TIDMZEG
RNS Number : 0571H
Zegona Communications PLC
04 April 2022
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ZEGONA COMMUNICATIONS PLC ("Zegona")
LEI: 213800ASI1VZL2ED4S65
4 april 2022
ZEGONA ANNOUNCES 2021 RESULTS
London, England, Zegona Communications PLC (LSE: ZEG) announces
results and publishes its Annual Report for the year ended 31
December 2021.[1]
Enquiries
Tavistock (Public Relations adviser - UK)
Tel: +44 (0)20 7920 3150
Lulu Bridges - lulu.bridges@tavistock.co.uk
Jos Simson - jos.simson@tavistock.co.uk
About Zegona
Zegona was established in 2015 with the objective of investing
in businesses in the European Telecommunications, Media and
Technology sector and improving their performance to deliver
attractive shareholder returns. Zegona is led by former Virgin
Media executives Eamonn O'Hare and Robert Samuelson.
ZEGONA COMMUNICATIONS PLC
Annual Report
For the Year Ended 31 December 2021
STRATEGIC REPORT | CHAIRMAN'S STATEMENT
I am pleased to present Zegona's annual report for 2021. This
was a very important year for the Company. We crystalised
significant shareholder value by completing the sale of Euskaltel
and delivered on our commitment to return capital to shareholders
promptly and efficiently.
The completion of Zegona's journey in Spain validates its
Buy-Fix-Sell strategy
On 28 March 2021, MásMóvil, the fourth largest
telecommunications operator in Spain launched a tender offer to
acquire 100% of Euskaltel for EUR11.17 per share in cash. This
valued Euskaltel's equity at EUR2.0 billion, which equated to an
Enterprise Value of EUR3.5 billion (over 10x EBITDA and 21x
Operating Cash Flow), a significant premium
to European telecommunications multiples[2].
The sale of our Euskaltel investment represented the successful
completion of our Buy-Fix-Sell strategy in Spain. This journey
included four M&A transactions and two operational turnarounds.
Our involvement in Telecable and Euskaltel created significant
value, delivering an 88% return on shareholders' net invested
capital[3].
The success of our investment strategy in Spain, culminating in
the sale of Euskaltel to MásMóvil, demonstrated the strength and
flexibility of our Buy-Fix-Sell strategy. We engineered the
combination of three northern Spanish cable operators and leveraged
our position as the leading shareholder in the enlarged business to
drive significant change. These changes included restructuring the
board, strengthening the senior management team, realising material
synergies, returning the business to growth and expanding
nationally across Spain through the launch of the Virgin brand.
As Euskaltel started to grow with improved operational and
financial metrics, we were able to initiate consolidation
discussions from a position of strength. The eventual transaction
with MásMóvil received support from the full Euskaltel Board and
over 97% of Euskaltel's shareholders. The transaction was completed
in August 2021, and we received EUR428 million[4] (GBP370
million[5]) in total cash proceeds.
Capital returned to shareholders with management reinvesting
A core component of our Buy-Fix-Sell strategy is our commitment
to return excess capital to shareholders promptly and efficiently.
We did this in 2017 when we sold Telecable and we did the same
again this year. Following the announcement of MásMóvil's tender
offer, we sought the views of our shareholders before announcing in
May 2021 our intention to return over 90% (GBP335 million) of the
cash proceeds. We initiated this capital return with a GBP5.7
million dividend in June 2021 and the return of the full GBP335
million was completed less than two months later with a tender
offer to acquire Zegona shares at GBP1.535 per share.
At the same time, the executive team agreed to reinvest a
portion of the Management Incentive as a signal of our commitment
to the business and confidence that we can once again deliver
significant shareholder value by implementing Zegona's Buy-Fix-Sell
strategy. This reinvestment has resulted in the management team
becoming Zegona's largest shareholder. In addition, Robert
Samuelson (Chief Operating Officer) and I waived our entitlement to
any bonus in 2021 and Zegona will pay no bonuses to the senior team
until we have made another investment. Management continue to be
strongly aligned with shareholders, both through our significant
ownership position and the long-term incentive scheme that links
our remuneration directly to growth in shareholder value.
The next Buy-Fix-Sell Opportunity
After completing the Capital Return, Zegona is in a similar
position to when it was founded in 2015. The company has retained
sufficient capital to provide adequate time and resources to secure
another attractive investment opportunity within the European TMT
sector.
The broader European TMT landscape continues to be large and
fragmented, with well over 100 operators, of which over half fit
our desired investment size. We continue to see a very healthy
environment for acquisitions
across the industry, demonstrated by a significant increase in
deal activity with approximately 14 public telco businesses being
acquired or subject to a public offer in the last two years.
This healthy acquisition environment is being driven by a number
of core themes that we believe will present Zegona with attractive
investment opportunities. These include, core telco business
delivering poor capital returns, fixed/mobile convergence,
in-market consolidation and large multi-national operators
divesting non-strategic assets.
We are actively pursuing a number of attractive opportunities
and have recently participated in a number of transaction
processes. These are in markets which we know well and where we are
confident we can apply our expertise and experience to again
deliver superior returns for our shareholders. However, we remain
patient and disciplined and will not complete a transaction unless
we are confident that it meets our strict financial criteria. We
are currently working on a shortlist of attractive opportunities
and hope to be able to discuss these with shareholders in due
course.
Annual general meeting
The next AGM will be held at 10 Snow Hill, London, EC1A 2AL at
1:00 pm on 28 June 2022. The AGM is an opportunity for shareholders
to vote on certain aspects of Zegona's business. The Directors will
also be available to answer any shareholder questions prior to and
after the meeting.
Eamonn O'Hare
Chairman and Chief Executive Officer
3 April 2022
STRATEGIC REPORT | STRATEGY AND BUSINESS MODEL
Vision
-- Execute our Buy-Fix-Sell strategy in the European TMT sector
-- Focus on businesses that require active change and
fundamental improvement to realise their full value
-- Target significant long-term growth in shareholder value
Opportunity
Changing market dynamics in the TMT industry create multiple
investment opportunities:
-- Demand for data and speed : Data consumption is growing
strongly with customers willing to pay for speed and reliability.
Gigabit broadband is increasingly offered in many markets but
network roll-outs and upgrades need to be efficient.
-- Digital convergence: The fixed/mobile divide is increasingly
disappearing for users, meaning significant growth in more valuable
quad play[6] customers who are combining mobile and fixed services.
This has driven an increase in merger and acquisition (" M&A ")
activity and improvements in economics for converged players since
mobile data delivery is heavily dependent on high capacity fixed
networks.
-- Industry consolidation: The sector has seen heightened
M&A activity. Many private equity owners are looking to sell
assets as economies return to growth and industry players are
focusing on their core regions, delivering cost reductions and
price repair to rebuild margins. Consolidation has also created
opportunity as businesses are spun out by the major industry
players to meet regulatory requirements and strategic objectives,
creating opportunity for Zegona.
-- Infrastructure monetisation: The opportunity to enhance value
through separating off and monetising infrastructure assets,
started with mobile towers but has expanded to other assets
including fixed networks. This creates new commercial options, both
through providing a route for incremental value creation and in the
remaining 'servco' operations which may not have been the main
focus of attention in the initial infrastructure led
transaction.
-- Broad range of attractive assets: Our flexibility in terms of
size, geography and category opens a broad universe of attractive
target assets across the TMT market. We have identified many
businesses of an appropriate scale, including operators which are
active in one or more of the mobile, mid-sized cable, fixed fibre
network, B2B[7], and network infrastructure sectors.
Advantage
A number of factors make Zegona well positioned to access
attractive deals and deliver value:
-- Strong, aligned management team: Our management team has a
proven track record of delivering superior business performance and
investor returns. During 2017, it successfully sold Telecable and
was then instrumental in returning Euskaltel to growth. This
enabled us to initiate consolidation discussions with MásMovíl that
lead to it acquiring Euskaltel in July 2021. The team has extensive
real-world experience in senior operational roles in large public
telecommunications companies and it interests are also strongly
aligned with shareholders through a long-term incentive scheme that
links remuneration directly to growth in shareholder value.
-- Entrepreneurial focus: We have considerable freedom in the
projects we pursue and the ways we create value. Unlike most
private equity businesses, Zegona is free to choose the optimal
period to hold assets and can realise value using a range of
approaches, of which a sale of the asset is only one. This also
permits a focus on fundamental business improvements that are value
accretive rather than relying on high leverage and multiple
expansion. We are also able to act quickly on acquisition
opportunities while still maintaining financial discipline. This is
especially attractive to potential sellers and a key
differentiator.
-- Major global investors : Zegona benefits from having a number
of global public equity asset managers[8] with a long-term outlook
as shareholders. The strong support which we have from such
shareholders was illustrated by our successful placement of over
GBP100 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 GBP1-5
billion, although we may deviate outside of this range if we
believe the returns are sufficiently attractive;
-- TMT, network-based communications and entertainment businesses, primarily in Europe;
-- Strategically sound businesses with established market
positions and limited expected downside risk, but which have scope
for fundamental improvement that is realistically achievable;
-- Appropriate financial leverage (usually 3-4x EBITDA[9]); and
-- Multiple viable exit options pre-identified.
Many businesses across the TMT sector currently deliver
sub-optimal returns which could be significantly improved. We work
with management to deliver fundamental business improvements, such
as:
-- Changing the business market position;
-- Being actively involved in the management of the business to
drive operational improvements;
-- Instilling strong discipline around cost efficiency;
-- Investing in products, services and other value-accretive
activities to drive top line growth;
-- Focusing on operating profitability and cash generation;
-- Ensuring a balanced and efficient capital structure;
-- Innovative techniques to separate and monetise infrastructure assets; and
-- Value enhancing bolt-on acquisitions/divestments.
Buyer interest is stimulated as the performance of each
investment improves, providing Zegona with a range of options to
crystallise the value it has created:
-- We identify the optimal time to crystallise the value we have
created, with flexibility to adapt to market changes and other
opportunities;
-- Zegona's publicly listed structure allows shareholders to
realise value at any time and provides multiple options for value
delivery; and
-- Following a successful crystallisation, the value created will be reinvested or returned to shareholders.
STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Sale of the investment in Euskaltel and Return of Capital
On 28 March 2021, MásMóvil, the fourth largest
telecommunications operator in Spain launched a tender offer to
acquire 100% of Euskaltel for EUR11.17 per share in cash (the
"Offer"). The Offer valued Euskaltel's equity at EUR2.0 billion
which equated to an Enterprise Value of EUR3.5 billion and valued
Euskaltel at 10.1x EBITDA and 21x Operating Cash Flow, a
significant premium to European telecommunications
multiples[10].
The offer price was subsequently adjusted to EUR11.00 per share
following the payment by Euskaltel of a EUR0.17 per share dividend
on 17 June 2021 which Zegona passed on to its shareholders in full
through a GBP5.7 million dividend declared on 21 June 2021. The
tender offer was successfully completed and Zegona received
EUR421.3 million on 11 August 2021. Eamonn O'Hare and Robert
Samuelson resigned as directors of Euskaltel on 10 August 2021.
The completion of MásMóvil's acquisition of Euskaltel
underscores the success of Zegona's strategy in Spain and provided
significant value creation for Zegona shareholders, with Zegona
achieving a return of 87.6%[11] on shareholders' net invested
capital. The sale, together with the dividend, delivered proceeds
of EUR428 million (GBP370 million[12]) to Zegona and Zegona
successfully passed substantially all of this[13] back to its
shareholders by October 2021, through a GBP5.7 million dividend and
a GBP329.3 million on-market share buyback by way of a tender offer
launched in August 2021.
Up to the announcement of MásMóvil's tender offer on 28 March
2021, Zegona had accounted for its investment in Euskaltel as an
associate. From this date, t he investment in Euskaltel, and other
related items[14] (see note 13 to the financial statements), were
classified as a discontinued operation, with comparative periods
also being restated. This resulted in Zegona recognising a profit
for the period from discontinued operations, net of tax of EUR114.2
million (2020: EUR19.8 million).
Review of Zegona's continuing corporate and other activities
Loss for the period from continuing operations
Zegona's corporate and other activities resulted in a net loss
for the period from continuing operations of EUR34.3 million (2020
EUR5.8 million net loss) which principally comprised:
Operating loss
Operating loss totalled EUR 34.0 million (2020: EUR6.8 million)
and included:
-- EUR 4.6 million (2020: EUR5.6 million) for Zegona's ongoing
corporate operations, with the reduction mainly driven by the
Executive directors waiving their 2021 bonuses.
-- EUR 29.1 million (2020: EUR0.9 million) of Incentive scheme
costs which were payments to management upon the redemption of the
Management Shares in October (see note 19 to the financial
statements).
-- EUR 0.3 million (2020: EUR0.3 million) for significant
project costs, principally professional fees paid in conjunction
with exploring new opportunities and financing.
Net finance costs
Net finance costs totalled EUR0.2 million (2020: EUR0.2 million)
and comprises interest incurred on bank borrowings recognised
within Finance Costs, net of interest on cash balances earned
recognised within Finance Income .
Other Comprehensive Income
Exchange differences on translation resulted in a gain of EUR0.6
million (2020: loss EUR18.7 million). The variance year on year
arises as a result of movements in the closing EUR:GBP exchange
rates as the functional currency of Sterling ("GBP") is translated
into the presentational currency of euro ("EUR").
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 GBP4.8 million (EUR5.6 million) which was paid on
9 March 2021. Zegona also paid a second interim dividend of 2.6p
per share, totalling GBP5.7 million (EUR6.7 million) on 23 July
2021.
Following the sale of Euskaltel, Zegona has ceased paying
dividends and expects not to pay further dividends until such time
as it has an income generating asset.
Key performance indicators and non-GAAP measures
As Zegona does not currently have an operating business, there
are limited material key performance indicators that provide a
useful measure of Zegona's business performance and position other
than financial measures defined by IFRS, with the exception of:
Zegona's return on shareholders' net invested capital
Zegona uses its return on shareholders' net invested capital as
a measure to demonstrate the value generated by the combination of
the disposal of Euskaltel and the Return of Capital, compared to
the amount originally invested by shareholders. Zegona believes it
is both useful and necessary to report these amounts because they
quantify Zegona's success in executing its Buy-Fix-Sell strategy in
the same terms that investors use as a key metric when allocating
capital. This is especially necessary as there are no IFRS measures
that articulate this performance in terms that are consistent with
those used by the investment community.
Below we set out the calculation of Zegona's return on the
combination of the disposal of our investment in Euskaltel and the
Return of Capital. This is the percentage by which the Asset Value
exceeded Zegona's net invested capital at the completion of the
tender offer on 14 October 2021. The Asset Value is the amount
distributed to shareholders and management under the Incentive
Scheme together with the total value of Zegona's assets immediately
following the completion of the tender offer. Zegona's Net Invested
Capital represents the net amount of all shareholder subscriptions
less all returns to shareholders, including dividends, capital
returns and share buy-backs since Zegona's initial quotation on the
AIM Market in March 2015. There are no IFRS measures that provide
an equivalent insight for this to be reconciled to
14 October 2021
GBP000
Adjusted value of Zegona's assets immediately following the tender offer[15] 6,582
Capital Returned (see note 20 to the financial statements) 329,307
Incentive Scheme payments (see note 19 to the financial statements) 25,720
-------------------------
Asset Value 361,609
Net invested capital at 14 October 2021 (see page 46) (192,818)
-------------------------
Excess 168,791
-------------------------
Return (%) 87.54
=========================
STRATEGIC REPORT |RISKS
Principal and emerging risks
We have carried out robust assessments of the principal and
emerging risks facing Zegona including those that would threaten
our business model, future performance, solvency or liquidity.
Detailed consideration is given to all of these risk factors by the
Audit and Risk Committee and the board of Directors (the " Board
").
Principal and emerging risks
Change in risk assessment
since the last Annual
Risk title Risk rating Report
------------------------------- ------------ ----------------------------
Ability to maintain sufficient Moderate New
resources to identify and
complete new acquisitions
------------ --------------------------
Ability to create value in Moderate New
acquired businesses
------------ --------------------------
Key management Low No change
------------ --------------------------
Brexit Low No change
------------ --------------------------
Foreign exchange Moderate No change
------------ --------------------------
The description, impact and mitigation of these risks are set
out below:
Ability to maintain sufficient resources to identify and
complete new acquisitions
Following the sale of its investment in Euskaltel, Zegona meets
its day to day working capital requirements, including the costs of
evaluating new acquisitions, from cash balances. At 3 April 2022,
Zegona had approximately EUR9.2 million of cash and approximately
EUR1.0 million of liabilities and we are already making progress on
finding another attractive investment opportunity within the
European TMT sector where we can again apply our successful
Buy-Fix-Sell strategy.
The success of Zegona's future investment strategy following the
disposal of our interest in Euskaltel depends on our ability to
acquire a suitable target at a price that allows for acceptable
returns. Zegona's current cash resources are enough to allow us to
continue searching for new acquisitions for a reasonable period of
time, but we cannot be certain how long this will take and there is
no guarantee that we will be successful in making a further
investment during this period for a number of reasons, which could
include:
-- We may face competition for attractive assets from other
investors with greater resources than us;
-- We may not receive sufficient support from our existing
Shareholders to raise additional equity, and new equity investors
may be unwilling to invest;
-- Lenders may be unwilling to extend sufficient debt financing on reasonable term; and
-- We may fail to complete an agreed acquisition for reasons beyond our control.
If we do attempt an acquisition which is ultimately unsuccessful
this would result in us incurring related costs for items such as
legal and due diligence fees. These costs could be a significant
proportion of our remaining cash and could materially adversely
affect subsequent attempts to identify and acquire another target
business, or even threaten our ability to continue as a going
concern without raising further capital.
Ability to create value in acquired businesses
If Zegona is successful in acquiring a new business, there is a
risk of unforeseen liabilities being later discovered which were
not uncovered or known at the time of the transaction which may
have an impact on the value created for shareholders.
In addition, the success of Zegona's acquisitions depends on our
ability to implement the necessary strategic, operational and
financial change programmes in order to refocus the acquired
business and improve its performance. Implementing these change
programmes may require significant modifications, including changes
to business assets, operating and financial processes, business
systems, management techniques and personnel, including senior
management. There is a risk that we will not be able successfully
to implement such change programmes within a reasonable timescale
and cost.
