risk, but which have scope for fundamental
improvement that is realistically achievable;
· Appropriate financial leverage (usually 3-4x EBITDA 9 ); and
· Multiple viable exit options pre-identified.
Many businesses across the TMT sector currently deliver sub-optimal returns
which could be significantly improved. We work with management to deliver
fundamental business improvements, such as:
· Changing the business market position;
· Being actively involved in the management of the business to
drive operational improvements;
· Instilling strong discipline around cost efficiency;
· Investing in products, services and other value-accretive
activities to drive top line growth;
· Focusing on operating profitability and cash generation;
· Ensuring a balanced and efficient capital structure;
· Innovative techniques to separate and monetise infrastructure
assets; and
· Value enhancing bolt-on acquisitions/divestments.
Buyer interest is stimulated as the performance of each investment improves,
providing Zegona with a range of options to crystallise the value it has
created:
· We identify the optimal time to crystallise the value we have
created, with flexibility to adapt to market changes and other opportunities;
· Zegona's publicly listed structure allows shareholders to realise
value at any time and provides multiple options for value delivery; and
· Following a successful crystallisation, the value created will be
reinvested or returned to shareholders.
STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Sale of the investment in Euskaltel and Return of Capital
On 28 March 2021, MásMóvil, the fourth largest telecommunications operator
in Spain launched a tender offer to acquire 100% of Euskaltel for €11.17 per
share in cash (the "Offer"). The Offer valued Euskaltel's equity at €2.0
billion which equated to an Enterprise Value of €3.5 billion and valued
Euskaltel at 10.1x EBITDA and 21x Operating Cash Flow, a significant premium
to European telecommunications multiples 10 .
The offer price was subsequently adjusted to €11.00 per share following the
payment by Euskaltel of a €0.17 per share dividend on 17 June 2021 which
Zegona passed on to its shareholders in full through a £5.7 million dividend
declared on 21 June 2021. The tender offer was successfully completed and
Zegona received €421.3 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 Zegona's strategy in Spain and provided significant value creation
for Zegona shareholders, with Zegona achieving a return of 87.6% 11 on
shareholders' net invested capital. The sale, together with the dividend,
delivered proceeds of €428 million (£370 million 12 ) to Zegona and Zegona
successfully passed substantially all of this 13 back to its shareholders by
October 2021, through a £5.7 million dividend and a £329.3 million on-market
share buyback by way of a tender offer launched in 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 this date,
the investment in Euskaltel, and other related items 14 (see note 13 to the
financial statements), were classified as a discontinued operation, with
comparative periods also being restated. This resulted in Zegona recognising a
profit for the period from discontinued operations, net of tax of €114.2
million (2020: €19.8 million).
Review of Zegona's continuing corporate and other activities
Loss for the period from continuing operations
Zegona's corporate and other activities resulted in a net loss for the period from continuing operations of €34.3 million (2020 €5.8 million net loss) which principally comprised:
Operating loss
Operating loss totalled €34.0 million (2020: €6.8 million) and included:
· €4.6 million (2020: €5.6 million) for Zegona's ongoing
corporate operations, with the reduction mainly driven by the Executive
directors waiving their 2021 bonuses.
· €29.1 million (2020: €0.9 million) of Incentive scheme costs
which were payments to management upon the redemption of the Management Shares
in October (see note 19 to the financial statements).
· €0.3 million (2020: €0.3 million) for significant project
costs, principally professional fees paid in conjunction with exploring new
opportunities and financing.
Net finance costs
Net finance costs totalled €0.2 million (2020: €0.2 million) and comprises interest incurred on bank borrowings recognised within Finance Costs, net of interest on cash balances earned recognised within Finance Income.
Other Comprehensive Income
Exchange differences on translation resulted in a gain of €0.6 million
(2020: loss €18.7 million). The variance year on year arises as a result of
movements in the closing €:£ exchange rates as the functional currency of
Sterling ("£") is translated into the presentational currency of euro
("€").
Shareholder remuneration
Up to the sale of Euskaltel, Zegona was committed to paying dividends to
shareholders and in 2021 continued to pass through 100% of dividends it
received from Euskaltel. Zegona declared a first interim dividend on 21
December 2020 at a rate of 2.2p per share, totalling £4.8 million (€5.6
million) which was paid on 9 March 2021. Zegona also paid a second interim
dividend of 2.6p per share, totalling £5.7 million (€6.7 million) on 23
July 2021.
Following the sale of Euskaltel, Zegona has ceased paying dividends and
expects not to pay further dividends until such time as it has an income
generating asset.
Key performance indicators and non-GAAP measures
As Zegona does not currently have an operating business, there are limited material key performance indicators that provide a useful measure of Zegona's business performance and position other than financial measures defined by IFRS, with the exception of:
Zegona's return on shareholders' net invested capital
Zegona uses its return on shareholders' net invested capital as a measure to demonstrate the value generated by the combination of the disposal of Euskaltel and the Return of Capital, compared to the amount originally invested by shareholders. Zegona believes it is both useful and necessary to report these amounts because they quantify Zegona's success in executing its Buy-Fix-Sell strategy in the same terms that investors use as a key metric when allocating capital. This is especially necessary as there are no IFRS measures that articulate this performance in terms that are consistent with those used by the investment community.
Below we set out the calculation of Zegona's return on the combination of the disposal of our investment in Euskaltel and the Return of Capital. This is the percentage by which the Asset Value exceeded Zegona's net invested capital at the completion of the tender offer on 14 October 2021. The Asset Value is the amount distributed to shareholders and management under the Incentive Scheme together with the total value of Zegona's assets immediately following the completion of the tender offer. Zegona's Net Invested Capital represents the net amount of all shareholder subscriptions less all returns to shareholders, including dividends, capital returns and share buy-backs since Zegona's initial quotation on the AIM Market in March 2015. There are no IFRS measures that provide an equivalent insight for this to be reconciled to
14 October 2021
£000
Adjusted value of Zegona's assets immediately following the tender offer 15 6,582
Capital Returned (see note 20 to the financial statements) 329,307
Incentive Scheme payments (see note 19 to the financial statements) 25,720
Asset Value 361,609
Net invested capital at 14 October 2021 (see page 46) (192,818)
Excess 168,791
Return (%) 87.54
STRATEGIC REPORT |RISKS
Principal and emerging risks
We have carried out robust assessments of the principal and emerging risks facing Zegona including those that would threaten our business model, future performance, solvency or liquidity. Detailed consideration is given to all of these risk factors by the Audit and Risk Committee and the board of Directors (the "Board").
Principal and emerging risks
Risk title Risk rating Change in risk assessment since the last Annual Report
Ability to maintain sufficient resources to identify and complete new Moderate New
acquisitions
Ability to create value in acquired businesses Moderate New
Key management Low ↔ No change
Brexit Low ↔ No change
Foreign exchange Moderate ↔ No change
The description, impact and mitigation of these risks are set out below:
Ability to maintain sufficient resources 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. At 3 April 2022, Zegona had approximately
€9.2 million of cash and approximately €1.0 million of liabilities and we
are already making progress on finding 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 acquire a suitable target
at a price that allows for acceptable returns. Zegona's current cash resources
are enough to allow us to continue searching for new acquisitions for a
reasonable period of time, but we cannot be 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 a number of reasons, which could include:
· We may face competition for attractive assets from other investors with greater resources than us;
· We may not receive sufficient support from our existing Shareholders to raise additional equity, and new equity investors may be unwilling to invest;
· Lenders may be unwilling to extend sufficient debt financing on reasonable term; and
· We may fail to complete an agreed acquisition for reasons beyond our control.
If we do attempt an acquisition which is ultimately unsuccessful this would
result in us incurring related costs for items such as legal and due diligence
fees. These costs could be a significant proportion of our remaining cash and
could materially adversely affect subsequent attempts to identify and acquire
another target business, or even threaten our ability to continue as a going
concern without raising further capital.
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 transaction 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 successfully to 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 customer
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 and 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 Return of Capital, 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.
STRATEGIC REPORT | VIABILITY STATEMENT
Longer term viability statement
Zegona's prospects
In accordance with provision 31 of the 2018 UK Corporate Governance Code, we
have assessed Zegona's prospects over a longer period than the twelve months
required by the "going concern" provision. This assessment has taken into
account Zegona's current position, its strategy, the risk appetite of the
Board and the principal risks and uncertainties which are described in detail
in this Strategic Report.
Zegona's position changed fundamentally in 2021 with the sale of its
investment in Euskaltel and the Return of Capital. Zegona no longer has an
investment in an underlying operating business and is now solely focussed on
identifying another attractive investment opportunity within the European TMT
sector where we can again apply our successful Buy-Fix-Sell strategy. Until
Zegona identifies and successfully executes a new investment, it meets its day
to day working capital requirements, including the costs of evaluating new
acquisitions, from its cash balances. While Zegona does have a small overdraft
facility, this is repayable on demand, and it does not currently have other
assets upon which it can raise additional liquidity.
The assessment period
We continue to believe that three years - in this case the three years to December 2024 - is the appropriate period over which Zegona should assess its viability for the following reasons:
· Three years allows us to assess a full range of possibilities and covers Zegona's investment cycle; and
· A three-year period enables us to make an appropriate assessment of Zegona's principal risks.
The assessment process and key assumptions
The Directors approve a 3 year forecast on an annual basis which is
sufficiently detailed to explain all cash inflows and outflows and includes a
description of all reasonably possible risks and opportunities. Each month,
the Board is provided with an analysis of actual performance against the
forecast which is updated frequently. The most recent forecast is used as the
base case ("Base Case") for the viability assumption without any significant
adjustment.
Zegona's operations are now focused on finding the next investment opportunity
and its ongoing running costs are relatively predictable as the most
significant ongoing costs are the salary costs of the Board and management
team. From 2022 until a new investment is made, no management bonuses will be
paid. The most significant element of uncertainty is whether Zegona will incur
substantial professional fees for costs such as legal advice and due diligence
related to an unsuccessful attempt to acquire a new investment. Such costs are
inherently unpredictable, so while a contingency is included in the base case
for routine professional fees that would be expected to support Zegona's
day-to-day operations, no amounts are included for any significant aborted
transactions.
Equally, completing a new acquisition would likely represent a significant
upside to the viability assessment since the addition of an income generating
asset would deliver cash inflows to allow Zegona to fund its operation as well
as giving the opportunity to raise additional capital in connection with the
funds to complete the acquisition. The ability to execute such acquisitions,
their timing and size are however inherently uncertain so no amounts have been
included in the base case.
We believe that this approach fairly represents the future prospects of Zegona
while also properly considering the principal and emerging risks (as discussed
on page 7). In terms of risks, we believe that the principal consequence
should any of the risks occur would be to make it more difficult for Zegona to
execute a new acquisition.
In addition to the Base Case, the Directors identified a severe but plausible downside scenario which was further used to stress test the base numbers. Given the nature of Zegona's current operations and generally high level of predictability of its costs, the downside scenario differs from the Base Case only by the inclusion of a 10% overrun on recurring costs and £ 2.0 million for aborted costs on unsuccessful acquisitions, assumed to be incurred by the end of 2022.
Results of the assessment
The assessment showed that in both the Base Case and the downside scenario, Zegona would have sufficient cash to continue in operation for at least 12 months from the date of issuance of this report throughout the assessment period without taking any mitigating actions available to it.
Over more than 12 months however, both the Base Case and the downside scenario showed that without the upside impact of completing a new acquisition, Zegona will need to seek additional equity funding during the viability assessment period, even if it takes liquidity enhancing actions such as reducing discretionary expenditure. Without such actions, the Base Case assumes Zegona would need to seek additional funding during the second quarter of 2024, while this would be sooner under the downside scenario, but still more than twelve months from the date of issuance of this report.
Statement of viability
Taking into account Zegona's current position and principal and emerging risks and uncertainties, the Directors confirm that we expect Zegona will be able to continue in operation and meet its liabilities as they fall due over the three years to December 2024 only if it is successfully able to raise funds and execute a new acquisition or otherwise obtain additional equity funding during the period.
The Strategic Report was approved by the Board on 3 April 2022 and is signed
on its behalf by:
Eamonn O'Hare
Chairman and Chief Executive Officer
DIRECTORS' REPORT | CORPORATE RESPONSIBILITY
Corporate social responsibility
We recognise our obligations to act responsibly, ethically and with integrity
in our dealings with staff, suppliers and the environment as a whole. We are
committed to being a socially responsible business.
Our people
We value and respect the unique contributions of each individual, and we are
committed to ensuring that every employee is treated with dignity and respect
and has a meaningful opportunity to contribute to Zegona's success.
Zegona's employees are encouraged actively to engage with charitable
activities.
Zegona recognises that a productive workforce requires a breadth of experience
and perspectives which is achieved through hiring individuals with diversity
of age, gender or educational and professional backgrounds. Given the size of
the business and the very limited turnover of staff, Zegona achieves this on a
case-by-case basis by ensuring that when it does appoint new members of staff
or the board, it places diversity at the heart of its decision-making process
to ensure it achieves both a diverse and a high performing workforce.
Board Directors and senior managers have been appointed to bring required
skills, knowledge and experience. During 2020 and 2021, all individuals that
have been appointed have diverse backgrounds including, two female independent
Non-Executive Directors. The Nomination and Remuneration Committee will
continue to consider the diversity of the Board for further new appointments.
The table below shows the breakdown of our workforce at the end of 2021.
Male Female Total
Board Directors 4 2 6
Senior management 3 - 3
Other staff - 2 2
Total 7 4 11
Culture
Ethical values and behaviours are embedded in the corporate culture which the
Board upholds. The Directors foster a culture where transparency, openness,
integrity and constructive challenge are actively encouraged, and the Board
works closely with senior management to ensure a positive culture.
Human rights
As part of our effort to conduct business in an ethical manner, Zegona has not
engaged in and will not engage in business practices or activities that
compromise fundamental human rights.
Environmental matters
We are committed to minimising Zegona's impact on the environment. At present,
Zegona has no operating investments and only 7 full time employees who all
work from home as it has no office facilities. The most significant
environmental impact is from limited business travel, however Zegona's overall
impact is minimal, with total CO(2) emissions less than the average for a
single UK household. Zegona's approach to minimise its environmental impact is
therefore to seek to maintain lean working arrangements, utilise connectivity
technology to minimise business travel and encourage our employee to recycle,
minimise energy wastage, and do their part to ensure that Zegona acts
responsibly.
We have compiled our greenhouse gas ("GHG") emissions in accordance with the
Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
Calculations follow the GHG Protocol Corporate Accounting and Reporting
Standard (revised edition). The GHG reporting period aligns with the financial
statements and boundaries are defined using the financial control approach.
GHG emissions are broken down into three categories; reporting is required
only on scope 1 and 2:
Scope 1 emissions: Direct emissions from sources owned or controlled by
Zegona.
Scope 2 emissions: Indirect emissions attributable to Zegona due to its
consumption of purchased electricity.
Scope 3 emissions: Other indirect emissions associated with activities that
support or supply Zegona's operations.
Zegona has no Scope 1 emissions. Zegona Scope 2 and Scope 3 emissions for the
year to 31 December 2021 and comparative period are shown below:
Global tonnes of CO2e
2021 2020
Scope 2 (electricity) - 1.7
Per €m operating expenses - 0.24
Scope 3 (water consumption, business travel) 4.5 4.9
Per €m operating expenses 0.12 0.7
All emission factors have been selected from the emissions conversion factors
published annually by the Department for Environment, Food and Rural Affairs
and the International Energy Agency. Scope 2 and Scope 3 emissions have
decreased in 2021 due to homeworking arrangements and restrictions on travel
imposed in response to the COVID-19 pandemic.
No further energy and carbon information is disclosed as the Group is exempt
on the grounds of being a low energy user.
As a standard listed business, Zegona will be required to provide the
information required under the Task Force on Climate-related Financial
Disclosures ("TCFD") recommendations from its 2022 Annual Report.
Board engagement with our key stakeholders
Section 172 of the Companies Act 2006 requires a Director of a company to act
in the way he or she considers, in good faith, would be most likely to promote
the success of the company for the benefit of its members as a whole. In doing
this, section 172 requires a Director to have regard, among other matters, to:
the likely consequences of any decision in the long term; the interests of the
company's employees; the need to foster the company's business relationships
with suppliers, and others; the impact of the company's operations on the
community and the environment; the desirability of the company maintaining a
reputation for high standards of business conduct; and the need to act fairly
with members of the company.
The Directors give careful consideration to the factors set out above in
discharging their duties under section 172. More information about who our key
stakeholders are and how we engage with them is provided on page 12.
DIRECTORS' REPORT | OTHER MATTERS
General
Details of the directors can be found on pages 18 to 19. A discussion on the
role of the board, including the powers of the company's directors can be
found in the Corporate Governance Statement beginning on page 20.The rules
relating to the appointment and replacement of directors and details of any
agreements with the company and its directors or employees for compensation
for loss of office or employment that occurs because of a takeover bid can be
found in the Directors' Remuneration Report beginning on page 42 .
Result
For the year ended 31 December 2021, Zegona's loss before tax from continuing
operations was €34.3 million (2020: €5.8 million). Zegona's gain from
discontinued operations was €114.2 million (2020: €19.8 million). Other
comprehensive gain was €0.6 million (2020: loss of €18.7 million).
Therefore, the total comprehensive income for 2021 was €80.5 million (2020:
loss of €4.7 million). Reviews of performance and likely future developments
are set out in the Strategic Report on pages 1 to 10.
Dividends
The Company declared a first interim dividend on 21 December 2020 at a rate of
2.2p per share, totalling £4.8 million (€5.6 million). The dividend was
paid on 9 March 2021.
The Company also declared a second interim dividend on 21 June 2021 at a rate
of 2.6p per share, totalling £5.7 million (€6.7 million). The dividend was
paid on 23 July 2021.
Contracts of significance
There were no significant contracts to report.
Events since the end of the financial year
There have been no material events since the end of the financial year.
Capital structure
The Company's capital structure is comprised of 5,325,567 ordinary shares of
£0.01 each ("Ordinary Shares"). The holders of Ordinary Shares have the right
to receive notice of, attend and vote at all general meetings of the Company.
Holders of Ordinary Shares have the right to participate in dividends and any
surplus capital on a winding up pari passu as amongst themselves. Where the
winding up of the Company entails or is concurrent with the winding up of the
Company's subsidiary, Zegona Limited, the assets available for distribution
among the holders of Ordinary Shares will be reduced by such amount as is
required to satisfy the rights (if exercised) of Management Shares (as defined
in the Directors' Remuneration Report on page 43, with further details set out
in note 19 to the financial statements).
Share buy-back programme
The shareholders passed a resolution to authorise Zegona to make market
purchases of up to 15% of its current issued ordinary share capital (within
specified price parameters) in the 2020 AGM, which expires on the earlier of
the end of 2022 AGM or 18 months after the date of 2021 AGM. A resolution to
renew this authority is proposed for the 2022 AGM. It is intended that we will
exercise this authority only if the Board considers that it is in the best
interests of Zegona at the time, for instance if the traded price of the
Company's ordinary shares is substantially below the value of its net assets.
Any shares repurchased by Zegona may be held in treasury and subsequently
resold for cash, cancelled or used for employee share scheme purposes.
In addition, on 13 August 2021, the Company announced the publication of a
circular for a return of up to £329.3 million to shareholders by way of a
tender offer. The tender offer completed on 14 October 2021 at a price of
£1.535 per share, with a total of 214,532,103 ordinary shares purchased.
Details of shares repurchased in the year can be found in note 20 and note 21
to the financial statements.
Internal control and Financial Risk Management
A description of the main features of Zegona's internal control and risk
management arrangements in relation to the financial reporting process can be
found in the Audit and Risk Report on page 27. Details of the company's
financial risk management activities and use of financial instruments can be
found in note 10 and note 11 to the financial statements.
Significant agreements subject to change of control provisions
Zegona Limited has issued Management Shares as part of Zegona's incentive
arrangements. On a change of control of Zegona, subject to the requirements of
the Articles of Association of Zegona Limited, the Management Shares can be
exercised with their value being delivered either through the issue of
ordinary shares or in cash.
Substantial shareholders
At 31 December 2021 and up to the date of approval of this report, Zegona had
been notified under DTR 5 of the following holdings in 3% or more of the
issued ordinary shares, which are all held indirectly by asset managers:
% of ordinary share capital % of ordinary share capital
as at 3 April 2022 Shareholding at 31 December 2021 as at 31 December 2021
Shareholding at 3 April 2022
Asset manager
Zegona board and management 16 957,479 17.98% 957,479 17.98%
Marwyn Asset Management 774,321 14.54% 774,321 14.54%
Artemis Investment Management 586,691 11.02% 586,691 11.02%
Fidelity Investments Limited 403,395 7.61% 403,107 7.57%
Fidelity Management & Research 398,717 7.49% 403,067 7.57%
Credit Suisse 255,969 4.81% 255,969 4.81%
Aberforth Partners LLP 243,744 4.58% 243,744 4.58%
Chelverton Asset Management 184 091 3.46% 184 091 3.46%
Jarvis Investment Management 167,796 3.15% 122,546 2.30%
Canaccord Genuity Group Inc 152,215 2.86% 269,215 5.06%
4,124,418 71.44% 4,200,230 78.87%
Independent auditor
KPMG has expressed its willingness to continue to act as auditor to Zegona and
a resolution for its re-appointment will be proposed at the 2022 AGM. KPMG has
confirmed that it remains independent of Zegona.
Political donations
Zegona does not make any political donations or contributions to political parties and has no intention of altering this policy.
Disclosure of information to the auditor
Each of the persons who is a Director at the date of approval of this report
confirms that, so far as the Director is aware, there is no relevant audit
information of which Zegona's auditor is unaware; and each Director has taken
all the steps that he ought to have taken as a Director in order to make
himself aware of any relevant audit information and to establish that Zegona's
auditor is aware of that information.
Statement of going concern
The Directors have considered all available information, including specific
consideration of forecast financial information, about the possible future
outcomes of events and changes of conditions, and the realistically possible
responses to such events and conditions that are available to the Directors.
The Board considers that there are no material uncertainties affecting
Zegona's ability to continue in business or meet its liabilities as they fall
due for the next 12 months and therefore believes it is appropriate to prepare
the Financial Statements on the going concern basis.
By order of the Board
Eamonn O'Hare
Chairman and Chief Executive Officer
3 April 2022
DIRECTORS' REPORT | DIRECTORS' RESPONSIBILITY STATEMENT
Statement of Directors' responsibilities
The Directors are responsible for preparing the Strategic Report, Directors'
Report, Directors' Remuneration Report, Corporate Governance Report and the
Zegona group and parent company Financial Statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare Group and parent Company
financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordance with
UK-adopted international accounting standards and applicable law and have
elected to prepare the parent Company financial statements on the same basis.
Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and parent Company and of the Group's profit or loss for
that period. In preparing each of the Group and parent Company financial
statements, the directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable, relevant,
reliable and prudent;
· state whether they have been prepared in accordance with
UK-adopted international accounting standards;
· assess the Group and parent Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern;
and
· use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease operations, or
have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the parent Company's transactions and disclose
with reasonable accuracy at any time the financial position of the parent
Company and enable them to ensure that its financial statements comply with
the Companies Act 2006. They are responsible for such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error, and
have general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the Annual Financial Report
We confirm that to the best of our knowledge:
· The Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the parent
company and the undertakings included in the consolidation taken as a whole;
· The Strategic Report includes a fair review of the development
and performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
· The Annual Report as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess Zegona's
position and performance, business model and strategy.
By order of the Board
Eamonn O'Hare
Chairman and Chief Executive Officer
3 April 2022
GOVERNANCE | PROFILES OF THE DIRECTORS
Eamonn O'Hare, Chairman and CEO (appointed 19 January 2015)
Eamonn has spent over two decades as a board member and senior executive of
some of the world's fastest growing consumer and technology businesses. From
2009 to 2013 he was CFO and main board director of the UK's leading
entertainment and communications business, Virgin Media. Eamonn helped lead
the successful transformation of this business and its strategic sale to
Liberty Global for US$24 billion, crystallising US$14 billion of incremental
shareholder value. From 2005 to 2009, he served as the CFO for the UK division
of one of the world's largest retailers, Tesco plc. Before joining Tesco,
Eamonn was CFO and main board director of Energis Communications and helped
lead the turnaround of this high profile UK telecommunications company. Prior
to this, he spent 10 years at PepsiCo Inc. in senior executive roles in
Europe, Asia and the Middle East. Eamonn's early career was spent in the
aerospace industry with companies that included Rolls Royce and British
Aerospace.
Eamonn was a proprietary director of Euskaltel until 10 August 2021 when he
resigned following the sale of Euskaltel. He also served as a non-executive
director on the main board of Dialog Semiconductor Plc until 30 August 2021, a
leading edge consumer technology business that provides critical components
for the world's most successful mobile device brands. The fees for these
appointments are disclosed in the Directors' Remuneration Report on page 50.
Eamonn has a degree in Aerospace Engineering from the Queen's University
Belfast and an MBA from the London Business School.
Robert Samuelson, Executive Director and COO (appointed 19 January 2015)
Robert was Executive Director Group Strategy of Virgin Media from 2011 to
2014, during which time he was centrally involved in the sale of the business
to Liberty Global and in the post-merger integration process. Prior to this,
Robert was a managing partner at Virgin Group with global responsibility for
developing and realising returns from Virgin's telecommunications and media
businesses. Before joining Virgin Group, Robert was a director at Arthur D
Little Ltd, where he co-led the European corporate finance practice, providing
strategic advice to major European telecommunications operators. His early
career was spent with British Aerospace and Royal Ordnance in engineering and
production management roles.
