REG - Zegona Comms. - Zegona Announces 2022 Results
11/04/2023 07:00
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RNS Number : 6874V Zegona Communications PLC 11 April 2023
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ZEGONA COMMUNICATIONS PLC ("Zegona")
LEI: 213800ASI1VZL2ED4S65
11 april 2023
ZEGONA ANNOUNCES 2022 RESULTS
London, England, Zegona Communications PLC (LSE: ZEG) announces results and
publishes its Annual Report 1 (#_ftn1) for the year ended 31 December 2022 2
(#_ftn2) .
Enquiries
Zegona Communications plc
Tel: +44 (0)20 3004 2017
Kim Lowe: kim@zegona.com
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 2022
STRATEGIC REPORT | CHAIRMAN'S STATEMENT
I am pleased to present Zegona's annual report for 2022.
Searching for the next Buy-Fix-Sell Opportunity
In the past year we have continued to focus on finding the right opportunity
within the European telecommunications market where we can again successfully
apply our proven "buy-fix-sell" strategy to generate attractive returns for
our shareholders. We believe that we sold our investment in Euskaltel at a
particularly good time and despite plenty of opportunities to make an
acquisition in 2022, we instead chose to stay patient and disciplined as we
believed more attractive opportunities would emerge later in the year and in
early 2023. This has indeed been the case and while we are not yet in a
position to announce a new acquisition, we are currently actively working on a
short-list of opportunities which we believe offer significant upside
potential.
The past year has been marked by significant geo-political and macro-economic
developments that have impacted European economies. In particular, the ongoing
war in Ukraine has created uncertainty and has led to increased commodity
prices and inflation. Other developments, such as changes in government
leadership and trade policies, have also resulted in more constrained
financial market conditions.
These developments had an impact on the telecommunications sector in 2022.
While the sector has performed well overall, it has not been immune to the
broader economic and political trends. In particular, the market for mergers
and acquisitions in European TMT assets has been affected. Overall, the level
of European TMT mergers and acquisitions in 2022 has been lower than in the
previous three years in terms of both deal value and volume. However, there
have been several notable deals in the space, including KKR's acquisition of
Altice Europe for €11.1 billion (April 2022), Cellnex Telecom's acquisition
of CK Hutchison's European tower business for €10 billion (March 2022) and
Deutsche Telekom's acquisition of Liberty Global's Eastern European assets for
€6.2 billion (June 2022).
During the second half of the year in particular, macro-economic challenges
such as the rapid increase in interest rates by central banks have had a
significant impact on the availability and pricing of debt and equity funding
for businesses seeking to make acquisitions. This has made it more challenging
for companies to pursue their desired acquisition targets. In addition, the
availability of acquisition targets was affected by these factors, with some
companies delaying their sales processes while they waited for financial
market conditions to improve. Since the end of 2022, however, we have seen new
targets becoming available as businesses have adjusted to the new market
dynamics. This allied with significant improvements in the availability of
debt funding and with equity markets also having recovered, means we are now
far more confident in our ability to find and complete a new acquisition.
Throughout the last year, we have continued to search for new opportunities.
We have been active on a number of proprietary transactions where we see
material upside potential. However, we have maintained our strong financial
discipline and have not been prepared to make an acquisition if it does not
meet our strict financial criteria.
As discussed in Note 2 to the financial statements, we believe we have
sufficient time and resources to continue to be patient and disciplined in our
search for the right opportunity. We also believe that this approach will be
rewarded as market conditions stabilise. While challenges remain in the
current environment, we are optimistic that we will be able to make an
acquisition during the coming year which can deliver attractive returns for
our shareholders.
Annual general meeting
The next AGM will be held at 10 Snow Hill, London, EC1A 2AL at 10:30 am on 20
June 2023. 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
6 April 2023
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 triple and
quad play 3 (#_ftn3) 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 4 (#_ftn4) , and network
infrastructure sectors.
Advantage
Anumber 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 its 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 5 (#_ftn5) 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 6 (#_ftn6)
); 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
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 triple and
quad play 3 (#_ftn3) 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 4 (#_ftn4) , 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 its 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 5 (#_ftn5) 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 6 (#_ftn6)
); 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
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 €3.3 million (2021: €34.3 million net loss) which principally comprised:
Operating loss
Operating loss totalled €3.3 million (2021: €34.0 million) and included:
· €3.3 million (2021: €4.6 million) for Zegona's ongoing
corporate operations, with the reduction mainly driven by the retirement of
one of the members of Zegona's senior management during the period. The
management team have performed a comprehensive review of operating costs
during 2022, seeking to ensure the business is operating as efficiently as
possible by eliminating expenditure where possible, reducing headcount and
re-negotiating key supplier terms. As a result, we expect the costs of
Zegona's ongoing corporate operations to reduce by approximately 10% in 2023
compared to 2022 and circa 30 - 35% compared to the average of 2020-2022.
· €34 thousand (2021: €29.1 million) of Incentive scheme costs
which were the amortisation of the fair value of the Third Calculation Period
of the Management Incentive Scheme. The substantial reduction in the period is
due to the €25.7 million payments to management in 2021 upon the redemption
of the Second Calculation Period (see note 17 to the financial statements).
· €26 thousand (2021: €0.3 million) for significant project
costs, principally professional fees paid in conjunction with exploring new
opportunities.
Net finance income
Net finance income totalled €21 thousand (2021: €0.2 million of costs) and comprises interest earned on cash deposits recognised within Finance Income net of bank charges and overdraft interest recognised within Finance Costs.
Other Comprehensive Income
Exchange differences on translation resulted in a loss of €0.6 million
(2021: gain €0.6 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
("€").
Financial Position
Zegona's Net Assets at 31 December 2022 were €10.5 million (2021: €14.5
million) which substantially comprised the Income tax receivable of €4.9
million and Cash and cash equivalents of €5.9 million. The reduction in the
period is due to the use of cash to pay for Zegona's ongoing operating
expenses during 2022 and the settlement of accruals and other payables at 31
December 2021.
Zegona's ongoing prospects
While Zegona has undertaken a comprehensive exercise to minimise its ongoing
operating costs, it will continue to incur operating losses until it is able
to make a new investment in a profitable business. We continue to see a very
healthy environment for acquisitions across the industry, which has continued
to see significant deal activity despite the war in Ukraine and the economic
challenges it has created. While there are some short-term challenges,
especially with raising debt financing, we believe we will be rewarded by
remaining patient and disciplined and will not pursue a transaction unless we
are confident that it meets our strict financial criteria.
Until we are able to make such an investment, Zegona will need to fund its
operations with its current cash reserves or raise additional capital. We
believe we have retained sufficient capital to provide adequate time and
resources to remain patient and secure another attractive investment
opportunity without raising additional capital and have £4.5 million (€5.3
million) of cash on hand at 6 April 2023. While we continue to search for our
next investment, our ongoing costs are reasonably predictable and controllable
and we expect that as long as Zegona does not incur any material unforeseen
costs, its cash reserves can fund the business until the first quarter of
2025.
As further discussed in Note 2 to the financial statements however, there are
certain risks which are unlikely, but could threaten Zegona's ability to
continue as a going concern if they transpire. As a result, we have concluded
that it is appropriate to prepare the financial statements on a going concern
basis, but there is a material uncertainty that may cast significant doubt on
our ability to continue as a going concern.
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.
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").
STRATEGIC REPORT |RISKS
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 High ↑ Increased
acquisitions
Ability to create value in acquired businesses Moderate ↔ No change
Loss of key management 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 6 April 2023, Zegona had approximately
€5.3 million of cash and we are 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.
The passage of time and the consequent reduction in Zegona's cash reserves has
caused this risk to increase during the year. There is also 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.
Loss of 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.
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 2025 - 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 (primarily interest on cash
deposits) and outflows (which are primarily corporate costs) and includes a
description of all reasonably possible risks and opportunities. Each month, an
analysis of actual performance against the forecast is performed and updated
frequently. The most recent forecast is used as the base case ("Base Case")
for the viability assumption without any significant adjustment except for the
addition of a £120 thousand per year contingency to account for unforeseen
day-to-day expenditure.
Zegona's operations are now focused on finding the next investment opportunity
and its ongoing running costs have been comprehensively reviewed during 2022
to ensure they are as low as possible with the result that ongoing costs in
2023 are expected to be circa 10% lower than in 2022. Costs are also
relatively predictable as the most significant ongoing costs are the salary
costs of the Board and management team. 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. To further increase
prudence, no cash inflow is assumed for the recovery of the Income Tax
Receivable (see note 14 to the financial statements).