We have a disciplined approach to valuation and, ultimately, we
are only prepared to make investments at the right price and after
undertaking a thorough due diligence process. When evaluating
potential investments, we focus on targets that have strong
fundamentals, high-quality customer offerings and strong market
positions but which are underperforming their potential and have
scope to generate long term sustainable performance and cash flow
improvements.
Key management
Zegona's operations are currently managed by the Chief Executive
Officer, supported by the Chief Operating Officer, the Investment
Director and the Chief Financial Officer. The absence or loss of
key management could significantly impede our financial plans,
though there has been no such absence or loss since Zegona was
founded.
We aim to retain our key staff by offering remuneration packages
at market rates, as well as long term incentives through the issue
of Management Shares and other management incentive plans. The
management team is small which places a natural limit on the volume
of deal flow that can be addressed. The management team itself
along with the Non-Executive Directors continually challenge the
focus of the business and the allocation of resources amongst
projects.
Brexit
The UK ceased to be a member state of the European Union on 31
January 2020. In December 2020, the UK and EU signed the UK-EU
Trade and Cooperation Agreement (the "TCA"). This agreement governs
the relationship between the EU and the UK following the end of the
transition period agreed after the UK officially left the EU. The
agreement provides for free trade in goods and limited mutual
market access in services, as well as for cooperation mechanisms in
a range of policy areas, transitional provisions about EU access to
UK fisheries, and UK participation in some EU programs. On 31
December 2020, the UK ceased to be a member of the EU Single Market
and Customs Union.
While the TCA does clarify a number of matters concerning the
UK's ongoing legal, political and economic relationship with the
EU, there are number of areas that are not covered. Due to this and
the size and importance of the UK economy, it is possible that the
UK's exit from the EU may continue to be a source of instability in
the international markets, create significant currency
fluctuations, and/or otherwise adversely affect trading agreements
or similar cross-border co-operation arrangements (whether
economic, tax (including the tax treatment of cross border
payments), fiscal, legal, regulatory or otherwise) for the
foreseeable future. Such continued uncertainty could have an
adverse impact on the number and attractiveness of acquisition
opportunities available to Zegona.
The long-term effects of Brexit will depend on any agreements
(or lack thereof) between the UK and the EU and, in particular, any
arrangements for the UK to retain access to EU markets.
Additionally, the exchange rate of Sterling vis-a-vis other
currencies may continue to be relatively volatile, which could
result in increasing costs of non-sterling denominated expenses and
other obligations and in changes in the value of non-sterling
denominated assets. Furthermore, UK regulatory requirements could
be subject to significant change and could place an additional
burden on Zegona.
Foreign exchange
Foreign currency translation risk exists due to the Company
operating, and having equity denominated, in a different functional
currency (GBP) to that of many of its likely acquisition targets.
Since the disposal of Euskaltel and the Return of Capital, there
are no material assets or liabilities denominated in foreign
currencies or transactions in foreign currencies. This means there
is currently minimal risk to Zegona's results of operations,
however fluctuations in the exchange rate between Sterling and
other European currencies could cause potential future acquisitions
to become more expensive in Sterling, and therefore potentially
less desirable.
The Board and the Chief Financial Officer control and monitor
financial risk management, including foreign currency risk, in
accordance with the internal policy and the strategic plan defined
by the Board.
STRATEGIC REPORT | VIABILITY STATEMENT
Longer term viability statement
Zegona's prospects
In accordance with provision 31 of the 2018 UK Corporate
Governance Code, we have assessed Zegona's prospects over a longer
period than the twelve months required by the "going concern"
provision. This assessment has taken into account Zegona's current
position, its strategy, the risk appetite of the Board and the
principal risks and uncertainties which are described in detail in
this Strategic Report.
Zegona's position changed fundamentally in 2021 with the sale of
its investment in Euskaltel and the Return of Capital. Zegona no
longer has an investment in an underlying operating business and is
now solely focussed on identifying another attractive investment
opportunity within the European TMT sector where we can again apply
our successful Buy-Fix-Sell strategy. Until Zegona identifies and
successfully executes a new investment, it meets its day to day
working capital requirements, including the costs of evaluating new
acquisitions, from its cash balances. While Zegona does have a
small overdraft facility, this is repayable on demand, and it does
not currently have other assets upon which it can raise additional
liquidity.
The assessment period
We continue to believe that three years - in this case the three
years to December 2024 - is the appropriate period over which
Zegona should assess its viability for the following reasons:
-- Three years allows us to assess a full range of possibilities
and covers Zegona's investment cycle; and
-- A three-year period enables us to make an appropriate
assessment of Zegona's principal risks.
The assessment process and key assumptions
The Directors approve a 3 year forecast on an annual basis which
is sufficiently detailed to explain all cash inflows and outflows
and includes a description of all reasonably possible risks and
opportunities. Each month, the Board is provided with an analysis
of actual performance against the forecast which is updated
frequently. The most recent forecast is used as the base case
("Base Case") for the viability assumption without any significant
adjustment.
Zegona's operations are now focused on finding the next
investment opportunity and its ongoing running costs are relatively
predictable as the most significant ongoing costs are the salary
costs of the Board and management team. From 2022 until a new
investment is made, no management bonuses will be paid. The most
significant element of uncertainty is whether Zegona will incur
substantial professional fees for costs such as legal advice and
due diligence related to an unsuccessful attempt to acquire a new
investment. Such costs are inherently unpredictable, so while a
contingency is included in the base case for routine professional
fees that would be expected to support Zegona's day-to-day
operations, no amounts are included for any significant aborted
transactions.
Equally, completing a new acquisition would likely represent a
significant upside to the viability assessment since the addition
of an income generating asset would deliver cash inflows to allow
Zegona to fund its operation as well as giving the opportunity to
raise additional capital in connection with the funds to complete
the acquisition. The ability to execute such acquisitions, their
timing and size are however inherently uncertain so no amounts have
been included in the base case.
We believe that this approach fairly represents the future
prospects of Zegona while also properly considering the principal
and emerging risks (as discussed on page 7). In terms of risks, we
believe that the principal consequence should any of the risks
occur would be to make it more difficult for Zegona to execute a
new acquisition.
In addition to the Base Case, the Directors identified a severe
but plausible downside scenario which was further used to stress
test the base numbers. Given the nature of Zegona's current
operations and generally high level of predictability of its costs,
the downside scenario differs from the Base Case only by the
inclusion of a 10% overrun on recurring costs and GBP 2.0 million
for aborted costs on unsuccessful acquisitions, assumed to be
incurred by the end of 2022.
Results of the assessment
The assessment showed that in both the Base Case and the
downside scenario, Zegona would have sufficient cash to continue in
operation for at least 12 months from the date of issuance of this
report throughout the assessment period without taking any
mitigating actions available to it.
Over more than 12 months however, both the Base Case and the
downside scenario showed that without the upside impact of
completing a new acquisition, Zegona will need to seek additional
equity funding during the viability assessment period, even if it
takes liquidity enhancing actions such as reducing discretionary
expenditure. Without such actions, the Base Case assumes Zegona
would need to seek additional funding during the second quarter of
2024, while this would be sooner under the downside scenario, but
still more than twelve months from the date of issuance of this
report.
Statement of viability
Taking into account Zegona's current position and principal and
emerging risks and uncertainties, the Directors confirm that we
expect Zegona will be able to continue in operation and meet its
liabilities as they fall due over the three years to December 2024
only if it is successfully able to raise funds and execute a new
acquisition or otherwise obtain additional equity funding during
the period.
The Strategic Report was approved by the Board on 3 April 2022
and is signed on its behalf by:
Eamonn O'Hare
Chairman and Chief Executive Officer
DIRECTORS' REPORT | CORPORATE RESPONSIBILITY
Corporate social responsibility
We recognise our obligations to act responsibly, ethically and
with integrity in our dealings with staff, suppliers and the
environment as a whole. We are committed to being a socially
responsible business.
Our people
We value and respect the unique contributions of each
individual, and we are committed to ensuring that every employee is
treated with dignity and respect and has a meaningful opportunity
to contribute to Zegona's success.
Zegona's employees are encouraged actively to engage with
charitable activities.
Zegona recognises that a productive workforce requires a breadth
of experience and perspectives which is achieved through hiring
individuals with diversity of age, gender or educational and
professional backgrounds. Given the size of the business and the
very limited turnover of staff, Zegona achieves this on a
case-by-case basis by ensuring that when it does appoint new
members of staff or the board, it places diversity at the heart of
its decision-making process to ensure it achieves both a diverse
and a high performing workforce.
Board Directors and senior managers have been appointed to bring
required skills, knowledge and experience. During 2020 and 2021,
all individuals that have been appointed have diverse backgrounds
including, two female independent Non-Executive Directors. The
Nomination and Remuneration Committee will continue to consider the
diversity of the Board for further new appointments.
The table below shows the breakdown of our workforce at the end
of 2021.
Male Female Total
---- ------ -----
Board Directors 4 2 6
Senior management 3 - 3
Other staff - 2 2
==== ====== =====
Total 7 4 11
==== ====== =====
Culture
Ethical values and behaviours are embedded in the corporate
culture which the Board upholds. The Directors foster a culture
where transparency, openness, integrity and constructive challenge
are actively encouraged, and the Board works closely with senior
management to ensure a positive culture.
Human rights
As part of our effort to conduct business in an ethical manner,
Zegona has not engaged in and will not engage in business practices
or activities that compromise fundamental human rights.
Environmental matters
We are committed to minimising Zegona's impact on the
environment. At present, Zegona has no operating investments and
only 7 full time employees who all work from home as it has no
office facilities. The most significant environmental impact is
from limited business travel, however Zegona's overall impact is
minimal, with total CO(2) emissions less than the average for a
single UK household. Zegona's approach to minimise its
environmental impact is therefore to seek to maintain lean working
arrangements, utilise connectivity technology to minimise business
travel and encourage our employee to recycle, minimise energy
wastage, and do their part to ensure that Zegona acts
responsibly.
We have compiled our greenhouse gas ("GHG") emissions in
accordance with the Companies Act 2006 (Strategic Report and
Directors' Report) Regulations 2013. Calculations follow the GHG
Protocol Corporate Accounting and Reporting Standard (revised
edition). The GHG reporting period aligns with the financial
statements and boundaries are defined using the financial control
approach. GHG emissions are broken down into three categories;
reporting is required only on scope 1 and 2:
Scope 1 emissions : Direct emissions from sources owned or
controlled by Zegona.
Scope 2 emissions : Indirect emissions attributable to Zegona
due to its consumption of purchased electricity.
Scope 3 emissions : Other indirect emissions associated with
activities that support or supply Zegona's operations.
Zegona has no Scope 1 emissions. Zegona Scope 2 and Scope 3
emissions for the year to 31 December 2021 and comparative period
are shown below:
Global tonnes of CO
2 e
2021 2020
---------- ----------
Scope 2 (electricity) - 1.7
---------- ----------
Per EURm operating expenses - 0.24
---------- ----------
Scope 3 (water consumption, business travel) 4.5 4.9
---------- ----------
Per EURm operating expenses 0.12 0.7
---------- ----------
All emission factors have been selected from the emissions
conversion factors published annually by the Department for
Environment, Food and Rural Affairs and the International Energy
Agency. Scope 2 and Scope 3 emissions have decreased in 2021 due to
homeworking arrangements and restrictions on travel imposed in
response to the COVID-19 pandemic.
No further energy and carbon information is disclosed as the
Group is exempt on the grounds of being a low energy user.
As a standard listed business, Zegona will be required to
provide the information required under the Task Force on
Climate-related Financial Disclosures ("TCFD") recommendations from
its 2022 Annual Report.
Board engagement with our key stakeholders
Section 172 of the Companies Act 2006 requires a Director of a
company to act in the way he or she considers, in good faith, would
be most likely to promote the success of the company for the
benefit of its members as a whole. In doing this, section 172
requires a Director to have regard, among other matters, to: the
likely consequences of any decision in the long term; the interests
of the company's employees; the need to foster the company's
business relationships with suppliers, and others; the impact of
the company's operations on the community and the environment; the
desirability of the company maintaining a reputation for high
standards of business conduct; and the need to act fairly with
members of the company.
The Directors give careful consideration to the factors set out
above in discharging their duties under section 172. More
information about who our key stakeholders are and how we engage
with them is provided on page 12.
DIRECTORS' REPORT | OTHER MATTERS
General
Details of the directors can be found on pages 18 to 19. A
discussion on the role of the board, including the powers of the
company's directors can be found in the Corporate Governance
Statement beginning on page 20.The rules relating to the
appointment and replacement of directors and details of any
agreements with the company and its directors or employees for
compensation for loss of office or employment that occurs because
of a takeover bid can be found in the Directors' Remuneration
Report beginning on page 42 .
Result
For the year ended 31 December 2021, Zegona's loss before tax
from continuing operations was EUR34.3 million (2020: EUR5.8
million). Zegona's gain from discontinued operations was EUR114.2
million (2020: EUR19.8 million). Other comprehensive gain was
EUR0.6 million (2020: loss of EUR18.7 million). Therefore, the
total comprehensive income for 2021 was EUR80.5 million (2020: loss
of EUR4.7 million). Reviews of performance and likely future
developments are set out in the Strategic Report on pages 1 to
10.
Dividends
The Company declared a first interim dividend on 21 December
2020 at a rate of 2.2p per share, totalling GBP4.8 million (EUR5.6
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 GBP5.7 million (EUR6.7
million). The dividend was paid on 23 July 2021.
Contracts of significance
There were no significant contracts to report.
Events since the end of the financial year
There have been no material events since the end of the
financial year.
Capital structure
The Company's capital structure is comprised of 5,325,567
ordinary shares of GBP0.01 each ("Ordinary Shares"). The holders of
Ordinary Shares have the right to receive notice of, attend and
vote at all general meetings of the Company. Holders of Ordinary
Shares have the right to participate in dividends and any surplus
capital on a winding up pari passu as amongst themselves. Where the
winding up of the Company entails or is concurrent with the winding
up of the Company's subsidiary, Zegona Limited, the assets
available for distribution among the holders of Ordinary Shares
will be reduced by such amount as is required to satisfy the rights
(if exercised) of Management Shares (as defined in the Directors'
Remuneration Report on page 43, with further details set out in
note 19 to the financial statements).
Share buy-back programme
The shareholders passed a resolution to authorise Zegona to make
market purchases of up to 15% of its current issued ordinary share
capital (within specified price parameters) in the 2020 AGM, which
expires on the earlier of the end of 2022 AGM or 18 months after
the date of 2021 AGM. A resolution to renew this authority is
proposed for the 2022 AGM. It is intended that we will exercise
this authority only if the Board considers that it is in the best
interests of Zegona at the time, for instance if the traded price
of the Company's ordinary shares is substantially below the value
of its net assets. Any shares repurchased by Zegona may be held in
treasury and subsequently resold for cash, cancelled or used for
employee share scheme purposes.
In addition, on 13 August 2021, the Company announced the
publication of a circular for a return of up to GBP329.3 million to
shareholders by way of a tender offer. The tender offer completed
on 14 October 2021 at a price of GBP1.535 per share, with a total
of 214,532,103 ordinary shares purchased.
Details of shares repurchased in the year can be found in note
20 and note 21 to the financial statements.
Internal control and Financial Risk Management
A description of the main features of Zegona's internal control
and risk management arrangements in relation to the financial
reporting process can be found in the Audit and Risk Report on page
27. Details of the company's financial risk management activities
and use of financial instruments can be found in note 10 and note
11 to the financial statements.
Significant agreements subject to change of control
provisions
Zegona Limited has issued Management Shares as part of Zegona's
incentive arrangements. On a change of control of Zegona, subject
to the requirements of the Articles of Association of Zegona
Limited, the Management Shares can be exercised with their value
being delivered either through the issue of ordinary shares or in
cash.
Substantial shareholders
At 31 December 2021 and up to the date of approval of this
report, Zegona had been notified under DTR 5 of the following
holdings in 3% or more of the issued ordinary shares, which are all
held indirectly by asset managers:
% of ordinary % of ordinary
share capital Shareholding share capital
Shareholding as at 3 April at 31 December as at 31
Asset manager at 3 April 2022 2021 December
2022 2021
-------------------------------- -------------- -------------- ---------------- --------------
Zegona board and management[16] 957,479 17.98% 957,479 17.98%
Marwyn Asset Management 774,321 14.54% 774,321 14.54%
Artemis Investment Management 586,691 11.02% 586,691 11.02%
Fidelity Investments
Limited 403,395 7.61% 403,107 7.57%
Fidelity Management &
Research 398,717 7.49% 403,067 7.57%
Credit Suisse 255,969 4.81% 255,969 4.81%
Aberforth Partners LLP 243,744 4.58% 243,744 4.58%
Chelverton Asset Management 184 091 3.46% 184 091 3.46%
Jarvis Investment Management 167,796 3.15% 122,546 2.30%
Canaccord Genuity Group
Inc 152,215 2.86% 269,215 5.06%
4,124,418 71.44% 4,200,230 78.87%
============== ============== ================ ==============
Independent audito r
KPMG has expressed its willingness to continue to act as auditor
to Zegona and a resolution for its re-appointment will be proposed
at the 2022 AGM. KPMG has confirmed that it remains independent of
Zegona.
Political donations
Zegona does not make any political donations or contributions to
political parties and has no intention of altering this policy.
Disclosure of information to the auditor
Each of the persons who is a Director at the date of approval of
this report confirms that, so far as the Director is aware, there
is no relevant audit information of which Zegona's auditor is
unaware; and each Director has taken all the steps that he ought to
have taken as a Director in order to make himself aware of any
relevant audit information and to establish that Zegona's auditor
is aware of that information.
Statement of going concern
The Directors have considered all available information,
including specific consideration of forecast financial information,
about the possible future outcomes of events and changes of
conditions, and the realistically possible responses to such events
and conditions that are available to the Directors. The Board
considers that there are no material uncertainties affecting
Zegona's ability to continue in business or meet its liabilities as
they fall due for the next 12 months and therefore believes it is
appropriate to prepare the Financial Statements on the going
concern basis.