Robert was a proprietary director of Euskaltel until 10 August 2021 when he
resigned following the sale of Euskaltel, and the fees for this appointment
are disclosed in the Directors' Remuneration Report on page 50.
Robert studied Natural Sciences at Cambridge University and has an MBA from
Cranfield School of Management.
Richard Williams, independent Non-Executive Director (appointed 9 November
2015)
Richard is an experienced Non-Executive Director with significant board level
experience in both public and private companies and currently holds a number
of Non-Executive Director roles. Richard spent most of his executive career in
European telecommunications, most recently as a Director of Investor Relations
at Altice, and prior to that, Virgin Media. Richard led Virgin Media's
investor relations activity through to the acquisition of the company by
Liberty Global in 2013. Richard then joined Altice, where he supported the
company's IPO and Altice's acquisition of SFR and Portugal Telecom.
Richard is a member of both the Nomination and Remuneration Committee and the
Audit and Risk Committee. Richard is a qualified Chartered Accountant.
Ashley Martin, independent Non-Executive Director (appointed 6 February 2017)
Ashley brings a wealth of complementary experience to the Board. Ashley was
Audit Committee Chair at Rightmove plc from 2009 to 2018 and, in that role,
gained valuable insight into an entrepreneurial, high-growth consumer
technology business. On 1 September 2018, Ashley was appointed as a
non-executive director of the international research data and analytics group
YouGov plc. Ashley has also enjoyed a successful executive career spanning 35
years in larger listed companies, with a particular focus on mergers and
acquisitions. Ashley was Global Chief Financial Officer of private
equity-backed Engine Holding LLC, and was previously the Group Finance
Director of Rok plc, the building services group, and Group Finance Director
of the media services company, Tempus plc.
Ashley is a qualified Chartered Accountant and is Chair of the Audit and Risk
Committee and a member of the Nomination and Remuneration Committee.
Kjersti Wiklund, independent Non-Executive Director (appointed 5 February
2020)
Kjersti brings significant experience from a series of senior global
telecommunications roles, including as director of group technology operations
at Vodafone and chief operating officer of VimpelCom. Kjersti has also held
senior executive positions at Kyivstar, Digi Telecommunications and Telenor.
Kjersti has also gained valuable insight into an entrepreneurial, high growth
consumer technology company as Remuneration Committee Chair at Trainline plc.
She was previously a non-executive director of Laird plc in the UK, Cxense ASA
and Fast Search & Transfer ASA in Norway and Telescience Inc in the USA
and is currently a non-executive director of Babcock International Group PLC
and Spectris PLC.
Kjersti is a member of the Audit and Risk Committee.
Suzi Williams, independent Non-Executive Director (appointed 5 February 2020)
Suzi brings skills and experience from over 25 years in telecommunications,
media and consumer businesses in the UK and internationally. As Chief Brand
and Marketing Officer at BT, she was part of the team who transformed the
business. Prior to that, she was Commercial Development Director at Capital
Radio Group and held senior leadership roles at Orange, the BBC, KPMG
Consulting, and Procter & Gamble Europe.
Suzi is currently a NED at FTSE 250 Telecom Plus. Previously she was NED and
Remco Chair at Workspace Group Plc, and at The AA plc (from 2015 until March
2021, when the business was acquired by a private equity consortium of
Towerbrook and Warburg Pincus). She also advises a number of early stage
technology and AI businesses.
Suzi is the Chair of the Nomination and Remuneration Committee.
GOVERNANCE | CORPORATE GOVERNANCE STATEMENT
Overview
The corporate governance report, presented here, forms part of the Directors'
Report and as such it has been approved by the Board and signed on its behalf
by the Chairman.
We recognise the importance of sound corporate governance commensurate with
the size of Zegona. Corporate governance provides the framework within which
we form our decisions and build our business. The Board is focused on creating
long-term sustainable growth for our shareholders and value for all our
stakeholders, and we strongly believe our corporate governance framework helps
us achieve this goal. It is our commitment to continue to seek opportunities
to improve our corporate governance arrangements.
The following sections of this report show how Zegona applies the main
provisions set out in the 2018 UK Corporate Governance Code (the "Code"),
issued by the Financial Reporting Council ("FRC"), as would be required by the
Listing Rules of the Financial Conduct Authority ("FCA") as applicable to
non-FTSE 350 companies if Zegona were admitted to the Premium segment of the
Official List, and how Zegona meets the relevant information provisions of the
Disclosure and Transparency Rules of the FCA (the "DTR").
Zegona's principal risks are described on pages 7 to 8. The Directors' Report
on pages 11 to 17 also contains information required to be included in this
statement of corporate governance.
The Board of Directors
Zegona is led and controlled by an effective Board. The Board at the date of
approval of this report comprises two Executive Directors and four independent
Non-Executive Directors. The two Executive Directors are Eamonn O'Hare
(Chairman and Chief Executive Officer ("CEO")) and Robert Samuelson (Chief
Operating Officer ("COO")). The Non-Executive Directors are Richard Williams,
Ashley Martin, Kjersti Wiklund and Suzi Williams.
Biographical details of all Directors and details of their committee
membership at the date of approval of this report appear on pages 18 to 19.
Consideration of the Board size and composition is kept under regular review
by the Nomination and Remuneration Committee.
Powers and operation of the Board
In exercising its duty to promote the success of Zegona, the Board is
responsible for overseeing the management of Zegona and, in doing so, may
exercise its powers, subject to any relevant laws, regulations and Zegona's
Articles of Association. The Board is presented with papers from management
concerning financial information, information on investor relations and
details of acquisition targets and deal progress, which it takes into account
in discussions and in the decision-making process under section 172 of the
Companies Act 2006.
Eamonn O'Hare, as the Chairman and CEO, is primarily responsible for the
running of the Board and for the day-to-day running of Zegona. All Board
members have full access to Zegona's advisers for seeking professional advice
at Zegona's expense and our culture is to discuss openly any important issues
and frequently engage with Board members outside of formal meetings. The
operating and financial responsibility for all subsidiary companies is the
responsibility of the Board.
The Board has adopted a Board Charter, available on Zegona's website, which
sets out:
· the Board's collective vision on Zegona's strategy and
objectives;
· the Board's approach to the conduct of its business and the
parameters within which it will operate, including the management of any Board
or investor disagreements; and
· the Board's agreed focus areas for further action.
The Board meets formally at least six times a year but also frequently meets
additionally on an ad hoc basis where necessary. The Directors are encouraged
to have free and open contact with management at all levels and full access to
all relevant available information. The Executive Directors actively and
constructively encourage challenge and seek input from the Non-Executive
Directors to draw on their extensive experience and knowledge. The Board
believes that the role of the Non-Executive Directors in providing independent
challenge is a vital component of an effective Board.
The Board delegates the day to day responsibility for running Zegona to the
executive management, however there are a number of matters which are required
to be or should only be decided by the Board of directors as a whole in
accordance with the UK Corporate Governance Code. An updated schedule of
Matters reserved for the Board, approved by the Board on 9 June 2020, can be
found on Zegona's website 17 .
Board committees
The Board has established two principal committees, the Audit and Risk
Committee and the Nomination and Remuneration Committee, to assist it in the
execution of its duties. If the need should arise, the Board may set up
additional committees as appropriate. The committees' terms of reference are
available on Zegona's website, www.zegona.com, or by request from the Company
Secretary. Each of the committees is authorised, at Zegona's expense, to
obtain legal or other professional advice to assist in carrying out its
duties. No person other than a committee member is entitled to attend the
meetings of these committees, except by invitation of the chairman of that
committee.
Current membership of the committees is shown on pages 25 and 31. The
composition of these committees is reviewed regularly, taking into
consideration the recommendations of the Nomination and Remuneration
Committee.
Independence of the Board
The Code specifies that the Board should identify in the annual report each
Non-Executive Director it considers to be independent. The Board considers
that Ashley Martin, Richard Williams, Kjersti Wiklund and Suzi Williams are
independent Non-Executive Directors for the purposes of the Code and have no
relationships or circumstances which are likely to affect, or could appear to
affect, their judgement as Directors.
Board and committee attendance
Attendance at the Board and committee meetings held during 2021 was:
Nomination and Remuneration Committee
Audit and Risk
Board Committee
Eamonn O'Hare 16/16 - -
Robert Samuelson 16/16 - -
Richard Williams 16/16 5/5 3/3
Ashley Martin 16/16 5/5 3/3
Suzi Williams 16/16 5/5 -
Kjersti Wiklund 15/16 - 3/3
Directors' terms of service
Zegona's Articles of Association require each Director to retire from office
and offer themself for re-election or election, as the case may be, at each
AGM. Accordingly, each of the Directors will retire from office at the 2022
AGM and seek to be re-elected by Zegona's shareholders. The Chairman is
satisfied that the performance of the Directors continues to be effective and
demonstrates their ongoing commitment to the role and as such supports their
re-election.
The Executive Directors have service contracts which may be terminated on no
less than 12 months' notice by either party. The Non-Executive Directors each
have current service contracts which can be terminated on 6 months' notice.
All Non-Executive Directors' continued service is dependent on annual
re-election by shareholders and the annual Board effectiveness review. Details
of the unexpired terms of the service contracts are set out in the Directors'
Remuneration Report.
Directors' indemnities
As permitted by the Articles of Association, the Directors have the benefit of
an indemnity which is a qualifying third party indemnity provision as defined
by section 234 of the Companies Act 2006 (the "Act"). The indemnity was in
force throughout 2021 and is currently in force. This confirmation is given
and should be interpreted in accordance with the provisions of section 236 of
the Act.
Zegona also purchased and maintained throughout the year Directors' and
Officers' liability insurance.
Conflicts of interest
Zegona's Articles of Association provide for a procedure for the disclosure
and management of risks associated with Directors' conflicts of interest.
Zegona's Board Charter sets out the process for managing significant Board or
investor disagreements and/or conflicts. Notwithstanding that no material
conflict of interest has arisen in the year, the Board considers these
procedures to have operated effectively.
Company secretary
Crestbridge Corporate Services Limited was appointed Zegona's Company
Secretary on 24 February 2021, replacing Mark Millar of Foot Anstey LLP. The
Company Secretary assists the directors in ensuring Zegona is managed,
controlled and administered within the parameters of its governing and
constitutional documents. All Directors have access to the advice of the
Company Secretary, which is responsible for guiding the Board on all
governance matters.
Compliance with the UK Corporate Governance Code
The Code sets out a number of principles in relation to: board leadership and
company purpose; division of responsibilities; composition, succession and
evaluation; audit, risk and internal control; and remuneration. A copy of the
Code is available on the FRC's website at www.frc.org.uk.
Following admission to the Main Market the Board has voluntarily (as Zegona
has a Standard Listing) complied with the UK Corporate Governance Code except
in the instances set out below:
Combined Chairman and CEO
Provision 9 of the Code recommends that the roles of Chairman and the Chief
Executive Officer should not be exercised by the same person and that the
Chairman should be independent on appointment. Zegona does not comply with
this requirement. The Board presently believes that Eamonn O'Hare's skills,
knowledge and leadership have enabled him to effectively perform both roles.
Zegona also maintains a schedule of Matters reserved for the Board which
prevents Eamonn from authorising certain corporate actions without a formal
resolution of the Board which is re-enforced by the Board's culture of
detailed review and robust challenge on significant matters. As discussed
below, the board consider that it is important that this should continue to be
kept under active review.
Zegona has paid close attention to this matter since its incorporation and has
formally reconsidered it on a number of occasions. Separation of the roles was
determined to be a low priority in the corporate governance review completed
by Ernst & Young LLP, "EY" in 2017. This matter has also been actively
reconsidered both as part of the EY-facilitated exercise to develop Zegona's
Board Charter in 2018/19 and as part of each of Zegona's annual assessments of
Board effectiveness. The Board considers that it is not appropriate to
separate the roles at present given the significant simplification of the
business since the sale of the investment in Euskaltel and the Return of
Capital. The Board remains aware of this area of non-compliance, and it will
ensure that this matter continues to be kept under active review, in
particular if the structure of Zegona changes again by making another
significant investment.
Appointment of a Senior Independent Director ("SID")
Provision 12 of the Code recommends that one Non-Executive Director should be
appointed as a senior independent director to provide a sounding board for the
chair and serve as an intermediary for the other Directors and shareholders.
Zegona does not currently have a SID, and this has been the subject of active
consideration since Zegona's formation. The Board fully recognises the value
that can be provided by a SID and was intending to appoint one following its
2020 AGM, however the difficulties of remote working during the Covid-19
pandemic and the ongoing shareholder engagement exercise being led by the
Chairs of the two Board committees at the time meant that Zegona concluded it
was not appropriate to make an appointment. Zegona still considers this
conclusion is valid, especially since the significant simplification of the
business since the sale of the investment in Euskaltel and the Return of
Capital. The Board will reconsider whether it should appoint a SID in
conjunction with its ongoing active consideration of whether it remains
appropriate for the Chairman and CEO roles to be combined.
Employee engagement
Provisions 2, 5 and 6 provide guidance for the implementation of procedures
meant to ensure Zegona engages with and monitors its workforce. Given Zegona
currently has only five employees (excluding Directors), the Board believes
the implementation of any formal steps or procedures to engage with the
workforce are not required as informal communications occur regularly between
all employees and the Executive Directors, including weekly team meetings.
Equalisation of pension arrangements
Provision 38 recommends that the pension contribution rate for the Executive
Directors be the same as for the majority of the workforce. During the year,
this was not the case however, this will be resolved by the end of 2022 when
the rate paid to the Executive Directors will be equalised with the rate paid
to the majority of the workforce.
Evaluation of the Board, committees and individual Directors
The Board has conducted an annual evaluation of its own performance and that
of its committees by means of a questionnaire requiring written responses from
the Directors. To ensure independence and objectivity, the questionnaire was
designed, administered and reviewed on a confidential basis. The questionnaire
was drafted having regard to the balance of skills, experience, independence
and knowledge contributed by its members, as well as the successful operation
of the Board as a unit, its diversity and the other key factors relevant to
its effectiveness. The anonymous responses were sent to each Non-Executive
Director for consideration and discussion at a meeting of the full Board.
The findings of the review were generally positive. The Board noted that 2021
was a year of very significant change in which the Board has had to address
several sensitive, strategic issues of fundamental importance to Zegona,
including the decision to sell Zegona's investment in Euskaltel and how to
balance the opinions of a number of significant investors on what to do with
the proceeds of the sale. These questions were significant to the ongoing
operations of Zegona and needed to be addressed within a tight time frame.
Understandably there were a range of views represented and robust challenge
was provided by the Non-Executive Directors. The Board considered it a strong
indication that it is operating effectively that the directors were able to
work together to successfully build a consensus around a result that they
believe was positive for all shareholders.
The review also highlighted a number of matters for the Board to focus on.
These included ensuring that the questions of whether the Chairman and CEO
roles should continue to be combined and/or a SID should be appointed are kept
under active reconsideration, especially given any change in Zegona's
operations, continuing to focus on strengthening governance and continuing to
build on the improvements made in risk assessing key decisions.
Whistleblowing policy
All employees are encouraged to raise genuine concerns about possible
improprieties in the conduct of Zegona's business, whether in matters of
financial reporting or other malpractices, at the earliest opportunity and in
an appropriate way. Zegona has put in place a whistleblowing policy to
facilitate this, and the aims of this policy are:
· to encourage employees to report suspected wrongdoing as soon as
possible, in the knowledge that their concerns will be taken seriously and
investigated as appropriate, and that their confidentiality will be respected;
· to provide employees with guidance as to how to raise those
concerns; and
· to reassure employees that they should be able to raise genuine
concerns in good faith without fear of reprisals, even if they turn out to be
mistaken.
Share dealing
Zegona has in place systems to ensure compliance by the Board and its
applicable employees in relation to dealings in securities of Zegona and
Euskaltel. We believe that the share dealing code adopted by the Board is
appropriate for Zegona's size and complexity and that it complies with the EU
Market Abuse Regulation (2014/596/EU). The Board complies with these
provisions and takes all reasonable steps to ensure compliance by Zegona's
'applicable employees.
Relations with Zegona's stakeholders
Zegona does not currently have an operating business and, until it does so
again, has a limited number of stakeholders outside of its shareholders and
employees given that Zegona has no customers and its suppliers are primarily
professional advisers. All Directors have frequent interactions with Zegona's
small workforce and the whole of the workforce are generally intimately
involved with all key operating decisions.
The Board is always available for communication with shareholders and the
Executive Directors frequently engage constructively with current and
potential shareholders, with feedback regularly discussed in depth at Board
meetings. This has been supplemented in the last two years with the
consultations with major shareholders undertaken by management and the
Committee Chairs.
During 2021, extensive shareholder feedback was sought on whether Zegona
should return the proceeds of the Euskaltel sale to shareholders, and if so,
how much. This involved shareholders speaking directly to Zegona's Executive
Directors, certain non-Executive Directors as well as Zegona's brokers. The
views emerging from this process were discussed in depth by Zegona's Board and
they were key in coming to the eventual decisions to return £335 million to
shareholders, for the Executive Directors to waive their 2021 bonuses and to
pay no bonuses in 2022 and thereafter until Zegona acquires another operating
business
In addition, all shareholders have the opportunity, and are encouraged, to
attend and vote at the general meetings during which the Board is available to
discuss issues affecting Zegona. Barclays Bank plc and Canaccord Genuity
Limited, as Zegona's joint corporate broker, provides reports and attend Board
meetings, as appropriate, to provide feedback to the Non-Executive Directors
on shareholders' views.
GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT
I am pleased to present the 2021 report of the Audit and Risk Committee (the
"A&RC"). The A&RC is an essential part of Zegona's governance
framework, to which the Board has delegated oversight of Zegona's financial
reporting, internal controls, risk management and the relationship with the
external auditor.
In discharging its duties, the A&RC embraces its role of protecting the
interests of shareholders with respect to the integrity of financial
information published by Zegona, control effectiveness and the effectiveness
of the audit process 18 .
Committee membership and meetings
The members of the A&RC during 2021 were Ashley Martin (Chairman), Richard
Williams and Kjersti Wiklund, all of whom are independent Non-Executive
Directors as required by provision 24 of the Code. The Board has determined
that Ashley Martin has recent and relevant financial experience due to his
previous CFO roles at listed and private equity backed businesses. Both Ashley
and Richard qualified as Chartered Accountants. In line with the Code, the
A&RC as a whole possesses competence relevant to the sector in which
Zegona operates through the digital media and consumer experience of Ashley
Martin and the telecommunications experience of Richard Williams and Kjersti
Wiklund.
The A&RC normally meets at least three times a year with additional
meetings arranged if necessary. In 2021, the A&RC met in April, August and
September and has subsequently met in March. The scheduling of these meetings
is designed to be aligned with the financial reporting timetable, thereby
enabling the A&RC to review the interim financial report, the audit plan
ahead of the year end audit and the annual report, as well as to maintain a
view of the internal controls and risk management processes throughout the
year.
The Company Secretary acts as secretary to the A&RC. The A&RC invites
the Chief Financial Officer to all meetings and other members of the finance
and management team as may be appropriate for the business of the meeting, as
well as senior representatives of the external auditor. The A&RC meets
separately with the external auditors to seek their views without management
present, and the A&RC Chair keeps in touch with the Chief Financial
Officer as well as other members of the management team and the lead audit
partner periodically outside of formal meetings. The A&RC has the right to
invite any other Directors and/or employees to attend meetings where this is
considered appropriate.
The A&RC Chair reports formally to the Board on the key matters considered
at each A&RC and minutes of those meetings are circulated to the Board.
Committee effectiveness
The effectiveness of the A&RC was considered by the Board as part of the
annual Board effectiveness evaluation. The feedback was positive and confirmed
that the A&RC remains effective and provides robust challenge.
Activities during the year
Since the last Audit and Risk Committee Report, the A&RC has undertaken the following activities:
Financial reporting:
· Confirmed that the Financial Statements were fair balanced and
understandable. In this respect, the A&RC considered, inter alia:
- the key messages in the annual report and their consistent
application in the front and back end of the report;
- whether the whole story is presented and whether any sensitive
material has been omitted; and
- whether there is a clear and cohesive framework for the annual
report.
· Reviewed the going concern assumption and the assessment
forming the basis of the longer-term viability statement. The A&RC
reviewed the work undertaken by management to assess Zegona's resilience to
the principal risks under various stress test scenarios and confirmed that a
3-year assessment period remained appropriate.
· Considered the key judgements and estimates made by management in
preparing the Financial Statements, as follows:
- Accounting for the disposal of the Euskaltel investment and
related transactions - The judgements in relation to accounting for the
disposal of Euskaltel relate to the assumptions applied in classifying it and
related items as a disposal group and discontinued operation (in particular
for the interim report prior to the completion of the disposal), as well as
the calculation of the gain on sale of and other items recognised as
discontinued operations. The A&RC also considered the related disclosures
within the financial statements. This was also an area of focus for the
external auditor, who reported its findings to the A&RC. The Committee
considered management's approach, the assumptions applied and related
disclosures and agreed with management's treatment and valuation.
- Recoverability of the income tax receivable - The A&RC
reviewed the conclusions related to the ongoing activity around the EU
Commission decision that the Group Financing Exemption contained within the
UK's Controlled Foreign Company (''CFC'') legislation constituted State Aid.
The Committee noted that Zegona had recognised an income tax receivable in
relation to the two charging notices paid during 2021 in the amount of £4.4
million (€5.2 million). The A&RC noted Zegona's conclusion 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 the receivable remains
recoverable. The A&RC reviewed the third-party advice and agreed with
management's conclusion.
- Validating and accounting for the management share subscription
- The A&RC reviewed the calculation of the price of the management share
subscription. This review involved reviewing the results of agreed procedures
performed by the Company's auditors that were designed to validate the
accuracy of the calculations and agree factual information required. The
A&RC also reviewed and agreed with management's conclusion on the
classification of the delayed management subscription as an equity item under
IAS 32 Financial Instruments: Presentation, primarily because the number of
shares to be issued and price to be paid are fixed.
In all of the above judgements, the A&RC also considered the work
undertaken by KPMG and reports to the A&RC in support of the position
adopted by Management.
Ensuring compliance with key legal and governance requirements in relation to the Euskaltel disposal:
· Incentive scheme costs on the redemption of the Management Shares - In
connection with the sale of Euskaltel and Return of Capital, the Management
Shares became redeemable and a payment of £25.7 million became due which was
recognised as an incentive scheme cost in the year. The A&RC supported the
Nomination and Remuneration Committee by carefully reviewing the terms of the
scheme to ensure that the conditions for redemption had been met and that the
amount of the payment had been correctly calculated according to the payment
waterfall in the terms of the scheme. This review involved receiving written
advice from the Company's legal advisors that the terms of the waterfall had
been correctly applied. The Company's auditors also performed agreed
procedures that were designed to validate the accuracy of the calculations and
agree factual information required.
· Validating the distributable reserves of Zegona Communications plc - In
order for £335 million of Capital to be returned to shareholders, it was
necessary to ensure that the Company had sufficient distributable reserves.
This was achieved by taking into account the impact on reserves of the sale of
the investment in Euskaltel, together with a court-approved reduction of the
share premium account. This was also an area of focus for the external
auditor, who reported its findings to the A&RC. The A&RC considered
management's approach and agreed with management's treatment.
Other considerations:
· Reviewed the effectiveness of Zegona's risk management and
internal controls and disclosures made in the annual report on this matter,
including the review of an annual assurance statement provided by management
assessing the effectiveness of Zegona's risk management and internal control
systems;
· Reviewed and agreed the scope of the audit work to be undertaken
by the external auditor and assessed the audit and non-audit fees to be paid,
as well as the independence and objectivity of the auditor;
· Considered the effectiveness of the external audit process,
following the receipt of feedback from the management team, Executive
Directors, Non-Executive Directors and other service providers involved in the
audit process;
· Reviewed and made a recommendation to the Board with regard to
the re-appointment of the external auditor, taking into account auditor
effectiveness and independence, the recent partner rotation and other factors
which may impact the external auditor's re-appointment;
· Assess any potential threats to independence that were reported
by KPMG. The A&RC considered KPMG to be independent and KPMG, in
accordance with professional ethical standards, provided the A&RC with
written confirmation of its independence for the duration of 2021;
· Reviewed the need for an internal audit function and made a
recommendation to the Board;
· Reviewed the interim Financial Statements, including the critical
accounting judgements and estimates used in preparing them;
· Reviewed management's updates to Zegona's main control document,
the Financial Position and Prospects memorandum. The A&RC also reviewed
the updates made to Zegona's risk register; and
· Reviewed Zegona's whistleblowing policy and anti-bribery and
anti-corruption policy.
External auditor
Our external auditor, KPMG LLP ("KPMG"), has now completed its sixth audit and
the A&RC was involved in the process to select the new audit partner.
Zegona will not be required to tender for the audit until the 2026 financial
year end. KPMG continues to provide robust challenge to management and
independent reports to the Committee on specific financial reporting and
judgements.
KPMG was appointed as Zegona's external auditor on 15 December 2016. In line
with applicable regulations, Simon Richardson was appointed as the lead
engagement partner in April 2021, after the previous partner had issued his
fifth annual audit opinion.
During 2021, non-audit fees were pre-approved in relation to KPMG's agreed
upon procedures on the calculation of the proceeds from the redemption of the
Management Incentive Scheme and the calculation of Zegona's adjusted net asset
value in connection with the management subscription for new shares. The fees
for these procedures totalled €44.1 thousand, which is significantly lower
than the audit fees for the Financial Statements for the year ended 31
December 2021 and therefore auditor objectivity and independence is not deemed
to be compromised by the level of non-audit fees. Zegona considered KPMG was
best qualified to undertake this work because of their knowledge of the
business.