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 6). 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. Since the Base Case already assumes that there will
be no new acquisition, there is no need to add any additional downside to the
Base Case
In addition to the Base Case, the Directors identified a severe but plausible
downside scenario in which Zegona incurs significant costs on unsuccessful
acquisitions which was further used to stress test the base numbers. Given the
nature of Zegona's current operations, the day-to-day contingency included in
the base case and generally high level of predictability of its costs, the
downside scenario differs from the Base Case only by the inclusion of £ 2.0
million for aborted costs on unsuccessful acquisitions, assumed to be incurred
by the end of 2023. Zegona believes the £2.0 million represents costs
associated with a medium-to-significant sized failed transaction and is
consistent with costs it has previously incurred on similar sized
transactions.
Results of the assessment
The assessment showed that in the Base Case, 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 in the base-case. In the downside scenario, Zegona
would only be able to absorb around £1.7 million of abort costs.
Over the full 3 year assessment period 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 funding during the viability
assessment period, even if it takes further liquidity enhancing actions that
are in its control such as reducing discretionary expenditure. Without such
actions, the Base Case assumes Zegona would need to seek additional funding
during the first quarter of 2025.
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 from the issuance of this annual report only if it is able to
successfully complete a new acquisition and obtain financing to do so or
otherwise obtain additional funding during the period.
The Strategic Report was approved by the Board on 6 April 2023 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 2022 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 2022.
Male Female Total
Board Directors 4 2 6
Senior management 2 - 2
Other staff - 2 2
Total 6 4 10
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 and climate matters
Climate risk management
The Chairman and the Zegona Board oversees and has ultimate responsibility for
Zegona's sustainability initiatives, disclosures, and reporting. This
includes, but is not limited to, climate risks and opportunities. As a shell
company, Zegona is exempt from providing the disclosures required by the
Taskforce on Climate-related Financial Disclosures ("TCFD"), however this
section provides an overview of Zegona's approach to managing the very limited
climate risks it currently faces. Details of how the Board delegates risk
management authority across the business is described in the Risk management
overview on pages 6 and 7. The Zegona management team have day-to-day
responsibility for assessing and managing climate-related risks and
opportunities.
We are committed to minimising Zegona's impact on the environment. As it is
presently constituted, Zegona's environmental impact is minimal and
climate-related risks and opportunities are extremely limited until it
acquires another business. At present, Zegona has no operating investments
and only 6 full time employees. These employees perform largely
information-based roles and they all work from home as Zegona no longer
maintains business premises. The only environmental impact currently is from
business travel, which has been extremely limited in the past three years and
is expected to continue to be lower than previously as a result of the
post-pandemic shift towards virtual tools.
Zegona's overall environmental impact is therefore minimal, with total CO(2)
emissions less than the average for a single UK household. Zegona's approach
is therefore to seek to maintain lean working arrangements, use technology to
minimise business travel and encourage employees to recycle, minimise energy
wastage, and do their part to ensure that Zegona acts responsibly.
If Zegona continues to operate as it is presently constituted it is therefore
difficult to identify any climate related risks in the short, medium or long
term that could significantly impact the business. For this reason, Zegona
does not presently feel it is appropriate or necessary to apply metrics or
targets to assess climate related risks beyond the Greenhouse gas reporting
presented below.
Clearly, Zegona does not intend to continue operating in its present form
indefinitely, we intend to make acquisitions and disposals that will
profoundly change the scale and climate-related risk profile of the business
and the process for identifying and managing them. Is not possible to reach
any sensible conclusions today about which risks Zegona may be exposed to in
the future without knowing what businesses it will acquire. While it may be
possible to identify generic risks across the European TMT market, the
climate-related risks of each business will differ enormously, as will the
processes to identify, assess and manage them.
While it is not possible to know today what climate related risks it will
inherent, Zegona is conscious that such risks and opportunities will exist in
any potential acquisition and considers that the most important objective is
to ensure these are properly understood in the due diligence phase of any
transaction so appropriate decisions can be taken on risk mitigation tools.
Zegona's Board have concluded that the most appropriate way to address this is
to ensure that climate-related risk are specifically scoped in when
undertaking due diligence on acquisition targets.
Greenhouse gas emissions
Considering the non-material environmental impacts of Zegona's business as
described in this report, management takes the view that greenhouse gas
emissions are the most important metric to track and against which future
targets may be set.
We have compiled our greenhouse gas ("GHG") emissions in accordance with the
Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013
("SECR"). 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 2022 and comparative previous period are shown below:
Global tonnes of CO2e
2022 2021
Scope 2 (electricity) - -
Per €m operating expenses - -
Scope 3 (water consumption, business travel) 4.5 4.5
Per €m operating expenses 1.35 0.12
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 2022 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 within the meaning of SECR.
At the present time, Zegona does not consider it appropriate to set emissions
reduction targets, particularly given the low levels of emissions already
achieved. Zegona does not currently hold any investments. When investments are
held, Zegona will keep under review whether it would be appropriate to support
investee companies in tracking metrics and setting targets.
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
23.
DIRECTORS' REPORT | OTHER MATTERS
General
Details of the directors can be found on pages 17 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 19.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 31.
Result
For the year ended 31 December 2022, Zegona's loss before tax from continuing
operations was €3.3 million (2021: €34.3 million). Other comprehensive
loss was €0.6 million (2021: gain of €0.6 million). Therefore, the total
comprehensive loss for 2022 was €4.0 million (2021: gain of €80.5
million). Reviews of performance and likely future developments are set out in
the Strategic Report on pages 1 to 9.
Dividends
In accordance with its policy of not paying any dividends until it owns a
material operating asset, the Company did not declare or pay any dividends in
2022 (2021: €12.3 million).
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 6,172,424 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 31, with further details set out
in note 17 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 2022 AGM, which expires on the earlier of
the end of 2023 AGM or 18 months after the date of 2022 AGM. A resolution to
renew this authority is proposed for the 2023 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.
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 24. 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 2022 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 6 April 2023 Shareholding at 31 December 2022 as at 31 December 2022
Shareholding at 6 April 2023
Asset manager
Zegona board and management 7 (#_ftn7) 1,803,294 29.22% 1,804,336 29.33%
Marwyn Asset Management 774,321 12.54% 774,321 12.54%
Artemis Investment Management 586,691 9.51% 586,691 9.51%
Fidelity Management & Research 403,107 6.53% 403,107 6.53%
Fidelity Investments Limited 398,717 6.46% 398,717 6.46%
Credit Suisse 255,969 4.15% 255,969 4.15%
Aberforth Partners LLP 243,744 3.95% 243,744 3.95%
4,465,843 72.36% 4,466,885 72.47%
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 2023 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 believes it is appropriate to prepare the Financial Statements on
the going concern basis but, as discussed in note 2 to the financial
statements, has concluded that there is a material uncertainty affecting
Zegona's ability to continue in business or meet its liabilities as they fall
due for the next 12 months.
By order of the Board
Eamonn O'Hare
Chairman and Chief Executive Officer
6 April 2023
DIRECTORS' REPORT | DIRECTORS' RESPONSIBILITY STATEMENTS
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 jurisdiction
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
6 April 2023
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 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 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 Russia. 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. This includes a
decade as Chief Brand and Marketing Officer at BT plc. Prior to that, she was
Commercial Development Director at Capital Radio Group and held senior
commercial leadership roles at Orange, the BBC, KPMG Consulting, and Procter
& Gamble.
Suzi is currently a non executive director and chair of remuneration at FTSE
100 JD Sports plc, and NED and Chair of nominations at Telecom Plus plc. She
also advises a number of early stage technology and AI businesses and is an
advisor to Gresham House private equity.
Previously she held NED and Remco Chair roles at Workspace Group Plc, and at
The AA plc (the latter from 2015 until March 2021). Suzi was also a member of
The Great Advisory board , promoting British business overseas.
Suzi Chairs 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 6 to 7. The Directors' Report
on pages 10 to 16 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 17 to 18.
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 8 (#_ftn8) .
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 17 to 19. 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 2022 was:
Nomination and Remuneration Committee
Audit and Risk
Board Committee
Eamonn O'Hare 5/5 - -
Robert Samuelson 5/5 - -
Richard Williams 5/5 2/2 3/3
Ashley Martin 5/5 2/2 3/3
Suzi Williams 5/5 2/2 -
Kjersti Wiklund 5/5 - 2/3
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 2023
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.