By order of the Board
Eamonn O'Hare
Chairman and Chief Executive Officer
3 April 2022
DIRECTORS' REPORT | DIRECTORS' RESPONSIBILITY STATEMENT
Statement of Directors' responsibilities
The Directors are responsible for preparing the Strategic
Report, Directors' Report, Directors' Remuneration Report,
Corporate Governance Report and the Zegona group and parent company
Financial Statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare Group and parent
Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with UK-adopted international accounting standards and
applicable law and have elected to prepare the parent Company
financial statements on the same basis.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent Company and of
the Group's profit or loss for that period. In preparing each of
the Group and parent Company financial statements, the directors
are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant, reliable and prudent;
-- state whether they have been prepared in accordance with
UK-adopted international accounting standards;
-- assess the Group and parent Company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern; and
-- use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the parent Company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
Annual Financial Report
We confirm that to the best of our knowledge:
-- The Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the parent company and the undertakings included in the
consolidation taken as a whole;
-- The Strategic Report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- The Annual Report as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess Zegona's position and performance, business
model and strategy.
By order of the Board
Eamonn O'Hare
Chairman and Chief Executive Officer
3 April 2022
GOVERNANCE | PROFILES OF THE DIRECTORS
Eamonn O'Hare, Chairman and CEO (appointed 19 January 2015)
Eamonn has spent over two decades as a board member and senior
executive of some of the world's fastest growing consumer and
technology businesses. From 2009 to 2013 he was CFO and main board
director of the UK's leading entertainment and communications
business, Virgin Media. Eamonn helped lead the successful
transformation of this business and its strategic sale to Liberty
Global for US$24 billion, crystallising US$14 billion of
incremental shareholder value. From 2005 to 2009, he served as the
CFO for the UK division of one of the world's largest retailers,
Tesco plc. Before joining Tesco, Eamonn was CFO and main board
director of Energis Communications and helped lead the turnaround
of this high profile UK telecommunications company. Prior to this,
he spent 10 years at PepsiCo Inc. in senior executive roles in
Europe, Asia and the Middle East. Eamonn's early career was spent
in the aerospace industry with companies that included Rolls Royce
and British Aerospace.
Eamonn was a proprietary director of Euskaltel until 10 August
2021 when he resigned following the sale of Euskaltel. He also
served as a non-executive director on the main board of Dialog
Semiconductor Plc until 30 August 2021, a leading edge consumer
technology business that provides critical components for the
world's most successful mobile device brands. The fees for these
appointments are disclosed in the Directors' Remuneration Report on
page 50.
Eamonn has a degree in Aerospace Engineering from the Queen's
University Belfast and an MBA from the London Business School.
Robert Samuelson, Executive Director and COO (appointed 19
January 2015)
Robert was Executive Director Group Strategy of Virgin Media
from 2011 to 2014, during which time he was centrally involved in
the sale of the business to Liberty Global and in the post-merger
integration process. Prior to this, Robert was a managing partner
at Virgin Group with global responsibility for developing and
realising returns from Virgin's telecommunications and media
businesses. Before joining Virgin Group, Robert was a director at
Arthur D Little Ltd, where he co-led the European corporate finance
practice, providing strategic advice to major European
telecommunications operators. His early career was spent with
British Aerospace and Royal Ordnance in engineering and production
management roles.
Robert was a proprietary director of Euskaltel until 10 August
2021 when he resigned following the sale of Euskaltel, and the fees
for this appointment are disclosed in the Directors' Remuneration
Report on page 50.
Robert studied Natural Sciences at Cambridge University and has
an MBA from Cranfield School of Management.
Richard Williams, independent Non-Executive Director (appointed
9 November 2015)
Richard is an experienced Non-Executive Director with
significant board level experience in both public and private
companies and currently holds a number of Non-Executive Director
roles. Richard spent most of his executive career in European
telecommunications, most recently as a Director of Investor
Relations at Altice, and prior to that, Virgin Media. Richard led
Virgin Media's investor relations activity through to the
acquisition of the company by Liberty Global in 2013. Richard then
joined Altice, where he supported the company's IPO and Altice's
acquisition of SFR and Portugal Telecom.
Richard is a member of both the Nomination and Remuneration
Committee and the Audit and Risk Committee. Richard is a qualified
Chartered Accountant.
Ashley Martin, independent Non-Executive Director (appointed 6
February 2017)
Ashley brings a wealth of complementary experience to the Board.
Ashley was Audit Committee Chair at Rightmove plc from 2009 to 2018
and, in that role, gained valuable insight into an entrepreneurial,
high-growth consumer technology business. On 1 September 2018,
Ashley was appointed as a non-executive director of the
international research data and analytics group YouGov plc. Ashley
has also enjoyed a successful executive career spanning 35 years in
larger listed companies, with a particular focus on mergers and
acquisitions. Ashley was Global Chief Financial Officer of private
equity-backed Engine Holding LLC, and was previously the Group
Finance Director of Rok plc, the building services group, and Group
Finance Director of the media services company, Tempus plc.
Ashley is a qualified Chartered Accountant and is Chair of the
Audit and Risk Committee and a member of the Nomination and
Remuneration Committee.
Kjersti Wiklund, independent Non-Executive Director (appointed 5
February 2020)
Kjersti brings significant experience from a series of senior
global telecommunications roles, including as director of group
technology operations at Vodafone and chief operating officer of
VimpelCom. Kjersti has also held senior executive positions at
Kyivstar, Digi Telecommunications and Telenor.
Kjersti has also gained valuable insight into an
entrepreneurial, high growth consumer technology company as
Remuneration Committee Chair at Trainline plc. She was previously a
non-executive director of Laird plc in the UK, Cxense ASA and Fast
Search & Transfer ASA in Norway and Telescience Inc in the USA
and is currently a non-executive director of Babcock International
Group PLC and Spectris PLC.
Kjersti is a member of the Audit and Risk Committee.
Suzi Williams, independent Non-Executive Director (appointed 5
February 2020)
Suzi brings skills and experience from over 25 years in
telecommunications, media and consumer businesses in the UK and
internationally. As Chief Brand and Marketing Officer at BT, she
was part of the team who transformed the business. Prior to that,
she was Commercial Development Director at Capital Radio Group and
held senior leadership roles at Orange, the BBC, KPMG Consulting,
and Procter & Gamble Europe.
Suzi is currently a NED at FTSE 250 Telecom Plus. Previously she
was NED and Remco Chair at Workspace Group Plc, and at The AA plc
(from 2015 until March 2021, when the business was acquired by a
private equity consortium of Towerbrook and Warburg Pincus). She
also advises a number of early stage technology and AI
businesses.
Suzi is the Chair of the Nomination and Remuneration
Committee.
GOVERNANCE | CORPORATE GOVERNANCE STATEMENT
Overview
The corporate governance report, presented here, forms part of
the Directors' Report and as such it has been approved by the Board
and signed on its behalf by the Chairman.
We recognise the importance of sound corporate governance
commensurate with the size of Zegona. Corporate governance provides
the framework within which we form our decisions and build our
business. The Board is focused on creating long-term sustainable
growth for our shareholders and value for all our stakeholders, and
we strongly believe our corporate governance framework helps us
achieve this goal. It is our commitment to continue to seek
opportunities to improve our corporate governance arrangements.
The following sections of this report show how Zegona applies
the main provisions set out in the 2018 UK Corporate Governance
Code (the "Code"), issued by the Financial Reporting Council
("FRC"), as would be required by the Listing Rules of the Financial
Conduct Authority ("FCA") as applicable to non-FTSE 350 companies
if Zegona were admitted to the Premium segment of the Official
List, and how Zegona meets the relevant information provisions of
the Disclosure and Transparency Rules of the FCA (the "DTR").
Zegona's principal risks are described on pages 7 to 8. The
Directors' Report on pages 11 to 17 also contains information
required to be included in this statement of corporate
governance.
The Board of Directors
Zegona is led and controlled by an effective Board. The Board at
the date of approval of this report comprises two Executive
Directors and four independent Non-Executive Directors. The two
Executive Directors are Eamonn O'Hare (Chairman and Chief Executive
Officer ("CEO")) and Robert Samuelson (Chief Operating Officer
("COO")). The Non-Executive Directors are Richard Williams, Ashley
Martin, Kjersti Wiklund and Suzi Williams.
Biographical details of all Directors and details of their
committee membership at the date of approval of this report appear
on pages 18 to 19. Consideration of the Board size and composition
is kept under regular review by the Nomination and Remuneration
Committee.
Powers and operation of the Board
In exercising its duty to promote the success of Zegona, the
Board is responsible for overseeing the management of Zegona and,
in doing so, may exercise its powers, subject to any relevant laws,
regulations and Zegona's Articles of Association. The Board is
presented with papers from management concerning financial
information, information on investor relations and details of
acquisition targets and deal progress, which it takes into account
in discussions and in the decision-making process under section 172
of the Companies Act 2006.
Eamonn O'Hare, as the Chairman and CEO, is primarily responsible
for the running of the Board and for the day-to-day running of
Zegona. All Board members have full access to Zegona's advisers for
seeking professional advice at Zegona's expense and our culture is
to discuss openly any important issues and frequently engage with
Board members outside of formal meetings. The operating and
financial responsibility for all subsidiary companies is the
responsibility of the Board.
The Board has adopted a Board Charter, available on Zegona's
website, which sets out:
-- the Board's collective vision on Zegona's strategy and objectives;
-- the Board's approach to the conduct of its business and the
parameters within which it will operate, including the management
of any Board or investor disagreements; and
-- the Board's agreed focus areas for further action.
The Board meets formally at least six times a year but also
frequently meets additionally on an ad hoc basis where necessary.
The Directors are encouraged to have free and open contact with
management at all levels and full access to all relevant available
information. The Executive Directors actively and constructively
encourage challenge and seek input from the Non-Executive Directors
to draw on their extensive experience and knowledge. The Board
believes that the role of the Non-Executive Directors in providing
independent challenge is a vital component of an effective
Board.
The Board delegates the day to day responsibility for running
Zegona to the executive management, however there are a number of
matters which are required to be or should only be decided by the
Board of directors as a whole in accordance with the UK Corporate
Governance Code. An updated schedule of Matters reserved for the
Board, approved by the Board on 9 June 2020, can be found on
Zegona's website[17].
Board committees
The Board has established two principal committees, the Audit
and Risk Committee and the Nomination and Remuneration Committee,
to assist it in the execution of its duties. If the need should
arise, the Board may set up additional committees as appropriate.
The committees' terms of reference are available on Zegona's
website, www.zegona.com, or by request from the Company Secretary.
Each of the committees is authorised, at Zegona's expense, to
obtain legal or other professional advice to assist in carrying out
its duties. No person other than a committee member is entitled to
attend the meetings of these committees, except by invitation of
the chairman of that committee.
Current membership of the committees is shown on pages 25 and
31. The composition of these committees is reviewed regularly,
taking into consideration the recommendations of the Nomination and
Remuneration Committee.
Independence of the Board
The Code specifies that the Board should identify in the annual
report each Non-Executive Director it considers to be independent.
The Board considers that Ashley Martin, Richard Williams, Kjersti
Wiklund and Suzi Williams are independent Non-Executive Directors
for the purposes of the Code and have no relationships or
circumstances which are likely to affect, or could appear to
affect, their judgement as Directors.
Board and committee attendance
Attendance at the Board and committee meetings held during 2021
was:
Audit and Risk
Board Nomination and Remuneration Committee Committee
----------------- --------- --------------------------------------- ------------------
Eamonn O'Hare 16/16 - -
Robert Samuelson 16/16 - -
Richard Williams 16/16 5/5 3/3
Ashley Martin 16/16 5/5 3/3
Suzi Williams 16/16 5/5 -
Kjersti Wiklund 15/16 - 3/3
Directors' terms of service
Zegona's Articles of Association require each Director to retire
from office and offer themself for re-election or election, as the
case may be, at each AGM. Accordingly, each of the Directors will
retire from office at the 2022 AGM and seek to be re-elected by
Zegona's shareholders. The Chairman is satisfied that the
performance of the Directors continues to be effective and
demonstrates their ongoing commitment to the role and as such
supports their re-election.
The Executive Directors have service contracts which may be
terminated on no less than 12 months' notice by either party. The
Non-Executive Directors each have current service contracts which
can be terminated on 6 months' notice. All Non-Executive Directors'
continued service is dependent on annual re-election by
shareholders and the annual Board effectiveness review. Details of
the unexpired terms of the service contracts are set out in the
Directors' Remuneration Report.
Directors' indemnities
As permitted by the Articles of Association, the Directors have
the benefit of an indemnity which is a qualifying third party
indemnity provision as defined by section 234 of the Companies Act
2006 (the "Act"). The indemnity was in force throughout 2021 and is
currently in force. This confirmation is given and should be
interpreted in accordance with the provisions of section 236 of the
Act.
Zegona also purchased and maintained throughout the year
Directors' and Officers' liability insurance.
Conflicts of interest
Zegona's Articles of Association provide for a procedure for the
disclosure and management of risks associated with Directors'
conflicts of interest. Zegona's Board Charter sets out the process
for managing significant Board or investor disagreements and/or
conflicts. Notwithstanding that no material conflict of interest
has arisen in the year, the Board considers these procedures to
have operated effectively.
Company secretary
Crestbridge Corporate Services Limited was appointed Zegona's
Company Secretary on 24 February 2021, replacing Mark Millar of
Foot Anstey LLP. The Company Secretary assists the directors in
ensuring Zegona is managed, controlled and administered within the
parameters of its governing and constitutional documents. All
Directors have access to the advice of the Company Secretary, which
is responsible for guiding the Board on all governance matters.
Compliance with the UK Corporate Governance Code
The Code sets out a number of principles in relation to: board
leadership and company purpose; division of responsibilities;
composition, succession and evaluation; audit, risk and internal
control; and remuneration. A copy of the Code is available on the
FRC's website at www.frc.org.uk.
Following admission to the Main Market the Board has voluntarily
(as Zegona has a Standard Listing) complied with the UK Corporate
Governance Code except in the instances set out below:
Combined Chairman and CEO
Provision 9 of the Code recommends that the roles of Chairman
and the Chief Executive Officer should not be exercised by the same
person and that the Chairman should be independent on appointment.
Zegona does not comply with this requirement. The Board presently
believes that Eamonn O'Hare's skills, knowledge and leadership have
enabled him to effectively perform both roles. Zegona also
maintains a schedule of Matters reserved for the Board which
prevents Eamonn from authorising certain corporate actions without
a formal resolution of the Board which is re-enforced by the
Board's culture of detailed review and robust challenge on
significant matters. As discussed below, the board consider that it
is important that this should continue to be kept under active
review.
Zegona has paid close attention to this matter since its
incorporation and has formally reconsidered it on a number of
occasions. Separation of the roles was determined to be a low
priority in the corporate governance review completed by Ernst
& Young LLP, "EY" in 2017. This matter has also been actively
reconsidered both as part of the EY-facilitated exercise to develop
Zegona's Board Charter in 2018/19 and as part of each of Zegona's
annual assessments of Board effectiveness. The Board considers that
it is not appropriate to separate the roles at present given the
significant simplification of the business since the sale of the
investment in Euskaltel and the Return of Capital. The Board
remains aware of this area of non-compliance, and it will ensure
that this matter continues to be kept under active review, in
particular if the structure of Zegona changes again by making
another significant investment.
Appointment of a Senior Independent Director ("SID")
Provision 12 of the Code recommends that one Non-Executive
Director should be appointed as a senior independent director to
provide a sounding board for the chair and serve as an intermediary
for the other Directors and shareholders. Zegona does not currently
have a SID, and this has been the subject of active consideration
since Zegona's formation. The Board fully recognises the value that
can be provided by a SID and was intending to appoint one following
its 2020 AGM, however the difficulties of remote working during the
Covid-19 pandemic and the ongoing shareholder engagement exercise
being led by the Chairs of the two Board committees at the time
meant that Zegona concluded it was not appropriate to make an
appointment. Zegona still considers this conclusion is valid,
especially since the significant simplification of the business
since the sale of the investment in Euskaltel and the Return of
Capital. The Board will reconsider whether it should appoint a SID
in conjunction with its ongoing active consideration of whether it
remains appropriate for the Chairman and CEO roles to be
combined.
Employee engagement
Provisions 2, 5 and 6 provide guidance for the implementation of
procedures meant to ensure Zegona engages with and monitors its
workforce. Given Zegona currently has only five employees
(excluding Directors), the Board believes the implementation of any
formal steps or procedures to engage with the workforce are not
required as informal communications occur regularly between all
employees and the Executive Directors, including weekly team
meetings.
Equalisation of pension arrangements
Provision 38 recommends that the pension contribution rate for
the Executive Directors be the same as for the majority of the
workforce. During the year, this was not the case however, this
will be resolved by the end of 2022 when the rate paid to the
Executive Directors will be equalised with the rate paid to the
majority of the workforce.
Evaluation of the Board, committees and individual Directors
The Board has conducted an annual evaluation of its own
performance and that of its committees by means of a questionnaire
requiring written responses from the Directors. To ensure
independence and objectivity, the questionnaire was designed,
administered and reviewed on a confidential basis. The
questionnaire was drafted having regard to the balance of skills,
experience, independence and knowledge contributed by its members,
as well as the successful operation of the Board as a unit, its
diversity and the other key factors relevant to its effectiveness.
The anonymous responses were sent to each Non-Executive Director
for consideration and discussion at a meeting of the full
Board.
The findings of the review were generally positive. The Board
noted that 2021 was a year of very significant change in which the
Board has had to address several sensitive, strategic issues of
fundamental importance to Zegona, including the decision to sell
Zegona's investment in Euskaltel and how to balance the opinions of
a number of significant investors on what to do with the proceeds
of the sale. These questions were significant to the ongoing
operations of Zegona and needed to be addressed within a tight time
frame. Understandably there were a range of views represented and
robust challenge was provided by the Non-Executive Directors. The
Board considered it a strong indication that it is operating
effectively that the directors were able to work together to
successfully build a consensus around a result that they believe
was positive for all shareholders.
The review also highlighted a number of matters for the Board to
focus on. These included ensuring that the questions of whether the
Chairman and CEO roles should continue to be combined and/or a SID
should be appointed are kept under active reconsideration,
especially given any change in Zegona's operations, continuing to
focus on strengthening governance and continuing to build on the
improvements made in risk assessing key decisions.
Whistleblowing policy
All employees are encouraged to raise genuine concerns about
possible improprieties in the conduct of Zegona's business, whether
in matters of financial reporting or other malpractices, at the
earliest opportunity and in an appropriate way. Zegona has put in
place a whistleblowing policy to facilitate this, and the aims of
this policy are:
-- to encourage employees to report suspected wrongdoing as soon
as possible, in the knowledge that their concerns will be taken
seriously and investigated as appropriate, and that their
confidentiality will be respected;
-- to provide employees with guidance as to how to raise those concerns; and
-- to reassure employees that they should be able to raise
genuine concerns in good faith without fear of reprisals, even if
they turn out to be mistaken.