The A&RC has set a threshold of €11,000 (£10,000) for pre-approving
non-audit fees. All of KPMG's services have been pre-approved and reported to
the A&RC.
Risk management and internal control systems
The Board is responsible for establishing and maintaining Zegona's system of
internal control and reviewing its effectiveness. The Board has delegated the
annual review of the adequacy and effectiveness of Zegona's internal financial
controls and internal control and risk management systems to the A&RC.
Internal control systems are designed to meet the needs of Zegona and the
risks to which it is exposed to ensure the integrity of the financial and
accounting information, promote accountability and prevent fraud. The
procedures are designed to manage rather than eliminate risk and, by their
nature, can only provide reasonable but not absolute assurance against
material misstatement or loss.
Zegona does not have a separate internal audit function as the Board does not
feel this is currently necessary due to the size of the business and the
simplicity and low volume of transactions, coupled with the nature and the
extent of internal controls and Board oversight and involvement. The A&RC
will continue to regularly review the need for an internal audit function as
the business evolves and develops.
Zegona's risk management framework incorporates a risk assessment that
identifies and assesses the strategic, operational and financial risks facing
the business, mitigating controls, and appropriate corrective actions, if and
when needed. This assessment is continually updated by management and reviewed
and discussed by the A&RC at least twice per year.
Zegona has in place a robust internal controls system over financial
reporting, which encompasses a mixture of detective, preventative and
corrective controls, including:
· Entity level controls which encompass guidelines for Zegona's
governance, financial analysis and integrity, and its adherence to applicable
laws and professional standards;
· Systems and procedures in place to identify, assess, control and
monitor principal and emerging strategic, commercial, financial and regulatory
risks are considered by the Board regularly;
· A team of professional advisers including legal, capital markets,
M&A, accounting, regulatory, and PR providing advice to management and the
Board;
· A schedule of Matters reserved for the Board to ensure that the
Board is involved in all critical decisions of Zegona which is reviewed
regularly;
· A comprehensive system of budgeting, forecasting and monthly
reporting and rigorous analytical review procedures;
· A comprehensive risk register which is reviewed at least twice a
year and updated to take account of developments within Zegona; and
· Segregation of duties for all financial reporting and accounts
payable critical tasks.
Through the above procedures, the Board with advice from the A&RC has
reviewed the effectiveness of the internal control system throughout the year
and up to the day of this report. No significant control findings or
weaknesses have been identified from this review.
Ashley Martin
Chairman of the Audit and Risk Committee
GOVERNANCE | NOMINATION AND REMUNERATION COMMITTEE REPORT
On behalf of the Board, I am pleased to present the Nomination and
Remuneration Committee ("the Committee") Report for the year ended 31 December
2021.
The Committee met 5 times during 2021, supported by a number of full board
discussions and the matters we discussed are set out on page 31. The
following pages set out the Committee's activities and decisions made in the
year. Zegona is committed to transparency, equivalence and engagement with
shareholders on these most important matters and we have continued to make
progress this year.
Zegona's performance and context - The sale of Euskaltel and the return of proceeds
Zegona underwent considerable change in 2021, fully in line with our
Buy-Fix-Sell strategy. The sale of our investment in Euskaltel delivered an
attractive return to Zegona's shareholders and brought a successful end to a
multi-year strategy in Spain that included four M&A transactions and two
operational turnarounds. The return of £335 million was also entirely in
keeping with our stated strategy, which anticipates returning value created to
shareholders promptly and efficiently. Zegona has established a good track
record and is now actively evaluating a number of attractive investment
opportunities within the European TMT sector where we can again apply our
successful Buy-Fix-Sell strategy.
This success forms the backdrop of the key remuneration matters that we have
dealt with in the year, as detailed below:
Remuneration decisions for 2021- Reviewing outcomes against company performance
Redemption and renewal of the Management Incentive Scheme
The second Calculation Period of the management incentive scheme was not due
to become exercisable until June 2023, however the rules of the scheme allow
the Management Shares held under the scheme to be redeemed for cash earlier
than this if certain criteria are met. One of these criteria was met upon the
successful return of £335 million to shareholders because Zegona had sold
all, or substantially all, of its assets and distributed the net proceeds to
shareholders. A cash payment of £25.7 million therefore became due to the
management team. The Committee was heavily involved with ensuring that the
conditions for redemption had been met and the amount of the payment had been
correctly calculated.
The third Calculation Period automatically began on 14 October 2021 and the
Management Shares may be redeemed between 14 October 2024 and 14 October 2026.
All other terms remain the same as for the other Calculation Periods and the
renewal of the scheme will be subject to a shareholder vote at Zegona's 2022
AGM.
More details on the redemption and renewal of the Management Incentive Scheme
are provided on pages 90 to 91.
2021 Bonus
After listening to the views of key shareholders in connection with the Return
of Capital, both Executive Directors have waived their bonus entitlement for
2021.
Developing Zegona's 2022 Remuneration policy
The Committee undertook a review of the Directors' Remuneration Policy during the year, taking into account alignment to business strategy and our executive remuneration principles. The approach to remuneration recognises and is designed to support the unique Zegona business model.
The resulting 2022 Directors' Remuneration Policy is largely consistent with
the current Remuneration policy (which received 86.4% support at the 2019
AGM), with remuneration still delivered through the same basic elements of a
fixed base salary and benefits, a performance-based annual bonus, and
participation in the management incentive scheme. The most significant change
compared to the existing policy is to ensure the management incentive scheme
is designed to last for up to five years by requiring that if the share
incentive is exercised in advance of the full five-year period, any shares
received will be held by management until at least five years have elapsed
from the start of that period.
Application of remuneration policy for 2022
Following a review of the executive remuneration arrangements for 2022 and
listening to shareholder feedback, the Committee agreed that there would be no
increase in base salary for either of the Executive Directors and as such
their salaries will remain unchanged for the year ahead. In line with
corporate governance best practice, the pension contribution for both of the
Executive Directors will be reduced to 19% by the end of 2022, to be the same
as the contribution available to the majority of the workforce.
The Committee has also agreed that given the fact that Zegona now has
significantly less capital and no underlying asset it would not be appropriate
to put in place the opportunity to earn bonuses to senior management in 2022
until such time as Zegona makes a new investment. This will remain under
review during 2022.
I would like to take the opportunity again to thank shareholders for their
engagement and feedback over the past year and look forward to your support at
the upcoming AGM in June.
Suzi Williams
Chair of the Nomination and Remuneration Committee
The role of the Nomination and Remuneration Committee
The Committee is responsible for nomination and remuneration matters, from the
recruitment and retention of high calibre individuals to the design of
appropriate incentivisation mechanisms (and the ongoing monitoring of
performance against these) while delivering value creation for shareholders
and other key stakeholders.
The role of the Committee continues to be ensuring that the Directors are
appropriately rewarded, through making recommendations regarding remuneration
policy and framework. The Committee monitors and reviews the effectiveness of
the Remuneration Policy and considers its impact and compatibility with
remuneration policies across the wider workforce. To facilitate this remit,
the Committee is provided with information and context on pay, benefits and
incentive structures in place across Zegona to support its decision making.
Membership, attendance and other activities
The members of the Committee are Suzi Williams (Chairman), Richard Williams,
and Ashley Martin. All members of the Committee are independent.
In 2021, the Committee met 5 times and has subsequently met in February and
March. The Company Secretary attends these meetings and Executive Directors
are invited at the Chairman's discretion. The scheduling of the formal
Committee meetings is designed to be aligned with the Committee's recurring
annual activities, including: setting of bonus metrics and evaluation of
performance against them; overseeing the performance evaluation of the Board,
its principal Committees and individual directors; overseeing succession
planning for the Board and key members of the senior management team, taking
into account expertise and diversity; and reviewing the annual nominations and
remuneration report contained within the annual report.
In addition to the matters discussed above, since the last Nomination and
Remuneration Committee Report, the Committee has also:
· Reviewed the remuneration package for the Executive Directors and
management team for 2022, including concluding that no bonuses will be paid
until such time as Zegona owns a material underlying asset;
· Reviewed the Articles of Association of Zegona Limited, which
contain the terms of the Management Incentive Scheme;
· Reviewed the Directors' remuneration policy and the nomination
and remuneration disclosures in the annual report;
· Reviewed the recommendations arising from the 2021 Board
effectiveness review, its committees and its individual Directors and, where
appropriate, proposed actions to address those recommendations; and
· Reviewed workforce remuneration and its alignment to Zegona's
purpose, values and strategy.
Advisers
The Committee received input and advice from external advisers on specific
topics during 2021. The Committee formally engaged PwC LLP's ("PwC") as an
adviser in 2022. The Committee's decision reflected the quality and
objectivity of the independent advice that PwC had provided to the Committee
on remuneration matters during 2021.
For 2021, total fees of €19.7 thousand were incurred in relation to
remuneration advice provided by PwC.
Executive pay at a glance
Base salary
Purpose Current policy 2021 Implementation 2022 Implementation
To reflect market value of the role and individual's performance and Reviewed every twelve months. No salary increases for either Executive Director No salary increases for either Executive Director
contribution and enable Zegona to recruit and retain Executive Directors of
sufficient calibre to drive Zegona's ambitions. Base salary increases are applied in line with the outcome of the review. In
respect of existing Executive Directors, it is anticipated that no salary
increases will be considered before Zegona completes its next investment.
Pension contributions
Purpose Current policy 2021 Implementation 2022 Implementation
To provide a market competitive pension. Pension contributions are made to the individual's private pension No change Contribution reduced to 19% by the end of 2022.
arrangements or paid to them in cash in lieu of such arrangements. Executive
Directors receive a pension contribution of up to 19% of base salary, which is
the same as the amounts available to a majority of the workforce.
Other benefits
Purpose Current policy 2021 Implementation 2022 Implementation
To provide market competitive benefits. Benefits may include car allowances, personal tax advice, private medical No change No change
insurance, critical life and death in service cover. Benefits may vary by role
and individual circumstances and will be reviewed periodically.
Annual cash bonus
Purpose Current policy 2021 Implementation 2022 Implementation
To incentivise delivery of Zegona's annual financial and strategic goals. Performance is measured on an annual basis for each Executive Director in Executive Directors waived their entitlement to receive a bonus No bonuses to be paid to senior management until Zegona owns a material
respect of each financial period.
underlying asset
The maximum annual bonus available is 100% of base salary per annum.
The Committee retains discretion to apply malus or clawback provisions.
Management Incentive Scheme
Purpose Current policy 2021 Implementation 2022 Implementation
To drive performance, aid retention and align the interests of Executive The Committee may allocate Management Shares in Zegona Limited to Executive Next exercise period starts 14 October 2024 No change
Directors and senior management with shareholders over the long term. Directors or senior management.
Zegona's management incentive scheme entitles participants in aggregate to
receive up to 15% of the growth in value of Zegona subject to a shareholders'
5% per annum preferred return.
Incentive may be exercised between 3 and 5 years after each renewal or on the
occurrence of certain specific events including a sale of Zegona's main assets
and return of net proceeds to shareholders.
GOVERNANCE | DIRECTORS' REMUNERATION POLICY
Directors' remuneration policy
Background
In setting the policy for Directors' remuneration, the Committee has sought to
promote the long-term success of Zegona, applying incentives which are
compatible with Zegona's corporate strategy, risk policies and systems. In
particular, the Committee has been mindful of aligning shareholders' and
management's interests.
Zegona may not make a remuneration payment to a Director, including a payment
for loss of office, unless the payment is consistent with the approved
Directors' remuneration policy or an amendment to the Directors' remuneration
policy to make the payment permissible is approved by resolution of Zegona's
shareholders.
This revised policy will apply from the date of the 2022 AGM, replacing the
policy approved at the 2019 AGM. Zegona seeks to be consistent and transparent
with its remuneration arrangements, therefore there are no substantial changes
to the remuneration policy compared to the policies approved at the 2019 and
2016 AGM's.
All Directors' service contracts and letters of appointment are available for
inspection at Zegona's registered office.
Zegona's Remuneration Strategy drives its Remuneration Policy
Since Zegona was first established, the Committee has followed a consistent
remuneration strategy that closely aligns the Executive Directors with
Zegona's shareholders, drives the Company's Buy-Fix-Sell model and has been
central to its success. This strategy is based around four key principles -
namely, that executive remuneration is:
(1) Simple - Since Zegona was first established, Executive Directors have
received the same remuneration elements as the rest of the Zegona employees -
base salary, annual bonus, pension contribution and other benefits - as well
as being eligible under a single and consistent long-term incentive plan based
on a single value creation metric.
(2) Transparent - Each year, there is full and detailed disclosure in the
Directors' Remuneration Report of each component of remuneration, including an
explanation of the calculation of any variable element and the current value
of any unvested award pursuant to the Management Incentive Scheme.
(3) Focused on performance - Executive Directors receive a mix of remuneration
which is geared towards a higher percentage of variable pay which means the
opportunity for any significant reward is heavily weighted to the long-term
incentive plan, which is entirely based on the creation of shareholder value.
(4) Fully aligned with shareholders - Remuneration for the Executive Directors
is heavily weighted to the long-term incentive plan, which pays nothing to
participants unless the executive Directors deliver a threshold return to
shareholders over a three-to-five-year period or on the occurrence of certain
specific events including the sale of Zegona's main assets and return of net
proceeds to shareholders, and only pays a significant award if they materially
outperform in the creation of shareholder value.
The Committee has always ensured these four key principles form the basis of
Zegona's Remuneration Policy, as well as its application to Executive
Directors and this approach has historically received strong support from
shareholders. In updating the policy this year, we have sought to remain as
faithful to these principles and past practice as possible. I have set out
below how our implementation of that policy fits with Zegona's strategy and
the desired outcomes for our shareholders.
Overview of the 2022 Remuneration Policy
The 2022 remuneration policy is largely consistent with the current
Remuneration policy, with remuneration still delivered through the same basic
elements of a fixed base salary and benefits, a performance-based annual bonus
and participation in the Management Incentive Scheme. The most significant
change compared to the existing policy is to ensure the Management Incentive
Scheme is designed to last for up to five years by requiring that if the share
incentive is exercised in advance of the full five-year period, any shares
received will be held by management until at least five years have elapsed
from the start of that period.
The 2022 policy is consistent with the current policy, primarily because the
Committee concluded that the current policy was well aligned with Zegona's
core Buy-Fix-Sell strategy, even following the sale of Euskaltel and the
Return of Capital and effectively delivered the four key principles of
Zegona's remuneration strategy.
The Committee also considered how the 2022 policy aligned with the UK
Corporate Governance Code factors as follows:
Clarity Variable pay depends on delivering Zegona's strategy to create sustainable
long-term shareholder value. This provides absolute clarity on the
relationship between the delivery of the strategy and remuneration paid.
Zegona also presents its remuneration arrangements in the clearest and most
transparent way possible and maintains an open and transparent dialogue with
investors, both through formal engagement processes, ad hoc discussions, and
the disclosures in its annual reports.
Simplicity Total remuneration is heavily weighted to variable elements, of which there
are only two: the annual bonus and the Management Incentive Scheme, both of
which are based on simple and transparent metrics. The operation of the Annual
Bonus Plan is directly linked to key quantitative and qualitative strategic
objectives and the Management Incentive Scheme rewards the creation of
shareholder value over a three-to-five-year period or on the occurrence of
certain specific events including the sale of Zegona's main assets and return
of net proceeds to shareholders.
Risk The 2022 Policy includes the following elements to mitigate against the
potential risks of target-based incentives:
· Capping the annual bonus to a maximum of 100% of base salary.
· Ensuring the Management Incentive Scheme is designed to last for up to five
years by requiring that if the share incentive is exercised in advance of the
full five-year period, any shares received will be held by management until at
least five years have elapsed from the start of that period.
· Aligning the remuneration performance conditions with the "Buy-Fix-Sell"
strategy of the Company.
· Ensuring there is sufficient flexibility for the Remuneration Committee to
apply discretion to depart from formulaic outcomes
Predictability Fixed remuneration for the Executive Directors is generally kept constant.
Variable remuneration is limited to the annual bonus, which is capped at 100%
directly linked to key quantitative and qualitative strategic objectives, and
the Management Incentive Scheme. The method of calculation, limits and
discretions under the 2022 Policy are clearly set out.
Proportionality The restricted fixed remuneration and capped Annual Bonus Plan is compensated
by the opportunity for potentially significant reward entirely dependent on
performance pursuant to the Management Incentive Scheme that is directly
linked to the Company's long term value creation strategy.
Alignment to culture The focus on responsible stewardship and long-term sustainable performance is
a key part of the Company's culture. This is supported by the 2022 Directors
Remuneration Policy, which ensures that the four key principles of Zegona's
remuneration strategy are delivered.
Directors' fixed remuneration
In setting the Directors' fixed remuneration, the Committee considers that
Zegona should have regard to:
· Zegona's objective to reward all employees fairly according to
their role, experience and performance;
· The individual Director's performance, responsibility, skills and
experience;
· Whether increases in fixed remuneration above inflation are
appropriate or justifiable; and
· The pension and bonus consequences and associated costs to Zegona
of any basic salary.
The Committee considers that the Directors' fixed remuneration should be
reviewed annually.
Executive Directors' incentive arrangements
The Committee considers that the Directors' remuneration policy should, as
well as aligning the interests of the Executive Directors with Zegona's
long-term success, incentivise delivery of Zegona's financial and strategic
goals over a financial period.
The Committee considers that the Executive Directors should be rewarded
principally through participation in a long-term incentive scheme. Therefore,
whilst the Committee continues to adopt an annual bonus policy for Executive
Directors pursuant to which the maximum bonus opportunity is capped at 100% of
base salary, remuneration is principally driven through the Executive
Directors' ownership of Management Shares. The Management Shares enable the
Executive Directors to participate in the growth in value of Zegona, subject
to shareholders achieving a Preferred Return of 5% per annum, thereby aligning
their interests with those of shareholders and hence providing a long-term
incentive arrangement.
There are up to five periods in which the Management Shares can be exercised.
The current period - which is the third period - began on 14 October 2021
following the completion of the tender offer to return £329.4 million to
shareholders and is expected to end (subject to shareholder approval) between
14 October 2024 and 14 October 2026. The fourth and fifth periods, which are
subject to shareholder approval, are three to five years from the earlier of
the date of the Management Shares becoming exercisable and the end of the
previous period if the Management Shares did not become exercisable in that
period. The Committee believes that the period during which the Management
Shares may be exercised is appropriate to ensure that growth is achieved over
a material period of time and that the Executive Directors and senior
management are incentivised to remain with the business for the longer term.
The full Executive Directors' remuneration policy is as follows:
Base Salary
Purpose and link to strategy: To reflect market value of the role and individual's performance and
contribution and enable Zegona to recruit and retain Executive Directors in
the short term of sufficient calibre to drive Zegona's ambitions and
thereafter to retain those Directors prior to remuneration from their
Management Shares, which is driven by Zegona's long-term goals.
Operation: Reviewed every twelve months.
Opportunity: Base salary increases are applied in line with the outcome of the review.
In respect of existing Executive Directors, it is anticipated that salary
increases will generally be in line with inflation or those of salaried
employees as a whole.
In exceptional circumstances (including, but not limited to, a material
increase in job size or complexity) the Committee has the discretion to make
appropriate adjustments to salary levels to ensure they remain competitive in
the marketplace.
Performance Metrics: Both Zegona's and individual performance will be considered in setting
Executive Director base salaries.
Pension
Purpose and link to strategy: To provide a market competitive pension, with a contribution rate that is the
same as the majority of the workforce.
Operation: Pension contributions are made to the individual's private pension
arrangements or paid to them in cash in lieu of such arrangements.
Opportunity: Executive Directors receive a pension contribution of up to 19% of base salary
by the end of 2022, reduced from 20%.
Performance Metrics: Not performance-related.
Benefits
Purpose and link to strategy: To provide market competitive benefits.
Operation: Benefits may include car allowances, personal tax advice, private medical
insurance, critical life and death in service cover. Other benefits may be
awarded as appropriate, such as relocation benefits.
Opportunity: Benefits may vary by role and individual circumstances and will be reviewed
periodically.
The Committee retains the discretion to approve a higher cost in exceptional
circumstances (e.g. relocation) or in circumstances where factors outside of
Zegona's control have materially changed (e.g. increases in medical insurance
premiums).
Performance Metrics: Not performance related.
Annual Bonus
Purpose and link to strategy: To incentivise delivery of Zegona's annual financial and strategic goals by
evaluating performance each year against a number of predefined quantitative
and qualitative targets that reflect Zegona's key strategic objectives for the
year.
Operation: Performance is measured on an annual basis for each Executive Director in
respect of each financial period and bonuses are paid in cash.
Opportunity: The maximum annual bonus available is 100% of base salary per annum.
Performance Metrics: Performance measures and targets will generally be set annually in advance by
the Committee to ensure that they are appropriately stretching and to ensure
that they reflect the particular financial and strategic goals of Zegona for
the financial period in question.
If any of the performance measures and targets set for the year become
inapplicable (for example, due to a change in group structure), the Committee
retains discretion to amend the measures and targets for the period.
Management Incentive Arrangements
Purpose and link to strategy: To drive performance, aid retention ensure the interests of Executive
Directors and senior management are closely aligned with shareholders over the
long term by allowing participants in the arrangement to share in the growth
in value of Zegona.
Operation: The Committee may allocate Management Shares in Zegona Limited to Executive
Directors or senior management. These shares entitle holders to 15% of the
growth in value of Zegona during a series of up to five separate Calculation
Periods, provided that ordinary shareholders achieve a 5% per annum Preferred
Return in each Calculation Period.
Holders of Management Shares are required to exercise all their rights at a
single time during the period from 14 October 2024 to 14 October 2026, which
is between three and five years from the beginning of the current Calculation
Period unless specific criteria enabling earlier exercise are met.
After this period, there can be up to another two periods in which the
Management Shares can be exercised, subject to shareholder approval.
If the Management Shares are exercised less than five years from the beginning
of any Calculation Period, any shares received will be held by management
until at least five years have elapsed from the beginning of the relevant
Calculation Period.
Opportunity: Zegona's management incentive arrangements entitle participants in aggregate
to receive up to a maximum of 15% of the growth in value of Zegona. The
minimum amount payable under the scheme is nil.
The maximum aggregate amount available to participants in the incentive
arrangements is capped at that level irrespective of the number of
participants in the scheme.
Performance Metrics: Subject to shareholders achieving a Preferred Return of 5% per annum on a
compounded basis on their net invested capital.
Further details on the management incentive arrangements are set out in note
19 to the financial statements
Non-Executive Directors' remuneration policy
Pursuant to Zegona's Articles of Association, the Board determines the
remuneration policy and level of fees for the Non-Executive Directors, within
the limits set out in the Articles of Association (or as specified by Zegona
in a general meeting). The Committee recommends the remuneration policy and
level of fees for the Board to approve.
Annual fee
Purpose and link to strategy: To reflect market competitive rates for the role, as well as individual
performance and contribution.
Operation: Non-Executive Directors receive a basic fee for their respective roles with
additional fees to Non-Executive Directors for additional services, such as
chairing a Board committee or supporting the Board on matters or projects that
require significant time commitment beyond that typically expected of a
Non-Executive Director.
The Committee will review fees annually, but there will be no obligation for
fees to be increased.
Fees are payable in cash.
Opportunity: Fee increases are applied in line with the outcome of the annual review. There
is no prescribed maximum fee per Non-Executive Director. It is expected that
increases to Non-Executive Director fee levels will be in line with inflation
or salaried employees over the life of the policy. However, in the event that
there is a material misalignment with the market or a change in the
complexity, responsibility or time commitment required to fulfil a
Non-Executive Director role, fee levels may be appropriately adjusted.
Performance Metrics: Not performance related.
Approach to recruitment remuneration
In the cases of hiring or appointing a new Executive Director, the Committee
may make use of any or all of the existing components of remuneration, as
follows:
Component Approach
Base salary The base salaries of new appointees will be determined by reference to the
individual's role and responsibilities, experience and skills, relevant market
data, internal relativities and their current basic salary. Where new
appointees have initial basic salaries set below market, any shortfall may be
managed with phased increases over a specified period subject to their
development in the role.
Pension New appointees will be eligible to receive a cash allowance.
Benefits New appointees will be eligible to receive benefits in line with the
Directors' remuneration policy.
Annual bonus New appointees will be eligible to participate in the Zegona's annual bonus
scheme on the same terms as other Executive Directors in line with the
Directors' remuneration policy.
Management incentive arrangements New appointees may be invited to participate in Zegona's long term incentive
plan on the same terms as other Executive Directors, as described in the
remuneration policy table.
There is no maximum value, other than it is noted that the total Directors'
fees in aggregate is capped at £3 million per annum. At present, only
non-Executive Directors receive fees.
In determining an appropriate remuneration package, the Committee will take
into consideration all relevant factors (including quantum, nature of
remuneration and the jurisdiction from which the candidate was recruited) to
ensure that arrangements are in the best interests of both Zegona and its
shareholders. In addition to the above elements of remuneration, the Committee
may consider it appropriate to grant an award under a different structure in
order to facilitate the recruitment of an individual, exercising discretion to
replace incentive arrangements forfeited on leaving a previous employer. Such
'buyout awards' would have a fair value no higher than that of the awards
forfeited. In doing so, the Committee will consider relevant factors including
any performance conditions attached to these awards, the likelihood of those
conditions being met and the proportion of the vesting period remaining.