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. 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. 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, and 5 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 has been resolved in 2023, when the rate
paid to the Executive Directors was 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 2022
was significantly less eventful than the previous year with the board
continuing to work well as it supported the management team in identifying an
attractive new investment. The review also highlighted a number of areas that
the Board believe could be beneficial for it to continue to work on to further
improve its effectiveness. The Board is currently considering which of these
it should prioritise in 2023 and how it should address them.
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. 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 (2214/596/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.
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 2022 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 9 (#_ftn9) .
Committee membership and meetings
The members of the A&RC during 2022 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 2022, the A&RC met in March, September
and December and has subsequently met in April. 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 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:
Going Concern The A&RC reviewed Management's assessment of the entity's
ability to continue as a going concern, which involved reviewing the
underlying assumptions around on-going cash flows and challenging Management's
judgments around Zegona's ability to meet liabilities as they fall due for a
period of at least twelve months from the approval of the financial
statements, including considering whether these judgements were consistent
with Zegona's strategic position and its current acquisition pipeline. The
A&RC also reviewed the appropriateness of management's conclusion that the
going concern basis is appropriate but that there is a material uncertainty
over Zegona's ability to continue as a going concern. The A&RC also
reviewed the proposed disclosure around going concern in the annual report.
- Accounting treatment and valuation of the incentive arrangements
- the A&RC reviewed and agreed with management's estimate of the final
value of the Third Calculation Period of the Management Incentive Scheme.
- 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 Management'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.
In all of the above judgements, the A&RC also considered KPMG's audit
findings and reports by Management to the A&RC in support of the positions
adopted.
Other activities during the year:
· 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 2022;
· 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 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 seventh audit
and the A&RC was involved in the process to select the new current audit
partner for the 2021 audit. 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 2022, there were no non-audit fees paid to KPMG. The A&RC has set a
threshold of €11,000 (£10,000) for pre-approving non-audit fees.
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
2022.
The Committee met twice during 2022, supported by a number of full board
discussions and the matters we discussed are set out on page 29. 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 - Continuing to search for the next opportunity
Following last year's successful sale of Euskaltel, management has been
looking for Zegona's next investment in the European Telecommunications
market. We have been active on a number of proprietary transactions where we
see material upside potential while maintaining strong financial discipline.
This approach has served us well in the current macro-economic environment as
we are now seeing an increased pipeline of even better opportunities where we
have the potential to drive significant value.
This success forms the backdrop of the key remuneration matters that we have
dealt with in the year, as detailed below:
Remuneration decisions for 2022- Reviewing outcomes against company performance
2022 Bonus and salaries
The Committee have concluded that the Executive Director's salary and benefit
arrangements should remain unchanged. After listening to the views of key
shareholders in previous years, and in accordance with its previously
announced policy, both the Executive Directors and Zegona's senior management
team were not eligible to earn a bonus in 2022.
Application of remuneration policy for 2023
Following a review of the executive remuneration arrangements for 2023 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 has been reduced in 2023 to 19% 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 2023
until such time as Zegona makes a new investment. This will remain under
review during 2023.
I would like to take the opportunity again to thank shareholders for their
engagement and feedback 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 2022, the Committee met twice and has subsequently met in April. 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 2023, including concluding that no bonuses will be paid
until such time as Zegona owns a material underlying asset;
· Reviewed the recommendations arising from the 2022 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 2021, however no advice has been sought in respect of 2022.
Executive pay at a glance
Base salary
Purpose Current policy 2022 Implementation 2023 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 2022 Implementation 2023 Implementation
To provide a market competitive pension. Pension contributions are made to the individual's private pension 20% contribution Contribution reduced to 19%
arrangements or paid to them in cash in lieu of such arrangements. In 2022,
Executive Directors received a pension contribution of up to 20% of base
salary. This was reduced in 2023 to 19%, which is the same as the amounts
available to a majority of the workforce.
Other benefits
Purpose Current policy 2022 Implementation 2023 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 2022 Implementation 2023 Implementation
To incentivise delivery of Zegona's annual financial and strategic goals. Performance is measured on an annual basis for each Executive Director in No bonuses paid to senior management until Zegona owns a material underlying No bonuses to be paid to senior management until Zegona owns a material
respect of each financial period. asset 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 2022 Implementation 2023 Implementation
To drive performance, aid retention and align the interests of Executive The Committee may allocate Management Shares in Zegona Limited to Executive No change 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 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 2022 and how the Directors'
remuneration policy will be applied in 2023. This remuneration report will be
subject to an advisory vote at the 2023 AGM.
2022 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.
Executive Directors (Sterling)
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
2022 2021 2022 2021
£ £ £ £
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 8,582 7,271 8,152 6,954
Total fixed pay 705,503 704,192 532,273 531,075
Annual cash bonus - - - -
Management Incentive Scheme redemptions - 15,218,252 - 7,609,126
Total variable pay - 15,218,252 - 7,609,126
Total fixed and variable pay 705,503 15,922,444 532,273 8,140,221
Executive Directors (euros)
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
2022 2021 2022 2021
£ £ £ £
Base salary 658,811 653,582 490,305 486,414
Pension contributions 131,762 130,716 98,061 97,283
Taxable benefits 24,950 24,751 24,950 24,751
Company health insurance scheme 10,043 8,441 9,539 8,073
Total fixed pay 825,565 817,490 622,855 616,521
Annual cash bonus - - - -
Management Incentive Scheme redemptions - 17,666,748 - 8,833,374
Total variable pay - 17,666,748 - 8,833,374
Total fixed and variable pay 825,565 18,484,238 622,855 9,449,895
None of the Executive Directors' remuneration in 2022 was attributable to
Zegona's share price growth. 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 2022 and for 2023, 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 2022 and will do so for 2023.
Components of remuneration: Pension contributions
Implementation in 2022
In 2022 both Executive Directors received a pension contribution of 20% of
their base salary.
Implementation in 2023
In line with corporate governance best practice, the pension contribution for
both of the Executive Directors was reduced from 1 January 2023 to 19% 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 2022 both Executive Directors received car allowances, personal tax advice,
private medical insurance, and death in service cover, which will continue in
2023.
Components of remuneration: Annual cash bonus
Implementation in 2022
No bonuses were awarded to either the Executive Directors or other members of
Zegona's senior management team in respect of 2022 because the Committee had
previously concluded in 2021 that it is not appropriate for the Executive
Directors or of Zegona's senior management team to receive any bonus for any
period when Zegona does not own a material underlying asset.
Implementation in 2023
The Committee will continue to apply the same policy not to pay any bonus the
Executive Directors or any of Zegona's senior management team for any period
when Zegona does not own a material underlying asset. Should Zegona make a new
acquisition during 2023, 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 10 (#_ftn10) 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"). 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. There was such a vote at the 2022 AGM to ratify the
commencement of the Third Calculation Period, with 98.03% of votes in favour.
Scheme developments in 2022
There was a vote at the 2022 AGM to ratify the commencement of the Third
Calculation Period, with 98.03% of votes in favour.
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 2022, even though the
Management Shares were not exercisable at that date 11 (#_ftn11) .
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 £4.9 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 12 (#_ftn12) 9,194,592
At 31 December 2022 (£)
Number of shares 6,172,424
Average share price 13 (#_ftn13) 0.795
Deemed market capitalisation 4,907,103
Shortfall in value per the incentive scheme (4,287,489)
Split between:
Management Shares 15% -
Ordinary Shares 85% (4,287,489)
Shareholders' net invested capital at 31 December 2022 was calculated as
follows:
Net invested capital 5% pa Preferred Return Preferred Return hurdle
(unadjusted) at 31 Dec 2022 at 31 Dec 2022
£ £ £
Baseline Value - 14 October, 2021 6,700,452 408,827 7,109,279
Share Issue - October 2021 1,276,360 75,493 1,351,853
Share Issue - November 2022 1,217,780 8,613 1,226,393
As at 31 December 2022 9,194,592 492,933 9,687,525
Shares outstanding 6,172,424 6,172,424 6,172,424
Per share (£) 1.490 0.080 1.569
2022 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 14 (#_ftn14)
2022 2021 2022 2021
£ £ € €
Richard Williams 50,000 50,000 58,509 58,045
Ashley Martin 60,000 60,000 70,211 69,654
Kjersti Wiklund 50,000 50,000 58,509 58,045
Suzi Williams 60,000 60,000 70,211 69,654
Total 220,000 220,000 257,439 255,398
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
2022 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.