Share dealing
Zegona has in place systems to ensure compliance by the Board
and its applicable employees in relation to dealings in securities
of Zegona and Euskaltel. We believe that the share dealing code
adopted by the Board is appropriate for Zegona's size and
complexity and that it complies with the EU Market Abuse Regulation
(2014/596/EU). The Board complies with these provisions and takes
all reasonable steps to ensure compliance by Zegona's 'applicable
employees.
Relations with Zegona's stakeholders
Zegona does not currently have an operating business and, until
it does so again, has a limited number of stakeholders outside of
its shareholders and employees given that Zegona has no customers
and its suppliers are primarily professional advisers. All
Directors have frequent interactions with Zegona's small workforce
and the whole of the workforce are generally intimately involved
with all key operating decisions.
The Board is always available for communication with
shareholders and the Executive Directors frequently engage
constructively with current and potential shareholders, with
feedback regularly discussed in depth at Board meetings. This has
been supplemented in the last two years with the consultations with
major shareholders undertaken by management and the Committee
Chairs.
During 2021, extensive shareholder feedback was sought on
whether Zegona should return the proceeds of the Euskaltel sale to
shareholders, and if so, how much. This involved shareholders
speaking directly to Zegona's Executive Directors, certain
non-Executive Directors as well as Zegona's brokers. The views
emerging from this process were discussed in depth by Zegona's
Board and they were key in coming to the eventual decisions to
return GBP335 million to shareholders, for the Executive Directors
to waive their 2021 bonuses and to pay no bonuses in 2022 and
thereafter until Zegona acquires another operating business
In addition, all shareholders have the opportunity, and are
encouraged, to attend and vote at the general meetings during which
the Board is available to discuss issues affecting Zegona. Barclays
Bank plc and Canaccord Genuity Limited, as Zegona's joint corporate
broker, provides reports and attend Board meetings, as appropriate,
to provide feedback to the Non-Executive Directors on shareholders'
views.
GOVERNANCE | AUDIT AND RISK COMMITTEE REPORT
I am pleased to present the 2021 report of the Audit and Risk
Committee (the "A&RC"). The A&RC is an essential part of
Zegona's governance framework, to which the Board has delegated
oversight of Zegona's financial reporting, internal controls, risk
management and the relationship with the external auditor.
In discharging its duties, the A&RC embraces its role of
protecting the interests of shareholders with respect to the
integrity of financial information published by Zegona, control
effectiveness and the effectiveness of the audit process[18].
Committee membership and meetings
The members of the A&RC during 2021 were Ashley Martin
(Chairman), Richard Williams and Kjersti Wiklund, all of whom are
independent Non-Executive Directors as required by provision 24 of
the Code. The Board has determined that Ashley Martin has recent
and relevant financial experience due to his previous CFO roles at
listed and private equity backed businesses. Both Ashley and
Richard qualified as Chartered Accountants. In line with the Code,
the A&RC as a whole possesses competence relevant to the sector
in which Zegona operates through the digital media and consumer
experience of Ashley Martin and the telecommunications experience
of Richard Williams and Kjersti Wiklund.
The A&RC normally meets at least three times a year with
additional meetings arranged if necessary. In 2021, the A&RC
met in April, August and September and has subsequently met in
March. The scheduling of these meetings is designed to be aligned
with the financial reporting timetable, thereby enabling the
A&RC to review the interim financial report, the audit plan
ahead of the year end audit and the annual report, as well as to
maintain a view of the internal controls and risk management
processes throughout the year.
The Company Secretary acts as secretary to the A&RC. The
A&RC invites the Chief Financial Officer to all meetings and
other members of the finance and management team as may be
appropriate for the business of the meeting, as well as senior
representatives of the external auditor. The A&RC meets
separately with the external auditors to seek their views without
management present, and the A&RC Chair keeps in touch with the
Chief Financial Officer as well as other members of the management
team and the lead audit partner periodically outside of formal
meetings. The A&RC has the right to invite any other Directors
and/or employees to attend meetings where this is considered
appropriate.
The A&RC Chair reports formally to the Board on the key
matters considered at each A&RC and minutes of those meetings
are circulated to the Board.
Committee effectiveness
The effectiveness of the A&RC was considered by the Board as
part of the annual Board effectiveness evaluation. The feedback was
positive and confirmed that the A&RC remains effective and
provides robust challenge.
Activities during the year
Since the last Audit and Risk Committee Report, the A&RC has
undertaken the following activities:
Financial reporting:
-- Confirmed that the Financial Statements were fair balanced
and understandable. In this respect, the A&RC considered, inter
alia:
- the key messages in the annual report and their consistent
application in the front and back end of the report;
- whether the whole story is presented and whether any sensitive
material has been omitted; and
- whether there is a clear and cohesive framework for the annual report.
-- Reviewed the going concern assumption and the assessment
forming the basis of the longer-term viability statement. The
A&RC reviewed the work undertaken by management to assess
Zegona's resilience to the principal risks under various stress
test scenarios and confirmed that a 3-year assessment period
remained appropriate.
-- Considered the key judgements and estimates made by
management in preparing the Financial Statements, as follows:
- Accounting for the disposal of the Euskaltel investment and
related transactions - The judgements in relation to accounting for
the disposal of Euskaltel relate to the assumptions applied in
classifying it and related items as a disposal group and
discontinued operation (in particular for the interim report prior
to the completion of the disposal), as well as the calculation of
the gain on sale of and other items recognised as discontinued
operations. The A&RC also considered the related disclosures
within the financial statements. This was also an area of focus for
the external auditor, who reported its findings to the A&RC.
The Committee considered management's approach, the assumptions
applied and related disclosures and agreed with management's
treatment and valuation.
- Recoverability of the income tax receivable - The A&RC
reviewed the conclusions related to the ongoing activity around the
EU Commission decision that the Group Financing Exemption contained
within the UK's Controlled Foreign Company ("CFC") legislation
constituted State Aid. The Committee noted that Zegona had
recognised an income tax receivable in relation to the two charging
notices paid during 2021 in the amount of GBP4.4 million (EUR5.2
million). The A&RC noted Zegona's conclusion that while it is
finely balanced, it remains more likely than not that the appeals
made by other UK taxpayers and the UK Government will be successful
and ultimately Zegona will not incur any liability and therefore
the receivable remains recoverable. The A&RC reviewed the
third-party advice and agreed with management's conclusion.
- Validating and accounting for the management share
subscription - The A&RC reviewed the calculation of the price
of the management share subscription. This review involved
reviewing the results of agreed procedures performed by the
Company's auditors that were designed to validate the accuracy of
the calculations and agree factual information required. The
A&RC also reviewed and agreed with management's conclusion on
the classification of the delayed management subscription as an
equity item under IAS 32 Financial Instruments: Presentation,
primarily because the number of shares to be issued and price to be
paid are fixed.
In all of the above judgements, the A&RC also considered the
work undertaken by KPMG and reports to the A&RC in support of
the position adopted by Management.
Ensuring compliance with key legal and governance requirements
in relation to the Euskaltel disposal:
-- Incentive scheme costs on the redemption of the Management
Shares - In connection with the sale of Euskaltel and Return of
Capital, the Management Shares became redeemable and a payment of
GBP25.7 million became due which was recognised as an incentive
scheme cost in the year. The A&RC supported the Nomination and
Remuneration Committee by carefully reviewing the terms of the
scheme to ensure that the conditions for redemption had been met
and that the amount of the payment had been correctly calculated
according to the payment waterfall in the terms of the scheme. This
review involved receiving written advice from the Company's legal
advisors that the terms of the waterfall had been correctly
applied. The Company's auditors also performed agreed procedures
that were designed to validate the accuracy of the calculations and
agree factual information required.
-- Validating the distributable reserves of Zegona
Communications plc - In order for GBP335 million of Capital to be
returned to shareholders, it was necessary to ensure that the
Company had sufficient distributable reserves. This was achieved by
taking into account the impact on reserves of the sale of the
investment in Euskaltel, together with a court-approved reduction
of the share premium account. This was also an area of focus for
the external auditor, who reported its findings to the A&RC.
The A&RC considered management's approach and agreed with
management's treatment.
Other considerations:
-- Reviewed the effectiveness of Zegona's risk management and
internal controls and disclosures made in the annual report on this
matter, including the review of an annual assurance statement
provided by management assessing the effectiveness of Zegona's risk
management and internal control systems;
-- Reviewed and agreed the scope of the audit work to be
undertaken by the external auditor and assessed the audit and
non-audit fees to be paid, as well as the independence and
objectivity of the auditor;
-- Considered the effectiveness of the external audit process,
following the receipt of feedback from the management team,
Executive Directors, Non-Executive Directors and other service
providers involved in the audit process;
-- Reviewed and made a recommendation to the Board with regard
to the re-appointment of the external auditor, taking into account
auditor effectiveness and independence, the recent partner rotation
and other factors which may impact the external auditor's
re-appointment;
-- Assess any potential threats to independence that were
reported by KPMG. The A&RC considered KPMG to be independent
and KPMG, in accordance with professional ethical standards,
provided the A&RC with written confirmation of its independence
for the duration of 2021;
-- Reviewed the need for an internal audit function and made a recommendation to the Board;
-- Reviewed the interim Financial Statements, including the
critical accounting judgements and estimates used in preparing
them;
-- Reviewed management's updates to Zegona's main control
document, the Financial Position and Prospects memorandum. The
A&RC also reviewed the updates made to Zegona's risk register;
and
-- Reviewed Zegona's whistleblowing policy and anti-bribery and anti-corruption policy.
External auditor
Our external auditor, KPMG LLP ("KPMG"), has now completed its
sixth audit and the A&RC was involved in the process to select
the new audit partner. Zegona will not be required to tender for
the audit until the 2026 financial year end. KPMG continues to
provide robust challenge to management and independent reports to
the Committee on specific financial reporting and judgements.
KPMG was appointed as Zegona's external auditor on 15 December
2016. In line with applicable regulations, Simon Richardson was
appointed as the lead engagement partner in April 2021, after the
previous partner had issued his fifth annual audit opinion.
During 2021, non-audit fees were pre-approved in relation to
KPMG's agreed upon procedures on the calculation of the proceeds
from the redemption of the Management Incentive Scheme and the
calculation of Zegona's adjusted net asset value in connection with
the management subscription for new shares. The fees for these
procedures totalled EUR44.1 thousand, which is significantly lower
than the audit fees for the Financial Statements for the year ended
31 December 2021 and therefore auditor objectivity and independence
is not deemed to be compromised by the level of non-audit fees.
Zegona considered KPMG was best qualified to undertake this work
because of their knowledge of the business.
The A&RC has set a threshold of EUR11,000 (GBP10,000) for
pre-approving non-audit fees. All of KPMG's services have been
pre-approved and reported to the A&RC.
Risk management and internal control systems
The Board is responsible for establishing and maintaining
Zegona's system of internal control and reviewing its
effectiveness. The Board has delegated the annual review of the
adequacy and effectiveness of Zegona's internal financial controls
and internal control and risk management systems to the
A&RC.
Internal control systems are designed to meet the needs of
Zegona and the risks to which it is exposed to ensure the integrity
of the financial and accounting information, promote accountability
and prevent fraud. The procedures are designed to manage rather
than eliminate risk and, by their nature, can only provide
reasonable but not absolute assurance against material misstatement
or loss.
Zegona does not have a separate internal audit function as the
Board does not feel this is currently necessary due to the size of
the business and the simplicity and low volume of transactions,
coupled with the nature and the extent of internal controls and
Board oversight and involvement. The A&RC will continue to
regularly review the need for an internal audit function as the
business evolves and develops.
Zegona's risk management framework incorporates a risk
assessment that identifies and assesses the strategic, operational
and financial risks facing the business, mitigating controls, and
appropriate corrective actions, if and when needed. This assessment
is continually updated by management and reviewed and discussed by
the A&RC at least twice per year.
Zegona has in place a robust internal controls system over
financial reporting, which encompasses a mixture of detective,
preventative and corrective controls, including:
-- Entity level controls which encompass guidelines for Zegona's
governance, financial analysis and integrity, and its adherence to
applicable laws and professional standards;
-- Systems and procedures in place to identify, assess, control
and monitor principal and emerging strategic, commercial, financial
and regulatory risks are considered by the Board regularly;
-- A team of professional advisers including legal, capital
markets, M&A, accounting, regulatory, and PR providing advice
to management and the Board;
-- A schedule of Matters reserved for the Board to ensure that
the Board is involved in all critical decisions of Zegona which is
reviewed regularly;
-- A comprehensive system of budgeting, forecasting and monthly
reporting and rigorous analytical review procedures;
-- A comprehensive risk register which is reviewed at least
twice a year and updated to take account of developments within
Zegona; and
-- Segregation of duties for all financial reporting and accounts payable critical tasks.
Through the above procedures, the Board with advice from the
A&RC has reviewed the effectiveness of the internal control
system throughout the year and up to the day of this report. No
significant control findings or weaknesses have been identified
from this review.
Ashley Martin
Chairman of the Audit and Risk Committee
GOVERNANCE | NOMINATION AND REMUNERATION COMMITTEE REPORT
On behalf of the Board, I am pleased to present the Nomination
and Remuneration Committee ("the Committee") Report for the year
ended 31 December 2021.
The Committee met 5 times during 2021, supported by a number of
full board discussions and the matters we discussed are set out on
page 31. The following pages set out the Committee's activities and
decisions made in the year. Zegona is committed to transparency,
equivalence and engagement with shareholders on these most
important matters and we have continued to make progress this
year.
Zegona's performance and context - The sale of Euskaltel and the
return of proceeds
Zegona underwent considerable change in 2021, fully in line with
our Buy-Fix-Sell strategy. The sale of our investment in Euskaltel
delivered an attractive return to Zegona's shareholders and brought
a successful end to a multi-year strategy in Spain that included
four M&A transactions and two operational turnarounds. The
return of GBP335 million was also entirely in keeping with our
stated strategy, which anticipates returning value created to
shareholders promptly and efficiently. Zegona has established a
good track record and is now actively evaluating a number of
attractive investment opportunities within the European TMT sector
where we can again apply our successful Buy-Fix-Sell strategy.
This success forms the backdrop of the key remuneration matters
that we have dealt with in the year, as detailed below:
Remuneration decisions for 2021- Reviewing outcomes against
company performance
Redemption and renewal of the Management Incentive Scheme
The second Calculation Period of the management incentive scheme
was not due to become exercisable until June 2023, however the
rules of the scheme allow the Management Shares held under the
scheme to be redeemed for cash earlier than this if certain
criteria are met. One of these criteria was met upon the successful
return of GBP335 million to shareholders because Zegona had sold
all, or substantially all, of its assets and distributed the net
proceeds to shareholders. A cash payment of GBP25.7 million
therefore became due to the management team. The Committee was
heavily involved with ensuring that the conditions for redemption
had been met and the amount of the payment had been correctly
calculated.
The third Calculation Period automatically began on 14 October
2021 and the Management Shares may be redeemed between 14 October
2024 and 14 October 2026. All other terms remain the same as for
the other Calculation Periods and the renewal of the scheme will be
subject to a shareholder vote at Zegona's 2022 AGM.
More details on the redemption and renewal of the Management
Incentive Scheme are provided on pages 90 to 91.
2021 Bonus
After listening to the views of key shareholders in connection
with the Return of Capital, both Executive Directors have waived
their bonus entitlement for 2021.
Developing Zegona's 2022 Remuneration policy
The Committee undertook a review of the Directors' Remuneration
Policy during the year, taking into account alignment to business
strategy and our executive remuneration principles. The approach to
remuneration recognises and is designed to support the unique
Zegona business model.
The resulting 2022 Directors' Remuneration Policy is largely
consistent with the current Remuneration policy (which received
86.4% support at the 2019 AGM), with remuneration still delivered
through the same basic elements of a fixed base salary and
benefits, a performance-based annual bonus, and participation in
the management incentive scheme. The most significant change
compared to the existing policy is to ensure the management
incentive scheme is designed to last for up to five years by
requiring that if the share incentive is exercised in advance of
the full five-year period, any shares received will be held by
management until at least five years have elapsed from the start of
that period.
Application of remuneration policy for 2022
Following a review of the executive remuneration arrangements
for 2022 and listening to shareholder feedback, the Committee
agreed that there would be no increase in base salary for either of
the Executive Directors and as such their salaries will remain
unchanged for the year ahead. In line with corporate governance
best practice, the pension contribution for both of the Executive
Directors will be reduced to 19% by the end of 2022, to be the same
as the contribution available to the majority of the workforce.
The Committee has also agreed that given the fact that Zegona
now has significantly less capital and no underlying asset it would
not be appropriate to put in place the opportunity to earn bonuses
to senior management in 2022 until such time as Zegona makes a new
investment. This will remain under review during 2022.
I would like to take the opportunity again to thank shareholders
for their engagement and feedback over the past year and look
forward to your support at the upcoming AGM in June.
Suzi Williams
Chair of the Nomination and Remuneration Committee
The role of the Nomination and Remuneration Committee
The Committee is responsible for nomination and remuneration
matters, from the recruitment and retention of high calibre
individuals to the design of appropriate incentivisation mechanisms
(and the ongoing monitoring of performance against these) while
delivering value creation for shareholders and other key
stakeholders.
The role of the Committee continues to be ensuring that the
Directors are appropriately rewarded, through making
recommendations regarding remuneration policy and framework. The
Committee monitors and reviews the effectiveness of the
Remuneration Policy and considers its impact and compatibility with
remuneration policies across the wider workforce. To facilitate
this remit, the Committee is provided with information and context
on pay, benefits and incentive structures in place across Zegona to
support its decision making.
Membership, attendance and other activities
The members of the Committee are Suzi Williams (Chairman),
Richard Williams, and Ashley Martin. All members of the Committee
are independent.
In 2021, the Committee met 5 times and has subsequently met in
February and March. The Company Secretary attends these meetings
and Executive Directors are invited at the Chairman's discretion.
The scheduling of the formal Committee meetings is designed to be
aligned with the Committee's recurring annual activities,
including: setting of bonus metrics and evaluation of performance
against them; overseeing the performance evaluation of the Board,
its principal Committees and individual directors; overseeing
succession planning for the Board and key members of the senior
management team, taking into account expertise and diversity; and
reviewing the annual nominations and remuneration report contained
within the annual report.