Generally, such buyout awards would be in the form of share awards although
the Committee retains discretion to make cash payments.
In the case of appointing a new Non-Executive Director, the Committee will
follow the policy as set out in the section entitled "Non-Executive Directors'
remuneration policy" above. A base fee reflecting current competitive rates
and the individual's anticipated contribution would be payable for Board
membership, with additional fees payable for additional services, such as
chairing a Board committee.
Notice periods and remuneration on loss of office
The Committee considers that notice periods of Executive Directors should be
one year or less and that any payments to a departing Executive Director
should be determined with full regard to the duty of mitigation. In certain
circumstances, it may be appropriate for an Executive Director to be placed on
gardening leave or to receive payment in lieu of notice. In such
circumstances, the Committee considers that it is appropriate for the
Executive Director to receive the basic salary they would have received for
the remaining term of their notice period (provided that such notice period is
less than twelve months), along with any benefits that would have accrued
during that period (including pension and holiday entitlements).
Notwithstanding the foregoing, no payments in respect of unearned bonus will
be made where the Executive Director's appointment is terminated for (amongst
other things) fraud or gross misconduct and any Management Shares would be
forfeit.
Non-Executive Directors' appointments are terminable on 6 months' notice. On
termination, Non-Executive Directors will only be entitled to such fees as may
have accrued to the date of termination, together with reimbursement in the
normal way of any expenses properly incurred before that date.
Executive Directors' shareholdings
The Committee recognises the importance of Executive Directors aligning their
interests with shareholders through building up a significant shareholding in
Zegona. The Committee notes that over time, the Executive Directors together
are now the largest shareholders in Zegona and have done so without the need
to impose a minimum shareholding requirement. Given the size of this holding,
and the fact that the Executive Directors are integral to Zegona's future
prospects the Committee does not consider it necessary to impose such a
requirement at this point, nor a requirement for them to continue to hold
shares post cessation of their employment with Zegona.
Illustrative application of the remuneration policy
The charts below show an illustration of the level of remuneration that each
Executive Director could receive in 2022, which is the first year of the
policy as it is described above. The charts are presented in Sterling because
this is the currency that the Executive Director's pay is set in. The charts
show illustrative remuneration under three scenarios:
• Minimum performance: This scenario only includes the fixed elements of
remuneration; Base salary effective from 1 January 2022, and benefits and
pension rate as set out in the single figure table for the year ended
31 December 2021 on page 42.
• On-target performance: This scenario includes the fixed elements of
remuneration as above, plus a bonus that reflects achievement of 50% of the
bonus targets. In practice, the Committee has determined that no bonuses will
be paid to senior management in 2022 and thereafter unless Zegona makes a new
investment, at which point new bonus targets will be established. In order,
therefore, for this scenario to be achieved Zegona would need to complete a
new investment during 2022. No amounts have been included in respect of the
Management shares because they are not exercisable until 2024.
• High performance: This scenario includes the fixed elements of
remuneration as above, plus a bonus that reflects achievement of 100% of the
bonus targets assuming Zegona does pay bonuses in 2022 as discussed above. As
in the previous scenario, no amounts are included in respect of the Management
Shares for the same reasons.
Chart 1: http://www.rns-pdf.londonstockexchange.com/rns/0571H_1-2022-4-3.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0571H_1-2022-4-3.pdf)
Zegona FY 2021 - Chart 1
Remuneration arrangements for Zegona
The approach to annual salary and bonus reviews is consistent across Zegona,
with consideration given to the level of experience, responsibility,
individual performance and salary levels in comparable companies. Given the
small number of employees, the Committee has not sought, or taken account of,
the views of Zegona's employees in drawing up the Directors' remuneration
policy. However, the Committee has regard to Zegona's objective to reward all
employees fairly according to their role, experience and performance when
setting the Directors' fixed remuneration.
Consideration of shareholder views
Zegona remains committed to open and transparent engagement with its investors
on all matters, including remuneration. The Committee believes that this
Directors' remuneration report should communicate clearly how much our
Executive Directors are earning and how this is linked to performance. The
Committee has considered shareholder views on remuneration matters since the
last policy was approved, including as discussed in our 2020 Annual Report and
will continue to include those views as part of its decision-making process in
respect of remuneration issues.
GOVERNANCE | DIRECTORS' REMUNERATION REPORT
All disclosures in the Directors' remuneration report are unaudited unless
otherwise stated. The annual report on remuneration gives details on the
amounts earned in the year ended 31 December 2021 and how the Directors'
remuneration policy will be applied in 2022. This remuneration report will be
subject to an advisory vote at the 2022 AGM.
2021 Executive Directors remuneration summary (Audited)
In the interests of clarity, since the Executive Directors' salaries are set
and paid in Sterling, the table has been presented in both Sterling and euros
(Zegona's presentational currency). These tables only include remuneration
received by the Executive Directors In respect of their employment by Zegona.
The fees received from their appointments as proprietary Directors of
Euskaltel prior to their resignation are disclosed on page 50.
Executive Directors (Sterling)
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
2021 2020 2021 2020
£ £ £ £
Base salary 563,000 563,000 419,000 419,000
Pension contributions 112,600 112,600 83,800 83,800
Taxable benefits 21,321 21,321 21,321 21,321
Company health insurance scheme 7,271 6,548 6,954 6,304
Total fixed pay 704,192 703,469 531,075 530,425
Annual cash bonus - 422,250 - 314,250
Management Incentive Scheme redemptions 15,218,252 - 7,609,126 -
Total variable pay 15,218,252 422,250 7,609,126 314,250
Total fixed and variable pay 15,922,444 1,125,719 8,140,201 844,675
Executive Directors (euros)
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
2021 2020 2021 2020
€ € € €
Base salary 653,582 635,320 486,414 472,822
Pension contributions 130,716 127,064 97,283 94,564
Taxable benefits 24,751 24,060 24,751 24,060
Company health insurance scheme 8,441 7,389 8,073 7,114
Total fixed pay 817,490 793,833 616,521 598,560
Annual cash bonus - 476,490 - 354,617
Management Incentive Scheme redemptions 17,666,748 - 8,833,374 -
Total variable pay 17,666,748 476,490 8,833,374 354,617
Total fixed and variable pay 18,484,238 1,270,323 9,449,895 953,177
None of the Executive Directors' remuneration in 2021 was attributable to
Zegona's share price growth 19 . No discretion has been exercised to determine
remuneration as a result of either Zegona's share price appreciation or
depreciation.
Components of remuneration: Base salary
In 2021 and for 2022, following a review of the executive remuneration
arrangements in both periods, the Committee agreed that there would be no
increase in base salary for either of the Executive Directors and as such
their salaries remained unchanged in 2021 and will do so for the year ahead.
Components of remuneration: Pension contributions
In 2021 both Executive Directors received a pension contribution of 20% of
their base salary. In line with corporate governance best practice, the
pension contribution for both of the Executive Directors will be reduced to
19% by the end of 2022, to be the same as the contribution available to the
majority of the workforce.
Components of remuneration: Taxable benefits and Company Health Insurance
Scheme
In 2021 both Executive Directors received car allowances, personal tax advice,
private medical insurance, and death in service cover, which will continue in
2022.
Components of remuneration: Annual cash bonus
Implementation in 2021
For 2021, the Committee set a number of bonus targets and carefully reviewed
performance against the key bonus objectives during the year and concluded
that the Executive Directors met a significant majority of their indicators of
achievement in relation to the 2021 bonus scheme, however in connection with
the agreement to return the proceeds of the Euskaltel sale to shareholders
both Executive Directors agreed to waive any amounts due to them.
Implementation in 2022
The Committee have concluded that it is not appropriate for the Executive
Directors or any of Zegona's senior management team to receive any bonus for
any period when Zegona does not own a material underlying asset. Should Zegona
make a new acquisition during 2022, the Committee will develop appropriate
bonus targets at the appropriate time.
Components of remuneration: Management Incentive Scheme
Although the Committee feels it is important to remunerate and incentivise the
Executive Directors through their basic pay, benefits and annual bonus, it
also feels very strongly that Executive Directors' long-term incentives should
be linked to the creation and delivery of real returns to shareholders. A key
element of Zegona's remuneration policy for the Executive Directors and senior
management is Management Shares in Zegona Limited, which were put in place
when Zegona was founded and were designed to provide ongoing remuneration
closely aligned with shareholders.
Overview of the scheme
The holders of the Management Shares are entitled to 15% of the growth in
value of Zegona during a series of up to five separate Calculation Periods,
provided that ordinary shareholders achieve a 5% per annum Preferred
Return 20 in each Calculation Period. The first Calculation Period began in
2015 and ended in 2020. The second Calculation Period ended during 2021, at
which point the third Calculation Period began.
Holders have the right to end each Calculation Period by redeeming 99% of
their Management Shares at any time between the third and fifth anniversaries
of the beginning of the Calculation Period, although a Calculation Period may
also end upon certain specified events such as a winding up, takeover, or a
change of control of Zegona, or if Zegona sells all or substantially all of
its assets and distributes the net proceeds to shareholders.
Upon redemption, if the Preferred Return has been met, holders of the
Management Shares receive 15% of the increase in value of Zegona in either
Zegona ordinary shares or cash at the discretion of Zegona's Board at the time
of the exercise on advice from the Committee in accordance with the Articles.
If the Preferred Return has not been achieved, no payment is made. It is
currently anticipated that the exercise of Management Shares could result in
management receiving ordinary shares, which, depending on the amount of value
created, could potentially lead to management becoming a significant
shareholder.
Upon redemption of the Management Shares, a new Calculation Period
automatically begins with the remaining shares retaining the entitlement to
15% of the growth in value of Zegona for the next 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 is set at the
higher of the Market Capitalisation of Zegona, defined as 30-day VWAP, and the
Net Shareholder Invested Capital on that date.
Each time a new Calculation Period begins, the renewal of the Management
Shares' rights is subject to a vote by Zegona's shareholders at the next
Annual General Meeting ("AGM") and so there will be such a vote at the
upcoming AGM on the beginning of the third Calculation Period. If shareholders
representing 75 per cent or more of the shares vote against the renewal at the
AGM, the Management Shares are redeemed for no value.
Scheme developments in 2021
Exercise of shares and the end of the Second Calculation Period
Zegona Limited's Articles of Association (the "Limited Articles") allows the
Management Shares to be redeemed within three years of the beginning of a
Calculation Period if certain criteria ("Takeover Provisions") are met. One of
these Takeover Provisions is if Zegona sells all, or substantially all, of its
assets and distributes the net proceeds to shareholders (the "Substantial Sale
and Return Provision"). If any of these Takeover Provisions are met, then any
redemption must be in cash.
The successful return of £335 million to shareholders, completed on 14
October 2021, following the sale of Zegona's investment in Euskaltel (see
notes 12 and 20 to the financial statements), meant that the Substantial Sale
and Return provision was met and a cash payment became due to holders of the
Management Shares under the terms of this scheme. A summary of the calculation
of the amount paid is shown below:
Calculation of management share redemption value (£000)
Cash received on sale 364,362 The Sterling proceeds received on conversion of the €421.3 million received
from the sale of the shares in Euskaltel under the terms of the deal
contingent forward purchase contract (see notes 12 and 13 to the financial
statements).
Less: liabilities (76) The total liabilities of Zegona Limited as at the completion date of the
tender offer.
Takeover consideration 364,286
Less: net invested capital (192,818) See below
Growth in value 171,468
Split between:
Ordinary Shares 85% 145,746
Management shares 15% 25,720
Split between:
Eamonn O'Hare 15,218
Robert Samuelson 7,609
Other Zegona Senior Managers 2,892
In making this payment, the Nomination and Remuneration Committee provided a
recommendation to the Board to approve the payment. In order to make this
recommendation, it carefully reviewed the terms of the scheme to ensure that
the conditions for redemption had been met and that the amount of the payment
had been correctly calculated according to the payment waterfall in the terms
of the scheme that allocates the Takeover Consideration between the holders of
the Management Shares and Zegona's Ordinary Shareholders.
This review was supported by the Audit and Risk Committee and involved
receiving written advice from the Company's legal advisors that the terms of
the waterfall had been correctly applied. The Company's auditors also
performed agreed procedures that were designed to validate the accuracy of the
calculations and agree factual information required.
On the redemption of the Management Shares, shareholders net invested capital
was comprised of as shown in the table below:
Net invested 5% pa Preferred Preferred
capital Return Return hurdle
(unadjusted) at 14 Oct 2021 at 14 Oct 2021
£ £ £
Baseline Value - June 25,2020 209,640,725 223,398,679 13,757,954
Dividend - July 2020 (5,706,811) (6,074,738) (367,927)
Dividend - March 2021 (4,817,342) (4,959,778) (142,436)
Dividend - July 2021 (5,693,222) (5,772,471) (79,249)
Share buy-backs - 2020 21 (605,188) (642,911) (37,723)
192,818,162 205,948,781 13,130,619
Shares outstanding 218,970,076 218,970,076 218,970,076
Per share (£) 0.881 0.941 0.060
Start of the Third Calculation Period
The Third Calculation Period automatically began on 14 October 2021, with the
Baseline Value Per Share for the new Calculation Period being £1.51 per
share, which was equal to volume weighted average mid-market price of Zegona
shares for the previous 30 trading days. During the Third Calculation Period,
the Management Shares may be redeemed between 14 October 2024 and 14 October
2026. All other terms remain the same as for the other Calculation Periods and
the renewal of the scheme will be subject to a shareholder vote at Zegona's
2022 AGM. The Nomination and Remuneration Committee approved the new Baseline
value based on advice from Zegona's brokers of the accuracy of the calculation
of the weighted average trading price.
No Management Shares were awarded during the year (2020: nil). At the time of
signing this report and as at 31 December 2021, the total Management Shares
held by the Directors were as shown in the table below:
Participation in Number of Management Shares Nominal value
growth in of Management Shares
value
Eamonn O'Hare 8.88% 305,000 £ 305
Robert Samuelson 4.44% 152,500 £153
Other Zegona senior managers 1.68% 57,964 £58
515,464 £516
The Executive Directors are entitled to keep their Management Shares for a
period of time if they are terminated, save if they are terminated for cause.
The time period is two exercise periods, save in the case of death or
permanent disability when it is until the end of the current exercise period.
Illustration of scheme value
To explain how Zegona's Management Incentive Scheme operates, we have set out
here an illustration of how much value would be earned by the management team
assuming a hypothetical exercise date of 31 December 2021, even though the
Management Shares were not exercisable at that date 22 .
The illustration assumes that the exercise was based on the market value of
Zegona's ordinary shares at the hypothetical exercise date and, since the
deemed market capitalisation of £5.0 million was lower than both the
Preferred Return target and the net invested capital, the holders of the
Incentive Shares would have received no payment.
Since 14 October 2021 (£)
Net invested capital 23 7,976,812
At 31 December 2021 (£)
Number of shares 5,325,567
Average share price 24 0.936
Deemed market capitalisation 4,982,454
Growth in value per the incentive scheme (2,994,358)
Split between:
Management Shares 15% -
Ordinary Shares 85% (2,994,358)
Shareholders' net invested capital at 31 December 2021 was calculated as
follows:
Net invested 5% pa Preferred
capital Preferred Return hurdle
(unadjusted) Return at 31 Dec 2021
£ at 31 Dec 2021 £
£
Baseline Value - October 14, 2021 6,700,452 6,770,741 70,290
Share Issue - October 2021 1,276,360 1,287,479 11,119
7,976,812 8,058,220 81,409
Shares outstanding 5,325,567 5,325,567 5,325,567
Per share (£) 1.498 1.513 0.015
2021 Non-Executive Directors remuneration summary (Audited)
The remuneration of the Non-Executive Directors during the year is detailed
below. Non-Executive Directors fee is a basic fixed salary of £50,000 with a
fixed increment of £10,000 if the Non-Executive Director is Chair of a
Committee. In the interest of clarity, since the Non-Executive Directors'
salaries are set and paid in Sterling, the table has been presented in both
Sterling and euros (Zegona's presentational currency). There have been no
payments to anyone who was not a director of the company at the time the
payment was made, but who had been a director of the company before that time.
Non-Executive Directors fees 25
2021 2020 2021 2020
£ £ € €
Richard Williams 50,000 54,462 58,045 61,457
Ashley Martin 60,000 60,000 69,654 67,707
Kjersti Wiklund 50,000 45,128 58,045 50,925
Suzi Williams 60,000 50,808 69,654 57,334
Mark Brangstrup Watts 26 n/a 18,174 n/a 20,508
Murray Scott 27 n/a 21,987 n/a 24,812
Total 220,000 250,559 255,398 282,743
There is no element of the Non-Executive Directors' remuneration that is
linked to the performance of the business.
Summary of total shareholder return and Chief Executive remuneration
The total shareholder return graph below shows the value as at 31 December
2021 of £100 invested on IPO on 19 March 2015, compared with £100 invested
in the OMSCI Europe/Communication Telecom Services Index. The Committee
considers this index to be appropriate for the purposes of this comparison
because it includes mostly European telecommunications companies. The data
shown below assumes that all cash returns to shareholders made by Zegona
(including the share buyback) are immediately reinvested in ordinary shares.
The maximum value of £159.6 in October 2021 reflects the return Zegona
achieved from the disposal of its investment in Euskaltel before reducing its
share capital by 98%. The reduction in the shaded area reflects the trading
value of Zegona's significantly reduced capital base since October 2021.
Chart 2: http://www.rns-pdf.londonstockexchange.com/rns/0571H_2-2022-4-3.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0571H_2-2022-4-3.pdf)
Zegona FY 2021 - Chart 2
The single figure remuneration for the Chief Executive over the same period,
together with the outcomes of the respective annual incentive awards, is
presented in the following table
2015 28 2016 2017 2018 2019 2020 2021
Total
remuneration €m 0.67 0.77 1.29 0.71 1.25 1.27 18.48
Annual bonus
(% of maximum) 0% 0% 100% 0% 29 94% 75% 0% 30
Comparison of Directors' and employees' pay and relative importance of spend
on pay
The following table compares the changes in each Director's pay with changes
in employee pay between 2020 and 2021:
Base salary Taxable benefits
change % change % Annual cash bonus
change %
Executive Directors
Eamonn O'Hare 0% 0% (100%)
Robert Samuelson 0% 0% (100%)
Non-executive Directors
Richard Williams 0% n/a n/a
Ashley Martin 0% n/a n/a
Kjersti Wiklund 0% n/a n/a
Suzi Williams 0% n/a n/a
Employees 0% 0% (100%)
The table below shows the relative importance of the spend on remuneration
paid to or receivable by all employees in Zegona when compared to
distributions to shareholders by way of dividend or share buyback:
2021 2020
€000 €000
Employee pay 32,776 4,024
Returns to shareholders 400,698 14,886
Of which:
Dividends 12,169 11,348
Share buyback - 3,538
Capital Return 388,529 -
Directors' terms and conditions
Service contract duration
Director Contract duration Notice period
Eamonn O'Hare Unlimited* 12 months
Robert Samuelson Unlimited* 12 months
Richard Williams Unlimited* 6 months
Ashley Martin Unlimited* 6 months
Kjersti Wiklund Unlimited* 6 months
Suzi Williams Unlimited* 6 months
* Under the terms of the service agreements, these appointments are
contingent on annual re-election by shareholders and completion of the annual
Board effectiveness review.
Other than payments for notice periods, the service agreements contain no
entitlements to termination payments. There are no malus or clawback
provisions in respect of base salary, pension contributions or benefits,
however, the Committee retains discretion to apply such provisions in the case
of any bonus award paid to an Executive Director whose appointment is
subsequently terminated.
External appointments
Executive Directors are allowed to accept external appointments with the
consent of the Board as long as these are not likely to lead to conflicts of
interests or significant time commitments. Executive Directors are allowed to
retain the fees paid.
During 2021, Eamonn O'Hare earned and retained Non-Executive Director fees in
relation to his external appointments of €138.0 thousand, which he resigned
from on 30 August 2021 and €61.6 thousand in relation to his appointment as
a propriety director of Euskaltel, which he resigned from on 10 August 2021.
During 2021, Robert Samuelson earned and retained €52.4 thousand in relation
to his appointment as a proprietary director of Euskaltel, which he resigned
from on 10 August 2021.
Reappointment
Under the terms of Zegona's Articles of Association, all Directors will be
proposed for re-election at the 2022 AGM. All Board members have service
contracts and details of the unexpired terms of these service contracts are
set out above.
Compensation for loss of office (Audited)
The Directors are not entitled to any special compensation for loss of office
pursuant to their directorship or employment contracts following a change of
control. However, certain changes of control will entitle the Directors to
exercise rights held by them as holders of Management pursuant to the
long-term incentive plan in force in respect of Zegona. No payments for loss
of office were made in either 2021 or 2020.
Directors' interests in ordinary shares (Audited)
The Committee intends to keep under consideration the need to adopt formal
requirements or guidelines in connection with the building of shareholdings in
Zegona by Executive Directors. During the year, no such formal requirements or
guidelines were adopted and the Committee remains of the view that no such
requirements or guidelines are currently needed given that the Executive
Directors acquired ordinary shares in the Placing and their interests are
significantly aligned with shareholders through their participation in the
Management Incentive Scheme.
The shareholdings of the Directors at 31 December 2021 are set out below.
There have been no changes in the shareholdings of the Directors from 31
December 2021 to the date of this report.
Director Number of shares % of issued share capital
Eamonn O'Hare 31 502,891 9.44%
Robert Samuelson 32 243,275 4.57%
Richard Williams 1,153 0.02%
Ashley Martin 212 0.00%
Kjersti Wiklund - -
Suzi Williams - -
The following information provided in this part of the Directors' Remuneration
Report is not subject to audit.
Review of workforce remuneration matters
Although there are only a small number of employees in Zegona, in line with
the provisions of the UK Corporate Governance Code, the Committee continues to
review the effectiveness of the remuneration framework for Zegona's workforce.
This involves being kept up to date with changes in workforce remuneration and
ensuring that workforce remuneration continues to remain aligned to Zegona's
purpose, values and strategy.
Statement of voting at General Meetings
The following table sets out the voting results in respect of the resolutions
to approve the Directors' Remuneration Report and the Directors' Remuneration
Policy:
Date of AGM For the resolution Against the resolution Votes withheld
Directors' Remuneration Report 30 June 2021 92.25% 7.75% -
for the year ended 31 December 2021
(Votes cast) 175,022,743 14,707,674 13,203,833
Directors' Remuneration Policy 10 June 2019 86.41% 13.59% -
(Votes cast) 137,477,802 21,628,261 42,325,186
Suzi Williams
Chairman of the Nomination and Remuneration Committee
3 April 2022
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2021 2020
Notes €000 €000
Continuing Operations
Administrative and other operating expenses:
Corporate costs 5 (4,643) (5,631)
Management Incentive Scheme costs 19 (29,072) (914)
Significant project costs 6 (295) (292)
Operating loss (34,010) (6,837)
Finance income 7 158 29
Finance costs 7 (376) (310)
Net foreign exchange (loss) / gain (30) 1,273
Loss for the year before income tax (34,258) (5,845)
Income tax expense 8 - -
Loss for the period from continuing operations (34,258) (5,845)
Discontinued Operations
Profit for the period from discontinued operation, net of tax 13 114,171 19,811
Profit for the period attributable to equity holders of the parent 79,913 13,966
€ €
Earnings per share - total operations
Basic and diluted earnings per share attributable to equity holders of the 25 0.47 0.06
parent
Earnings per share - continuing operations
Basic and diluted earnings per share attributable to equity holders of the 25 (0.20) (0.03)
parent
Earnings per share - discontinued operations
Basic and diluted earnings per share attributable to equity holders of the 25 0.68 0.09
parent
The notes on pages 70 to 97 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
2021 2020
€000 €000
Profit for the year 79,913 13,966
Other comprehensive income / (loss) - items that will or may be reclassified
subsequently to profit or loss
Exchange differences on translation of foreign operations 1,484 (689)
(884) (18,014)
Total other comprehensive income/(loss) 600 (18,703)
Total comprehensive income / (loss) for the year, net of tax, 80,513 (4,737)
attributable to equity holders of the parent
The notes on pages 70 to 97 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 As at 31
December December
2021 2020
Notes €000 €000
Assets
Non-current assets
Property, plant and equipment 30 12
Interest in associate 12 - 322,737
Income tax receivable 15 5,234 -
5,264 322,749
Current assets
Derivatives 16 - 39
Prepayments and other receivables 14 197 170
Financial assets measured at fair value through profit or loss 13 - 7,499
Cash and cash equivalents 10,556 15,244
10,753 22,952
Total assets 16,017 345,701
Equity and liabilities
Equity
Share capital 21 301 2,821
Capital redemption reserve 22 2,565 34
Share premium reserve 22 1,616 108,793
Other reserve 22 - 180,816
Shares to be issued 22 1,443 -
Share-based payment reserve 22 31 799
Foreign currency translation reserve 22 (6,284) (6,884)
Retained earnings 22 14,782 46,072
Total equity attributable to equity holders of the Parent 14,454 332,451
Current liabilities
Accruals and other payables 17 1,457 2,279
Bank borrowings 18 106 10,971
Total liabilities 1,563 13,250
Total equity and liabilities 16,017 345,701
The notes on pages 70 to 97 form an integral part of these Consolidated
Financial Statements
The Financial Statements of Zegona Communications plc (registered
number 09395163) were approved by the
Board of Directors on 3 April 2022 and were signed on its behalf by:
Eamonn O'Hare
Director
Robert Samuelson
Director
FINANCIAL STATEMENTS |COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 As at 31 December
December
2021 2020
Notes €000 €000
Assets
Non-current assets
Property, plant and equipment 30 12
Investment in subsidiaries 9 6,824 252,322
Interest in associate - 32,194
6,854 284,528
Current assets
Derivatives 16 - 39
Prepayments and other receivables 14 3,821 183
Cash and cash equivalents 16 15,149
3,837 15,371
Total assets 10,691 299,899
Equity and liabilities
Equity
Share capital 21 301 2,821
Capital redemption reserve 22 2,565 34
Share premium reserve 22 1,616 108,793
Other reserve 22 - 180,816
Shares to be issued 22 1,443 -
Share based payment reserve 22 31 694
Foreign currency translation reserve 22 (61,477) (79,268)
Retained earnings 22 65,486 52,510
Total equity attributable to the shareholders of the Company 9,965 266,400
Current liabilities
Accruals and other payables 17 620 22,528
Bank borrowings 18 106 10,971
Total liabilities 726 33,499
Total equity and liabilities 10,691 299,899
The notes on pages 70 to 97 form an integral part of these Consolidated
Financial Statements.