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 15 (#_ftn15) 2016 2017 2018 2019 2020 2021 2022
Total 0.83
remuneration €m 0.67 0.77 1.29 0.71 1.25 1.27 18.48
Annual bonus 0% 18 (#_ftn18)
(% of maximum) 0% 0% 100% 0% 16 (#_ftn16) 94% 75% 0% 17 (#_ftn17)
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 2021 and 2022:
Base salary Taxable benefits
change % change % Annual cash bonus
change %
Executive Directors
Eamonn O'Hare 0% 4.6% n/a
Robert Samuelson 0% 4.2% n/a
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% 0%
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:
2022 2021
€000 €000
Employee pay 2,212 32,776
Returns to shareholders - 400,698
Of which:
Dividends - 12,169
Capital Return - 388,529
Directors' terms and conditions
Service contract duration
Director Contract duration Notice period
Eamonn O'Hare Unlimited* 12 months
Robert Samuelson 12 months
Unlimited*
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.
Reappointment
Under the terms of Zegona's Articles of Association, all Directors will be
proposed for re-election at the 2023 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 2022 or 2021.
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 2022 are set out below.
There have been no changes in the shareholdings of the Directors from 31
December 2022 to the date of this report.
Director Number of shares % of issued share capital
Eamonn O'Hare 1,067,462 17.29%
Robert Samuelson 525,561 8.51%
Richard Williams 1,153 0.02%
Ashley Martin 212 0.00%
Kjersti Wiklund - -
Suzi Williams - -
In addition the directors owned the following Management Shares in Zegona
Limited
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 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 28 June 2022 98.21% 1.79% -
for the year ended 31 December 2021
(Votes cast) 3,704,882 67,352 13,223,833
Directors' Remuneration Policy 28 June 2022 98.21% 1.79% -
(Votes cast) 3,704,882 67,352 13,223,833
Suzi Williams
Chair of the Nomination and Remuneration Committee
6 April 2023
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2022 2021
Notes €000 €000
Continuing Operations
Administrative and other operating expenses:
Corporate costs 5 (3,271) (4,643)
Management Incentive Scheme costs 17 (34) (29,072)
Significant project costs 6 (26) (295)
Operating loss (3,331) (34,010)
Finance income 7 25 158
Finance costs 7 (4) (376)
Net foreign exchange (loss) / gain (3) (30)
(Loss) for the year before income tax (3,313) (34,258)
Income tax expense 8 - -
(Loss) for the period from continuing operations (3,313) (34,258)
Discontinued Operations
Profit for the period from discontinued operation, net of tax 12 - 114,171
(Loss)/Profit for the period attributable to equity holders of the parent (3,313) 79,913
€ €
Earnings per share - total operations
Basic and diluted earnings per share attributable to equity holders of the 22 (0.61) 0.47
parent
Earnings per share - continuing operations
Basic and diluted earnings per share attributable to equity holders of the 22 (0.61) (0.22)
parent
Earnings per share - discontinued operations
Basic and diluted earnings per share attributable to equity holders of the 22 - 0.68
parent
The notes on pages 57 to 80 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
2022 2021
€000 €000
(Loss) for the year (3,313) 79,913
Other comprehensive income / (loss) - items that will or may be reclassified
subsequently to profit or loss
Exchange differences on translation of foreign operations (638) 1,484
Exchange differences on translation of discontinued operations - (884)
Total other comprehensive (loss) / income (638) 600
Total comprehensive loss / (income) for the year, net of tax, (3,951) 80,513
attributable to equity holders of the parent
The notes on pages 57 to 80 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 As at 31
December December
2022 2021
Notes €000 €000
Assets
Non-current assets
Property, plant and equipment 13 30
Income tax receivable 14 4,961 5,234
4,974 5,264
Current assets
Prepayments and other receivables 13 75 197
Cash and cash equivalents 10 5,890 10,556
5,965 10,753
Total assets 10,939 16,017
Equity and liabilities
Equity
Share capital 19 311 301
Capital redemption reserve 20 2,565 2,565
Share premium reserve 20 3,049 1,616
Other reserve 20 - -
Shares to be issued 20 - 1,443
Share-based payment reserve 20 65 31
Foreign currency translation reserve 20 (6,922) (6,284)
Retained earnings 20 11,469 14,782
Total equity attributable to equity holders of the Parent 10,537 14,454
Current liabilities
Accruals and other payables 17 402 1,457
Bank borrowings 18 - 106
Total liabilities 402 1,563
Total equity and liabilities 10,939 16,017
The notes on pages 57 to 80 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 6 April 2023 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
2022 2021
Notes €000 €000
Assets
Non-current assets
Property, plant and equipment 13 30
Investment in subsidiaries 9 3,655 6,824
3,668 6,854
Current assets
Prepayments and other receivables 13 1,805 3,821
Cash and cash equivalents 337 16
2,142 3,837
Total assets 5,810 10,691
Equity and liabilities
Equity
Share capital 19 311 301
Capital redemption reserve 20 2,565 2,565
Share premium reserve 20 3,049 1,616
Other reserve 20 - -
Shares to be issued 20 - 1,443
Share based payment reserve 20 65 31
Foreign currency translation reserve 20 - (61,477)
Retained earnings 20 (415) 65,486
Total equity attributable to the shareholders of the Company 5,575 9,965
Current liabilities
Accruals and other payables 15 235 620
Bank borrowings 16 - 106
Total liabilities 235 726
Total equity and liabilities 5,810 10,691
The notes on pages 57 to 80 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 loss for the financial
year was €4.0 million (2021 €124.2 million profit)
The Financial Statements of Zegona Communications plc (registered number
09395163) were approved by the Board of Directors on 6 April and were signed
on its behalf by:
Eamonn O'Hare Robert Samuelson
Director
Director
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share-based payment reserve Foreign currency translation reserve Capital redemption reserve Share premium reserve Shares to be issued Total equity
Share capital
Retained
earnings
Note €000 €000 €000 €000 €000 €000 €000 €000
Balance at 1 January 2022 301 31 (6,284) 14,782 2,565 1,616 1,443 14,454
Loss for the year - - - (3,313) - - - (3,313)
Other comprehensive loss - - (638) - - - - (638)
Share-based payment expense 17 - 34 - - - - - 34
Issuance of shares 18 10 - - - - 1,433 (1,443) -
Balance at 31 December 2022 311 65 (6,922) 11,469 2,565 3,049 - 10,537
The notes on pages 57 to 80 form an integral part of these Consolidated
Financial Statements
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 23 - - - - - - (12,169) - (12,169)
Share-based payment expense 17 - - - -
- 763 - - 763
Reclassification of incentive arrangements 17 - (1,562) - - - - - - (1,562)
Renewal of incentive scheme 17 - 31 - - - - - - 31
Reduction of share premium 18 - - - - - (108,679) 108,679 - -
Redemption of shares 18 (2,531) - - (111,223) 2,531 - (277,326) - (388,529)
Issuance of shares 18 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 57 to 80 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |COMPANY STATEMENT OF CHANGES IN EQUITY
Share-based payment reserve Foreign currency translation reserve Capital redemption reserve Share premium reserve Shares to be issued Total equity
Share capital
Retained
earnings
Note €000 €000 €000 €000 €000 €000 €000 €000
Balance at 1 January 2022 301 31 (61,477) 65,486 2,565 1,616 1,443 9,965
Loss for the year - - - (4,046) - - - (4,046)
Other comprehensive loss - - (378) - - - - (378)
Share-based payment expense - 34 - - - - - 34
17
Issuance of shares 18 10 - - - - 1,433 (1,443) -
Reserves transfer 20 - - 61,855 (61,855) - - - -
Balance at 31 December 2022 311 65 - (415) 2,565 3,049 - 5,575
The notes on pages 57 to 80 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |COMPANY 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 2,821 694 (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 23 - - - - - - (12,169) - (12,169)
Share-based payment expense 17 - - - -
- 763 - - 763
Reclassification of incentive arrangements 17 - (1,457) - - - - - - (1,457)
Renewal of incentive scheme 17 - 31 - - - - - - 31
Reduction of share premium 18 - - - - - (108,679) 108,679 - -
Redemption of shares 18 (2,531) - - (111,223) 2,531 - (277,326) - (388,529)
Issuance of shares 18 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 57 to 80 form an integral part of these Consolidated
Financial Statements
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2022 2021
Note €000 €000
Operating activities
(Loss) before income tax from continuing operations (3,313) (34,258)
Adjustments to reconcile profit before income tax to operating cash flows:
Depreciation of property, plant and equipment 16 16
Management Incentive Scheme costs 17 35 31
Net foreign exchange losses 3 30
Finance income 7 (25) (158)
Finance costs 7 4 376
Working capital adjustments:
Decrease/(increase) in prepayments and other receivables 395 (5,261)
(Decrease)/increase in accruals and other payables (1,055) 334
Interest received 25 21
Interest paid - (273)
Net cash flows used in operating activities (3,916) (39,142)
Investing activities
Purchase of property, plant and equipment - (34)
Net cash flows used in investing activities - (34)
Net cash flows from discontinued investing activities 12 - 439,547
Financing activities
Dividends paid to shareholders 23 - (12,169)
Repurchase and cancellation of shares 18 - (388,529)
Issuance of shares and shares to be issued 18 - 2,956
Repayment of bank borrowing 16 (106) (11,028)
Net cash flows (used in) financing activities (106) (408,770)
Net (decrease) in cash and cash equivalents (4,022) (8,399)
Net foreign exchange difference (644) 3,711
Cash and cash equivalents at the beginning of the year 10,556 15,244
Cash and cash equivalents at the end of the year 5,890 10,556
The notes on pages 57 to 80 form an integral part of these Consolidated
Financial Statements.