In addition to the matters discussed above, since the last
Nomination and Remuneration Committee Report, the Committee has
also:
-- Reviewed the remuneration package for the Executive Directors
and management team for 2022, including concluding that no bonuses
will be paid until such time as Zegona owns a material underlying
asset;
-- Reviewed the Articles of Association of Zegona Limited, which
contain the terms of the Management Incentive Scheme;
-- Reviewed the Directors' remuneration policy and the
nomination and remuneration disclosures in the annual report;
-- Reviewed the recommendations arising from the 2021 Board
effectiveness review, its committees and its individual Directors
and, where appropriate, proposed actions to address those
recommendations; and
-- Reviewed workforce remuneration and its alignment to Zegona's purpose, values and strategy.
Advisers
The Committee received input and advice from external advisers
on specific topics during 2021. The Committee formally engaged PwC
LLP's ("PwC") as an adviser in 2022. The Committee's decision
reflected the quality and objectivity of the independent advice
that PwC had provided to the Committee on remuneration matters
during 2021.
For 2021, total fees of EUR19.7 thousand were incurred in
relation to remuneration advice provided by PwC.
Executive pay at a glance
Base salary
Purpose Current policy 2021 Implementation 2022 Implementation
To reflect market Reviewed every twelve months. No salary No salary
value of the role Base salary increases are applied increases increases
and individual's in line with the outcome of the for either for either
performance and review. In respect of existing Executive Executive
contribution and Executive Directors, it is anticipated Director Director
enable Zegona to that no salary increases will
recruit and retain be considered before Zegona completes
Executive Directors its next investment.
of sufficient calibre
to drive Zegona's
ambitions.
Pension contributions
Purpose Current policy 2021 Implementation 2022 Implementation
To provide a market Pension contributions are made No change Contribution
competitive pension. to the individual's private pension reduced
arrangements or paid to them to 19% by
in cash in lieu of such arrangements. the end
Executive Directors receive a of 2022.
pension contribution of up to
19% of base salary, which is
the same as the amounts available
to a majority of the workforce.
Other benefits
Purpose Current policy 2021 Implementation 2022 Implementation
To provide market Benefits may include car allowances, No change No change
competitive benefits. personal tax advice, private
medical insurance, critical life
and death in service cover. Benefits
may vary by role and individual
circumstances and will be reviewed
periodically.
Annual cash bonus
Purpose Current policy 2021 Implementation 2022 Implementation
To incentivise delivery Performance is measured on an Executive No bonuses
of Zegona's annual annual basis for each Executive Directors to be paid
financial and strategic Director in respect of each financial waived their to senior
goals. period. entitlement management
The maximum annual bonus available to receive until Zegona
is 100% of base salary per annum. a bonus owns a material
The Committee retains discretion underlying
to apply malus or clawback provisions. asset
Management Incentive Scheme
Purpose Current policy 2021 Implementation 2022 Implementation
To drive performance, The Committee may allocate Management Next exercise No change
aid retention and Shares in Zegona Limited to Executive period starts
align the interests Directors or senior management. 14 October
of Executive Directors Zegona's management incentive 2024
and senior management scheme entitles participants
with shareholders in aggregate to receive up to
over the long term. 15% of the growth in value of
Zegona subject to a shareholders'
5% per annum preferred return.
Incentive may be exercised between
3 and 5 years after each renewal
or on the occurrence of certain
specific events including a sale
of Zegona's main assets and return
of net proceeds to shareholders.
GOVERNANCE | DIRECTORS' REMUNERATION POLICY
Directors' remuneration policy
Background
In setting the policy for Directors' remuneration, the Committee
has sought to promote the long-term success of Zegona, applying
incentives which are compatible with Zegona's corporate strategy,
risk policies and systems. In particular, the Committee has been
mindful of aligning shareholders' and management's interests.
Zegona may not make a remuneration payment to a Director,
including a payment for loss of office, unless the payment is
consistent with the approved Directors' remuneration policy or an
amendment to the Directors' remuneration policy to make the payment
permissible is approved by resolution of Zegona's shareholders.
This revised policy will apply from the date of the 2022 AGM,
replacing the policy approved at the 2019 AGM. Zegona seeks to be
consistent and transparent with its remuneration arrangements,
therefore there are no substantial changes to the remuneration
policy compared to the policies approved at the 2019 and 2016
AGM's.
All Directors' service contracts and letters of appointment are
available for inspection at Zegona's registered office.
Zegona's Remuneration Strategy drives its Remuneration
Policy
Since Zegona was first established, the Committee has followed a
consistent remuneration strategy that closely aligns the Executive
Directors with Zegona's shareholders, drives the Company's
Buy-Fix-Sell model and has been central to its success. This
strategy is based around four key principles - namely, that
executive remuneration is:
(1) Simple - Since Zegona was first established, Executive
Directors have received the same remuneration elements as the rest
of the Zegona employees - base salary, annual bonus, pension
contribution and other benefits - as well as being eligible under a
single and consistent long-term incentive plan based on a single
value creation metric.
(2) Transparent - Each year, there is full and detailed
disclosure in the Directors' Remuneration Report of each component
of remuneration, including an explanation of the calculation of any
variable element and the current value of any unvested award
pursuant to the Management Incentive Scheme.
(3) Focused on performance - Executive Directors receive a mix
of remuneration which is geared towards a higher percentage of
variable pay which means the opportunity for any significant reward
is heavily weighted to the long-term incentive plan, which is
entirely based on the creation of shareholder value.
(4) Fully aligned with shareholders - Remuneration for the
Executive Directors is heavily weighted to the long-term incentive
plan, which pays nothing to participants unless the executive
Directors deliver a threshold return to shareholders over a
three-to-five-year period or on the occurrence of certain specific
events including the sale of Zegona's main assets and return of net
proceeds to shareholders, and only pays a significant award if they
materially outperform in the creation of shareholder value.
The Committee has always ensured these four key principles form
the basis of Zegona's Remuneration Policy, as well as its
application to Executive Directors and this approach has
historically received strong support from shareholders. In updating
the policy this year, we have sought to remain as faithful to these
principles and past practice as possible. I have set out below how
our implementation of that policy fits with Zegona's strategy and
the desired outcomes for our shareholders.
Overview of the 2022 Remuneration Policy
The 2022 remuneration policy is largely consistent with the
current Remuneration policy, with remuneration still delivered
through the same basic elements of a fixed base salary and
benefits, a performance-based annual bonus and participation in the
Management Incentive Scheme. The most significant change compared
to the existing policy is to ensure the Management Incentive Scheme
is designed to last for up to five years by requiring that if the
share incentive is exercised in advance of the full five-year
period, any shares received will be held by management until at
least five years have elapsed from the start of that period.
The 2022 policy is consistent with the current policy, primarily
because the Committee concluded that the current policy was well
aligned with Zegona's core Buy-Fix-Sell strategy, even following
the sale of Euskaltel and the Return of Capital and effectively
delivered the four key principles of Zegona's remuneration
strategy.
The Committee also considered how the 2022 policy aligned with
the UK Corporate Governance Code factors as follows:
Clarity Variable pay depends on delivering Zegona's strategy to
create sustainable long-term shareholder value. This provides
absolute clarity on the relationship between the delivery
of the strategy and remuneration paid.
Zegona also presents its remuneration arrangements in the
clearest and most transparent way possible and maintains
an open and transparent dialogue with investors, both through
formal engagement processes, ad hoc discussions, and the
disclosures in its annual reports.
---------------- ---------------------------------------------------------------------
Simplicity Total remuneration is heavily weighted to variable elements,
of which there are only two: the annual bonus and the Management
Incentive Scheme, both of which are based on simple and
transparent metrics. The operation of the Annual Bonus Plan
is directly linked to key quantitative and qualitative strategic
objectives and the Management Incentive Scheme rewards the
creation of shareholder value over a three-to-five-year
period or on the occurrence of certain specific events including
the sale of Zegona's main assets and return of net proceeds
to shareholders.
---------------- ---------------------------------------------------------------------
Risk The 2022 Policy includes the following elements to mitigate
against the potential risks of target-based incentives:
* Capping the annual bonus to a maximum of 100% of base
salary.
* Ensuring the Management Incentive Scheme is designed
to last for up to five years by requiring that if the
share incentive is exercised in advance of the full
five-year period, any shares received will be held by
management until at least five years have elapsed
from the start of that period.
* Aligning the remuneration performance conditions with
the "Buy-Fix-Sell" strategy of the Company.
* Ensuring there is sufficient flexibility for the
Remuneration Committee to apply discretion to depart
from formulaic outcomes
---------------- ---------------------------------------------------------------------
Predictability Fixed remuneration for the Executive Directors is generally
kept constant. Variable remuneration is limited to the annual
bonus, which is capped at 100% directly linked to key quantitative
and qualitative strategic objectives, and the Management
Incentive Scheme. The method of calculation, limits and
discretions under the 2022 Policy are clearly set out.
---------------- ---------------------------------------------------------------------
Proportionality The restricted fixed remuneration and capped Annual Bonus
Plan is compensated by the opportunity for potentially significant
reward entirely dependent on performance pursuant to the
Management Incentive Scheme that is directly linked to the
Company's long term value creation strategy.
---------------- ---------------------------------------------------------------------
Alignment The focus on responsible stewardship and long-term sustainable
to performance is a key part of the Company's culture. This
culture is supported by the 2022 Directors Remuneration Policy,
which ensures that the four key principles of Zegona's remuneration
strategy are delivered.
Directors' fixed remuneration
In setting the Directors' fixed remuneration, the Committee
considers that Zegona should have regard to:
-- Zegona's objective to reward all employees fairly according
to their role, experience and performance;
-- The individual Director's performance, responsibility, skills and experience;
-- Whether increases in fixed remuneration above inflation are appropriate or justifiable; and
-- The pension and bonus consequences and associated costs to Zegona of any basic salary.
The Committee considers that the Directors' fixed remuneration
should be reviewed annually.
Executive Directors' incentive arrangements
The Committee considers that the Directors' remuneration policy
should, as well as aligning the interests of the Executive
Directors with Zegona's long-term success, incentivise delivery of
Zegona's financial and strategic goals over a financial period.
The Committee considers that the Executive Directors should be
rewarded principally through participation in a long-term incentive
scheme. Therefore, whilst the Committee continues to adopt an
annual bonus policy for Executive Directors pursuant to which the
maximum bonus opportunity is capped at 100% of base salary,
remuneration is principally driven through the Executive Directors'
ownership of Management Shares. The Management Shares enable the
Executive Directors to participate in the growth in value of
Zegona, subject to shareholders achieving a Preferred Return of 5%
per annum, thereby aligning their interests with those of
shareholders and hence providing a long-term incentive
arrangement.
There are up to five periods in which the Management Shares can
be exercised. The current period - which is the third period -
began on 14 October 2021 following the completion of the tender
offer to return GBP329.4 million to shareholders and is expected to
end (subject to shareholder approval) between 14 October 2024 and
14 October 2026. The fourth and fifth periods, which are subject to
shareholder approval, are three to five years from the earlier of
the date of the Management Shares becoming exercisable and the end
of the previous period if the Management Shares did not become
exercisable in that period. The Committee believes that the period
during which the Management Shares may be exercised is appropriate
to ensure that growth is achieved over a material period of time
and that the Executive Directors and senior management are
incentivised to remain with the business for the longer term.
The full Executive Directors' remuneration policy is as
follows:
Base Salary
Purpose and To reflect market value of the role and individual's
link to strategy: performance and contribution and enable Zegona to
recruit and retain Executive Directors in the short
term of sufficient calibre to drive Zegona's ambitions
and thereafter to retain those Directors prior to
remuneration from their Management Shares, which
is driven by Zegona's long-term goals.
------------------- ------------------------------------------------------------
Operation: Reviewed every twelve months.
------------------- ------------------------------------------------------------
Opportunity: Base salary increases are applied in line with the
outcome of the review.
In respect of existing Executive Directors, it is
anticipated that salary increases will generally
be in line with inflation or those of salaried employees
as a whole.
In exceptional circumstances (including, but not
limited to, a material increase in job size or complexity)
the Committee has the discretion to make appropriate
adjustments to salary levels to ensure they remain
competitive in the marketplace.
------------------- ------------------------------------------------------------
Performance Both Zegona's and individual performance will be
Metrics: considered in setting Executive Director base salaries.
Pension
Purpose and To provide a market competitive pension, with a
link to strategy: contribution rate that is the same as the majority
of the workforce.
------------------- ------------------------------------------------------------
Operation: Pension contributions are made to the individual's
private pension arrangements or paid to them in
cash in lieu of such arrangements.
------------------- ------------------------------------------------------------
Opportunity: Executive Directors receive a pension contribution
of up to 19% of base salary by the end of 2022,
reduced from 20%.
------------------- ------------------------------------------------------------
Performance Not performance-related.
Metrics:
Benefits
Purpose and To provide market competitive benefits.
link to strategy:
------------------- ------------------------------------------------------------
Operation: Benefits may include car allowances, personal tax
advice, private medical insurance, critical life
and death in service cover. Other benefits may be
awarded as appropriate, such as relocation benefits.
------------------- ------------------------------------------------------------
Opportunity: Benefits may vary by role and individual circumstances
and will be reviewed periodically.
The Committee retains the discretion to approve
a higher cost in exceptional circumstances (e.g.
relocation) or in circumstances where factors outside
of Zegona's control have materially changed (e.g.
increases in medical insurance premiums).
------------------- ------------------------------------------------------------
Performance Not performance related.
Metrics:
Annual Bonus
Purpose and To incentivise delivery of Zegona's annual financial
link to strategy: and strategic goals by evaluating performance each
year against a number of predefined quantitative
and qualitative targets that reflect Zegona's key
strategic objectives for the year.
------------------- ------------------------------------------------------------
Operation: Performance is measured on an annual basis for each
Executive Director in respect of each financial
period and bonuses are paid in cash.
------------------- ------------------------------------------------------------
Opportunity: The maximum annual bonus available is 100% of base
salary per annum.
------------------- ------------------------------------------------------------
Performance Performance measures and targets will generally
Metrics: be set annually in advance by the Committee to ensure
that they are appropriately stretching and to ensure
that they reflect the particular financial and strategic
goals of Zegona for the financial period in question.
If any of the performance measures and targets set
for the year become inapplicable (for example, due
to a change in group structure), the Committee retains
discretion to amend the measures and targets for
the period.
Management Incentive Arrangements
Purpose and To drive performance, aid retention ensure the interests
link to strategy: of Executive Directors and senior management are
closely aligned with shareholders over the long
term by allowing participants in the arrangement
to share in the growth in value of Zegona.
------------------- ----------------------------------------------------------
Operation: The Committee may allocate Management Shares in
Zegona Limited to Executive Directors or senior
management. These shares entitle holders to 15%
of the growth in value of Zegona during a series
of up to five separate Calculation Periods, provided
that ordinary shareholders achieve a 5% per annum
Preferred Return in each Calculation Period.
Holders of Management Shares are required to exercise
all their rights at a single time during the period
from 14 October 2024 to 14 October 2026, which is
between three and five years from the beginning
of the current Calculation Period unless specific
criteria enabling earlier exercise are met.
After this period, there can be up to another two
periods in which the Management Shares can be exercised,
subject to shareholder approval.
If the Management Shares are exercised less than
five years from the beginning of any Calculation
Period, any shares received will be held by management
until at least five years have elapsed from the
beginning of the relevant Calculation Period.
------------------- ----------------------------------------------------------
Opportunity: Zegona's management incentive arrangements entitle
participants in aggregate to receive up to a maximum
of 15% of the growth in value of Zegona. The minimum
amount payable under the scheme is nil.
The maximum aggregate amount available to participants
in the incentive arrangements is capped at that
level irrespective of the number of participants
in the scheme.
------------------- ----------------------------------------------------------
Performance Subject to shareholders achieving a Preferred Return
Metrics: of 5% per annum on a compounded basis on their net
invested capital.
Further details on the management incentive arrangements
are set out in note 19 to the financial statements
Non-Executive Directors' remuneration policy
Pursuant to Zegona's Articles of Association, the Board
determines the remuneration policy and level of fees for the
Non-Executive Directors, within the limits set out in the Articles
of Association (or as specified by Zegona in a general meeting).
The Committee recommends the remuneration policy and level of fees
for the Board to approve.
Annual fee
Purpose and To reflect market competitive rates for the role,
link to strategy: as well as individual performance and contribution.
------------------- --------------------------------------------------------------
Operation: Non-Executive Directors receive a basic fee for
their respective roles with additional fees to Non-Executive
Directors for additional services, such as chairing
a Board committee or supporting the Board on matters
or projects that require significant time commitment
beyond that typically expected of a Non-Executive
Director.
The Committee will review fees annually, but there
will be no obligation for fees to be increased.
Fees are payable in cash.
------------------- --------------------------------------------------------------
Opportunity: Fee increases are applied in line with the outcome
of the annual review. There is no prescribed maximum
fee per Non-Executive Director. It is expected that
increases to Non-Executive Director fee levels will
be in line with inflation or salaried employees
over the life of the policy. However, in the event
that there is a material misalignment with the market
or a change in the complexity, responsibility or
time commitment required to fulfil a Non-Executive
Director role, fee levels may be appropriately adjusted.
------------------- --------------------------------------------------------------
Performance Not performance related.
Metrics:
Approach to recruitment remuneration
In the cases of hiring or appointing a new Executive Director,
the Committee may make use of any or all of the existing components
of remuneration, as follows:
Component Approach
--------------------- -------------------------------------------------------------
Base salary The base salaries of new appointees will be determined
by reference to the individual's role and responsibilities,
experience and skills, relevant market data, internal
relativities and their current basic salary. Where
new appointees have initial basic salaries set
below market, any shortfall may be managed with
phased increases over a specified period subject
to their development in the role.
Pension New appointees will be eligible to receive a cash
allowance.
Benefits New appointees will be eligible to receive benefits
in line with the Directors' remuneration policy.
Annual bonus New appointees will be eligible to participate
in the Zegona's annual bonus scheme on the same
terms as other Executive Directors in line with
the Directors' remuneration policy.
Management incentive New appointees may be invited to participate in
arrangements Zegona's long term incentive plan on the same
terms as other Executive Directors, as described
in the remuneration policy table.
There is no maximum value, other than it is noted that the total
Directors' fees in aggregate is capped at GBP3 million per annum.
At present, only non-Executive Directors receive fees.