As permitted by section s408 of the Companies Act 2006, no profit and loss
account for the company is presented. The company's profit for the financial
year was €124.2 million (2020: €0.2 million)
The Financial Statements of Zegona Communications plc (registered number
09395163) were approved by the Board of Directors on 3 April 2022 and were
signed on its behalf by:
Eamonn O'Hare
Director
Robert Samuelson
Director
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share-based payment reserve Foreign currency translation reserve Capital redemption reserve Share premium reserve Other reserve Shares to be issued Total equity
Share capital
Retained
earnings
Note €000 €000 €000 €000 €000 €000 €000 €000 €000
Balance at 1 January 2021 2,821 799 (6,884) 46,072 34 108,793 180,816 - 332,451
Profit for the year - - - 79,913 - - - - 79,913
Other comprehensive income - - 600 - - - - - 600
Dividends paid 26 - - - - - - (12,169) - (12,169)
Share-based payment expense - - - -
19 - 763 - - 763
Reclassification of incentive arrangements 19 - (1,562) - - - - - - (1,562)
Renewal of incentive scheme 19 - 31 - - - - - - 31
Reduction of share premium 22 - - - - - (108,679) 108,679 - -
Redemption of shares 20 (2,531) - - (111,203) 2,531 - (277,326) - (388,529)
Issuance of shares 20 11 - - - - 1,502 - 1,443 2,956
Balance at 31 December 2021 301 31 (6,284) 14,782 2,565 1,616 - 1,443 14,454
The notes on pages 70 to 97 form an integral part of these Consolidated
Financial Statements.
Share- Foreign Capital redemption reserve Share premium reserve Other Total
Share based currency translation reserve reserve equity
capital payment Retained earnings
reserve
Note €000 €000 €000 €000 €000 €000 €000 €000
Balance at 1 January 2020 2,855 105 11,819 32,000 - 108,793 195,763 351,335
Profit for the year - - - 13,966 - - - 13,966
Other comprehensive loss - - (18,703) - - - - (18,703)
Cancellation of shares purchased -
23 (34) - - - 34 (3,599) (3,599)
Net cost of incentive arrangements 19 - - -
- 694 - 106 800
Dividends paid 26 - - - - - - (11,348) (11,348)
Balance at 31 December 2020 2,821 799 (6,884) 46,072 34 108,793 180,816 332,451
The notes on pages 70 to 97 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |COMPANY STATEMENT OF COMPREHENSIVE INCOME
Share-based payment reserve Foreign currency translation reserve Capital redemption reserve Share premium reserve Other reserve Shares to be issued Total equity
Share capital
Retained
earnings
Note €000 €000 €000 €000 €000 €000 €000 €000 €000
Balance at 1 January 2021 2,821 694 (79,268) 52,510 34 108,793 180,816 - 266,400
Profit for the year - - - 124,179 - - - - 124,179
Other comprehensive income - - 17,791 - - - - - 17,791
Dividends paid 26 - - - - - - (12,169) - (12,169)
Share-based payment expense - - - -
19 - 763 - - 763
Reclassification of incentive arrangements 19 - (1,457) - - - - - - (1,457)
Renewal of incentive scheme 19 - 31 - - - - - - 31
Reduction of share premium 22 - - - - - (108,679) 108,679 - -
Redemption of shares 20 (2,531) - - (111,203) 2,531 - (277,326) - (388,529)
Issuance of shares 20 11 - - - - 1,502 - 1,443 2,956
Balance at 31 December 2021 301 31 (61,477) 65,486 2,565 1,616 - 1,443 9,965
The notes on pages 70 to 97 form an integral part of these Consolidated
Financial Statements.
Share- Foreign Capital redemption reserve Share Other Total
Share based currency translation reserve premium reserve reserve equity
capital payment Retained earnings
reserve
Note €000 €000 €000 €000 €000 €000 €000 €000
Balance at 1 January 2020 2,855 - (63,686) 52,186 - 108,793 195,763 295,911
Profit for the year - - - 219 - - - 219
Other comprehensive loss - - (15,582) - - - - (15,582)
Cancellation of shares purchased -
23 (34) - - - 34 (3,599) (3,599)
Net cost of incentive arrangements 19
- 694 - 105 - - - 799
Dividends paid 26 - - - - - - (11,348) (11,348)
Balance at 31 December 2020 2,821 694 (79,268) 52,510 34 108,793 180,816 266,400
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2021 2020
Note €000 €000
Operating activities
Loss before income tax from continuing operations (34,258) (5,845)
Adjustments to reconcile profit before income tax to operating cash flows:
Depreciation of property, plant and equipment 16 3
Management Incentive Scheme costs 19 31 793
Net foreign exchange losses / (gains) 30 (1,273)
Finance income 7 (158) (29)
Finance costs 7 376 310
Working capital adjustments:
(Increase) in prepayments and other receivables (5,261) (78)
Increase / (decrease) in accruals and other payables 334 (435)
Interest received 21 13
Interest paid (273) (518)
Net cash flows used in operating activities (39,142) (7,059)
Investing activities
Purchase of property, plant and equipment (34) (13)
Net cash flows used in investing activities (34) (13)
Net cash flows from discontinued investing activities 13 439,547 10,152
Financing activities
Dividends paid to shareholders 26 (12,169) (11,348)
Repurchase and cancellation of shares 20 (388,529) (3,599)
Issuance of shares and shares to be issued 20 2,956 -
Repayment of credit facility 18 (11,028) -
Net cash flows (used in) financing activities (408,770) (14,947)
Net (decrease) in cash and cash equivalents (8,399) (11,867)
Net foreign exchange difference 3,711 76
Cash and cash equivalents at the beginning of the year 15,244 27,035
Cash and cash equivalents at the end of the year 10,556 15,244
The notes on pages 70 to 97 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |COMPANY STATEMENT OF CASH FLOWS
Year ended 31 December Year ended 31 December
2021 2020
Note €000 €000
Operating activities
Profit/(Loss) before income tax from continuing operations 127,049 (1,398)
Adjustments to reconcile profit before income tax to operating cash flows:
Depreciation of property, plant & equipment 16 3
Net foreign exchange losses / (gains) 69 (1,193)
Finance income 7 (418,079) (29)
Finance costs 7 376 554
Impairment of investment in subsidiary 9 288,806 -
Working capital adjustments:
(Increase) in prepayments and other receivables (3,637) (73)
Increase in accruals and other payables 59 6,277
Interest received 21 13
Interest paid (273) (518)
Net cash flows (used in)/from operating activities (5,593) 3,636
Investing activities
Purchase of property, plant and equipment (34) (13)
Dividends received from subsidiary 417,921 -
Net cash flows from/ (used in) investing activities 417,887 (13)
Net cash flows from/ (used in) discontinued investing activities 543 (518)
Financing activities
Dividends paid to shareholders 26 (12,169) (11,348)
Repurchase and cancellation of shares (388,529) (3,599)
Issuance of shares and shares to be issued 2,956 -
Repayment of credit facility 18 (11,028) -
Payment of intercompany loan 9 (21,907) -
Net cash flows (used in) financing activities (430,677) (14,947)
Net (decrease) in cash and cash equivalents (17,840) (11,842)
Net foreign exchange differences 2,707 968
Cash and cash equivalents at the beginning of the year 15,149 26,023
Cash and cash equivalents at the end of the year 16 15,149
The notes on pages 70 to 97 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
The Consolidated Financial Statements of Zegona Communications plc (the
"Company") and its subsidiaries (collectively, "Zegona") for the year ended 31
December 2021 (the "Consolidated Financial Statements") were authorised for
issue in accordance with a resolution of the Directors on 3 April 2022. The
Company was incorporated and is domiciled in England and Wales and has its
registered office at 8 Sackville St, Mayfair, London W1S 3DG.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
Zegona's Annual Report will be posted to shareholders on 4 April 2022. The
financial information set out in this document does not constitute Zegona's
statutory accounts for the years ended 31 December 2021 or 2020 but is derived
from those accounts. Statutory accounts for 2020 have been delivered to the
registrar of companies, and those for 2021 will be delivered in due course,
following the Company's Annual General Meeting, which will be held at 1:00
p.m. on 28 June 2022. The auditor has reported on those accounts; its reports
were: (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.
The Company and Consolidated Financial Statements for the year ended 31
December 2021 have been prepared in accordance with UK-adopted international
accounting standards and with those parts of the Companies Act 2006 as
applicable to companies reporting under international accounting standards.
The Company Financial Statements present information about the Company as a
separate entity and not about its group. The Company is taking advantage of
the exemption in section 408 of the Companies Act 2006 not to present its
individual Statement of Comprehensive Income and related notes that form a
part of the Company Financial Statements.
The Consolidated Financial Statements include the results of all subsidiaries
wholly owned by the Company as listed in note 9. Certain of these
subsidiaries, which are listed below, have taken the exemption from preparing
individual accounts for the year ended 31 December 2021 by virtue of section
394A of Companies Act 2006. In order to allow these subsidiaries to take the
exemption, the Company has given a statutory guarantee of all these companies'
outstanding liabilities as at 31 December 2021:
· Zegona Spanish Holdco Limited (Registered Number: 10159232)
· Zegona Borrower Limited (Registered Number: 10159347)
· Zegona Holdco Limited (Registered Number: 10159604).
The Consolidated Financial Statements and the Company Financial Statements
have been prepared under the historical cost convention except for certain
financial assets that have been measured at fair value, as disclosed in note
11. The functional currency of the Company is British pounds sterling
("Sterling" or £). The Directors have chosen to present the Consolidated
Financial Statements and the Company Financial Statements in euros (€). All
values are rounded to the nearest thousand (€000) except where otherwise
indicated.
The principal accounting policies adopted in the preparation of the
Consolidated Financial Statements are set out below. The policies have been
consistently applied throughout the years presented.
(b) Going concern
Zegona's Directors have assessed the going concern assumptions during the
approval of the 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 approval of the 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 severe
but plausible downside scenarios in concluding that Zegona is able to continue
in operation for a period of at least twelve months from the date of approving
the Financial Statements.
Following the sale of the investment in Euskaltel (see note 12) and the Return
of Capital and related transactions (see note 20), Zegona meets its day to day
working capital requirements from cash balances. Zegona is continuing to
execute its Buy-Fix-Sell strategy which currently involves actively searching
for another attractive investment opportunity within the European TMT sector.
During this period, Zegona's ongoing costs are reasonably predictable, and the
Directors are comfortable that Zegona's cash holdings of £7.8 million (€9.2
million) at 3 April 2022 are sufficient to fund these costs for at least
twelve months after the approval of these financial statements and absorb any
unexpected costs that may be incurred in connection with an unsuccessful deal.
This is still the case when a severe but plausible downside scenario is
considered that assumes a 10% increase in ongoing costs and £2.0 million of
costs incurred in relation to unsuccessful transactions.
In reaching its conclusion on the going concern assessment, the Directors
considered the findings of the work performed to support the statement on the
long-term viability of Zegona. As noted on pages 7 to 8, this included key
changes to principal risks, scenario analysis and mitigating actions to
downside scenarios.
In conclusion, based on their review the Directors are confident that the
Company and Zegona group will have sufficient funds to continue to meet their
liabilities as they fall due for at least 12 months from the date of approval
fo the financial statements. Accordingly, the Directors continue to adopt the
going concern basis in preparing the Consolidated and Parent Financial
Statements.
(c) New standards and amendments to IFRS
Standards, amendments and interpretations effective and adopted by Zegona:
The accounting policies adopted in the presentation of the Consolidated
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 2- Interest Rate Benchmark 1 January 2021
Reform
COVID-19-Related Rent Concessions (Amendment to IFRS 16) 1 January 2021
Standards, amendments and interpretations not yet adopted by Zegona:
Zegona intends to adopt the following standards, amendments and
interpretations, if applicable, when they become effective. Adopting these
standards will not have a material impact on Zegona.
Standard Effective date
COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16) 1 April 2021
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) 1 January 2022
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 1 January 2022
16)
Amendments to IFRS3: Reference to the conceptual framework 1 January 2022
Annual improvements to IFRS Standards 2018-2020 1 January 2022
Amendments to IAS 1 Presentation of Financial Statements: Classification of 1 January 2023
Liabilities as Current or Non-current
IFRS 17 Insurance Contracts 1 January 2023
Amendments to IFRS 17 1 January 2023
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice 1 January 2023
Statement 2)
Definition of Accounting Estimate (Amendments to IAS 8) 1 January 2023
Deferred Tax Related to Assets and Liabilities Arising from a Single 1 January 2023
Transaction - Amendments to IAS 12 Income Taxes
(d) Basis of consolidation
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 Consolidated 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.
(e) Interests in associates
An associate is an entity over which Zegona has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control
over those policies. Zegona evaluates the extent to which it has significant
influence in investees on a case-by-case basis, considering all relevant facts
and circumstances. Evaluations are updated when there any changes in those
facts and circumstances. These evaluations are often subject to significant
judgement and the key judgements and considerations underlying material
evaluations are more fully discussed in note 3.
Zegona classifies investments in entities over which it has significant
influence as associates and accounts for them using the equity method. Under
the equity method, the investment in an associate is initially recognised at
cost. The carrying amount of the investment is increased or decreased to
recognise changes in Zegona's share of the profit or loss of the investee
after the date of acquisition. Goodwill relating to the associate is included
in the carrying amount of the investment and is not tested for impairment
separately.
The Consolidated Statement of Comprehensive Income reflects Zegona's share of
the results of operations of the associate. Any change in Other Comprehensive
Income ("OCI") of those investees is presented as part of Zegona's OCI.
Investments in associates are assessed at each reporting period date and
tested for impairment when there is an indication that the recoverable amount
has fallen below the carrying value of the investment; i.e. that the
investment may be impaired. The recoverable amount of an asset is the higher
of its fair value less costs of disposal and its value in use. Impairment
losses are recognised within 'Share of profit of associate' in the
Consolidated Statement of Comprehensive Income.
f) Discontinued Operations
Zegona classifies non-current assets and assets and liabilities within
disposal groups ('assets') as held for sale if the assets are available
immediately for sale in their present condition, management is committed to a
plan to sell the assets under usual terms, it is highly probable that their
carrying amounts will be recovered principally through a sale transaction
rather than through continuing use and the sale is expected to be completed
within one year from the date of the initial classification.
Assets and liabilities classified as held for sale are presented separately as
current items in the consolidated statement of financial position and are
measured at the lower of their carrying amount and fair value less costs to
sell. Property, plant and equipment and intangible assets are not depreciated
or amortised once classified as held for sale; this also applies in respect of
assets held by equity accounted associates and joint ventures.
Discontinued operations are excluded from the results of continuing operations
and are presented as a single amount as profit or loss after tax from
discontinued operations in the Group consolidated income statement.
Discontinued operations are also excluded from segment reporting. All other
notes to the financial statements include amounts for continuing operations,
unless indicated otherwise.
g) Foreign currencies
Foreign currency transactions
Sterling is the functional currency of the Company. Transactions in foreign
currencies are recorded at the rates of exchange ruling at the transaction
dates.
Monetary assets and liabilities denominated in foreign currencies are
translated at the functional currency spot rates of exchange at the reporting
date. Differences arising on settlement or translation of monetary items are
recognised in the Statement of Comprehensive Income.
Non-monetary items denominated in foreign currencies are translated at the
functional currency spot rates of exchange at each reporting date.
Foreign operations
The euro is the presentation currency of the Consolidated Financial
Statements. For the purpose of presenting the Consolidated Financial
Statements, the assets and liabilities of Zegona's non-euro-denominated
functional entities are translated at exchange rates prevailing on the balance
sheet date. Income and expense items are translated at the average exchange
rates for the period.
Currency translation adjustments arising on the restatement of opening net
assets of Zegona's non-euro denominated functional entities, together with
differences between the entities' results translated at average rates versus
closing rates, are recognised in the Statement of Other Comprehensive Income
and transferred to the foreign currency translation reserve. All resulting
exchange differences are classified as equity until disposal of the
subsidiary. On disposal, the cumulative amounts of the exchange differences
are recognised as income or expense.
h) Revenue and expenses
Finance income
Interest income from financial assets is recognised using the effective
interest method as finance income in the Consolidated Statement of
Comprehensive Income.
Dividend income from financial assets including from subsidiary undertakings
is recognised as finance income in the Consolidated Statement of Comprehensive
Income when Zegona's right to receive the payment is established, which for
listed securities is when the shares are quoted ex-dividend, and are presented
gross of any non-recoverable withholding taxes.
Gains or losses on financial instruments measured at fair value through profit
or loss comprise the net change in fair value, excluding interest or dividend
income.
i) Administrative and other operating expenses
Administrative and other operating expenses are recognised on an accruals
basis, i.e. when the actual flow of the services they represent occurs,
regardless of when the resulting monetary or financial flow arises.
Significant project costs are those incurred on projects that are considered
to be one-off or non-recurring in nature, where the costs are so material
individually or collectively that the Directors believe that they require
separate presentation and disclosure to avoid distortion of the comparability
of corporate costs between periods. These are recognised on an accruals basis
and expensed in the Statement of Comprehensive Income unless they are directly
related to the issuance of equity instruments in which case they are
recognised as a deduction from equity. If qualifying transaction costs are
incurred in anticipation of, and directly related to, the issuance of equity
instruments and span more than one reporting period, they are deferred until
equity instruments are recognised. If the equity instruments are not
subsequently issued, the costs are expensed.
j) Fair value measurement
Zegona measures certain financial instruments at fair value at each balance
sheet date.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
The fair value measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
· In the principal market for the asset or liability; or
· In the absence of a principal market, in the most advantageous
market for the asset or liability.
The principal or the most advantageous market must be accessible by Zegona.
The fair value of an asset or a liability is measured using the assumptions
that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest. Zegona
uses valuation techniques that are appropriate in the circumstances and for
which sufficient data is available to measure fair value, maximising the use
of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in
the Financial Statements are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
· Level 1 - Quoted (unadjusted) market prices in active markets for
identical assets or liabilities;
· Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or indirectly
observable; and
· Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the Financial Statements at
fair value on a recurring basis, Zegona determines whether transfers have
occurred between levels in the hierarchy by re-assessing categorisation (based
on the lowest level input that is significant to the fair value measurement as
a whole) at the end of each reporting period.
k) Financial instruments - initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of
one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently
measured at fair value through profit or loss ("FVPL"), amortised cost, or
fair value through other comprehensive income ("FVOCI").
The classification of a financial asset at initial recognition depends on the
financial asset's contractual cash flow characteristics and Zegona's business
model for managing it. In order for a financial asset to be classified and
measured at amortised cost or FVOCI, it needs to give rise to cash flows that
are 'solely payments of principal and interest' on the principal amount
outstanding (the "SPPI Criterion").
Financial assets are initially recognised at their fair value plus, for those
financial assets not at fair value through profit or loss, transaction costs.
Purchases or sales of financial assets that require delivery of assets within
a time frame established by regulation or convention in the marketplace
(regular way trades) are recognised on the settlement date, being the date
that an asset is delivered to or by Zegona.
Subsequent measurement
Zegona's financial assets are classified into categories:
· Financial assets at amortised cost comprise assets that are held
within a business model with the objective to hold the financial assets in
order to collect contractual cash flows that meet the SPPI Criterion. These
assets are subsequently measured at amortised cost using the effective
interest method. The amortised cost is reduced by impairment losses. Interest
income, foreign exchange gains and losses and impairment losses are recognised
in the Statement of Comprehensive Income. Any gain or loss on derecognition is
recognised in the Statement of Comprehensive Income.
· Financial assets at FVPL comprise quoted equity instruments which
Zegona had not irrevocably elected, upon initial recognition, to classify at
FVOCI and debt instruments whose cash flow characteristics fail the SPPI
Criterion. These assets are carried in the Statement of Financial Position at
fair value with net changes in fair value recognised as either finance income
or finance costs in the Statement of Comprehensive Income.
Derecognition
A financial asset is primarily derecognised and removed from the Statement of
Financial Position when:
· The rights to receive cash flows from the asset have expired; or
· Zegona has transferred its rights to receive cash flows from the
asset or has assumed an obligation to pay the received cash flows in full
without material delay to a third party under a 'pass-through' arrangement;
and either (a) Zegona has transferred substantially all the risks and rewards
of the asset, or (b) Zegona has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control of the
asset.
When Zegona has transferred its rights to receive cash flows from an asset or
has entered into a pass-through arrangement, it evaluates if, and to what
extent, it has retained the risks and rewards of ownership. When it has
neither transferred nor retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, Zegona continues to recognise
the transferred asset to the extent of its continuing involvement and also
recognises an associated liability. The transferred asset and the associated
liability are measured on a basis that reflects the rights and obligations
that Zegona has retained.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial
liabilities at fair value through profit or loss, loans and borrowings,
payables, or as derivatives designated as hedging instruments in an effective
hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the
case of loans and borrowings and payables, net of directly attributable
transaction costs.
Subsequent measurement
Financial liabilities are subsequently measured at amortised cost and in the
case of interest-bearing financial liabilities at amortised cost using the
effective interest rate method. Gains and losses are recognised in the
Statement of Comprehensive Income when the liabilities are derecognised.
Derecognition
A financial liability is derecognised when the obligation under the liability
is discharged or cancelled or expires. When an existing financial liability is
replaced by another from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such an
exchange or modification is treated as the derecognition of the original
liability and the recognition of a new liability, the difference of the
respective carrying amounts is recognised in the Consolidated Statement of
Comprehensive Income.
Equity instruments
An equity instrument is any contract that provides 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 only equity
instruments issued by Zegona other than ordinary shares are the delayed
subscription awards (see note 20) which are accounted for at historical cost
within equity.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is
reported in the Statement of Financial Position if there is a currently
enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis to realise the assets and settle the
liabilities simultaneously.
l) Impairment of financial assets
For trade receivables, Zegona applies a simplified approach in calculating
expected credit losses ("ECLs") and recognises a loss allowance based on
lifetime ECLs at each reporting date using Zegona's historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and
the economic environment.
A financial asset is written off when there is no reasonable expectation of
recovering the contractual cash flows.
m) Property, plant and equipment
Property, plant and equipment is measured initially at acquisition cost and
subsequently carried net of any accumulated depreciation and any impairment
losses.
The costs of upkeep and maintenance of property, plant and equipment are
charged to the administrative and other operating expenses in the Statement of
Comprehensive Income in the year in which they are incurred.
Replacements or renewals are recorded as an addition to property, plant and
equipment and the units replaced or renewed are derecognised.
Property, plant and equipment in operation is depreciated systematically on
the basis of the estimated useful economic life of the items, and the cost of
the assets is distributed on a straight-line basis over the estimated useful
economic lives. For fixtures and fittings, which comprises primarily computer
hardware, the estimated useful economic live is 3 years.
Derecognition of property, plant and equipment
Items of property, plant and equipment are derecognised when they are sold or
when no future economic benefit is expected to be obtained from their
continuing use. The gain or loss arising on the disposal or derecognition of
an item of property, plant and equipment is determined as the difference
between the proceeds from the sale and the carrying amount of the asset and is
recognised in the Consolidated Statement of Comprehensive Income.
n) Leases
Zegona assesses at contract inception whether a contract is, or contains, a
lease. That is, if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
Following adoption of IFRS 16 Leases, Zegona has taken the exemption contained
under IFRS 16 to not apply IFRS 16 requirements to any of its leases as these
leases are short-term in nature (less than 12 months) or low in value.
o) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an
original maturity of three months or less.
p) Investments in subsidiaries
Investments in subsidiaries within the Company's separate Statement of
Financial Position are stated at cost less provision for impairment.
At the end of each reporting year, or whenever there are indications of
impairment, the Company tests its investments in subsidiaries for impairment
to determine whether their recoverable amount has fallen below their carrying
amount. The recoverable amount is the greater of fair value less costs to sell
and value in use. An impairment loss is recognised when the carrying amount
exceeds the recoverable amount. Value in use is the present value of expected
future cash flows, calculated using a risk-free market rate of interest,
adjusted for the risks specific to the asset.
Where an impairment loss subsequently reverses, the carrying amount of the
asset is increased to the revised estimate of its recoverable amount; however,
the increased carrying amount may not exceed the carrying amount that would
have been determined had no impairment loss been recognised in previous years.
This reversal of an impairment loss is recognised as income.