FINANCIAL STATEMENTS |COMPANY STATEMENT OF CASH FLOWS
Year ended 31 December Year ended 31 December
2022 2021
Note €000 €000
Operating activities
(Loss) / Profit before income tax from continuing operations (4,046) 127,049
Adjustments to reconcile profit before income tax to operating cash flows:
Depreciation of property, plant & equipment 16 16
Net foreign exchange losses 3 69
Finance income 7 - (418,079)
Finance costs 7 - 376
Impairment of investment in subsidiary 9 2,951 288,806
Working capital adjustments:
(Increase) / decrease in prepayments and other receivables 2,016 (3,637)
(Decrease) / increase in accruals and other payables (385) 59
Interest received - 21
Interest paid - (273)
Net cash flows (used in)/from operating activities 555 (5,593)
Investing activities
Purchase of property, plant and equipment - (34)
Dividends received from subsidiary 9 - 417,921
Net cash flows from/ (used in) investing activities - 417,887
Net cash flows from/ (used in) discontinued investing activities 543
Financing activities
Dividends paid to shareholders 23 - (12,169)
Repurchase and cancellation of shares 18 - (388,529)
Issuance of shares and shares to be issued 18 - 2,956
Repayment of credit facility 16 (106) (11,028)
Payment of intercompany loan 9 - (21,907)
Net cash flows (used in) financing activities (106) (430,677)
Net Increase / (decrease) in cash and cash equivalents 449 (17,840)
Net foreign exchange differences (128) 2,707
Cash and cash equivalents at the beginning of the year 16 15,149
Cash and cash equivalents at the end of the year 337 16
The notes on pages 57 to 80 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 2022 (the "Consolidated Financial Statements") were authorised for
issue in accordance with a resolution of the Directors on 6 April 2023. 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
The Company and Consolidated Financial Statements for the year ended 31
December 2022 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 2022 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 2022:
· 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 (€) since
it has previously owned investments denominated in euros and expects to make
future acquisitions in euro, or euro-correlated assets. 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
The Consolidated Financial Statements have been prepared on the going concern
basis, which the directors consider to be appropriate for the reasons outlined
below.
Zegona's Directors have assessed the going concern assumptions during the
approval of the Consolidated Financial Statements. This assessment included
the review of Zegona cashflow forecast and budget which encompassed expected
developments in liquidity, debt and capital, together with reasonable
contingencies for routine professional fees that would be expected to support
Zegona's day-to-day operations. Additionally, the Directors have also
considered other potential severe but plausible downside scenarios and other
factors that could indicate possible threats to its ability to continue in
operation for a period of at least twelve months from the date of approving
the Consolidated Financial Statements.
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 and it now
meets its day to day working capital requirements while it does this from cash
balances.
During this period, Zegona's ongoing costs are reasonably predictable and
controllable and in 2022 Zegona also performed a comprehensive review of
operating costs to ensure the business is operating as efficiently as possible
by eliminating expenditure where possible, reducing headcount and
re-negotiating key supplier terms. Following this review, the Directors are
reasonably comfortable that provided Zegona does not incur any material
unforeseen costs, Zegona's cash holdings of £4.5 million (€5.3 million) at
6 April 2023 should be sufficient to fund the business until at least the
first quarter of 2025, which is significantly more than twelve months after
the approval of these Consolidated Financial Statements.
In performing their assessment, the Directors however also recognized that
Zegona's ability to continue as a going concern could be compromised in each
(or a combination of) two main scenarios which it does not necessarily
consider likely, but which are plausible:
1. While Zegona currently believes the European TMT market does
provide for a number of attractive investment opportunities in the coming
years, it is still possible that Zegona may be unable, for a number of
reasons, to
(a) identify and successfully negotiate an acceptable agreement to acquire
of a new investment that it feels is able to meet its financially disciplined
criteria for attractive returns to its investors in a reasonable period of
time
(b) Secure sufficient equity and/or debt financing for the identified
acquisition on terms that still allow Zegona to create sufficient value to
deliver those attractive investor returns.
If this does happen, the Directors and the Management team could conclude that
it is no longer in investors' best interests to continue to seek alternative
investments.
2. Zegona may incur costs in connection with an unsuccessful deal or
deals ("abort costs") large enough to exhaust its cash reserves. The
Directors' going concern review suggests that without taking any other cost
saving actions, Zegona could absorb approximately £1.7 million in such abort
costs during the next twelve months without exhausting its cash reserves. The
Directors considered this unlikely, since expenditure at this level would only
happen on a relatively small sub-set of transactions and Zegona has
historically been successful in minimizing transaction fees and controlling
them during the negotiation and diligence phase such that costs are only
incurred when the likelihood of success is high. It is however possible in
some larger and more complex transactions which fail at a very late stage that
fees in excess of £1.7 million could be incurred, or that Zegona could have
multiple failed transactions with cumulative abort costs in excess of this
level.
Due to the existence of these two scenarios, the Directors believe that it is
still appropriate to prepare the financial statements on a going concern
basis. However, there are indications of the existence of a material
uncertainty related to events or conditions that may cast significant doubt on
the group's and the company's ability to continue as a going concern and,
therefore, that the group and company may be unable to realise their assets
and discharge their liabilities for at least twelve months from the date of
approving the Consolidated Financial Statements. The financial statements do
not include any adjustments that would result from the basis of preparation
being inappropriate.
(c) New standards and amendments to IFRS
Standards, amendments and interpretations effective and adopted by Zegona:
There are no standards that are issued but not yet effective that would be
expected to have a material impact on the entity in the current or future
reporting periods and on foreseeable future transactions
(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 (including subsidiaries, associates and joint ventures)
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 foreign
operation. 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.
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.
Share based payment schemes in which Zegona has a choice of settlement are
classified as either equity settled share-based payments or cash-settled
share-based payments, depending on Zegona's ability and intent to settle in
shares, which Zegona has previously communicated its intention to do.
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 main accounting judgements and estimates 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 are:
Accounting judgements
• 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 has continued to record 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 14.
• Going concern. Zegona's assessment of the entity's ability to
continue as a going concern involves judgment with respect to its ability to
meet liabilities as they fall due for a period of at least twelve months from
the approval of the financial statements, including considerations around the
ongoing trade of the group which is to make strategic telco investments. An
explanation of the key judgements made in determining that the Zegona
continues to be a going concern, albeit with a material uncertainty related to
events or conditions that may cast significant doubt on its ability to
continue as a going concern is provided in Note 2.
Accounting estimates
• Measurement of share-based payments transactions. Valuation
techniques are used in determining the fair value of the management incentive
award, which feature significant unobservable inputs and are subject to
substantial uncertainty. The main estimates and assumptions used in
determining the £0.28 per share fair value of the management incentive are
detailed in Note 17.
4. SEGMENTAL ANALYSIS
Following the disposal of Euskaltel in 2021 (see note 12), 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
2022 2021
€000 €000
Salaries, bonuses and staff benefits 2,212 2,918
Employment related taxes 333 423
Pension costs 239 311
Other operating expenses 487 991
Corporate costs 3,271 4,643
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
2022 2021
Operations 6 6
Administration 1 1
7 7
Further information in relation to pay and remuneration of the directors can
be found in the Directors' Remuneration Report, starting on page 31.
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.