In determining an appropriate remuneration package, the
Committee will take into consideration all relevant factors
(including quantum, nature of remuneration and the jurisdiction
from which the candidate was recruited) to ensure that arrangements
are in the best interests of both Zegona and its shareholders. In
addition to the above elements of remuneration, the Committee may
consider it appropriate to grant an award under a different
structure in order to facilitate the recruitment of an individual,
exercising discretion to replace incentive arrangements forfeited
on leaving a previous employer. Such 'buyout awards' would have a
fair value no higher than that of the awards forfeited. In doing
so, the Committee will consider relevant factors including any
performance conditions attached to these awards, the likelihood of
those conditions being met and the proportion of the vesting period
remaining. Generally, such buyout awards would be in the form of
share awards although the Committee retains discretion to make cash
payments.
In the case of appointing a new Non-Executive Director, the
Committee will follow the policy as set out in the section entitled
"Non-Executive Directors' remuneration policy" above. A base fee
reflecting current competitive rates and the individual's
anticipated contribution would be payable for Board membership,
with additional fees payable for additional services, such as
chairing a Board committee.
Notice periods and remuneration on loss of office
The Committee considers that notice periods of Executive
Directors should be one year or less and that any payments to a
departing Executive Director should be determined with full regard
to the duty of mitigation. In certain circumstances, it may be
appropriate for an Executive Director to be placed on gardening
leave or to receive payment in lieu of notice. In such
circumstances, the Committee considers that it is appropriate for
the Executive Director to receive the basic salary they would have
received for the remaining term of their notice period (provided
that such notice period is less than twelve months), along with any
benefits that would have accrued during that period (including
pension and holiday entitlements).
Notwithstanding the foregoing, no payments in respect of
unearned bonus will be made where the Executive Director's
appointment is terminated for (amongst other things) fraud or gross
misconduct and any Management Shares would be forfeit.
Non-Executive Directors' appointments are terminable on 6
months' notice. On termination, Non-Executive Directors will only
be entitled to such fees as may have accrued to the date of
termination, together with reimbursement in the normal way of any
expenses properly incurred before that date.
Executive Directors' shareholdings
The Committee recognises the importance of Executive Directors
aligning their interests with shareholders through building up a
significant shareholding in Zegona. The Committee notes that over
time, the Executive Directors together are now the largest
shareholders in Zegona and have done so without the need to impose
a minimum shareholding requirement. Given the size of this holding,
and the fact that the Executive Directors are integral to Zegona's
future prospects the Committee does not consider it necessary to
impose such a requirement at this point, nor a requirement for them
to continue to hold shares post cessation of their employment with
Zegona.
Illustrative application of the remuneration policy
The charts below show an illustration of the level of
remuneration that each Executive Director could receive in 2022,
which is the first year of the policy as it is described above. The
charts are presented in Sterling because this is the currency that
the Executive Director's pay is set in. The charts show
illustrative remuneration under three scenarios:
-- Minimum performance: This scenario only includes the fixed
elements of remuneration; Base salary effective from 1 January
2022, and benefits and pension rate as set out in the single figure
table for the year ended 31 December 2021 on page 42.
-- On-target performance: This scenario includes the fixed
elements of remuneration as above, plus a bonus that reflects
achievement of 50% of the bonus targets. In practice, the Committee
has determined that no bonuses will be paid to senior management in
2022 and thereafter unless Zegona makes a new investment, at which
point new bonus targets will be established. In order, therefore,
for this scenario to be achieved Zegona would need to complete a
new investment during 2022. No amounts have been included in
respect of the Management shares because they are not exercisable
until 2024.
-- High performance: This scenario includes the fixed elements
of remuneration as above, plus a bonus that reflects achievement of
100% of the bonus targets assuming Zegona does pay bonuses in 2022
as discussed above. As in the previous scenario, no amounts are
included in respect of the Management Shares for the same
reasons.
Chart 1:
http://www.rns-pdf.londonstockexchange.com/rns/0571H_1-2022-4-3.pdf
Zegona FY 2021 - Chart 1
Remuneration arrangements for Zegona
The approach to annual salary and bonus reviews is consistent
across Zegona, with consideration given to the level of experience,
responsibility, individual performance and salary levels in
comparable companies. Given the small number of employees, the
Committee has not sought, or taken account of, the views of
Zegona's employees in drawing up the Directors' remuneration
policy. However, the Committee has regard to Zegona's objective to
reward all employees fairly according to their role, experience and
performance when setting the Directors' fixed remuneration.
Consideration of shareholder views
Zegona remains committed to open and transparent engagement with
its investors on all matters, including remuneration. The Committee
believes that this Directors' remuneration report should
communicate clearly how much our Executive Directors are earning
and how this is linked to performance. The Committee has considered
shareholder views on remuneration matters since the last policy was
approved, including as discussed in our 2020 Annual Report and will
continue to include those views as part of its decision-making
process in respect of remuneration issues.
GOVERNANCE | DIRECTORS' REMUNERATION REPORT
All disclosures in the Directors' remuneration report are
unaudited unless otherwise stated. The annual report on
remuneration gives details on the amounts earned in the year ended
31 December 2021 and how the Directors' remuneration policy will be
applied in 2022. This remuneration report will be subject to an
advisory vote at the 2022 AGM.
2021 Executive Directors remuneration summary (Audited)
In the interests of clarity, since the Executive Directors'
salaries are set and paid in Sterling, the table has been presented
in both Sterling and euros (Zegona's presentational currency).
These tables only include remuneration received by the Executive
Directors In respect of their employment by Zegona. The fees
received from their appointments as proprietary Directors of
Euskaltel prior to their resignation are disclosed on page 50 .
Executive Directors (Sterling)
-----------------------------------------
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
--------------------- ------------------
2021 2020 2021 2020
GBP GBP GBP GBP
---------- --------- --------- -------
Base salary 563,000 563,000 419,000 419,000
Pension contributions 112,600 112,600 83,800 83,800
Taxable benefits 21,321 21,321 21,321 21,321
Company health insurance
scheme 7,271 6,548 6,954 6,304
---------- --------- --------- -------
Total fixed pay 704,192 703,469 531,075 530,425
---------- --------- --------- -------
Annual cash bonus - 422,250 - 314,250
Management Incentive Scheme
redemptions 15,218,252 - 7,609,126 -
---------- --------- --------- -------
Total variable pay 15,218,252 422,250 7,609,126 314,250
========== ========= ========= =======
Total fixed and variable
pay 15,922,444 1,125,719 8,140,201 844,675
========== ========= ========= =======
Executive Directors (euros)
-----------------------------------------
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
--------------------- ------------------
2021 2020 2021 2020
EUR EUR EUR EUR
---------- --------- --------- -------
Base salary 653,582 635,320 486,414 472,822
Pension contributions 130,716 127,064 97,283 94,564
Taxable benefits 24,751 24,060 24,751 24,060
Company health insurance
scheme 8,441 7,389 8,073 7,114
---------- --------- --------- -------
Total fixed pay 817,490 793,833 616,521 598,560
---------- --------- --------- -------
Annual cash bonus - 476,490 - 354,617
Management Incentive Scheme
redemptions 17,666,748 - 8,833,374 -
---------- --------- --------- -------
Total variable pay 17,666,748 476,490 8,833,374 354,617
---------- --------- --------- -------
Total fixed and variable
pay 18,484,238 1,270,323 9,449,895 953,177
========== ========= ========= =======
None of the Executive Directors' remuneration in 2021 was
attributable to Zegona's share price growth[19]. No discretion has
been exercised to determine remuneration as a result of either
Zegona's share price appreciation or depreciation.
Components of remuneration: Base salary
In 2021 and for 2022, following a review of the executive
remuneration arrangements in both periods, the Committee agreed
that there would be no increase in base salary for either of the
Executive Directors and as such their salaries remained unchanged
in 2021 and will do so for the year ahead.
Components of remuneration: Pension contributions
In 2021 both Executive Directors received a pension contribution
of 20% of their base salary. In line with corporate governance best
practice, the pension contribution for both of the Executive
Directors will be reduced to 19% by the end of 2022, to be the same
as the contribution available to the majority of the workforce.
Components of remuneration: Taxable benefits and Company Health
Insurance Scheme
In 2021 both Executive Directors received car allowances,
personal tax advice, private medical insurance, and death in
service cover, which will continue in 2022.
Components of remuneration: Annual cash bonus
Implementation in 2021
For 2021, the Committee set a number of bonus targets and
carefully reviewed performance against the key bonus objectives
during the year and concluded that the Executive Directors met a
significant majority of their indicators of achievement in relation
to the 2021 bonus scheme, however in connection with the agreement
to return the proceeds of the Euskaltel sale to shareholders both
Executive Directors agreed to waive any amounts due to them.
Implementation in 2022
The Committee have concluded that it is not appropriate for the
Executive Directors or any of Zegona's senior management team to
receive any bonus for any period when Zegona does not own a
material underlying asset. Should Zegona make a new acquisition
during 2022, the Committee will develop appropriate bonus targets
at the appropriate time.
Components of remuneration: Management Incentive Scheme
Although the Committee feels it is important to remunerate and
incentivise the Executive Directors through their basic pay,
benefits and annual bonus, it also feels very strongly that
Executive Directors' long-term incentives should be linked to the
creation and delivery of real returns to shareholders. A key
element of Zegona's remuneration policy for the Executive Directors
and senior management is Management Shares in Zegona Limited, which
were put in place when Zegona was founded and were designed to
provide ongoing remuneration closely aligned with shareholders.
Overview of the scheme
The holders of the Management Shares are entitled to 15% of the
growth in value of Zegona during a series of up to five separate
Calculation Periods, provided that ordinary shareholders achieve a
5% per annum Preferred Return[20] in each Calculation Period. The
first Calculation Period began in 2015 and ended in 2020. The
second Calculation Period ended during 2021, at which point the
third Calculation Period began.
Holders have the right to end each Calculation Period by
redeeming 99% of their Management Shares at any time between the
third and fifth anniversaries of the beginning of the Calculation
Period, although a Calculation Period may also end upon certain
specified events such as a winding up, takeover, or a change of
control of Zegona, or if Zegona sells all or substantially all of
its assets and distributes the net proceeds to shareholders.
Upon redemption, if the Preferred Return has been met, holders
of the Management Shares receive 15% of the increase in value of
Zegona in either Zegona ordinary shares or cash at the discretion
of Zegona's Board at the time of the exercise on advice from the
Committee in accordance with the Articles. If the Preferred Return
has not been achieved, no payment is made. It is currently
anticipated that the exercise of Management Shares could result in
management receiving ordinary shares, which, depending on the
amount of value created, could potentially lead to management
becoming a significant shareholder.
Upon redemption of the Management Shares, a new Calculation
Period automatically begins with the remaining shares retaining the
entitlement to 15% of the growth in value of Zegona for the next
Calculation Period, provided the Preferred Return is achieved over
this period. The starting value against which the growth in value
and the Preferred Return are calculated (the "Baseline") at the
beginning of the new Calculation Period is set at the higher of the
Market Capitalisation of Zegona, defined as 30-day VWAP, and the
Net Shareholder Invested Capital on that date.
Each time a new Calculation Period begins, the renewal of the
Management Shares' rights is subject to a vote by Zegona's
shareholders at the next Annual General Meeting ("AGM") and so
there will be such a vote at the upcoming AGM on the beginning of
the third Calculation Period. If shareholders representing 75 per
cent or more of the shares vote against the renewal at the AGM, the
Management Shares are redeemed for no value.
Scheme developments in 2021
Exercise of shares and the end of the Second Calculation
Period
Zegona Limited's Articles of Association (the "Limited
Articles") allows the Management Shares to be redeemed within three
years of the beginning of a Calculation Period if certain criteria
("Takeover Provisions") are met. One of these Takeover Provisions
is if Zegona sells all, or substantially all, of its assets and
distributes the net proceeds to shareholders (the "Substantial Sale
and Return Provision"). If any of these Takeover Provisions are
met, then any redemption must be in cash.
The successful return of GBP335 million to shareholders,
completed on 14 October 2021, following the sale of Zegona's
investment in Euskaltel (see notes 12 and 20 to the financial
statements), meant that the Substantial Sale and Return provision
was met and a cash payment became due to holders of the Management
Shares under the terms of this scheme. A summary of the calculation
of the amount paid is shown below:
Calculation of management share redemption value (GBP000)
Cash received 364,362 The Sterling proceeds received
on sale on conversion of the EUR421.3
million received from the sale
of the shares in Euskaltel
under the terms of the deal
contingent forward purchase
contract (see notes 12 and
13 to the financial statements).
------------------------- ---------------- ----------------------------------
Less : liabilities (76) The total liabilities of Zegona
Limited as at the completion
date of the tender offer.
------------------------- ---------------- ----------------------------------
Takeover consideration 364,286
------------------------- ---------------- ----------------------------------
Less : net invested capital (192,818) See below
------------------------------- ---------- ----------------------------------
Growth in value 171,468
------------------------- ---- ---------- ----------------------------------
Split between
:
Ordinary Shares 85% 145,746
------------------------- ---- ---------- ----------------------------------
Management shares 15% 25,720
------------------------- ---- ---------- ----------------------------------
Split between:
------------------------- ---- ---------- ----------------------------------
Eamonn O'Hare 15,218
------------------------- ---- ---------- ----------------------------------
Robert Samuelson 7,609
------------------------- ---- ---------- ----------------------------------
Other Zegona Senior
Managers 2,892
In making this payment, the Nomination and Remuneration
Committee provided a recommendation to the Board to approve the
payment. In order to make this recommendation, it carefully
reviewed the terms of the scheme to ensure that the conditions for
redemption had been met and that the amount of the payment had been
correctly calculated according to the payment waterfall in the
terms of the scheme that allocates the Takeover Consideration
between the holders of the Management Shares and Zegona's Ordinary
Shareholders.
This review was supported by the Audit and Risk Committee and
involved receiving written advice from the Company's legal advisors
that the terms of the waterfall had been correctly applied. The
Company's auditors also performed agreed procedures that were
designed to validate the accuracy of the calculations and agree
factual information required.
On the redemption of the Management Shares, shareholders net
invested capital was comprised of as shown in the table below:
Net invested 5% pa Preferred Preferred
capital Return Return hurdle
(unadjusted) at 14 Oct 2021 at 14 Oct 2021
GBP GBP GBP
------------- --------------- ---------------
Baseline Value - June
25,2020 209,640,725 223,398,679 13,757,954
Dividend - July 2020 (5,706,811) (6,074,738) (367,927)
Dividend - March 2021 (4,817,342) (4,959,778) (142,436)
Dividend - July 2021 (5,693,222) (5,772,471) (79,249)
Share buy-backs - 2020[21] (605,188) (642,911) (37,723)
192,818,162 205,948,781 13,130,619
------------- --------------- ---------------
Shares outstanding 218,970,076 218,970,076 218,970,076
Per share (GBP) 0.881 0.941 0.060
Start of the Third Calculation Period
The Third Calculation Period automatically began on 14 October
2021, with the Baseline Value Per Share for the new Calculation
Period being GBP1.51 per share, which was equal to volume weighted
average mid-market price of Zegona shares for the previous 30
trading days. During the Third Calculation Period, the Management
Shares may be redeemed between 14 October 2024 and 14 October 2026.
All other terms remain the same as for the other Calculation
Periods and the renewal of the scheme will be subject to a
shareholder vote at Zegona's 2022 AGM. The Nomination and
Remuneration Committee approved the new Baseline value based on
advice from Zegona's brokers of the accuracy of the calculation of
the weighted average trading price.
No Management Shares were awarded during the year (2020: nil).
At the time of signing this report and as at 31 December 2021, the
total Management Shares held by the Directors were as shown in the
table below:
Participation Number of Nominal value
in Management of Management
growth in Shares Shares
value
Eamonn O'Hare 8.88% 305,000 GBP 305
Robert Samuelson 4.44% 152,500 GBP153
Other Zegona senior managers 1.68% 57,964 GBP58
=========== ==============
515,464 GBP516
=========== ==============
The Executive Directors are entitled to keep their Management
Shares for a period of time if they are terminated, save if they
are terminated for cause. The time period is two exercise periods,
save in the case of death or permanent disability when it is until
the end of the current exercise period.
Illustration of scheme value
To explain how Zegona's Management Incentive Scheme operates, we
have set out here an illustration of how much value would be earned
by the management team assuming a hypothetical exercise date of 31
December 2021, even though the Management Shares were not
exercisable at that date[22].
The illustration assumes that the exercise was based on the
market value of Zegona's ordinary shares at the hypothetical
exercise date and, since the deemed market capitalisation of GBP5.0
million was lower than both the Preferred Return target and the net
invested capital, the holders of the Incentive Shares would have
received no payment.
Since 14 October 2021 (GBP)
------------------------------------------------------------
Net invested capital[23] 7,976,812
------------------------------ ------------------------
At 31 December 2021 (GBP)
------------------------------------------------------------
Number of shares 5,325,567
Average share price[24] 0.936
Deemed market capitalisation 4,982,454
------------------------------ -------------- ------------
Growth in value
per the incentive
scheme (2,994,358)
Split between:
------------------------------ -------------- ------------
Management Shares 15% -
------------------------------ -------------- ------------
Ordinary Shares 85% (2,994,358)
============================== ============== ============
Shareholders' net invested capital at 31 December 2021 was
calculated as follows:
5% pa Preferred
Net invested Preferred Return hurdle
capital Return at 31 Dec 2021
(unadjusted) at 31 Dec 2021 GBP
GBP GBP
------------- ----------------- ---------------
Baseline Value - October
14, 2021 6,700,452 6,770,741 70,290
Share Issue - October
2021 1,276,360 1,287,479 11,119
7,976,812 8,058,220 81,409
------------- ----------------- ---------------
Shares outstanding 5,325,567 5,325,567 5,325,567
Per share (GBP) 1.498 1.513 0.015
2021 Non-Executive Directors remuneration summary (Audited)
The remuneration of the Non-Executive Directors during the year
is detailed below. Non-Executive Directors fee is a basic fixed
salary of GBP50,000 with a fixed increment of GBP10,000 if the
Non-Executive Director is Chair of a Committee. In the interest of
clarity, since the Non-Executive Directors' salaries are set and
paid in Sterling, the table has been presented in both Sterling and
euros (Zegona's presentational currency). There have been no
payments to anyone who was not a director of the company at the
time the payment was made, but who had been a director of the
company before that time.