The Company makes appropriate provision when the recoverable value is less
than the carrying amount, provided the latter cannot be recovered by
generating sufficient income to cover all the costs and expenses incurred by
usage of the asset.
q) Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares are shown in other reserves as a
deduction from the initial measurement of the equity instrument.
r) Dividends payable
The Company recognises a liability to pay a dividend when the distribution is
authorised and the distribution is no longer at the discretion of the Company.
A corresponding amount is recognised directly in equity.
s) Corporation tax
Corporation tax represents the sum of current and deferred tax for the year.
Current tax is the expected tax payable on the taxable income for the year.
Taxable profit differs from profit reported in the Consolidated Statement of
Comprehensive Income because some items of income and expense are taxable or
deductible in different years or may never be taxable or deductible. Zegona's
current tax is calculated using tax rates enacted or substantially enacted at
the balance sheet date, and any adjustment to taxes payable in respect of
previous periods.
Deferred tax is the tax expected to be payable or recoverable in the future
arising from temporary differences between the carrying amounts of assets and
liabilities in the Financial Statements and the corresponding tax bases used
in the computation of taxable profit. It is accounted for using the balance
sheet liability method.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Deferred tax is calculated on the tax rates that are expected to apply in the
year when the liability is settled or the asset realised, based on tax rates
that have been enacted or substantively enacted by the year end date, and is
not discounted.
t) Pension benefits
Zegona pays contributions to externally administered pension plans on behalf
of employees, or the equivalent contribution is paid in cash to the employee.
Zegona has no further payment obligations once the contributions have been
paid. The contributions are recognised as an expense on the accrual basis.
u) Earnings per ordinary share
Basic earnings per share ("EPS") is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average
number of ordinary shares outstanding 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.
v) 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.
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Consolidated Financial Statements reflect management's choice of
accounting policies, assumptions and estimates. 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. In view of the inherent uncertainties and the high
level of subjectivity involved in the recognition or measurement of items
outlined below, it is possible that the outcomes in the next financial year
could differ from those on which management's estimates are based. This could
result in materially different estimates and judgement from those reached by
management for the purpose of these Consolidated Financial Statements.
The most significant transactions during the year, the sale of Euskaltel and
the Return of Capital (and related transactions) did not involve any material
accounting estimates since the amounts recorded were all based on realised
amounts. The main accounting judgements used by the Directors in applying the
accounting policies of Zegona that had the greatest impact on the Consolidated
Financial Statements in the current year were:
· The components of discontinued operations. The presentation of
components of an entity as discontinued operations requires judgement. Any
components being classified as a discontinued operation must meet certain
criteria under IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations. Zegona has concluded that the investment in Euskaltel, together
with other items directly related to it qualify as discontinued operations and
the main assumptions used in determining this are detailed in Note 13.
· The classification of the delayed share subscription. The
classification of the Subscription Agreement as either an equity item or a
financial liability requires a certain amount of judgement. Based on the terms
of the Subscription Agreement, Zegona has concluded that it meets the
definition of an equity instrument under IAS 32 Financial Instruments:
Presentation because the Subscription Agreement is a non-cancellable agreement
for a fixed number of shares. The main estimates and assumptions used in
determining the classification of the delayed share subscription are detailed
in Note 20.
· The recoverability of the income tax receivable. During 2021,
Zegona was required to pay two charging notices totalling £4.4 million issued
by HMRC in respect of the EU Commission's decision that the Group Financing
Exemption contained within the UK's Controlled Foreign Company legislation
constituted State Aid. In prior periods, Zegona had concluded that no
provision was required on the basis that it was not probable that there would
ultimately be an outflow of resources required to settle the obligation.
Consequently, Zegona recorded an income tax receivable on payment of the
charging notices and has continued to evaluate the receivable for
recoverability. The determination of whether an outflow is more likely than
not requires judgement. An explanation of the key judgements made in
determining that the receivable continues to be recoverable is provided in
Note 15.
4. SEGMENTAL ANALYSIS
Following the disposal of Euskaltel, Zegona and its subsidiaries is organised
a single business which seeks to generate shareholder returns by applying its
Buy-Fix-Sell strategy to European TMT assets. The chief operating decision
maker is considered to be the Board, who only receive consolidated information
which does not does not include an analysis of either profit and loss or
assets and liabilities to any lower level. Zegona has therefore concluded that
it only has a single operating segment for which the measure of performance is
Zegona's consolidated loss for the period from continuing operations and all
amounts required to be disclosed in accordance with paragraph 23-24 of IFRS 8
Operating Segments are the same as the equivalent consolidated amounts
disclosed elsewhere in these financial statements. All non-current assets are
domiciled in the United Kingdom.
5. ADMINISTRATIVE AND OTHER OPERATING EXPENSES - CORPORATE COSTS
Consolidated Consolidated
2021 2020
€000 €000
Salaries, bonuses and staff benefits 2,918 3,694
Employment related taxes 423 530
Pension costs 311 304
Other operating expenses 991 1,103
Corporate costs 4,643 5,631
Staff numbers
The average number of employees (including Executive Directors but excluding
Non-Executive Directors) during the year by activity was as follows:
Consolidated Consolidated
2021 2020
Operations 6 7
Administration 1 1
7 8
Further information in relation to pay and remuneration of the directors can
be found in the Directors' Remuneration Report, starting on page 42.
6. ADMINISTRATIVE AND OTHER OPERATING EXPENSES - SIGNIFICANT PROJECT
COSTS
Significant project costs are those incurred on projects that are considered
to be one-off or non-recurring in nature, where the costs are so material
individually or collectively that the Directors believe that they require
separate presentation and disclosure to avoid distortion of the comparability
of corporate costs between periods. The classification of projects as
significant is subjective in nature and therefore judgement is required in its
determination and is a matter of qualitative assessment. Significant projects
are usually related to acquisition or joint venture transactions where
incremental and identifiable external costs are incurred by Zegona in order to
make or evaluate the potential transaction, even if it is not consummated.
In 2021, €0.3 million (2020: €0.3 million) of significant project costs
recognised in 2021 were principally professional fees in relation to potential
acquisition vehicles. In addition, significant project costs were recognised
within discontinued operations (see note 13).
7. FINANCE INCOME AND COSTS
Note Consolidated Consolidated
2021 2020
€000 €000
Net gain on currency forward instruments 137 16
Bank interest 21 13
Finance income 158 29
Interest on bank borrowings (376) (310)
Finance costs (376) (310)
8. TAXATION
Consolidated Consolidated
2021 2020
€000 €000
Current tax expense
Current year - -
Income tax expense for the year - -
Zegona believes that no accruals for tax liabilities are required for all open
tax years based on its assessments of many factors, including interpretations
of tax law and prior experience. The normal UK statute of limitations is four
years from the end of the accounting period.
Reconciliation of effective tax rate
Consolidated Consolidated
2021 2020
€000 €000
(Loss) before tax from continuing operations (34,258) (5,845)
At UK statutory income tax rate (19% (2020: 19%)) (6,509) (1,100)
Expenses not deductible for tax purposes* 5,916 232
Unrecognised tax losses* 593 878
Income tax expense - -
* At UK statutory income tax rate (19% (2020: 19%))
Income relating to the investment in Euskaltel, including dividends and gains
in fair value and foreign exchange, is not taxable as the dividends are in
respect of non-redeemable ordinary shares and the investment is expected to
meet the substantial shareholdings exemption which provides an exemption from
corporation tax for capital gains. The majority of significant project costs
is not deductible for tax purposes as the projects relate to acquisitions or
disposals and are therefore capital in nature.
Unrecognised deferred tax assets
Deferred tax assets of the UK tax-resident companies of €7.7 million (2020:
€5.0 million) have not been recognised in respect of tax losses, because it
is not probable that future taxable profit will be available against which the
companies can maximise the benefits therefrom. Under UK law there is no expiry
for the use of tax losses.
In the UK 2021 Budget it was announced that the UK corporation rate will
increase to 25% from 1 April 2023. Consequently, Zegona has remeasured its UK
deferred tax assets at the end of the reporting period at the rate of 25%.
9. INVESTMENT IN SUBSIDIARIES
The Consolidated Financial Statements in the current year include the
following subsidiaries:
Subsidiary Nature of business Country of incorporation Shares held directly by the Company Shares held indirectly by the Company
Zegona Limited Incentive company Jersey (1) 100% -
Zegona Spanish Holdco Limited Dormant UK (2) - 100%
Zegona Borrower Limited Dormant UK (2) - 100%
Zegona Holdco Limited Dormant UK (2) - 100%
The registered office addresses of the subsidiaries are:
1. 47 Esplanade, St Helier, Jersey, JE1 0BD
2. 8 Sackville St, Mayfair, London, W1S 3DG
There are no restrictions on the Company's ability to access or use the assets
and settle the liabilities of the Company's subsidiaries, other than
immaterial assets controlled by liquidators.
Carrying value of the Company's direct investment in subsidiary
On 11 August 2021, Zegona Limited paid a distribution of £360 million
(equivalent to €417.9 million) out of a combination of its share premium
account and retained earnings to fund the Company's tender offer. The size of
this distribution prompted Zegona to review whether the carrying value of the
investment in subsidiary was recoverable. This review was also updated as at
31 December 2021.
Following these reviews, the carrying value of the investment was impaired by
€288.8 million in total, which has been recognised in the profit or loss of
the Company and included within the movement in retained earnings in the
Company's statement of financial position. The recoverable amount of the
Company's investment in subsidiary at 31 December 2021 was €6.8 million,
being its fair value less costs of disposal. The fair value measurement is
categorised within level 3 of the fair value hierarchy. The fair value was
based on an adjusted net asset method, whereby the fair values of the
recognised and unrecognised assets and liabilities of Zegona Limited were
directly measured. The majority of the value of the net assets held by Zegona
Limited as at 31 December 2021 was its cash holdings of €10.6 million.
10. FINANCIAL RISK MANAGEMENT
Zegona's activities expose it to market risk, principally interest rate risk
and currency risk, however these have been significantly reduced since the
sale of its investment in Euskaltel (see note 12) and the Return of Capital
(see note 20).
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in market interest
rate. Zegona's exposure to interest rate risk is limited as it only has a
small overdraft facility, which bears interest at 1.5% per annum over the Bank
of England base rate but is currently undrawn.
In the opinion of the Directors, even a significant movement in LIBOR would
not have a material impact on the cash flow of Zegona. The Executive Directors
and the Chief Financial Officer regularly review the placing of cash balances
and Zegona's leverage.
Foreign currency risk
The Board and the Chief Financial Officer control and monitor financial risk
management, including foreign currency risk, in accordance with internal
policy and the strategic plan defined by the Board. Zegona is exposed to three
types of exchange risk: transaction, translation and economic risk.
Transaction risk is the risk of loss that Zegona bears when it enters into
monetary transactions denominated in currencies other than Sterling, the
currency in which Zegona operates. A loss (or gain) may occur due to the
change in relative value of currencies from the date on which the transaction
is entered to the date the settlement takes place.
As at 31 December 2021, Zegona had euro monetary net assets of €1.8 thousand
(2020: €7.7 million). The table below shows the transactional impact of a
10% change in euro against Sterling at 31 December 2021:
+/- 10% movement
Currency impact €000
Profit before tax gain/loss -/+ 0.14
Equity gain/loss -/+ 0.14
Zegona is also exposed to foreign exchange translation risk which is
accounting in nature. It is the risk that the value of net assets and net
profit will change as a result of translation of the Financial Statements of
companies within the group with a different functional currency to the
presentational currency from one period to the next. In the case of Zegona,
this is the conversion of Sterling into euro.
The table below show the impact of a 10% movement in Sterling against the euro
on the translation of Zegona's reported financial position as at 31 December
2021 and reported financial performance for the year.
+/- 10% movement
Currency impact €000
Profit before tax gain/loss -/+ 3,425
Equity gain/loss -/+ 1,445
Credit risk
Credit risk arises from cash and cash equivalents, prepayments and other.
Zegona uses the ratings awarded by independent agencies, where available,
otherwise Zegona assesses the counterparty's credit rating taking into account
its financial situation, past experience and other factors. There are no
material financial assets that are written down, past due or impaired as at 31
December 2021, and there is no collateral or other credit enhancement feature
on Zegona's financial assets.
The material exposures to credit risk by credit quality classification and
external rating at 31 December 2021 are shown in the table below:
Cash and cash equivalents Total
€000 €000
Quality classification External credit rating
Strong A- and above 10,556 10,556
10,556 10,556
Credit quality classification definitions:
· Strong exposures demonstrate a strong capacity to meet financial
commitments, with negligible or low probability of default and/or low levels
of expected loss.
The Directors consider that the carrying amounts best represent the maximum
exposure to credit risk.
Liquidity risk
Prudent liquidity risk management implies holding sufficient cash and
marketable securities and the availability of financing through a sufficient
level of available credit lines. Management assesses regularly Zegona's
liquidity forecasts which consider cashflow projections and existing
facilities.
At 31 December 2021, Zegona had cash balances held with banks amounting to
€10.6 million (2020: €15.2 million), compared to Zegona's total
liabilities amounting to €1.5 million (2020: €13.2 million). In addition,
Zegona has an undrawn overdraft facility of £1.5 million, equivalent to
€1.8 million although this is repayable on demand. (2020: total facilities
of £6.5 million including the overdraft, equivalent to €7.2 million).
11. FINANCIAL INSTRUMENTS
The following tables shows the carrying amounts and the fair values of
financial assets and financial liabilities, including their levels in the fair
value hierarchy. It does not include fair value information for financial
assets and financial liabilities measured at amortised costs as their carrying
amount is a reasonable approximation of fair value.
Financial instrument classification and fair values - Consolidated
Fair Amortised Fair Amortised
Value cost value cost
2021 2021 2020 2020
€000 €000 €000 €000
Income Tax receivable - 5,234 - -
Total non-current financial assets - 5,234 - -
Prepayments and other receivables - 197 - 170
Derivatives (Level 2) - - 39 -
Financial assets designated at fair value (Level 3) -
- - 7,499
Cash and cash equivalents - 10,556 - 15,244
Total current financial assets - 10,753 7,538 15,414
Fair Amortised Fair Amortised
Value cost value cost
2021 2021 2020 2020
€000 €000 €000 €000
Accruals and other payables - 1,457 - 2,279
Bank borrowing - 106 - 10,971
Total current financial liabilities - 1,563 - 13,250
Further detail on the valuation technique used when measuring the Level 3
Financial assets designated at fair value, the reconciliation of movements
during the year can be found in note 13.
The Directors consider that the carrying amounts of the financial instruments
measured at amortised cost equate to their fair values.
Financial instrument classification and fair values - Company
Fair Amortised Fair Amortised
Value cost value cost
2021 2021 2020 2020
€000 €000 €000 €000
Prepayments and other receivables - 3,820 - 183
Derivatives (Level 2) - - 39 -
Cash and cash equivalents - 16 - 15,149
Total current financial assets - 3,836 39 15,332
Fair Amortised Fair Amortised
Value cost value cost
2021 2021 2020 2020
€000 €000 €000 €000
Accruals and other payables - 620 - 22,528
Bank borrowings - 106 - 10,971
Total current financial liabilities - 726 - 33,499
12. DISPOSAL OF INVESTMENT IN ASSOCIATE
On 28 March 2021, a subsidiary of MásMóvil Ibercom, S.A.U ("MásMóvil"),
the Spanish fourth national operator, launched a tender offer to acquire all
of the outstanding shares of Euskaltel for €11.17 per share, which was
subsequently adjusted to €11.00 per share following the payment by Euskaltel
of a €0.17 per share dividend.
The tender offer completed successfully and Zegona received €421.3 million
in cash on 11 August 2021. Eamonn O'Hare and Robert Samuelson both 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. On 28 March
2021, Zegona concluded that the investment qualified as an asset held for sale
under paragraph 7-10 of IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations because on this date Zegona's board has resolved to
participate in the tender offer announced by MásMóvil, and it considered it
highly probable that the tender would be successful.
Accordingly, the investment in Euskaltel ceased to be an associate on 28 March
2021 and from this date became an asset held for sale with Zegona no longer
recognising a share of Euskaltel's profit from that date. The investment in
Euskaltel, together with other related items (see note 13), has also been
classified as a discontinued operation in all periods presented in these
Consolidated Financial Statements. The effect of the disposal on the
consolidated financial position and comprehensive income of Zegona during year
were as follows:
Assets held Interest in Associate
for sale
€000 €000
Balance at 31 December 2020 - 322,737
Share of loss of associate 33 - (454)
Dividend received - (5,362)
Balance at 28 March 2021 - 316,921
Reclassification to Assets held for sale 316,921 (316,921)
Dividend received (6,511) -
Balance at 11 August 2021 310,410 -
The gain on sale was:
€000
Consideration received 421,275
Carrying amount of investment in associate (310,410)
Recycling of historical exchange differences on sale of discontinued (625)
operations
Gain on sale of discontinued operations 110,240
The disposal of Euskaltel does not attract a tax charge as it qualifies for
the Substantial Shareholding Exemption in Schedule 7AC of the Taxation of
Chargeable Gains Act 1992.
13. DISCONTINUED OPERATIONS
The amounts recorded in the Consolidated statement of comprehensive income in
respect of discontinued operations were as follows:
Consolidated Consolidated
2021 2020
€000 €000
Gain on sale of discontinued operation (Note 12) 110,240 -
Share of (loss) / profit of associate (Note 12) (454) 16,309
Realised foreign exchange gains 8,391 -
Significant project costs (2,910) -
Finance costs (1,096) (244)
Finance income - 3,746
Discontinued operations 114,171 19,811
The amounts recorded in the Consolidated statement of cash flows in respect of
discontinued operations were
as follows:
Consolidated Consolidated
2021 2020
€000 €000
Proceeds from sale of investment in Euskaltel 421,275 -
Dividends received from Euskaltel 11,872 11,842
Proceeds from sale of contingent consideration 6,400 -
Purchases of interests in Euskaltel - (1,690)
Net cash flow from discontinued investing activities 439,547 10,152
Realised foreign exchange gains
On 7 April 2021, Zegona entered into a Deal Contingent Forward Purchase
Agreement ("DCF") with Barclays Bank PLC to ensure it would receive a fixed
Sterling value if the tender offer to acquire Euskaltel was completed
successfully. 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 €430 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
£/€ and 1.1556 £/€.
Zegona settled the DCF in two tranches, first settling €7.7 million on 14
July 2021 in respect of the Euskaltel dividend passed on to Zegona
shareholders at a rate of 1.1563 £/€ and secondly settling €422.3 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 £/€, receiving £365.3 million.
The realised foreign exchange gains are the gains on this instrument,
calculated as the difference between the GBP value received under the DCF and
the GBP value of the euros received at the prevailing spot rate. 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. This line also includes €0.4 million (2020 €0.2 million) of
foreign exchange gains arising from the revaluation of the Euro-denominated
contingent consideration.
Finance costs and finance income
During 2020 and up to 10 August 2021, Zegona recorded a financial asset
designated at fair value for contingent consideration receivable from
Euskaltel in relation to the sale of Telecable in 2017.
The contingent consideration was payable by Euskaltel in cash up to a maximum
amount of €15 million in aggregate upon confirmation that a range of net tax
assets are available to Euskaltel and may be used to offset its future tax
payments. This asset was always recorded at fair value using a
probability-weighted discounted cash flow model.
At December 31 2020, the fair value of the contingent consideration was €7.5
million, which primarily reflected Zegona's high confidence at the time that
€8.7 million recorded in Euskaltel's financial statements would be paid.
This was an increase compared to the prior year and this change in fair value
was recognised by recording €3.7 million of finance income.
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 €6.4 million in cash, which was received on 10 August
2021. The loss this crystalised of €1.1 million was recorded within Finance
costs. As the sale of Euskaltel would not have been undertaken without the
settlement of the contingent consideration Zegona concluded that the
contingent consideration was part of the discontinued operation. The movements
in the balance of the contingent consideration during the year were as
follows:
€000
Balance at 31 December 2019 3,997
Fair value changes recognised in discontinued operations 3,746
Foreign exchange differences recognised in discontinued operations (244)
Balance at 31 December 2020 7,499
Fair value changes recognised in discontinued operations (1,096)
Foreign exchange differences recognised in discontinued operations (3)
Proceeds from sale 6,400
Balance at 31 December 2021 -
Significant project costs
Significant project costs are those incurred on projects that are considered
to be one-off or non-recurring in nature, where the costs are so material
individually or collectively that the Directors believe that they require
separate presentation and disclosure to avoid distortion of the comparability
of corporate costs between periods. In 2021, €2.9 million of significant
project costs related to the disposal of the Euskaltel investment and the
Return of capital were recognised with discontinued operations which were
principally legal fees and stamp duty.
14. PREPAYMENTS AND OTHER RECEIVABLES
Consolidated Consolidated
31 December 31 December
2021 2020
€000 €000
Prepayments 46 42
VAT recoverable 151 24
Other receivables - 104
Total 197 170
Company Company
31 December 31 December
2021 2020
€000 €000
Prepayments 42 35
Amounts due from subsidiary undertakings 3,628 20
VAT recoverable 150 24
Other receivables - 104
Total 3,820 183
15. INCOME TAX RECEIVABLE
In October 2017, the European Commission (the ''EC'') announced it was
conducting a state aid investigation into the Group Financing Exemption
contained within the UK's Controlled Foreign Company (''CFC'') legislation. On
20 August 2019, the EC published its final decision which concluded that the
Group Financing Exemption was an aid scheme and amounted to illegal state aid
to the extent that there were UK Significant People or Function ("SPF")
activities involved in generating non-trading finance profits.
Both the UK Government and a number of other impacted taxpayers have submitted
appeals to the EU General Court to annul the EU Commission's findings. On 31
March 2022, the court announced that it will deliver its judgement on 8 June
2022. Any decision of the General Court may be subject to further appeals
which could take considerable additional time.
While these appeals are ongoing, the UK Government is required to recover the
State Aid and a new law was enacted in December 2020 which empowers HMRC to
issue a charging notice to cover all periods for which they consider
additional tax is due. These charging notices must be paid within 30 days and
while they may be appealed, there is no right to postpone payment. However,
this new law is a charging mechanism only and not an arbitration on the merits
of the on-going litigation. If the state aid decision is annulled by the EU
General Court (or on appeal), then any amounts paid will be returned to Zegona
following this final determination.
Following the issuance of the European Commission judgement, Zegona engaged an
independent tax adviser to undertake a review of its historic financing
structures, to establish the extent to which the relevant SPFs were carried
out in the UK. This review identified a small proportion of activities
performed by UK personnel. On this basis, Zegona estimated that if the
Commission judgement is upheld, a potential tax liability of between €1m and
€1.8m may exist, which reflects the relatively modest proportion of SPFs
undertaken in the UK.
HMRC have taken the view that SPF allocations should in almost all cases be
either 100% or 0% and consistent with this interpretation, HMRC issued Zegona
with a charging notice in February 2021 in the amount of £4.1 million,
(€4.9 million) which represents 100% of the CFC tax relief received. Zegona
strongly disagrees with HMRCs interpretation, however as required by the new
legislation, Zegona paid the notice in full on 4 March 2021 (within 30 days of
receipt). At the same time, Zegona 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 mentioned above, the issuance of charging notices is a collection mechanism
only and not an arbitration on the merits of the ongoing litigation.
Consequently, the issuance and the settlement of the charging notice 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. This
conclusion is based on advice from Zegona's independent tax advisor.
In accordance with the provisions of IFRIC 23, Zegona therefore recognised a
receivable against both HMRC charging notices. Zegona, supported by its
independent tax advisors, has continued to monitor developments in the case
since recognising the receivable. This has confirmed that while there have
been a number of administrative hearings there have been no developments that
would change Zegona's original conclusion that the receivable is recoverable.
Zegona will continue to evaluate the recoverability of this receivable until a
final resolution is reached.
16. DERIVATIVES
The following table shows the notional amount and fair value amounts by
product contract type held by the Company
Notional contract amount Notional contract amount
31 December 2021 Fair value- 31 December 2020 Fair value-
Assets Assets
31 December 2021 31 December 2020
€000 €000 €000 €000
Foreign exchange forward contracts - - 4,343 39
- - 4,343 39
The notional contract amounts of foreign exchange contracts indicate the
nominal value of transaction outstanding at the balance sheet date; they do
not represent amounts at risk.
17. ACCRUALS AND OTHER PAYABLES
Consolidated Consolidated
31 December 31 December
2021 2020
€000 €000
Trade payables 250 372
Accrued interest - 57
Other accruals 1,207 1,850
1,457 2,279
Company Company
31 December 31 December
2021 2020
€000 €000
Trade payables 47 57
Payable to direct subsidiary - 21,909
Other payables - 169
Accruals 573 393
620 22,528
18. BANK BORROWINGS
Zegona has a £1.5 million overdraft facility with HSBC PLC which is generally
undrawn, however at 31 December 2021, £90.8 thousand (€106.4 thousand) of
the facility was drawn for a brief period to cover short-term working capital
requirements. The interest rate on the overdraft facility is 0.25% and it is
repayable on demand. The overdraft was repaid 13(th) January 2022.
Until the disposal of Euskaltel, Zegona had drawn £10 million of a £15
million of a credit facility with Barclays Bank which was secured on its
investment in Euskaltel (£10 million (€11.1 million) was also drawn at 31
December 2020). 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 £5
million.
The Company had the right to prepay the loan at any time and facility was due
to mature on 14 October 2021. The 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.
19. MANAGEMENT INCENTIVE SCHEME
Incentive scheme arrangements were put in place at Zegona's inception in 2015
to create incentives for Zegona's management team who have been issued Class A
Ordinary Shares in the Company's subsidiary, Zegona Limited
("Management Shares").