The €26 thousand (2021: €0.3 million) of significant project costs
recognised in 2022 were principally professional fees in relation to potential
acquisition opportunities. In addition, significant project costs were
recognised within discontinued operations in 2021 (see note 12).
7. FINANCE INCOME AND COSTS
Note Consolidated Consolidated
2022 2021
€000 €000
Net gain on currency forward instruments - 137
Bank interest 25 21
Finance income 25 158
]
Interest on bank borrowings and bank charges (4) (376)
Finance costs (4) (376)
8. TAXATION
Consolidated Consolidated
2022 2021
€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
2022 2021
€000 €000
(Loss) before tax from continuing operations (3,312) (34,258)
At UK statutory income tax rate (19% (2021: 19%)) (629) (6,509)
Expenses not deductible for tax purposes* 26 5,916
Unrecognised tax losses* 602 593
Income tax expense - -
* At UK statutory income tax rate (19% (2021: 19%))
Income relating to the investment in Euskaltel during 2021, 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 €9.4 million (2021:
€7.7 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 Statement it was announced that the UK corporation rate
will increase to 25% from 1 April 2023. Consequently, Zegona has remeasured
its unrecognised 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
2022
During 2022, Zegona Limited continued to pay cash expenses on behalf of the
group. These outflows prompted Zegona to review whether the carrying value of
the investment in subsidiary was recoverable as at 31 December 2022.
Following these reviews, the carrying value of the investment was impaired by
€3.0 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 2022 was €3.7 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.
2021
During 2021, the Company performed an impairment review of Zegona limited on
the same basis and impaired its investment by €288.8 million to its
recoverable amount of €6.8 million, principally because 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.
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 18).
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 extremely 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.
Zegona seeks to minimise interest rate risk through maintaining the minimum
amount of leverage , however 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.
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
2022 and reported financial performance for the year.
+/- 10% movement
Currency impact €000
Profit before tax gain/loss -/+ 331
Equity gain/loss -/+ 1,054
Credit risk
Credit risk arises from cash and cash equivalents, prepayments and other.
Zegona's objective is to minimise credit risk as far as possible and 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 2022, 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 2022 are shown in the table below:
Cash and cash equivalents Total
€000 €000
Quality classification External credit rating
Strong A- and above 5,890 5,890
5,890 5,890
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 2022, Zegona had cash balances held with banks amounting to
€5.8 million (2021: €10.6 million), compared to Zegona's total liabilities
amounting to €0.4 million (2021: €1.5 million). In addition at both 31
December 2022 and 31 December 2021, Zegona had an undrawn overdraft facility
of £1.5 million, equivalent to €1.7 million although this is repayable on
demand.
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
2022 2022 2021 2021
€000 €000 €000 €000
Prepayments and other receivables - 75 - 197
Cash and cash equivalents - 5,890 - 10,556
Total current financial assets - 5,965 - 10,753
Fair Amortised Fair Amortised
Value cost value cost
2022 2022 2021 2021
€000 €000 €000 €000
Accruals and other payables - 402 - 1,457
Bank borrowing - - - 106
Total current financial liabilities - 402 - 1,563
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
2022 2022 2021 2021
€000 €000 €000 €000
Prepayments and other receivables - 1,805 - 3,821
Cash and cash equivalents - 337 - 16
Total current financial assets - 2,142 - 3,837
Fair Amortised Fair Amortised
Value cost value cost
2022 2022 2021 2021
€000 €000 €000 €000
Accruals and other payables - 235 - 620
Bank borrowings - - - 106
Total current financial liabilities - 235 - 726
12. PROFIT FROM DISCONTINUED OPERATIONS
For part of 2021, Zegona owned 21.44% of in Euskaltel S.A. ("Euskaltel"), a
Spanish telecommunications company incorporated in Spain and operating in the
Basque Country, Asturias and Galicia under regional brands and nationally
across Spain under the Virgin telco brand.
This investment was sold to a subsidiary of MásMóvil Ibercom, S.A.U
("MásMóvil"), the Spanish fourth national operator who launched a tender
offer to acquire all of the outstanding shares of Euskaltel on 28 March 2021.
The tender offer completed successfully and Zegona received €421.3 million
in cash on 11 August 2021.
The amounts recorded in the Consolidated statement of comprehensive income in
respect of discontinued operations were as follows:
Consolidated Consolidated
2022 2021
€000 €000
Gain on sale of discontinued operation - 110,240
Share of loss of associate - (454)
Realised foreign exchange gains - 8,391
Significant project costs - (2,910)
Finance costs - (1,096)
Discontinued operations - 114,171
The amounts recorded in the Consolidated statement of cash flows in respect of
discontinued operations were
as follows:
Consolidated Consolidated
2022 2021
€000 €000
Proceeds from sale of investment in Euskaltel - 421,275
Dividends received from Euskaltel - 11,872
Proceeds from sale of contingent consideration - 6,400
Net cash flow from discontinued investing activities - 439,547
Gain on sale of discontinued operation and Share of loss of associate
Up to the announcement of MásMóvil's tender offer on 28 March 2021, Zegona
had accounted for its investment in Euskaltel as an associate and recorded its
share of Euskaltel's loss for this period of €454 thousand. 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.
During 2021, Zegona recognised a gain on disposal of Euskaltel that was
calculated as follows:
€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 did not attract a tax charge as it qualifies for the
Substantial Shareholding Exemption in Schedule 7AC of the Taxation of
Chargeable Gains Act 1992.
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.
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 of foreign exchange gains
arising from the revaluation of the Euro-denominated contingent consideration.
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.
Finance costs
Up to 10 August 2021, Zegona recorded a financial asset designated at fair
value for contingent consideration receivable from Euskaltel in relation to
the sale of Telecable in 2017. This asset was always recorded at fair value
using a probability-weighted discounted cash flow model 19 (#_ftn19) and the
loss of €1.1 million reflects the change in the fair value of the asset
between 1 January 2021 and 10 August 2021, when it was sold to a third party
for €6.4 million in cash, which was received on 10 August 2021. As the sale
of Euskaltel would not have been undertaken without the settlement of the
contingent consideration Zegona concluded that the contingent consideration
was part of the discontinued operation.
13. PREPAYMENTS AND OTHER RECEIVABLES
Consolidated Consolidated
31 December 31 December
2022 2021
€000 €000
Prepayments 19 46
Accrued interest on bank deposits 24 -
VAT recoverable 32 151
Total 75 197
Company Company
31 December 31 December
2022 2021
€000 €000
Prepayments 19 42
Amounts due from subsidiary undertakings 1,754 3,629
VAT recoverable 32 150
Total 1,805 3,821
14. INCOME TAX RECEIVABLE
In August 2019, the European Commission (the ''EC'') concluded that the Group
Financing Exemption contained within the UK's Controlled Foreign Company
(''CFC'') legislation 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.
Zegona engaged an independent tax adviser to undertake a review of its
historic financing structures which identified a small proportion of
activities performed by UK personnel. On this basis, Zegona estimated that if
the conclusion is upheld, a potential tax liability of between €1m and
€1.8m may exist.
The UK Government is required to recover the state aid in the meantime and
Zegona paid two charging notices issued by HMRC in February and June of 2021
for £4.4 million, (€4.9 million) which is 100% of the CFC tax relief
received and interest thereon. These notices are a charging mechanism only and
if the decision is annulled the money will be repaid.
Zegona submitted an appeal against the charging notices 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.
Both the UK Government and a number of other impacted taxpayers have submitted
appeals to the EU General Court to annul the Commission's findings. On 8 June
2022, the General Court of the Court of Justice of the European Union ("CJEU")
found in favour of the Commission's decision. The UK Government has now
announced that it has lodged an appeal of the decision with the Court of
Justice. If the UK Government's appeals are ultimately successful, Zegona will
be entitled to recover the amounts already paid and will suffer no loss.
Despite the decision of the General Court, based on its current assessment and
also supported by external professional advice, Zegona believes that the UK
Government's appeal will likely be successful. As a result, Zegona continues
to believe that it has no liability. A long-term current tax receivable of
€4.9 million (2021: €5.2 million 20 (#_ftn20) ).has therefore continued
to be recognized in respect of the amounts paid. Any appeal of the General
Court decision to the Court of Justice, and the progress of the UK Tax
Authority challenge into the historic financing arrangements of the Group,
will continue to be monitored by Management.
15. ACCRUALS AND OTHER PAYABLES
Consolidated Consolidated
31 December 31 December
2022 2021
€000 €000
Trade payables 208 250
Other accruals 194 1,227
402 1,457
Company Company
31 December 31 December
2022 2021
€000 €000
Trade payables 41 47
Accruals 194 573
235 622
16. 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 was 0.25% and it is
repayable on demand. The overdraft was repaid on 13(th) January 2022.