Non-Executive Directors fees[25]
---------------------------------------
2021 2020 2021 2020
GBP GBP EUR EUR
--------- -------- -------- --------
Richard Williams 50,000 54,462 58,045 61,457
As hley Martin 60,000 60,000 69,654 67,707
Kjersti Wiklund 50,000 45,128 58,045 50,925
Suzi Williams 60,000 50,808 69,654 57,334
Mark Brangstrup
Watts[26] n/a 18,174 n/a 20,508
Murray Scott[27] n/a 21,987 n/a 24,812
Total 220,000 250,559 255,398 282,743
========= ======== ======== ========
There is no element of the Non-Executive Directors' remuneration
that is linked to the performance of the business.
Summary of total shareholder return and Chief Executive
remuneration
The total shareholder return graph below shows the value as at
31 December 2021 of GBP100 invested on IPO on 19 March 2015,
compared with GBP100 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 GBP159.6 in October 2021
reflects the return Zegona achieved from the disposal of its
investment in Euskaltel before reducing its share capital by 98%.
The reduction in the shaded area reflects the trading value of
Zegona's significantly reduced capital base since October 2021.
Chart 2:
http://www.rns-pdf.londonstockexchange.com/rns/0571H_2-2022-4-3.pdf
Zegona FY 2021 - Chart 2
The single figure remuneration for the Chief Executive over the
same period, together with the outcomes of the respective annual
incentive awards, is presented in the following table
2015[28] 2016 2017 2018 2019 2020 2021
---------------- ---------- -------- -------- ---------- -------- -------- ----------
Total
remuneration
EURm 0.67 0.77 1.29 0.71 1.25 1.27 18.48
Annual bonus
(% of maximum) 0% 0% 100% 0%[29] 94% 75% 0%[30]
Comparison of Directors' and employees' pay and relative
importance of spend on pay
The following table compares the changes in each Director's pay
with changes in employee pay between 2020 and 2021:
Base salary Taxable benefits Annual cash bonus
change % change % change %
----------- ---------------- ---------------------
Executive Directors
Eamonn O'Hare 0% 0% (100%)
Robert Samuelson 0% 0% (100%)
Non-executive Directors
Richard Williams 0% n/a n/a
Ashley Martin 0% n/a n/a
Kjersti Wiklund 0% n/a n/a
Suzi Williams 0% n/a n/a
Employees 0% 0% (100%)
The table below shows the relative importance of the spend on
remuneration paid to or receivable by all employees in Zegona when
compared to distributions to shareholders by way of dividend or
share buyback:
2021 2020
EUR000 EUR000
------------------------ --------- --------
Employee pay 32,776 4,024
Returns to shareholders 400,698 14,886
Of which:
Dividends 12,169 11,348
Share buyback - 3,538
Capital Return 388,529 -
Directors' terms and conditions
Service contract duration
Director Contract duration Notice period
---------------- ----------------- -------------
Eamonn O'Hare Unlimited* 12 months
Robert Samuelson Unlimited* 12 months
Richard Williams Unlimited* 6 months
Ashley Martin Unlimited* 6 months
Kjersti Wiklund Unlimited* 6 months
Suzi Williams Unlimited* 6 months
* Under the terms of the service agreements, these appointments
are contingent on annual re-election by shareholders and completion
of the annual Board effectiveness review.
Other than payments for notice periods, the service agreements
contain no entitlements to termination payments. There are no malus
or clawback provisions in respect of base salary, pension
contributions or benefits, however, the Committee retains
discretion to apply such provisions in the case of any bonus award
paid to an Executive Director whose appointment is subsequently
terminated.
External appointments
Executive Directors are allowed to accept external appointments
with the consent of the Board as long as these are not likely to
lead to conflicts of interests or significant time commitments.
Executive Directors are allowed to retain the fees paid.
During 2021, Eamonn O'Hare earned and retained Non-Executive
Director fees in relation to his external appointments of EUR138.0
thousand, which he resigned from on 30 August 2021 and EUR61.6
thousand in relation to his appointment as a propriety director of
Euskaltel, which he resigned from on 10 August 2021.
During 2021, Robert Samuelson earned and retained EUR52.4
thousand in relation to his appointment as a proprietary director
of Euskaltel, which he resigned from on 10 August 2021.
Reappointment
Under the terms of Zegona's Articles of Association, all
Directors will be proposed for re-election at the 2022 AGM. All
Board members have service contracts and details of the unexpired
terms of these service contracts are set out above.
Compensation for loss of office (Audited)
The Directors are not entitled to any special compensation for
loss of office pursuant to their directorship or employment
contracts following a change of control. However, certain changes
of control will entitle the Directors to exercise rights held by
them as holders of Management pursuant to the long-term incentive
plan in force in respect of Zegona. No payments for loss of office
were made in either 2021 or 2020.
Directors' interests in ordinary shares (Audited)
The Committee intends to keep under consideration the need to
adopt formal requirements or guidelines in connection with the
building of shareholdings in Zegona by Executive Directors. During
the year, no such formal requirements or guidelines were adopted
and the Committee remains of the view that no such requirements or
guidelines are currently needed given that the Executive Directors
acquired ordinary shares in the Placing and their interests are
significantly aligned with shareholders through their participation
in the Management Incentive Scheme.
The shareholdings of the Directors at 31 December 2021 are set
out below. There have been no changes in the shareholdings of the
Directors from 31 December 2021 to the date of this report.
Director Number of % of issued
shares share capital
---------------------- ---------- ---------------
Eamonn O'Hare[31] 502,891 9.44%
Robert Samuelson[32] 243,275 4.57%
Richard Williams 1,153 0.02%
Ashley Martin 212 0.00%
Kjersti Wiklund - -
Suzi Williams - -
The following information provided in this part of the
Directors' Remuneration Report is not subject to audit.
Review of workforce remuneration matters
Although there are only a small number of employees in Zegona,
in line with the provisions of the UK Corporate Governance Code,
the Committee continues to review the effectiveness of the
remuneration framework for Zegona's workforce. This involves being
kept up to date with changes in workforce remuneration and ensuring
that workforce remuneration continues to remain aligned to Zegona's
purpose, values and strategy.
Statement of voting at General Meetings
The following table sets out the voting results in respect of
the resolutions to approve the Directors' Remuneration Report and
the Directors' Remuneration Policy:
Date of For the Against
AGM resolution the resolution Votes withheld
------------------------- --------- ------------ ---------------- ---------------
Directors' Remuneration
Report
for the year ended 31 30 June
December 2021 2021 92.25% 7.75% -
(Votes cast) 175,022,743 14,707,674 13,203,833
Directors' Remuneration 10 June
Policy 2019 86.41% 13.59% -
(Votes cast) 137,477,802 21,628,261 42,325,186
Suzi Williams
Chairman of the Nomination and Remuneration Committee
3 April 2022
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
2021 2020
Notes EUR000 EUR000
Continuing Operations
Administrative and other operating expenses:
Corporate costs 5 (4,643) (5,631)
Management Incentive Scheme costs 19 (29,072) (914)
Significant project costs 6 (295) (292)
======== =======
Operating loss (34,010) (6,837)
Finance income 7 158 29
Finance costs 7 (376) (310)
Net foreign exchange (loss) / gain (30) 1,273
======== =======
Loss for the year before income tax (34,258) (5,845)
Income tax expense 8 - -
-------- -------
Loss for the period from continuing operations (34,258) (5,845)
Discontinued Operations
Profit for the period from discontinued
operation, net of tax 13 114,171 19,811
Profit for the period attributable to
equity holders of the parent 79,913 13,966
======== =======
EUR EUR
Earnings per share - total operations
Basic and diluted earnings per share
attributable to equity holders of the
parent 25 0.47 0.06
Earnings per share - continuing operations
Basic and diluted earnings per share
attributable to equity holders of the
parent 25 (0.20) (0.03)
Earnings per share - discontinued operations
Basic and diluted earnings per share
attributable to equity holders of the
parent 25 0.68 0.09
The notes on pages 70 to 97 form an integral part of these
Consolidated Financial Statements.
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF OTHER
COMPREHENSIVE INCOME
2021 2020
EUR000 EUR000
Profit for the year 79,913 13,966
Other comprehensive income / (loss) - items
that will or may be reclassified subsequently
to profit or loss
Exchange differences on translation of
foreign operations 1,484 (689)
(884) (18,014)
Total other comprehensive income/(loss) 600 (18,703)
Total comprehensive income / (loss) for
the year, net of tax,
attributable to equity holders of the parent 80,513 (4,737)
====== ========
The notes on pages 70 to 97 form an integral part of these
Consolidated Financial Statements.
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
As at 31 As at 31
December December
2021 2020
Notes EUR000 EUR000
Assets
Non-current assets
Property, plant and equipment 30 12
Interest in associate 12 - 322,737
Income tax receivable 15 5,234 -
========= =========
5,264 322,749
Current assets
Derivatives 16 - 39
Prepayments and other receivables 14 197 170
Financial assets measured at fair value
through profit or loss 13 - 7,499
Cash and cash equivalents 10,556 15,244
========= =========
10,753 22,952
========= =========
Total assets 16,017 345,701
========= =========
Equity and liabilities
Equity
Share capital 21 301 2,821
Capital redemption reserve 22 2,565 34
Share premium reserve 22 1,616 108,793
Other reserve 22 - 180,816
Shares to be issued 22 1,443 -
Share-based payment reserve 22 31 799
Foreign currency translation reserve 22 (6,284) (6,884)
Retained earnings 22 14,782 46,072
========= =========
Total equity attributable to equity
holders of the Parent 14,454 332,451
Current liabilities
Accruals and other payables 17 1,457 2,279
Bank borrowings 18 106 10,971
========= =========
Total liabilities 1,563 13,250
========= =========
Total equity and liabilities 16,017 345,701
========= =========
The notes on pages 70 to 97 form an integral part of these
Consolidated Financial Statements
The Financial Statements of Zegona Communications plc
(registered number 09395163) were approved by the
Board of Directors on 3 April 2022 and were signed on its behalf
by:
Eamonn O'Hare
Director
Robert Samuelson
Director
FINANCIAL STATEMENTS |COMPANY STATEMENT OF FINANCIAL
POSITION
As at 31 As at
December 31 December
2021 2020
Notes EUR000 EUR000
Assets
Non-current assets
Property, plant and equipment 30 12
Investment in subsidiaries 9 6,824 252,322
Interest in associate - 32,194
---------- -----------------
6,854 284,528
Current assets
Derivatives 16 - 39
Prepayments and other receivables 14 3,821 183
Cash and cash equivalents 16 15,149
---------- -----------------
3,837 15,371
---------- -----------------
Total assets 10,691 299,899
========== =================
Equity and liabilities
Equity
Share capital 21 301 2,821
Capital redemption reserve 22 2,565 34
Share premium reserve 22 1,616 108,793
Other reserve 22 - 180,816
Shares to be issued 22 1,443 -
Share based payment reserve 22 31 694
Foreign currency translation reserve 22 (61,477) (79,268)
Retained earnings 22 65,486 52,510
---------- -----------------
Total equity attributable to the shareholders
of the Company 9,965 266,400
Current liabilities
Accruals and other payables 17 620 22,528
Bank borrowings 18 106 10,971
---------- -----------------
Total liabilities 726 33,499
---------- -----------------
Total equity and liabilities 10,691 299,899
========== =================
The notes on pages 70 to 97 form an integral part of these
Consolidated Financial Statements.
As permitted by section s408 of the Companies Act 2006, no
profit and loss account for the company is presented. The company's
profit for the financial year was EUR124.2 million (2020: EUR0.2
million)
The Financial Statements of Zegona Communications plc
(registered number 09395163) were approved by the Board of
Directors on 3 April 2022 and were signed on its behalf by:
Eamonn O'Hare
Director
Robert Samuelson
Director
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
Foreign
Share-based currency Capital Share Shares
Share payment translation Retained redemption premium Other to be Total
capital reserve reserve earnings reserve reserve reserve issued equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1
January
2021 2,821 799 (6,884) 46,072 34 108,793 180,816 - 332,451
Profit for the
year - - - 79,913 - - - - 79,913
Other
comprehensive
income - - 600 - - - - - 600
Dividends paid 26 - - - - - - (12,169) - (12,169)
Share-based
payment
expense 19 - 763 - - - - - - 763
Reclassification
of incentive
arrangements 19 - (1,562) - - - - - - (1,562)
Renewal of
incentive
scheme 19 - 31 - - - - - - 31
Reduction of
share
premium 22 - - - - - (108,679) 108,679 - -
Redemption of
shares 20 (2,531) - - (111,203) 2,531 - (277,326) - (388,529)
Issuance of
shares 20 11 - - - - 1,502 - 1,443 2,956
Balance at 31
December
2021 301 31 (6,284) 14,782 2,565 1,616 - 1,443 14,454
========= ============ ============ ========== =========== ========== ========== ======= ==========
The notes on pages 70 to 97 form an integral part of these
Consolidated Financial Statements.
Share- Foreign
based currency Capital
Share payment translation Retained redemption Share premium Other Total
capital reserve reserve earnings reserve reserve reserve equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1
January
2020 2,855 105 11,819 32,000 - 108,793 195,763 351,335
Profit for the
year - - - 13,966 - - - 13,966
Other
comprehensive
loss - - (18,703) - - - - (18,703)
Cancellation
of
shares
purchased 23 (34) - - - 34 - (3,599) (3,599)
Net cost of
incentive
arrangements 19 - 694 - 106 - - - 800
Dividends paid 26 - - - - - - (11,348) (11,348)
========= ======== ============ ========== ============ ============= ========= =========
Balance at 31
December
2020 2,821 799 (6,884) 46,072 34 108,793 180,816 332,451
========= ======== ============ ========== ============ ============= ========= =========
The notes on pages 70 to 97 form an integral part of these
Consolidated Financial Statements.
FINANCIAL STATEMENTS |COMPANY STATEMENT OF COMPREHENSIVE
INCOME
Foreign
Share-based currency Capital Share Shares
Share payment translation Retained redemption premium Other to be Total
capital reserve reserve earnings reserve reserve reserve issued equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1
January
2021 2,821 694 (79,268) 52,510 34 108,793 180,816 - 266,400
Profit for the
year - - - 124,179 - - - - 124,179
Other
comprehensive
income - - 17,791 - - - - - 17,791
Dividends paid 26 - - - - - - (12,169) - (12,169)
Share-based
payment
expense 19 - 763 - - - - - - 763
Reclassification
of incentive
arrangements 19 - (1,457) - - - - - - (1,457)
Renewal of
incentive
scheme 19 - 31 - - - - - - 31
Reduction of
share
premium 22 - - - - - (108,679) 108,679 - -
Redemption of
shares 20 (2,531) - - (111,203) 2,531 - (277,326) - (388,529)
Issuance of
shares 20 11 - - - - 1,502 - 1,443 2,956
Balance at 31
December
2021 301 31 (61,477) 65,486 2,565 1,616 - 1,443 9,965
========= ============ ============ ========== =========== ========== ========== ======= ==========
The notes on pages 70 to 97 form an integral part of these
Consolidated Financial Statements.
Share- Foreign
based currency Capital Share
Share payment translation Retained redemption premium Other Total
capital reserve reserve earnings reserve reserve reserve equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1
January
2020 2,855 - (63,686) 52,186 - 108,793 195,763 295,911
Profit for the
year - - - 219 - - - 219
Other
comprehensive
loss - - (15,582) - - - - (15,582)
Cancellation
of
shares
purchased 23 (34) - - - 34 - (3,599) (3,599)
Net cost of
incentive
arrangements 19 - 694 - 105 - - - 799
Dividends paid 26 - - - - - - (11,348) (11,348)
======== ======= =========== ========= ========== ======= ========================= =========
Balance at 31
December
2020 2,821 694 (79,268) 52,510 34 108,793 180,816 266,400
======== ======= =========== ========= ========== ======= ========================= =========
FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2021 2020
Note EUR000 EUR000
Operating activities
Loss before income tax from continuing
operations (34,258) (5,845)
Adjustments to reconcile profit before
income tax to operating cash flows:
Depreciation of property, plant and
equipment 16 3
Management Incentive Scheme costs 19 31 793
Net foreign exchange losses / (gains) 30 (1,273)
Finance income 7 (158) (29)
Finance costs 7 376 310
Working capital adjustments:
(Increase) in prepayments and other
receivables (5,261) (78)
Increase / (decrease) in accruals
and other payables 334 (435)
Interest received 21 13
Interest paid (273) (518)
------------- -------------
Net cash flows used in operating activities (39,142) (7,059)
------------- -------------
Investing activities
Purchase of property, plant and equipment (34) (13)
Net cash flows used in investing activities (34) (13)
------------- -------------
Net cash flows from discontinued investing
activities 13 439,547 10,152
Financing activities
Dividends paid to shareholders 26 (12,169) (11,348)
Repurchase and cancellation of shares 20 (388,529) (3,599)
Issuance of shares and shares to be
issued 20 2,956 -
Repayment of credit facility 18 (11,028) -
------------- -------------
Net cash flows (used in) financing
activities (408,770) (14,947)
------------- -------------
Net (decrease) in cash and cash equivalents (8,399) (11,867)
Net foreign exchange difference 3,711 76
Cash and cash equivalents at the beginning
of the year 15,244 27,035
------------- -------------
Cash and cash equivalents at the end
of the year 10,556 15,244
============= =============
The notes on pages 70 to 97 form an integral part of these
Consolidated Financial Statements.
FINANCIAL STATEMENTS |COMPANY STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2021 2020
Note EUR000 EUR000
Operating activities
Profit/(Loss) before income tax from continuing
operations 127,049 (1,398)
Adjustments to reconcile profit before
income tax to operating cash flows:
Depreciation of property, plant & equipment 16 3
Net foreign exchange losses / (gains) 69 (1,193)
Finance income 7 (418,079) (29)
Finance costs 7 376 554
Impairment of investment in subsidiary 9 288,806 -
Working capital adjustments:
(Increase) in prepayments and other receivables (3,637) (73)
Increase in accruals and other payables 59 6,277
Interest received 21 13
Interest paid (273) (518)
========= =============
Net cash flows (used in)/from operating
activities (5,593) 3,636
========= =============
Investing activities
Purchase of property, plant and equipment (34) (13)
Dividends received from subsidiary 417,921 -
Net cash flows from/ (used in) investing
activities 417,887 (13)
--------- -------------
Net cash flows from/ (used in) discontinued
investing activities 543 (518)
Financing activities
Dividends paid to shareholders 26 (12,169) (11,348)
Repurchase and cancellation of shares (388,529) (3,599)
Issuance of shares and shares to be issued 2,956 -
Repayment of credit facility 18 (11,028) -
Payment of intercompany loan 9 (21,907) -
Net cash flows (used in) financing activities (430,677) (14,947)
========= =============
Net (decrease) in cash and cash equivalents (17,840) (11,842)
Net foreign exchange differences 2,707 968
Cash and cash equivalents at the beginning
of the year 15,149 26,023
========= =============
Cash and cash equivalents at the end of
the year 16 15,149
========= =============
The notes on pages 70 to 97 form an integral part of these
Consolidated Financial Statements.