The holders of the Management Shares are entitled to 15% of the growth in
value of Zegona during a series of five separate Calculation Periods, provided
that ordinary shareholders achieve a 5% per annum Preferred Return 34 in each
Calculation Period.
Holders have the right to end each Calculation Period by redeeming 99% of
their Management Shares at any time between the third and fifth anniversaries
of the beginning of the Calculation Period, although a Calculation Period may
also end upon certain specified events such as a winding up or takeover, or a
change of control of Zegona.
When a Calculation Period ends, a new Calculation Period automatically begins
with the remaining 1% of unredeemed shares retaining the entitlement to 15% of
the growth in value of Zegona for the next Calculation Period.
At 31 December 2021, 515,464 Management Shares in Zegona Limited remain
allotted, issued and fully paid as shown in the table below:
Participation in Number of Management Shares Nominal value
growth in of Management Shares
value
Eamonn O'Hare 8.88% 305,000 £305
Robert Samuelson 4.44% 152,500 £153
Zegona senior management 1.68% 57,964 £58
515,464 £516
The First Calculation Period
The First Calculation Period began on 14 August 2015 and ended on 25 June
2020 when the holders of the shares redeemed 99% of them for no value because
the preferred return had not been met.
The Second Calculation Period
Accounting as an equity settled instrument:
The Second Calculation Period automatically began on 25 June 2020 with the
starting value against which the growth in value and the Preferred Return are
measured ("Baseline Value Per Share") being set at £0.955 per share, however
this renewal was subject to a vote of Zegona's shareholders at the 2021 AGM,
which was duly passed with 91.17% of votes in favour.
Under IFRS 2 Share Based Payment, the new Calculation Period constituted 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,
because the renewal of the scheme required shareholder approval, the grant
date of the award could not be until 30 June 2021 when the shareholder
approval was given.
In such circumstances, IFRS 2 requires the fair value of the award to be
estimated at each balance sheet date, and an expense recognised from the date
that holders begin to render services. This estimate is then recalculated and
adjusted at each balance sheet date prior to the grant date (Zegona's 2021
AGM), and finally at the grant date. Zegona applied this treatment up to 24
May 2021, recording €0.8 million of share-based payment expense in 2020 and
further €0.8 million in 2021, with a cumulative €1.6 million recognised in
the Share-based payment reserve. On this date, Zegona concluded that the
Management Shares no longer qualified as an equity settled instrument.
Accounting as a cash settled instrument:
Zegona Limited's Articles of Association (the "Limited Articles") allows the
Management Shares to be redeemed within three years of the beginning of a
Calculation Period if certain criteria ("Takeover Provisions") are met. One of
these Takeover Provisions is if Zegona sells all, or substantially all, of its
assets and distributes the net proceeds (the "Substantial Sale and Return
Provision"). If any of these Takeover Provisions are met, then any redemption
must be in cash.
The announcement on 24 May 2021 that Zegona intended to return £335 million
to shareholders, following the sale of its investment in Euskaltel (see note
12), meant that the Substantial Sale and Return provision was expected to be
met and a cash payment of £25.7 million would be due to holders of the
Management Shares, provided the Capital Return was completed successfully.
Consequently, Zegona concluded that from 24 May 2021, the Management Incentive
Scheme no longer met the criteria to be recognised as an equity settled
transaction under IFRS 2 and must be accounted for as a cash settled
transaction.
On 24 May 2021 Zegona therefore reclassified the €1.6 million of cumulative
share-based payment expense that it had recognised in the share-based payment
reserve as a liability instrument.
At the same time, an incremental liability was recorded to recognise the
portion of the fair value of the Management Shares that had been earned on 24
May 2021. This liability was subsequently remeasured at each balance sheet
date until the date of the successful Return of Capital when it was equal to
the £25.7 million (€30.3 million on the transaction date) actually paid on
14 October 2021 when the holders of the Management Shares delivered a
redemption notice and the liability was extinguished.
A Management Incentive Scheme cost of €29 million for 2021 was recognised in
the Consolidated Statement of Comprehensive Income, being equal to the
liability recorded in excess of the amount reclassified from the Share based
payment reserve plus the €0.8 million recognised in 2021 prior to the
instrument being reclassified as a cash settled instrument.
The Third Calculation Period
The Third Calculation Period automatically began on 14 October 2021, with the
Baseline Value Per Share for the new Calculation Period being £1.51 per
share, which was equal to volume weighted average mid-market price of Zegona
shares for the previous 30 trading days. During the Third Calculation Period,
the Management Shares may be redeemed between 14 October 2024 and 14 October
2026. All other terms remain the same as for the other Calculation Periods and
the renewal of the scheme will be subject to a shareholder vote at Zegona's
2022 AGM.
Similar to the Second Calculation Period, this constituted a new award with
services rendered from 14 October 2021, however the grant date of the award
under IFRS 2 will not be until shareholders ratify the renewal of the scheme
at Zegona's 2022 AGM. Until this date, Zegona will therefore estimate the fair
value of the award at each balance sheet date and recognise an expense
reflecting the date that holders began to render services. Zegona expects that
any amounts due under the third calculation period will be settled in equity,
therefore has concluded that the Management Shares are equity settled
instruments.
Accordingly, Zegona engaged an independent valuation specialist to estimate
the fair value of the award as at 31 December 2021.
The value of the award on the valuation date was £0.72 per Management Share
which will be recognised in the Consolidated Statement of Comprehensive Income
subject to any adjustments for future revaluations discussed above. For the
period to 31 December 2021 a total expense of €31 thousand was recognised,
with a corresponding amount recognised in the Share based payment reserve.
The fair value of the award was calculated using a Monte Carlo model. The fair
value uses a volatility of between 50% and 60% depending on the acquisition
size, and an expected term of three years. The Incentive Shares are subject to
the Preferred Return being achieved, which is a market performance condition,
and as such has been taken into consideration in determining their fair value.
A risk-free rate of 0.75% has been applied, based on the implied yield
available at the measurement date on the zero-coupon government issues with a
remaining term equal to the expected term of the Awards. The model
incorporates a range of probabilities for the likelihood of a successful
acquisition being made of a given size in a range of £0.5 billion - £5
billion and includes a number of discounts of 90% in aggregate to reflect the
risks inherent in the instrument such as the competition for assets and the
need to raise capital within a short timeframe.
20. RETURN OF CAPITAL AND RELATED TRANSACTIONS
On 24 May 2021, Zegona announced its intention to return £335 million to its
shareholders in cash via a capital return once it had received the proceeds
from the disposal of Euskaltel, and that its management team would re-invest a
portion of the proceeds from the exercise of the Management Shares into newly
issued Zegona shares.
The first portion of this capital return was delivered on 23 July 2021 when
Zegona paid a £5.7 million (€6.7 million) dividend which returned the full
dividend received from Euskaltel on 17 June 2021. In order to deliver on the
rest of its commitment, Zegona undertook the following transactions:
Tender Offer
On 13 August 2021, Zegona announced the publication of a circular for a Return
of Capital of up to £329.3 million to shareholders by way of a tender offer
(the "tender offer") at a price of £1.535 per share. This tender offer was
approved by shareholders on 6 September with 99.94% of votes cast in favour.
Zegona successfully repurchased and cancelled 214,532,103 shares under the
tender offer, returning the full balance of the £335 million, being £329.3
million, on 14 October 2021.
Reduction of share premium account
In order to complete a share buyback of at least £329.3 million, the Company
needed to have distributable reserves of at least that amount and in order to
achieve this, the Company announced on 29 July 2021 that it intended to reduce
its share premium account from £95,339,759 to £100,000 (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 with 100% of votes cast
in favour. The Court confirmed the Capital Reduction on 7 September 2021, and
it became effective on 8 September 2021. 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.
Management Subscription
The Zegona management team committed to re-invest up to £4.0 million of the
proceeds of the exercise of the Management Shares back into Zegona by
subscribing for new shares. The subscription price was agreed as the adjusted
net asset value per share of Zegona immediately prior to completion of the
subscriptions. To the extent that the aggregate number of shares to be
subscribed for would exceed 28.1% of the issued share capital of the Company
immediately following the subscription, the subscriptions were to be scaled
back pro rata. The subscriptions were also conditional on the admission to
trading ("Admission") of these shares by the Financial Conduct Authority
("FCA") and Zegona had been advised that the company should not be required to
issue a prospectus for Admission. The subscriptions were approved by Zegona's
shareholders at a General Meeting of the Company on 30 June 2021.
Following the completion of the tender offer, the subscription price was
confirmed as £1.438 per share, meaning the management team were able to
subscribe for 1,734,451 shares which would have been 28.1% of the Company
immediately following the subscription. The aggregate total investment would
have been £2.5 million, which was paid by the management team on 14 October
2021. Following the investment, the Board and management team would have held
29.1% of Zegona's shares.
Upon applying for Admission of the new shares, Zegona was informed that
Admission was limited to a maximum of 20% of its shares in issue immediately
following its tender offer without publishing a prospectus. Zegona, together
with Eamonn O'Hare and Robert Samuelson (the affected members of the
management team), elected to issue and Admit 887,594 shares on 27 October
2021 35 with the remaining 846,857 shares to be issued the next time Zegona
prepares a prospectus 36 . Zegona entered into a revised Subscription
Agreement ("Subscription Agreement (as Amended)") with Eamonn O'Hare and
Robert Samuelson that confirmed they were both committed to complete the
subscription for the agreed number of shares at the agreed price under any
circumstances.
Zegona has concluded that the Subscription Agreement (as Amended) is an equity
instrument as it is defined in IAS 32 Financial Instruments: Presentation on
the basis that (a) there is no contractual obligation to deliver cash or
another financial asset to another party (b) there is no obligation to
exchange financial assets or liabilities with another party and (c) the
agreement is a non-derivative and obliges Zegona to deliver a fixed number
of shares.
The value of shares to be issued (being the cash paid) have therefore been
recognised within a new reserve, Shares to be issued.
21. CALLED UP SHARE CAPITAL
2021 2021 2020 2020
Allotted, called up and fully paid Number €000 Number €000
At 1 January 218,970,076 2,821 221,935,177 2,855
Shares issued 887,594 11 - -
Shares repurchased and cancelled (214,532,103) (2,531) (2,965,101) (34)
At 31 December 5,325,567 301 218,970,076 2,821
The nominal value of the total ordinary shares is £0.01 and the total
allotted, called up and fully paid equates to £53,256 (2020: £2,189,701).
On 13 August 2021, the Company announced the publication of a circular for a
return of up to £329.3 million to shareholders by way of a tender offer. The
tender offer completed on 14 October 2021 at a price of £1.535 per share,
with a total of 214,532,103 ordinary shares tendered. Immediately following
the completion of the tender offer, there were 4,437,973 shares outstanding.
During 2020 Zegona purchased and cancelled a total of 2,965,101 ordinary
shares for a nominal value of £29,651. For more information on the share
buyback programme refer to note 23.
All ordinary shares confer identical rights including in respect of capital,
dividends and voting. There are no restrictions on the distributions of
dividends or the repayment of capital.
22. RESERVES
Distributable reserves
Retained earnings
The retained earnings reserve includes cumulative net profits and permitted
transfers from the share-based payment reserve. This is typically a
distributable reserve.
Other reserve
The Other reserve is a distributable reserve which is comprised of transfers
from the Share premium reserve in 2016 and 2021 following court approved
reductions of capital (see note 20), net of all historical dividends paid and
the total costs of buying back shares (the nominal value of the shares and any
premium paid), which are charged against distributable reserves.
Following the completion of the tender offer (see note 20) the full amount
then outstanding in the Other reserve was utilised to fund the tender offer.
£178 million (€277.3 million at the rate applied to the transaction) was
debited to reflect the utilisation of the whole of this distributable reserve
to fund the tender offer.
Total distributable reserves
While the Other reserve continues to be distributable, its balance in Sterling
is zero, therefore the Company's total distributable reserves are now solely
the Retained earnings reserve. At 31 December 2021 the Company's Retained
earnings reserve in Sterling (Zegona's functional currency) was £ 3.5
million, however a balance of €65.5 million remains in this reserve on
translation to Euro (Zegona's presentational currency). This is because, in
accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates,
equity items are translated each period at their historical exchange rates and
not subsequently retranslated and the remaining balance reflects the
difference between the Euro value of all previous amounts recorded in all
distributable reserves and the Euro value of the amount debited to the
Retained earnings reserve to fund the tender offer.
An offsetting amount is also recorded as a component of the foreign currency
translation reserve, however it is not recycled on completion of the tender
offer because as a component of the Company's equity it does not represent the
disposal of a foreign operation. Distributable reserves at 31 December 2020
were £140 million.
Non - distributable reserves
Share-based payment reserve
The share-based payment reserve is a non-distributable reserve that represents
the cumulative build-up of the Management Incentive Scheme costs over the
vesting period as the employees gradually render service while the Management
Incentive Scheme is considered to be an equity settled instrument.
The current balance of the reserve reflects the amortisation of a portion of
the fair value of the third Calculation Period as discussed in Note 19.
Foreign currency translation reserve
The foreign currency translation reserve is a non-distributable reserve that
includes the foreign exchange differences arising from the translation of the
Consolidated Financial Statements functional currency of Sterling ("£") to
presentational currency euro ("€"). The movement in this reserve for the
period is driven primarily by the movement in the closing €:£ exchange
rates from 1.11 at 31 December 2020 to 1.19 at 31 December 2021.
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.
When the Company buys back shares out of profits and those shares are
immediately cancelled, the amount by which the Company's issued share capital
is reduced must be transferred to the capital redemption reserve.
During 2021, £2.1 million (€2.5 million at the rate prevailing at the
transaction date) has been transferred to the capital redemption reserve which
represents the nominal value of the 214,532,103 shares repurchased in the
tender offer (see note 20).
Share premium reserve
The share premium reserve is a requirement under s610 of the Companies Act
2006 and is a non-distributable reserve. The reserve comprises amounts
subscribed for share capital in excess of nominal value less costs directly
attributable to the issue of new shares. During 2021, the share premium
account of the Company was reduced to £100,000 (€114.1 thousand) with
£95.239 million (€108.7 million) being transferred to the Other reserve
(see note 20). This was offset by £1.2 million, being the proceeds received
in excess of the nominal value of the 887,594 shares subscribed for by Eamonn
O'Hare and Robert Samuelson on 27 October 2021 (see note 20).
Shares to be issued
The Shares to be issued reserve is a non-distributable reserve that relates
solely to the £1.2 million (€1.4 million) of cash received from Robert
Samuelson and Eamonn O'Hare to subscribe for shares which have not yet been
admitted (see note 20).
23. SHARE BUYBACK
On 7 January 2020, Zegona commenced a share buyback programme to purchase its
ordinary shares up to a maximum consideration of £10 million (€11.1
million). Zegona's Board set a buyback policy that allowed shares to be
acquired at prices up to the Underlying Asset Value per Share 37 . This
programme concluded on 31 March 2020 and 2,442,447 ordinary shares, with a
nominal value of £24,424, (€28,369) were purchased and cancelled for a
total of £2,461,592 (€2,869,090).
On 24 June 2020, Zegona announced a further share buy-back programme for the
purchase of up to a maximum of £10 million (€11.1 million) of its ordinary
shares. This programme concluded on 15 September 2020 and 522,654 ordinary
shares, with a nominal value of £5,227 (€5,786), were purchased and
cancelled for a total of £604,455 (€668,995).
During 2020 Zegona purchased and cancelled a total of 2,965,101 ordinary
shares for a total of £3,066,047 (€3.4 million), representing 1.35% of the
total shares in issue.
24. CAPITAL MANAGEMENT
Our objective when managing capital is to maintain a flexible capital
structure that optimises the costs and availability of capital at acceptable
risk with the primary objective of maximising shareholder value. In the
management of capital and its definition, we include share capital and all
equity reserves attributable to the equity holders of the Company.
Zegona manages its capital structure and makes adjustments in light of changes
in economic conditions and the requirements of any covenants. To maintain or
adjust the capital structure, Zegona may adjust the dividend payment to
shareholders, return capital to shareholders, make distributions of non-cash
assets to shareholders or issue new shares.
The Company currently has authorisation to make market purchases of up to
32,823,614 ordinary shares (within specified price parameters) which was 15%
of the issued ordinary share capital at the date of issuance of its 2020
Annual Report and is now significantly in excess of the total number of
ordinary shares in issue. This authorisation will continue until the end of
the 2022 AGM, at which point it is expected to revert to 15% of the issued
ordinary share capital at the issuance of the 2021 Annual Report. Any shares
repurchased by the Company pursuant to this authority may be held in treasury
and subsequently resold for cash, cancelled or used for employee share scheme
purposes.
Throughout 2021, Zegona met the financial covenants associated to the
facilities described in note 18 which were repaid on 13 August 2021.
25. EARNINGS PER ORDINARY SHARE
Basic EPS is calculated by dividing the profit 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. As more fully detailed in note 19, Management Shares in the share
capital of Zegona Limited have been issued 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. No
adjustment to EPS has been made in respect of the Management Shares as, (a)
they were anti-dilutive for the years ended 31 December 2021 and 2020 and (b)
the result from Continuing Operations in 2021 was a loss.
2021 2020
Profit for the year attributable to equity holders of the parent 79,913 13,966
- Total Operations (€000)
Loss for the year attributable to equity holders of the parent (34,258) (5,845)
- Continuing Operations (€000)
Profit for the year attributable to equity holders of the parent 114,171 19,811
- Discontinued Operations (€000)
Weighted average number of ordinary shares 168,580,851 219,658,462
Basic and diluted EPS - Total Operations (€) 0.47 0.06
Basic and diluted EPS - Continuing Operations (€) (0.20) (0.03)
Basic and diluted EPS - Discontinued Operations (€) 0.68 0.09
26. DIVIDENDS PAID
The Company declared a first interim dividend on 21 December 2020 at a rate of
2.2p per share, totalling £4.8 million (€5.6 million). The dividend was
paid on 9 March 2021. The Company also declared a second interim dividend on
21 June 2021 at a rate of 2.6p per share, totalling £5.7 million (€6.7
million). The dividend was paid on 23 July 2021.
In the comparative period, the Company declared an interim dividend on 6
February 2020 at a rate of 2.0p per share, totalling £4.5 million (€5.3
million), which was paid on 6 March 2020. On 9 June 2020 the Company declared
an interim dividend at the rate of 2.6p per share for a total of £5.7 million
(€6.3 million). The dividend was paid on 31 July 2020.
27. RELATED PARTY TRANSACTIONS
In the opinion of the Directors, there is no one single controlling party, nor
any transactions with related parties for the year ended 31 December 2021.
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the other party, or the
parties are under common control or influence, in making financial or
operational decisions.
Related party transactions of the Company in 2020
Mark Brangstrup Watts was a Non-executive Director of Zegona up until 12 May
2020 and is a designated member of Marwyn Capital LLP ("Marwyn"), which was
compensated for various office services provided to the Company.
During the period to 12 May 2020, services totalling €25k were received from
Marwyn.
Mark Brangstrup Watts is an ultimate beneficial owner of Axio Capital
Solutions Limited ("Axio"), which provided company secretarial, administrative
and accounting services to Zegona during 2020. During the period to 12 May
2020, services totalling €173k were received from Axio.
There were no amounts owed to or from Marwyn or Axio at 31 December 2020.
Transactions with key management personnel
The Board considers the Executive Directors and Non-Executive Directors of the
Company to be the key management personnel of Zegona. Details of the amounts
paid to key management personnel are detailed in the Directors' Remuneration
Report on pages 42 and 48. Holdings of Management Shares are detailed in note
19 and subscriptions for shares by management are detailed in note 20.
28. AUDITOR'S REMUNERATION
2021 2020
€000 €000
Fees for the audit of the Company's annual accounts 200 288
Total audit fees 200 288
Fees for procedures on interim financial statements 15 44
Agreed upon procedures 29 -
Total non-audit fees 44 44
29. POST BALANCE SHEET EVENTS
There have been no material post balance sheet events that would require
disclosure or adjustment to these financial statements.
OTHER INFORMATION |NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the Annual General Meeting (the "AGM") of Zegona
Communications plc (the "Company") will be held at the offices of Travers
Smith LLP, 10 Snow Hill, London, EC1A 2AL on 28 June 2022 at 1.00 p.m. for the
transaction of the following business:
To consider and, if thought fit, to pass the following resolutions, numbers 1
to 13 of which will be proposed as ordinary resolutions and numbers 15 to 18
of which will be proposed as special resolutions:
1. THAT the Company's financial statements for the year ended 31
December 2021, together with the Directors' report and the auditor's report on
those financial statements and on the auditable part of the Directors'
remuneration report, be received.
2. THAT Eamonn O'Hare be re-elected as a Director.
3. THAT Robert Samuelson be re-elected as a Director.
4. THAT Richard Williams be re-elected as a Director.
5. THAT Ashley Martin be re-elected as a Director.
6. THAT Kjersti Wiklund be re-elected as a Director.
7. THAT Suzi Williams be re-elected as a Director.
8. THAT KPMG LLP be re-appointed as auditor to the Company until
the conclusion of the next annual general meeting of the Company.
9. THAT the Directors be authorised to fix the auditor's
remuneration.
10. THAT the payment of the interim dividend, in lieu of a final
dividend, of 2.6p per ordinary share to the Company's shareholders on 23 July
2021 be and is confirmed, approved and ratified for all purposes.
11. THAT the Directors' remuneration report, which is set out in pages
42 to 51 of the annual report of the Company for the year ended 31 December
2021, be approved.
12. THAT the Directors' remuneration policy, which is set out in pages
33 to 41 of the annual report of the Company for the year ended 31 December
2021, be approved.
13. THAT for the purposes of section 551 Companies Act 2006 (the
"Act") (and so that expressions used in this resolution shall bear the same
meanings as in the said section 551), the Directors be and are generally and
unconditionally authorised to exercise all powers of the Company to allot:
13.1 shares and to grant such subscription and
conversion rights as are contemplated by sections 551(1)(a) and (b) of the Act
respectively up to a maximum nominal amount of £17,751 to such persons and at
such times and on such terms as they think proper; and further
13.2 equity securities (as defined in section 560 of
the Act) in connection with a rights issue in favour of the holders of equity
securities and any other persons entitled to participate in such issue where
the equity securities respectively attributable to the interests of such
holders and persons are proportionate (as nearly as may be) to the respective
number of equity securities held by them up to a maximum nominal amount of
£17,751,
subject only to such exclusions or other arrangements as the Directors may
consider necessary or expedient to deal with treasury shares, fractional
entitlements or legal or practical problems under the laws of any territory or
requirements of any recognised regulatory body or stock exchange in any
territory, provided that such authority shall expire at the conclusion of the
next annual general meeting of the Company or the date which is 18 months
after the date on which this resolution is passed, whichever is the earlier,
save that the Company be and is hereby authorised to make, prior to the expiry
of such periods, any offer or agreement which would or might require such
shares or rights to be allotted or granted after the expiry of the said
periods and the Directors may allot such shares or grant such rights under any
such offer or agreement as if the authority had not expired.
14. THAT the Company be and is hereby authorised to renew the rights
attached to the Management Shares following the commencement of a new
Calculation period.
15. THAT if resolution 13 set out in the Notice convening this Meeting
is passed, the Directors be and are hereby authorised to allot equity
securities (as defined in section 560 of the Act) for cash under the authority
given by that resolution and/or to sell ordinary shares held by the Company as
treasury shares for cash as if section 561 of the Act did not apply to any
such allotment or sale, such authority to be limited to:
15.1 the allotment of equity securities in connection
with an issue or offering in favour of holders of equity securities (but in
the case of an allotment pursuant to the authority granted under resolution
13.2, such power shall be limited to the allotment of equity securities by way
of a rights issue only) and any other persons entitled to participate in such
issue or offering where the equity securities respectively attributable to the
interests of such holders and persons are proportionate (as nearly as may be)
to the respective number of equity securities held by or deemed to be held by
them on the record date of such allotment, subject only to such exclusions or
other arrangements as the Directors may consider necessary or expedient to
deal with treasury shares, fractional entitlements or legal or practical
problems under the laws of any territory or requirements of any recognised
regulatory body or stock exchange in any territory; and
15.2 the allotment (otherwise than pursuant to
paragraph 15.1 above) of equity securities up to a nominal amount of £2,662,
such authority, unless renewed, to expire at the conclusion of the next annual
general meeting of the Company or the date which is 18 months after the date
on which this resolution is passed, whichever is the earlier, but in each
case, prior to its expiry the Company may make offers, and enter into
agreements, which would, or might, require equity securities to be allotted
(and treasury shares to be sold) after the authority expires and the Directors
may allot equity securities (and sell treasury shares) under any such offer or
agreement as if the authority had not expired.
16. THAT if resolution 13 set out in the Notice convening this Meeting
is passed, the Directors be and are hereby authorised in addition to any
authority granted under resolution 13 to allot equity securities (as defined
in section 560 of the Act) for cash under the authority given by that
resolution and/or to sell ordinary shares held by the Company as treasury
shares for cash as if section 561 of the Companies Act 2006 did not apply to
any such allotment or sale, such authority to be:
16.1 limited to the allotment of equity securities or
sale of treasury shares up to a nominal amount of £2,662; and
16.2 used only for the purposes of financing (or
refinancing, if the authority is to be used within six months after the
original transaction) a transaction which the Board of the Company determines
to be an acquisition or other capital investment of a kind contemplated by the
Statement of Principles on Disapplying Pre-Emption Rights most recently
published by the Pre-Emption Group prior to the date of this notice;
such authority, unless renewed, to expire at the conclusion of the next annual
general meeting of the Company or the date which is 18 months after the date
on which this resolution is passed, whichever is the earlier, but in each
case, prior to its expiry the Company may make offers, and enter into
agreements, which would, or might, require equity securities to be allotted
(and treasury shares to be sold) after the authority expires and the Directors
may allot equity securities (and sell treasury shares) under any such offer or
agreement as if the authority had not expired.