17. 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 21
(#_ftn21) 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 2022, 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
renewal subsequently approved by Zegona's shareholders on 30 June 2021.
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, because the renewal of the
scheme required shareholder approval, the grant date of the award could not be
until 30 June 2021.
The fair value of the award was therefore estimated at each balance sheet
date, and an expense recognised from the date that holders begin to render
services. This estimate was then recalculated and adjusted at each balance
sheet date prior to the grant date (30 June 2021), 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 24 May 2021, 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, (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 that was eventually
equal to the £25.7 million (€30.3 million on the transaction date) actually
paid on 14 October 2021.
A Management Incentive Scheme cost of €29 million for 2021 was recognised in
the Consolidated Statement of Comprehensive Income in respect of the Second
Calculation Period, 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 was subject to a shareholder vote at Zegona's 2022
AGM which passed with 98.03% of votes in favour.
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 could not be until shareholders ratified the renewal of the
scheme at Zegona's 2022 AGM. Between 14 October 2021 and 28 June 2022
therefore, Zegona estimated the fair value of the award at each balance sheet
date and recognised an expense reflecting the date that holders began to
render services. Accordingly, On 28 June 2022, Zegona engaged an independent
valuation specialist to estimate the fair value of the award and has recorded
an expense that is equal to the expense that would have been recognised for
the period from 14 October 2021 and 31 December 2022 using the revised fair
value of the award and the amount that was previously recognised in the
financial statements for the period 14 October 2021 and 31 December 2021.
The fair value of the award was £0.28 per Management Share and was calculated
using a Monte Carlo model. The fair value uses a volatility of 18% and an
expected term of three years. The Incentive Shares are subject to the
Preferred Return being achieved, which is a market performance condition, and
as such has been taken into consideration in determining their fair value. A
risk-free rate of 1% 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 - £1.5 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.
During 2022, one member of the management team retired and on 1 April 2022 the
company repurchased and cancelled 28,981 shares for consideration of £1 in
aggregate. €1.7 thousand of expense that had been recognised in respect of
the period between 14 October 2021 and 1 April 2022 was reversed.
On 13 June 2022, 28,981 shares were issued to a second member of the
management team in return for consideration of £10 thousand. The value of
these awards and the assumptions used in the Monte Carlo model used to value
them were the same as for the other awards valued on 30 June 2022. No expense
in respect of these shares has been recognised because the consideration paid
was in excess of the fair value.
For the period to 31 December 2022 a total expense of €34 thousand was
recognised (2021: €31 thousand), with a corresponding amount recognised in
the Share based payment reserve.
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 22 (#_ftn22) .
18. 2021 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. The rest of the
commitment was delivered by:
Tender Offer
On 13 August 2021, Zegona announced 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. On 14 October 2021, 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, on 8 September the Company reduced its share premium account
from £95,339,759 to £100,000 (the "Capital Reduction") following approval by
Shareholders and confirmation by the High Court. 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.
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 23 (#_ftn23) with the remaining 846,857 shares to be issued once they
could be lawfully Admitted. 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.
During 2021 Zegona 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) was therefore
recognised within a new reserve, Shares to be issued. On 9 November 2022, the
remaining 846,857 shares were issued and Admitted to trading on 16 November
2022 as the restrictions preventing their Admission had expired. The balance
on the Shares to be issued reserve was therefore reduced to zero.
19. CALLED UP SHARE CAPITAL
2022 2022 2021 2021
Allotted, called up and fully paid Number €000 Number €000
At 1 January 5,325,567 301 218,970,076 2,821
Shares issued 846,857 10 887,594 11
Shares repurchased and cancelled - - (214,532,103) (2,531)
At 31 December 6,172,424 311 5,325,567 301
The nominal value of the total ordinary shares is £0.01 and the total
allotted, called up and fully paid equates to £61,724 (2021: £53,256).
During 2022, 846,857 shares were issued to members of the management team as
described in note 18.
During 2021 the Company repurchased 214,532,103 ordinary shares at a price of
£1.535 per share by way of a tender offer which completed on 14 October 2021.
Subsequently, on 27 October 2021, members of the management team subscribed
for 887,594 ordinary shares at a price of £1.438 per share
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
20. RESERVES
Distributable reserves
Retained earnings
The retained earnings reserve includes cumulative net profits. 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 18), 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.
During 2021 the full amount then outstanding in the Other reserve was utilised
to fund the tender offer (see note 18).
Total distributable reserves
While the Other reserve continues to be distributable, its balance is zero,
therefore the Company's total distributable reserves are now solely the
Retained earnings reserve. At 31 December 2022 the Company's Retained earnings
reserve in Sterling (Zegona's functional currency) was negative £37 thousand.
Distributable reserves at 31 December 2021 were £3.5 million.
A balance of €61.3 million remained in this reserve on translation to Euro
(Zegona's presentational currency) with an offsetting amount in the foreign
currency translation reserve. 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.
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 17.
Foreign currency translation reserve
The foreign currency translation reserve is a non-distributable reserve that
includes the foreign exchange differences arising from the translation of the
Consolidated Financial Statements functional currency of Sterling ("£") to
presentational currency euro ("€"). The movement in this reserve for the
period is driven primarily by the movement in the closing €:£ exchange
rates from 1.19 at 31 December 2021 to 1.13 at 31 December 2022. Following the
disposal of Euskaltel, an amount remained in the foreign currency translation
reserve as a result of the translation from its functional currency to the
group functional currency which will never be recycled because it does not
represent the disposal of a foreign operation. Accordingly, in the year
€61.9 million has been transferred to the Company's retained earnings
reserve.
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 2022, there were no transactions impacting 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 18).
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 2022, the share premium reserve was increased by €1,443 to reflect
the issuance of the 846,857 shares to Eamonn O'Hare and Robert Samuelson that
were intended to be issued in 2021 (see note 18).
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 18). 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 18).
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 in October 2021 to subscribe for shares which were
not admitted in 2021. As discussed in note 18, these shares were issued on 9
November 2022 and the balance on the reserve was reduced to zero.
21. 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
798,302 ordinary shares (within specified price parameters) which was 15% of
the issued ordinary share capital at the date of issuance of its 2021 Annual
Report. This authorisation will continue until the end of the 2023 AGM. 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.
22. 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 17, 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 2022 and 2021 and (b)
the result from Continuing Operations in 2021 was a loss.
2022 2021
Loss for the year attributable to equity holders of the parent (3,313) 79,913
- Total Operations (€000)
Loss for the year attributable to equity holders of the parent (3,313) (34,258)
- Continuing Operations (€000)
Profit for the year attributable to equity holders of the parent - 114,171
- Discontinued Operations (€000)
Weighted average number of ordinary shares 5,446,215 168,580,851
Basic and diluted EPS - Total Operations (€) (0.61) 0.47
Basic and diluted EPS - Continuing Operations (€) (0.61) (0.22)
Basic and diluted EPS - Discontinued Operations (€) - 0.68
23. DIVIDENDS PAID
No dividends were declared or paid in 2022.
In the comparative period, 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.
24. RELATED PARTY TRANSACTIONS
In the opinion of the Directors, there is no one single controlling party, nor
any transactions with related parties for the years ended 31 December 2022 or
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.
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 31 and 35. Holdings of Management Shares and subscriptions for
shares by management are detailed in note 17.
25. AUDITOR'S REMUNERATION
2022 2021
€000 €000
Fees for the audit of the Company's annual accounts 129 200
Total audit fees 129 200
Fees for procedures on interim financial statements - 15
Agreed upon procedures - 29
Total non-audit fees - 44
26. 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 20 June 2023 at 10:30 a.m. for
the transaction of the following business:
To consider and, if thought fit, to pass the following resolutions, numbers 1
to 11 of which will be proposed as ordinary resolutions and numbers 12 to 15
of which will be proposed as special resolutions:
1. THAT the Company's financial statements for the year ended 31
December 2022, 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 Directors' remuneration report, which is set out in pages
31 to 38 of the annual report of the Company for the year ended 31 December
2022, be approved.
11. 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:
11.1 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 £22,574 to such persons and at
such times and on such terms as they think proper; and further
11.2 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
£22,574,
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.
12. THAT if resolution 11 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:
12.1 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
11.2, 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
12.2 the allotment (otherwise than pursuant to
paragraph 12.1 above) of equity securities up to a nominal amount of £6,172,
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.