17. THAT the Company be and is hereby generally and unconditionally
authorised for the purpose of section 701 Companies Act 2006 to make market
purchases (as defined in section 693 of the said Act) of ordinary shares of
£0.01 each in the capital of the Company ("ordinary shares") provided that:
17.1 the maximum number of ordinary shares hereby
authorised to be purchased is 798,302, being equal to 14.99 per cent. of the
issued ordinary shares;
17.2 the minimum price (exclusive of expenses) which
may be paid for such ordinary shares is £0.01 per share, being the nominal
amount thereof;
17.3 the maximum price (exclusive of expenses) which
may be paid for such ordinary shares shall be an amount equal to the higher of
(i) 5% above the average of the middle market quotations for such shares taken
from The London Stock Exchange Daily Official List for the five business days
immediately preceding the day on which the purchase is made and (ii) the
higher of the price of the last independent trade of an ordinary share and the
highest current independent bid for an ordinary share as derived from the
London Stock Exchange Trading System (SETS);
17.4 the authority hereby conferred shall (unless
previously renewed or revoked) expire on the earlier of the end of the next
annual general meeting of the Company and the date which is 18 months after
the date on which this resolution is passed; and
17.5 the Company may make a contract to purchase its
own ordinary shares under the authority conferred by this resolution prior to
the expiry of such authority, and such contract will or may be executed wholly
or partly after the expiry of such authority, and the Company may make a
purchase of its own ordinary shares in pursuance of any such contract.
18. THAT the Company be and is hereby authorised to provide notice to
shareholders of general meetings of the Company of at least 14 clear days'
notice.
BY ORDER OF THE BOARD
Secretary: Crestbridge Corporate Services Ltd
Date: 3 April 2022
Registered Office: 47 Esplanade, St Helier, Jersey, JE1 0BD
Notes:
(i) A member entitled to attend and vote at the Meeting
convened by the above Notice is entitled to appoint a proxy to exercise all or
any of the rights of the member to attend and speak and vote on his behalf. A
proxy need not be a member of the Company. A member may appoint more than one
proxy in relation to the Meeting, provided that each proxy is appointed to
exercise the rights attached to a different share or shares held by that
member. The right to appoint a proxy does not apply to any person to whom this
notice is sent who is a person nominated under section 146 of the Companies
Act 2006 (the "Act") to enjoy information rights (a "Nominated Person").
(ii) To appoint a proxy, you may:
(a) Submit your proxy online at www.signalshares.com
(http://www.signalshares.com) (the "Website") by following the on-screen
instructions, in particular at the "Proxy Voting" link, by no later than
1:00pm on 24 June 2022. In order to appoint a proxy using the Website, members
will need to log into their Signal Shares account, or register if they have
not previously done so. To register members will need to identify themselves
with their Investor Code which is detailed on their share certificate or
available from our Registrar, Link Group, on Tel: 0371 664 0300. Calls are
charged at the standard geographic rate and will vary by provider. Calls
outside the United Kingdom will be charged at the applicable international
rate. Lines are open between 09:00 - 17:30, Monday to Friday excluding public
holidays in England and Wales.
(b) You may request a hard copy form of proxy directly from our
Registrar, Link Group, on Tel: 0371 664 0300 or by emailing
shareholderenquiries@linkgroup.co.uk
(mailto:shareholderenquiries@linkgroup.co.uk) . Calls are charged at the
standard geographic rate and will vary by provider. Calls outside the United
Kingdom will be charged at the applicable international rate. Lines are open
between 09:00 - 17:30, Monday to Friday excluding public holidays in England
and Wales.
To be effective the completed and signed form of proxy must be lodged at the
office to Link Group, PXS1 Central Square, 29 Wellington Street, Leeds, LS1
4DL (together with any power of attorney or other authority under which it is
signed or a notarially certified copy of such power or authority) by no later
than 1:00pm on 24 June 2022.
Please indicate in the appropriate box how you wish your votes to be cast. In
the absence of any specific direction, the proxy will vote (or abstain from
voting) at his or her discretion. On any other business which properly comes
before the Annual General Meeting (including any motion to amend any
resolution or to adjourn the Meeting) the proxy will vote or abstain at his or
her discretion.
(c) if you hold your shares in uncertificated form, use the CREST
electronic proxy appointment service as described in the CREST manual or in
the Explanatory Notes to the resolutions set out below.
(iii) Completion of the Form of Proxy or appointment of a
proxy through CREST will not prevent a member from attending and voting in
person if he/she wishes to do so.
(iv) Any corporation which is a shareholder in the Company may
appoint one or more corporate representatives who may exercise on its behalf
all of that corporation's powers as a shareholder of the Company provided
that, where there is more than one corporate representative appointed, they do
not attempt to exercise the corporation's rights in respect of the same
shares.
(v) Any member or his corporate representative or proxy
attending the Meeting has the right to ask any question at the Meeting
relating to the business of the Meeting.
(vi) Pursuant to section 360B of the Act and Regulation 41 of
the Uncertificated Securities Regulations 2001 (as amended), only shareholders
registered in the register of members of the Company as at close of business
on 24 June 2021 shall be entitled to attend and vote at the AGM in respect of
the number of shares registered in their name at such time. If the Meeting is
adjourned, the time by which a person must be entered on the register of
members of the Company in order to have the right to attend and vote at the
adjourned Meeting is close of business, 48 hours before the time fixed for the
adjourned Meeting. Changes to the register of members after the relevant times
shall be disregarded in determining the rights of any person to attend and
vote at the Meeting.
(vii) In the case of joint holders, the vote of the senior
holder who tenders a vote whether in person or by proxy shall be accepted to
the exclusion of the votes of the other joint holders and, for this purpose,
seniority shall be determined by the order in which the names stand in the
register of members of the Company in respect of the relevant joint holding.
(viii) From the date of this notice, copies of the terms and
conditions of appointment of the Non-Executive Directors and the service
contracts of the Zegona Chairman and Executive Directors are available for
inspection at the registered office of the Company, 8 Sackville Street,
Mayfair, London, W1S 3DG, during usual business hours on any weekday
(Saturdays, Sundays and public holidays excluded) until the conclusion of the
AGM and will be available for inspection at the place of the AGM for at least
15 minutes prior to and during the Meeting.
(ix) Save as set out in these notes, members who have general
queries relating to the AGM should contact Link Group on 0371 664 0300. Calls
are charged at the standard geographic rate and will vary by provider. Calls
outside the United Kingdom will be charged at the applicable international
rate. Lines are open between 09:00 - 17:30, Monday to Friday excluding public
holidays in England and Wales. Please note that you may not use any electronic
address or other contact details provided in this notice of AGM, or any
related documents (including the Chairman's letter and Form of Proxy), for any
purpose other than those expressly stated.
(x) As at 19 April 2022 (being the last business day prior
to the publication of this notice) the Company's issued share capital consists
of 5,325,567 ordinary shares, carrying one vote each. Therefore, the total
voting rights in the Company as at 19 April 2022 are 5,325,567.
(xi) The information required to be published by section 311A
of the Act (information about the contents of this notice and numbers of
shares in the Company and voting rights exercisable at the AGM and details of
any members' statements, members' resolutions and members' items of business
received after the date of this notice) may be found at www.zegona.com
(http://www.zegona.com/) . (http://www.zegona.com/) Subject to the limitations
of the resolution approved at the AGM of the Company on 15 April 2016, the
Company does not intend to post or email hard copies of shareholder related
documents, such as this Report and Notice of Annual General Meeting, to
shareholders. All documents will be made available on the Company's website,
(http://www.zegona.com/) www.zegona.com (http://www.zegona.com/) .
(http://www.zegona.com/)
(xii) A Nominated Person may under an agreement between
him/her and the member who nominated him/ her, have a right to be appointed
(or to have someone else appointed) as a proxy entitled to attend and speak
and vote at the Meeting. Nominated Persons are advised to contact the member
who nominated them for further information on this and the procedure for
appointing any such proxy.
OTHER INFORMATION |EXPLANATORY NOTES TO THE RESOLUTIONS
The purpose of these notes is to explain the resolutions and business to be
conducted at the Company's AGM. Resolutions 1 to 13 set out in the Notice
detail the ordinary resolutions and resolutions and 15 to 18 detail the
special resolutions. Further explanation in relation to the resolutions is set
out below.
Resolution 1 - To approve the Annual Report and Financial Statements
Resolution 1 proposes the receipt and adoption of the Annual Report, which
includes the Financial Statements of the Company for the year ended 31
December 2020, together with the Directors' report and auditor's report on
those Financial Statements.
The Company's Annual Report, including the Financial Statements for the year
ended 31 December 2021, is available on the Company's website, www.zegona.com
(http://www.zegona.com/) . (http://www.zegona.com/) The Annual Report was
prepared in compliance with the requirements of the Act and the requirements
of the Listing Rules of the Financial Conduct Authority that would apply if
the Company was listed on the Premium segment of the Official List as at the
date of their approval by the Board.
Resolutions 2 to 7 - Election of Directors
Resolutions 2 to 7 deal with the re-election of each Director of the Company
that, subject to the Articles of Association of the Company (the "Articles"),
is required to retire at every annual general meeting of the Company. All
Directors on the Board will retire at the AGM for this reason. Each of such
Directors is offering himself for re-election and resolutions 2 to 7 propose
the re-election of such Directors. Biographies of each of the Directors
retiring in accordance with the Articles are set out on pages 18 and 19 of the
Annual Report. Suzi Williams is the chair of the Nomination and Remuneration
Committee. Ashley Martin is the chair of the Audit and Risk Committee and, if
re-elected, will continue in this role.
The Chairman has confirmed that, following a performance review in line with
the UK Corporate Governance Code, all of the Directors continue to perform
effectively and contributed positively to the Board meetings that they
attended during 2021 as set out on page 21 of the Annual Report and
subsequently to the date of this notice.
Resolutions 8 and 9 - Re-appointment and remuneration of auditor
The appointment of KPMG LLP as auditor of the Company, which started on 18
November 2016, terminates at the conclusion of the AGM. KPMG LLP has indicated
its willingness to stand for re-appointment as auditor of the Company until
the conclusion of the annual general meeting to be held in 2022. The
Directors, as well as the Audit and Risk Committee, recommend that KPMG LLP be
re-appointed and that its remuneration be fixed.
Resolution 10 - Dividend payment
This resolution seeks to ratify the payment by the Company of an interim
dividend, in lieu of a final dividend, of 2.6 p per ordinary share to
shareholders of the Company on 23 July 2021.
Resolution 11 - Directors' remuneration report
In accordance with the requirements under the Act, shareholders are being
asked to approve the Directors' remuneration report set out on pages 42 to 51
of the Annual Report. The actual remuneration paid to Directors in 2021 was
made within the boundaries of the Directors' remuneration policy approved by
shareholders at the 2019 Annual General Meeting.
Resolution 12 - Directors' remuneration policy
In accordance with the requirements under the Act, shareholders are being
asked to approve the Directors' remuneration policy set out on pages 33 to 41
of the Annual Report.
Resolution 13 - Directors' authority to allot shares
The existing power granted to the Directors to allot ordinary shares expires
at the conclusion of the AGM. Accordingly, resolution 13 is proposed to renew
the Directors' authority to allot ordinary shares of up to a maximum nominal
amount of (i) £17,715 (being one-third of the Company's issued ordinary share
capital as at 3 April 2022) to such persons and upon such conditions as the
Directors may determine; and (ii) a further maximum aggregate nominal amount
of £17,715 (being one-third of the Company's issued ordinary share capital as
at 3 April 2022) in connection with a rights issue (as defined in resolution
12 of the Notice), 3 April 2022, being the latest practicable date before the
publication of this notice.
This request for authority to allot shares up to a maximum of two-thirds of
the Company's issued ordinary share capital is in line with the guidelines
published by the Investment Association.
The authorities sought under resolution 13 will expire on the earlier of (i)
the end of the next annual general meeting of the Company and (ii) the date
which is eighteen months after the date on which this resolution is passed.
The resolution replaces a similar resolution passed at the Annual General
Meeting of the Company held on 30 June 2021. The Directors have no present
intention of exercising such authority. However, the Directors consider it
important to have the maximum ability and flexibility commensurate with good
corporate governance guidelines to raise finance to enable the Company to
respond to market developments and conditions. No shares are currently held by
the Company in treasury.
Resolution 14 - Authorisation to renew the Management Incentive Scheme
This resolution seeks authority from shareholders for the Company to renew the
rights attached to the Management Shares following the commencement of a new
Calculation Period on 14 October 2021. A core feature of the Management
Incentive Scheme is that there must be a shareholder vote to renew the rights
attached to the Management Shares (as described in more detail in Note 19 to
the financial statements) when a Calculation Period ends and another one
automatically starts. If shareholders representing 75 per cent. or more of the
shares vote against this resolution, the Management Shares will cease to have
any rights and will be redeemed for no value.
Resolutions 15 and 16 - Disapplication of pre-emption rights
The Act requires that shares or other equity securities allotted for cash are
offered first to existing shareholders in proportion to their existing
holdings. The passing of resolutions 15 and 16 would allow the Directors to
allot shares (or sell any shares which the Company may hold in treasury
following a purchase of its own shares) without first offering the securities
to existing shareholders.
Accordingly, resolution 15 allows the Directors to allot shares and sell
treasury shares for cash (i) in connection with a pre-emptive offer or
pre-emptive rights issue and/or (ii) otherwise up to a nominal value of
£2,662, equivalent to 5 per cent. of the total issued ordinary share capital
of the Company (excluding treasury shares) as at 3 April 2022, being the
latest practicable date prior to the date of publication of this notice,
without first having to offer them to existing shareholders in proportion to
their holdings.
The Pre-Emption Group's Statement of Principles also supports the annual
disapplication of pre-emption rights in respect of allotments of shares and
sales of treasury shares for cash representing no more than an additional 5
per cent. of issued ordinary share capital (exclusive of treasury shares), to
be used only in connection with an acquisition or specified capital
investment. The Pre-Emption Group's Statement of Principles defines "specified
capital investment" as meaning one or more specific capital investment related
uses for the proceeds of an issue of equity securities, in respect of which
sufficient information regarding the effect of the transaction on the Company,
the assets the subject of the transaction and (where appropriate) the profits
attributable to them is made available to shareholders to enable them to reach
an assessment of the potential return.
Accordingly, resolution 16 authorises the Directors to allot new shares
pursuant to the allotment authority given by resolution 13, or sell treasury
shares, for cash up to a further nominal amount of £2,662, being an
additional 5 per cent. of the entire issued share capital of the Company as at
3 April 2022, only in connection with an acquisition or specified capital
investment which is announced contemporaneously with the allotment, or which
has taken place in the preceding six-month period and is disclosed in the
announcement of the allotment. If the authority given in resolution 16 is
used, the Company will publish details of the allotment in its next annual
report.
The authorities will expire on the earlier of: (i) the end of the next annual
general meeting of the Company; and (ii) the date which is 18 months after the
date on which this resolution is passed. This resolution replaces a similar
resolution passed at the Annual General Meeting of the Company held on 30 June
2021.
Resolution 17 - Purchases of own shares by the Company
This resolution seeks authority from shareholders for the Company to make
market purchases of its own ordinary shares, limited to the purchase of 14.99
per cent. of the ordinary shares in issue as at 3 April 2022.
The maximum and minimum prices payable are also limited in the resolution. The
authority will only be exercised if the Directors consider that there is
likely to be a beneficial impact on earnings per ordinary share and that it is
in the best interests of the Company at the time. The Company will be able to
hold the ordinary shares which have been repurchased as treasury shares and
re-sell them for cash, cancel them or use them for the purposes of any
employee share schemes. No options to subscribe for ordinary shares have been
granted and are outstanding as at 3 April 2022, although shares issued in the
Company's Management Incentive Schemes may be exchanged for ordinary shares in
certain circumstances.
Resolution 18 - Reduction of notice period for general meetings of the Company
This resolution seeks authority from shareholders for the Company to call
general meetings at 14 clear days' notice, as opposed to 21 clear days'
notice. While the Company's Articles already provide that the Company can call
any general meeting (other than an annual general meeting) at 14 clear days'
notice, the Act requires that, in order to do so, the reduction from 21 days
to 14 days must be approved by way of a special resolution of the Company's
shareholders. It is the Company's intention to continue to call annual general
meetings at 21 clear days' notice.
Action to be taken
You are asked to either:
1. If you hold your shares in certificated form, unlike previous years,
and in order to reduce the Company's environmental impact, you will not
receive a hard copy form of proxy for the 2022 Annual General Meeting in the
post automatically. Instead, you will be able to appoint a proxy
electronically using the link www.signalshares.com
(http://www.signalshares.com) by no later than 1:00pm on 24 June 2022. Details
of how to appoint a proxy in this way are set out on page 101 of this
document.
2. if you hold your shares in uncertificated form, use the CREST
electronic proxy appointment service as described below.
Completion of the Form of Proxy or appointment of a proxy through CREST does
not prevent a member from attending and voting in person.
Shares held in uncertificated form - electronic proxy appointment through CREST
CREST members who wish to appoint a proxy or proxies by utilising the CREST
electronic proxy appointment service may do so for the AGM and any
adjournment(s) thereof by utilising the procedures described in the CREST
Manual. CREST personal members or other CREST sponsored members, and those
CREST members who have appointed (a) voting service provider(s), should refer
to their CREST sponsor or voting service provider(s), who will be able to take
the appropriate action on their behalf.
In order for a proxy appointment made by means of CREST to be valid, the
appropriate CREST message (a "CREST Proxy Instruction") must be properly
authenticated in accordance with Euroclear UK & Ireland's specifications
and must contain the information required for such instructions, as described
in the CREST Manual (www. euroclear.com/CREST). The message must be
transmitted so as to be received by the issuer's agent, Link Group (ID RA10),
by 1:00 p.m. on 24 June 2022. For this purpose, the time of receipt will be
taken to be the time (as determined by the timestamp applied to the message by
the CREST Applications Host) from which the issuer's agent is able to retrieve
the message by enquiry to CREST in the manner prescribed by CREST.
CREST members and, where applicable, their CREST sponsors or voting service
providers should note that Euroclear UK & Ireland does not make available
special procedures in CREST for any particular messages. Normal system timings
and limitations will therefore apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member or sponsored member or has
appointed (a) voting service provider(s), to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to
ensure that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members and, where applicable,
their CREST sponsors or voting service providers are referred, in particular,
to those sections of the CREST Manual concerning practical limitations of the
CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001 (as amended).
OTHER INFORMATION |ADVISERS
Joint Corporate Brokers
J.P. Morgan Cazenove
25 Bank Street
London
E14 5JP
Telephone: +44 (0)20 7134 4000
Barclays Bank plc
5 The North Colonnade
Canary Wharf
London
E14 4BB
Telephone: +44 (0)20 3134 9801
Canaccord Genuity Limited
88 Wood Street
London, UK
EC2V 7QR
Telephone: +44 (0)20 7523 8000
Public Relations Adviser
Tavistock Communications Limited
1 Cornhill
London
EC3V 3ND
Telephone: +44 (0)20 7920 3150
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Telephone: +44 (0)20 7311 1000
Registrar
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
Telephone: +44 (0)20 8639 3399
Company Secretary
Crestbridge Corporate Services Ltd
47 Esplanade
St Helier
Jersey
JE1 0BD
Telephone: +44 (0)1534 835 600
Solicitors to the Company
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Telephone: +44 (0)20 7295 3000
Milbank, Tweed, Hadley & McCloy LLP
10 Gresham Street
London
EC2V 7JD
Telephone: +44 (0)20 7615 3000
1 Zegona has also issued, posted, or made available to shareholders, the
Notice of Annual General Meeting and Form of Proxy for the Annual General
Meeting. These documents are also available on the Zegona's website at
www.zegona.com
2 Euskaltel multiples based on its Enterprise Value divided by its reported
2020 EBITDA (as defined by Euskaltel) of €342.8 million and reported 2020
Operating Cash Flow (as defined by Euskaltel as EBITDA-Capex) of €164.5
million. Comparable European Cable company multiples of 6.7x 2020 EBITDA and
13.3x 2020 Operating Cash Flow (Source: Citigroup).
3 See page 46 for calculation of Zegona's return on shareholders' net
invested capital.
4 Being the €421.3 million received from the tender offer plus the
dividend of €6.5 million received in June 2021 following the announcement of
the tender offer.
5 At the actual GBP rates achieved, see note 13 to the financial
statements.
6
Quad play: customers with four services (pay TV, fixed voice, broadband and mobile).
7 Business to Business.
8 Those with holdings in 3% or more of the issued ordinary shares of the
Company are listed on page 14.
9 Operating profit excluding depreciation of property, plant and equipment
and amortisation of intangible assets.
10 Euskaltel multiples based on its Enterprise Value divided by its reported
2020 EBITDA (as defined by Euskaltel) of €342.8 million and reported 2020
Operating Cash Flow (as defined by Euskaltel as EBITDA-Capex) of €164.5
million. Comparable European Cable company multiples of 6.7x 2020 EBITDA and
13.3x 2020 Operating Cash Flow (Source: Citigroup).
11 See page 46 for calculation of Zegona's return on shareholders' net
invested capital.
12 At the actual GBP rates achieved, see note 13 to the financial
statements.
13 As defined in Zegona Limited's articles of incorporation.
14 Including a deal contingent foreign exchange forward purchase agreement
and the contingent consideration due from Euskaltel in connection with the
sale of Telecable.
15 Being equal to the Net Asset Value excluding the Income Tax Receivable
(which was excluded given the uncertainty inherent in the asset, see note 15
to the financial statements) as defined in the management Subscription
Agreement of £1.438 per share (see note 20 to the financial statements)
multiplied by the 4,437,973 shares outstanding immediately following the
completion of the tender offer (see note 21 to the financial statements).
16 Including Zegona management, directors and related holdings. At both 3
April 2022 and 31 December 2021 Eamonn O'Hare owned 502,891 shares (9.44% of
Zegona's issued share capital) and Robert Samuelson owned 243,275 shares
(4.57%). Eamonn and Robert have also irrevocably committed to subscribe for
564,571 and 282,286 new shares of Zegona at such time that they can be
admitted to Immediately following this subscription, Eamonn and Robert will
hold 17.29% and 8.51% respectively of Zegona's ordinary share capital (see
note 20 to the financial statements).
17 https://www.zegona.com/investor-relations/shareholder-information.aspx.
18 The A&RC's role and responsibilities are set out in its terms of
reference, which are available on Zegona's website and from the Company
Secretary.
19 The incentive scheme redemption amount was a proportion of the value
created for Zegona's shareholders, but it was calculated by reference to
Zegona's growth in value from the sale of its interest in Euskaltel rather
than share price
20 Return (a 5% per annum return on a compounded basis on shareholders' net
investment).
21 Includes cost of all shares bought back in the period and calculation of
the preferred returns using the underlying purchase dates.
22 The scheme will actually become exercisable either on 14 October 2024, or
at the date that certain specific conditions such as a takeover or a Board
change of control occur as explained in note 18 to the Consolidated Financial
Statements. At the date of this report, none of these conditions have occurred
and the rights under the incentive schemes are not exercisable.
23 Calculated in accordance with Zegona Limited's Articles of Association as
the sum of Zegona Communications plc's subscription proceeds minus dividends
and capital returns.
24 Calculated in accordance with Zegona Limited's Articles of Association as
the volume weighted average mid-market price of Zegona Communications plc's
ordinary shares for the previous 30 trading days to 31 December 2021.
25 The Non-Executive Directors have not received any other form of
remuneration during the current or prior year.
26 Mark Brangstrup-Watts resigned on 12 May 2020.
27 Murray Scott did not stand for re-election and ceased to be a Director
on 9 June 2020.
28 Period from incorporation on 19 January 2015 to 31 December 2015.
29 Eamonn did meet several indicators of achievement in relation to his 2018
bonus objectives, however Eamonn waived his 2018 bonus in order to maximise
the cash raised from the equity placing in February 2019.
30 Eamonn met a significant majority of the indicators of achievement in
relation to the 2021 bonus scheme, however in connection with the Return of
Capital he agreed to waive any amounts due.
31 Eamonn O'Hare has also irrevocably committed to subscribe for 564,571 new
shares of Zegona at such time that they can be admitted to trading for total
consideration of £811,853. Immediately following this subscription, and that
of Robert Samuelson, Eamonn will hold 17.29% of Zegona's ordinary share
capital.
32 Robert Samuelson has also irrevocably committed to subscribe for 282,286
new shares of Zegona at such time that they can be admitted to trading for
total consideration of £405,927. Immediately following this subscription, and
that of Eamonn O'Hare, Robert will hold 8.51% of Zegona's ordinary share
capital.
33 Being 21.44% of Euskaltel's Comprehensive Loss of €2.1 million for the
period.
34 The preferred Return is a 5% per annum return on a compounded basis on
shareholders' net investment.
35 Being the maximum number of shares that could be Admitted on that date.
36 The remaining shares may also be Admitted without the need for a
prospectus from 27 October 2023.
37 Defined as the value of Zegona's investment in Euskaltel, Zegona's cash
and cash equivalents net of bank borrowings per share as discussed in the
Nomination and Remuneration Report on page 29.
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