13. THAT if resolution 11 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 11 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:
13.1 limited to the allotment of equity securities or
sale of treasury shares up to a nominal amount of £6,172; and
13.2 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.
14. 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:
14.1 the maximum number of ordinary shares hereby
authorised to be purchased is 925,864, being equal to 14.99 per cent. of the
issued ordinary shares;
14.2 the minimum price (exclusive of expenses) which
may be paid for such ordinary shares is £0.01 per share, being the nominal
amount thereof;
14.3 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);
14.4 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
14.5 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.
15. 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: 6 April 2023
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
10:30am on Friday 16 June 2023. 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) Link Group, the company's registrar, has launched a shareholder
app: LinkVote+. It's free to download and use and gives shareholders the
ability to access their shareholding record at any time and allows users to
submit a proxy appointment quickly and easily online rather than through the
post. The app is available to download on both the Apple App Store and
Google Play, or by scanning the relevant QR code below.
Apple App Store GooglePlay
(c) If you are an institutional investor you may also be able to
appoint a proxy electronically via the Proxymity platform, a process which has
been agreed by the Company and approved by the Registrar. For further
information regarding Proxymity, please go to www.proxymity.io.
(https://www.proxymity.io.) Your proxy must be lodged by 10:30am on 16 June
2023 in order to be considered valid or, if the meeting is adjourned, by the
time which is 48 hours before the time of the adjourned meeting. Before you
can appoint a proxy via this process you will need to have agreed to
Proxymity's associated terms and conditions. It is important that you read
these carefully as you will be bound by them and they will govern the
electronic appointment of your proxy. An electronic proxy appointment via the
Proxymity platform may be revoked completely by sending an authenticated
message via the platform instructing the removal of your proxy vote.
(d) 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 10:30am on Friday 16 June 2023.
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.
(e) 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 Friday 16 June 2023 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 6 April 2023 (being the last business day prior to
the publication of this notice) the Company's issued share capital consists of
6,172,424 ordinary shares, carrying one vote each. Therefore, the total voting
rights in the Company as at 6 April 2023 are 6,172,424.
(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,
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.
(xiii) Submission of a Proxy vote shall not preclude a member
from attending and voting in person at the meeting in respect of which the
proxy is appointed or at any adjournment thereof.
(xiv) Unless otherwise indicated on the Form of Proxy, CREST,
Proxymity or any other electronic voting instruction, the proxy will vote as
they think fit or, at their discretion or withhold from voting.
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 2022, 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 2022, 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 17 and 18 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 2022 as set out on page 19 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 2023. 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 - 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 31 to 38
of the Annual Report. The actual remuneration paid to Directors in 2022 was
made within the boundaries of the Directors' remuneration policy approved by
shareholders at the 2022 Annual General Meeting.
Resolution 11 - 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 11 is proposed to renew
the Directors' authority to allot ordinary shares of up to a maximum nominal
amount of (i) £22,574 (being one-third of the Company's issued ordinary share
capital as at 6 April 2023) to such persons and upon such conditions as the
Directors may determine; and (ii) a further maximum aggregate nominal amount
of £22,574 (being one-third of the Company's issued ordinary share capital as
at 6 April 2023) in connection with a rights issue (as defined in resolution
12 of the Notice), 6 April 2023, 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 11 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 28 June 2022. 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.
Resolutions 12 and 13 - 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 12 and 13 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 12 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
£6,172, equivalent to 10 per cent. of the total issued ordinary share capital
of the Company (excluding treasury shares) as at April 2023, 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 10
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 13 authorises the Directors to allot new shares
pursuant to the allotment authority given by resolution 11, or sell treasury
shares, for cash up to a further nominal amount of £6,172, being an
additional 10 per cent. of the entire issued share capital of the Company as
at 3 April 2023, 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 13 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 28 June
2022.
Resolution 14 - 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 6 April 2023.
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 6 April 2023, although shares issued in the
Company's Management Incentive Schemes may be exchanged for ordinary shares in
certain circumstances.
Resolution 15 - 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 2023 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 10:30am on Friday 16 June 2023.
Details of how to appoint a proxy in this way are set out on page 84 of this
document.
2. Link Group, the company's registrar, has
launched a shareholder app: LinkVote+. It's free to download and use and gives
shareholders the ability to access their shareholding record at any time and
allows users to submit a proxy appointment quickly and easily online rather
than through the post. The app is available to download on both the Apple
App Store and Google Play, or by scanning the relevant QR code below.
Apple App Store GooglePlay
3. If you are an institutional investor you may also be able to appoint a
proxy electronically via the Proxymity platform, a process which has been
agreed by the Company and approved by the Registrar. For further information
regarding Proxymity, please go to www.proxymity.io.
(https://www.proxymity.io.) Your proxy must be lodged by 10:30am on 16 June
2023 in order to be considered valid or, if the meeting is adjourned, by the
time which is 48 hours before the time of the adjourned meeting. Before you
can appoint a proxy via this process you will need to have agreed to
Proxymity's associated terms and conditions. It is important that you read
these carefully as you will be bound by them and they will govern the
electronic appointment of your proxy. An electronic proxy appointment via the
Proxymity platform may be revoked completely by sending an authenticated
message via the platform instructing the removal of your proxy vote.
4. 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 & International
specifications and must contain the information required for such
instructions, as described in the CREST Manual (www. (http://www/)
euroclear.com). The message must be transmitted so as to be received by the
issuer's agent, Link Group (ID RA10), by 10:30 a.m. on Friday 16 June 2023.
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 & International 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)22 7134 4000
Barclays Bank plc
5 The North Colonnade
Canary Wharf
London
E14 4BB
Telephone: +44 (0)22 3134 9801
Canaccord Genuity Limited
88 Wood Street
London, UK
EC2V 7QR
Telephone: +44 (0)22 7523 8000
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Telephone: +44 (0)22 7311 1000
Registrar
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
Telephone: +44 (0)371 664 0391
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)22 7295 3000
Milbank, Tweed, Hadley & McCloy LLP
10 Gresham Street
London
EC2V 7JD
Telephone: +44 (0)22 7615 3000
1 (#_ftnref1) 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 (#_ftnref2) The financial information set out in this release does not
constitute the company's statutory accounts for the years ended 31 December
2022 or 2021. Statutory accounts for 2021 have been delivered to the registrar
of companies, and those for 2022 will be delivered in due course. The auditor
has reported on those accounts; their reports were (i) unqualified, (ii) for
the year end 2022 included reference to a matter to which the auditor drew
attention by way of emphasis without qualifying their report in respect of a
material uncertainty in respect of going concern (2022), and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies Act 2006.
3 (#_ftnref3) Quad play: customers with four services (pay TV, fixed voice,
broadband and mobile).
4 (#_ftnref4) Business to Business.
5 (#_ftnref5) Those with holdings in 3% or more of the issued ordinary
shares of the Company are listed on page.
6 (#_ftnref6) Operating profit excluding depreciation of property, plant and
equipment and amortisation of intangible assets.
7 (#_ftnref7) Including Zegona management, directors and related holdings.
8 (#_ftnref8)
https://www.zegona.com/investor-relations/shareholder-information.aspx.
9 (#_ftnref9) 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.
10 (#_ftnref10) Return (a 5% per annum return on a compounded basis on
shareholders' net investment).
11 (#_ftnref11) 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 17 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.
12 (#_ftnref12) 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.
13 (#_ftnref13) 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 2022.
14 (#_ftnref14) The Non-Executive Directors have not received any other form
of remuneration during the current or prior year.
15 (#_ftnref15) Period from incorporation on 19 January 2015 to 31 December
2015.
16 (#_ftnref16) 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.
17 (#_ftnref17) 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.
18 (#_ftnref18) No bonuses will be paid until Zegona owns an operating asset
19 (#_ftnref19) This meant that the instrument was allocated to level 3 of
the fair value hierarchy. The value assigned to the instrument at 1 January
2021 was €7,499 and the change in the fair value included €3 thousand of
foreign exchange losses.
20 (#_ftnref20) The movement in the year is entirely due to changes in
foreign exchange rates
21 (#_ftnref21) The preferred Return is a 5% per annum return on a
compounded basis on shareholders' net investment.
22 (#_ftnref22) Settlement of the Second Calculation Period in cash does not
create a precedent in respect of the Third Calculation Period as ash
settlement was required under those circumstances by the terms of the scheme.
23 (#_ftnref23) Being the maximum number of shares that could be Admitted on
that date.
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