FINANCIAL STATEMENTS |NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
The Consolidated Financial Statements of Zegona Communications
plc (the "Company") and its subsidiaries (collectively, "Zegona")
for the year ended 31 December 2021 (the "Consolidated Financial
Statements") were authorised for issue in accordance with a
resolution of the Directors on 3 April 2022. The Company was
incorporated and is domiciled in England and Wales and has its
registered office at 8 Sackville St, Mayfair, London W1S 3DG.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
Zegona's Annual Report will be posted to shareholders on 4 April
2022. The financial information set out in this document does not
constitute Zegona's statutory accounts for the years ended 31
December 2021 or 2020 but is derived from those accounts. Statutory
accounts for 2020 have been delivered to the registrar of
companies, and those for 2021 will be delivered in due course,
following the Company's Annual General Meeting, which will be held
at 1:00 p.m. on 28 June 2022. The auditor has reported on those
accounts; its reports were: (i) unqualified; (ii) did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report; and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
The Company and Consolidated Financial Statements for the year
ended 31 December 2021 have been prepared in accordance with
UK-adopted international accounting standards and with those parts
of the Companies Act 2006 as applicable to companies reporting
under international accounting standards.
The Company Financial Statements present information about the
Company as a separate entity and not about its group. The Company
is taking advantage of the exemption in section 408 of the
Companies Act 2006 not to present its individual Statement of
Comprehensive Income and related notes that form a part of the
Company Financial Statements.
The Consolidated Financial Statements include the results of all
subsidiaries wholly owned by the Company as listed in note 9.
Certain of these subsidiaries, which are listed below, have taken
the exemption from preparing individual accounts for the year ended
31 December 2021 by virtue of section 394A of Companies Act 2006.
In order to allow these subsidiaries to take the exemption, the
Company has given a statutory guarantee of all these companies'
outstanding liabilities as at 31 December 2021:
-- Zegona Spanish Holdco Limited (Registered Number: 10159232)
-- Zegona Borrower Limited (Registered Number: 10159347)
-- Zegona Holdco Limited (Registered Number: 10159604).
The Consolidated Financial Statements and the Company Financial
Statements have been prepared under the historical cost convention
except for certain financial assets that have been measured at fair
value, as disclosed in note 11. The functional currency of the
Company is British pounds sterling ("Sterling" or GBP). The
Directors have chosen to present the Consolidated Financial
Statements and the Company Financial Statements in euros (EUR). All
values are rounded to the nearest thousand (EUR000) except where
otherwise indicated.
The principal accounting policies adopted in the preparation of
the Consolidated Financial Statements are set out below. The
policies have been consistently applied throughout the years
presented.
(b) Going concern
Zegona's Directors have assessed the going concern assumptions
during the approval of the Financial Statements. There are no
events or conditions that give rise to doubt the ability of Zegona
to continue as a going concern for a period of twelve months after
the approval of the Financial Statements. The assessment includes
the review of Zegona cashflow forecast and budget, which included
considerations on expected developments in liquidity, debt and
capital as well as t he potential impact of the on-going COVID-19
pandemic. The Directors have also considered sensitivities in
respect of potential severe but plausible downside scenarios in
concluding that Zegona is able to continue in operation for a
period of at least twelve months from the date of approving the
Financial Statements.
Following the sale of the investment in Euskaltel (see note 12)
and the Return of Capital and related transactions (see note 20),
Zegona meets its day to day working capital requirements from cash
balances. Zegona is continuing to execute its Buy-Fix-Sell strategy
which currently involves actively searching for another attractive
investment opportunity within the European TMT sector. During this
period, Zegona's ongoing costs are reasonably predictable, and the
Directors are comfortable that Zegona's cash holdings of GBP7.8
million (EUR9.2 million) at 3 April 2022 are sufficient to fund
these costs for at least twelve months after the approval of these
financial statements and absorb any unexpected costs that may be
incurred in connection with an unsuccessful deal. This is still the
case when a severe but plausible downside scenario is considered
that assumes a 10% increase in ongoing costs and GBP2.0 million of
costs incurred in relation to unsuccessful transactions.
In reaching its conclusion on the going concern assessment, the
Directors considered the findings of the work performed to support
the statement on the long-term viability of Zegona. As noted on
pages 7 to 8, this included key changes to principal risks,
scenario analysis and mitigating actions to downside scenarios.
In conclusion, based on their review the Directors are confident
that the Company and Zegona group will have sufficient funds to
continue to meet their liabilities as they fall due for at least 12
months from the date of approval fo the financial statements.
Accordingly, the Directors continue to adopt the going concern
basis in preparing the Consolidated and Parent Financial
Statements.
(c) New standards and amendments to IFRS
Standards, amendments and interpretations effective and adopted
by Zegona:
The accounting policies adopted in the presentation of the
Consolidated Financial Statements reflect the adoption of the
following amendments for annual periods beginning on or after 1
January 2021, none of which had a material effect on Zegona.
Standard Effective
date
Amendments to IFRS 9, IAS 39 and IFRS 7- Phase 1 January
2- Interest Rate Benchmark Reform 2021
COVID-19-Related Rent Concessions (Amendment 1 January
to IFRS 16) 2021
Standards, amendments and interpretations not yet adopted by
Zegona:
Zegona intends to adopt the following standards, amendments and
interpretations, if applicable, when they become effective.
Adopting these standards will not have a material impact on
Zegona.
Standard Effective
date
COVID-19-Related Rent Concessions beyond 30 1 April 2021
June 2021 (Amendment to IFRS 16)
Onerous Contracts - Cost of Fulfilling a Contract 1 January
(Amendments to IAS 37) 2022
Property, Plant and Equipment: Proceeds before 1 January
Intended Use (Amendments to IAS 16) 2022
Amendments to IFRS3: Reference to the conceptual 1 January
framework 2022
Annual improvements to IFRS Standards 2018-2020 1 January
2022
Amendments to IAS 1 Presentation of Financial 1 January
Statements: Classification of Liabilities as 2023
Current or Non-current
IFRS 17 Insurance Contracts 1 January
2023
Amendments to IFRS 17 1 January
2023
Disclosure of Accounting Policies (Amendments 1 January
to IAS 1 and IFRS Practice Statement 2) 2023
Definition of Accounting Estimate (Amendments 1 January
to IAS 8) 2023
Deferred Tax Related to Assets and Liabilities 1 January
Arising from a Single Transaction - Amendments 2023
to IAS 12 Income Taxes
(d) Basis of consolidation
Subsidiaries are entities controlled by the Company, either
directly or indirectly. Control exists when the Company is exposed
to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its
power over the entity. The financial information of subsidiaries is
included in the Consolidated Financial Statements from the date
that control commences until the date that control ceases.
Intragroup balances, any gains and losses or income and expenses
arising from intragroup transactions, and intragroup cash flows are
eliminated on consolidation.
(e) Interests in associates
An associate is an entity over which Zegona has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee but is not
control or joint control over those policies. Zegona evaluates the
extent to which it has significant influence in investees on a
case-by-case basis, considering all relevant facts and
circumstances. Evaluations are updated when there any changes in
those facts and circumstances. These evaluations are often subject
to significant judgement and the key judgements and considerations
underlying material evaluations are more fully discussed in note
3.
Zegona classifies investments in entities over which it has
significant influence as associates and accounts for them using the
equity method. Under the equity method, the investment in an
associate is initially recognised at cost. The carrying amount of
the investment is increased or decreased to recognise changes in
Zegona's share of the profit or loss of the investee after the date
of acquisition. Goodwill relating to the associate is included in
the carrying amount of the investment and is not tested for
impairment separately.
The Consolidated Statement of Comprehensive Income reflects
Zegona's share of the results of operations of the associate. Any
change in Other Comprehensive Income ("OCI") of those investees is
presented as part of Zegona's OCI.
Investments in associates are assessed at each reporting period
date and tested for impairment when there is an indication that the
recoverable amount has fallen below the carrying value of the
investment; i.e. that the investment may be impaired. The
recoverable amount of an asset is the higher of its fair value less
costs of disposal and its value in use. Impairment losses are
recognised within 'Share of profit of associate' in the
Consolidated Statement of Comprehensive Income.
f) Discontinued Operations
Zegona classifies non-current assets and assets and liabilities
within disposal groups ('assets') as held for sale if the assets
are available immediately for sale in their present condition,
management is committed to a plan to sell the assets under usual
terms, it is highly probable that their carrying amounts will be
recovered principally through a sale transaction rather than
through continuing use and the sale is expected to be completed
within one year from the date of the initial classification.
Assets and liabilities classified as held for sale are presented
separately as current items in the consolidated statement of
financial position and are measured at the lower of their carrying
amount and fair value less costs to sell. Property, plant and
equipment and intangible assets are not depreciated or amortised
once classified as held for sale; this also applies in respect of
assets held by equity accounted associates and joint ventures.
Discontinued operations are excluded from the results of
continuing operations and are presented as a single amount as
profit or loss after tax from discontinued operations in the Group
consolidated income statement. Discontinued operations are also
excluded from segment reporting. All other notes to the financial
statements include amounts for continuing operations, unless
indicated otherwise.
g) Foreign currencies
Foreign currency transactions
Sterling is the functional currency of the Company. Transactions
in foreign currencies are recorded at the rates of exchange ruling
at the transaction dates.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates of
exchange at the reporting date. Differences arising on settlement
or translation of monetary items are recognised in the Statement of
Comprehensive Income.
Non-monetary items denominated in foreign currencies are
translated at the functional currency spot rates of exchange at
each reporting date.
Foreign operations
The euro is the presentation currency of the Consolidated
Financial Statements. For the purpose of presenting the
Consolidated Financial Statements, the assets and liabilities of
Zegona's non-euro-denominated functional entities are translated at
exchange rates prevailing on the balance sheet date. Income and
expense items are translated at the average exchange rates for the
period.
Currency translation adjustments arising on the restatement of
opening net assets of Zegona's non-euro denominated functional
entities, together with differences between the entities' results
translated at average rates versus closing rates, are recognised in
the Statement of Other Comprehensive Income and transferred to the
foreign currency translation reserve. All resulting exchange
differences are classified as equity until disposal of the
subsidiary. On disposal, the cumulative amounts of the exchange
differences are recognised as income or expense.
h) Revenue and expenses
Finance income
Interest income from financial assets is recognised using the
effective interest method as finance income in the Consolidated
Statement of Comprehensive Income.
Dividend income from financial assets including from subsidiary
undertakings is recognised as finance income in the Consolidated
Statement of Comprehensive Income when Zegona's right to receive
the payment is established, which for listed securities is when the
shares are quoted ex-dividend, and are presented gross of any
non-recoverable withholding taxes.
Gains or losses on financial instruments measured at fair value
through profit or loss comprise the net change in fair value,
excluding interest or dividend income.
i) Administrative and other operating expenses
Administrative and other operating expenses are recognised on an
accruals basis, i.e. when the actual flow of the services they
represent occurs, regardless of when the resulting monetary or
financial flow arises.
Significant project costs are those incurred on projects that
are considered to be one-off or non-recurring in nature, where the
costs are so material individually or collectively that the
Directors believe that they require separate presentation and
disclosure to avoid distortion of the comparability of corporate
costs between periods. These are recognised on an accruals basis
and expensed in the Statement of Comprehensive Income unless they
are directly related to the issuance of equity instruments in which
case they are recognised as a deduction from equity. If qualifying
transaction costs are incurred in anticipation of, and directly
related to, the issuance of equity instruments and span more than
one reporting period, they are deferred until equity instruments
are recognised. If the equity instruments are not subsequently
issued, the costs are expensed.
j) Fair value measurement
Zegona measures certain financial instruments at fair value at
each balance sheet date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place
either:
-- In the principal market for the asset or liability; or
-- In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible
by Zegona.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest. Zegona uses valuation techniques that are
appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximising the use of relevant
observable inputs and minimising the use of unobservable
inputs.
All assets and liabilities for which fair value is measured or
disclosed in the Financial Statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a
whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities;
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable; and
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the Financial
Statements at fair value on a recurring basis, Zegona determines
whether transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
k) Financial instruments - initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at fair value through profit or loss
("FVPL"), amortised cost, or fair value through other comprehensive
income ("FVOCI").
The classification of a financial asset at initial recognition
depends on the financial asset's contractual cash flow
characteristics and Zegona's business model for managing it. In
order for a financial asset to be classified and measured at
amortised cost or FVOCI, it needs to give rise to cash flows that
are 'solely payments of principal and interest' on the principal
amount outstanding (the "SPPI Criterion").
Financial assets are initially recognised at their fair value
plus, for those financial assets not at fair value through profit
or loss, transaction costs.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the marketplace (regular way trades) are recognised on the
settlement date, being the date that an asset is delivered to or by
Zegona.
Subsequent measurement
Zegona's financial assets are classified into categories:
-- Financial assets at amortised cost comprise assets that are
held within a business model with the objective to hold the
financial assets in order to collect contractual cash flows that
meet the SPPI Criterion. These assets are subsequently measured at
amortised cost using the effective interest method. The amortised
cost is reduced by impairment losses. Interest income, foreign
exchange gains and losses and impairment losses are recognised in
the Statement of Comprehensive Income. Any gain or loss on
derecognition is recognised in the Statement of Comprehensive
Income.
-- Financial assets at FVPL comprise quoted equity instruments
which Zegona had not irrevocably elected, upon initial recognition,
to classify at FVOCI and debt instruments whose cash flow
characteristics fail the SPPI Criterion. These assets are carried
in the Statement of Financial Position at fair value with net
changes in fair value recognised as either finance income or
finance costs in the Statement of Comprehensive Income.
Derecognition
A financial asset is primarily derecognised and removed from the
Statement of Financial Position when:
-- The rights to receive cash flows from the asset have expired; or
-- Zegona has transferred its rights to receive cash flows from
the asset or has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a
'pass-through' arrangement; and either (a) Zegona has transferred
substantially all the risks and rewards of the asset, or (b) Zegona
has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the
asset.
When Zegona has transferred its rights to receive cash flows
from an asset or has entered into a pass-through arrangement, it
evaluates if, and to what extent, it has retained the risks and
rewards of ownership. When it has neither transferred nor retained
substantially all of the risks and rewards of the asset, nor
transferred control of the asset, Zegona continues to recognise the
transferred asset to the extent of its continuing involvement and
also recognises an associated liability. The transferred asset and
the associated liability are measured on a basis that reflects the
rights and obligations that Zegona has retained.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
Subsequent measurement
Financial liabilities are subsequently measured at amortised
cost and in the case of interest-bearing financial liabilities at
amortised cost using the effective interest rate method. Gains and
losses are recognised in the Statement of Comprehensive Income when
the liabilities are derecognised.
Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability, the difference of
the respective carrying amounts is recognised in the Consolidated
Statement of Comprehensive Income.
Equity instruments
An equity instrument is any contract that provides a residual
interest in the assets of the Group after deducting all of its
liabilities and includes no obligation to deliver cash or other
financial assets. The only equity instruments issued by Zegona
other than ordinary shares are the delayed subscription awards (see
note 20) which are accounted for at historical cost within
equity.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount is reported in the Statement of Financial Position if
there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis to realise the assets and settle the liabilities
simultaneously.
l) Impairment of financial assets
For trade receivables, Zegona applies a simplified approach in
calculating expected credit losses ("ECLs") and recognises a loss
allowance based on lifetime ECLs at each reporting date using
Zegona's historical credit loss experience, adjusted for
forward-looking factors specific to the debtors and the economic
environment.
A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows.
m) Property, plant and equipment
Property, plant and equipment is measured initially at
acquisition cost and subsequently carried net of any accumulated
depreciation and any impairment losses.
The costs of upkeep and maintenance of property, plant and
equipment are charged to the administrative and other operating
expenses in the Statement of Comprehensive Income in the year in
which they are incurred.
Replacements or renewals are recorded as an addition to
property, plant and equipment and the units replaced or renewed are
derecognised.
Property, plant and equipment in operation is depreciated
systematically on the basis of the estimated useful economic life
of the items, and the cost of the assets is distributed on a
straight-line basis over the estimated useful economic lives. For
fixtures and fittings, which comprises primarily computer hardware,
the estimated useful economic live is 3 years.
Derecognition of property, plant and equipment
Items of property, plant and equipment are derecognised when
they are sold or when no future economic benefit is expected to be
obtained from their continuing use. The gain or loss arising on the
disposal or derecognition of an item of property, plant and
equipment is determined as the difference between the proceeds from
the sale and the carrying amount of the asset and is recognised in
the Consolidated Statement of Comprehensive Income.
n) Leases
Zegona assesses at contract inception whether a contract is, or
contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
Following adoption of IFRS 16 Leases, Zegona has taken the
exemption contained under IFRS 16 to not apply IFRS 16 requirements
to any of its leases as these leases are short-term in nature (less
than 12 months) or low in value.
o) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with an original maturity of three months or less.
p) Investments in subsidiaries
Investments in subsidiaries within the Company's separate
Statement of Financial Position are stated at cost less provision
for impairment.
At the end of each reporting year, or whenever there are
indications of impairment, the Company tests its investments in
subsidiaries for impairment to determine whether their recoverable
amount has fallen below their carrying amount. The recoverable
amount is the greater of fair value less costs to sell and value in
use. An impairment loss is recognised when the carrying amount
exceeds the recoverable amount. Value in use is the present value
of expected future cash flows, calculated using a risk-free market
rate of interest, adjusted for the risks specific to the asset.
Where an impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate of its
recoverable amount; however, the increased carrying amount may not
exceed the carrying amount that would have been determined had no
impairment loss been recognised in previous years. This reversal of
an impairment loss is recognised as income.
The Company makes appropriate provision when the recoverable
value is less than the carrying amount, provided the latter cannot
be recovered by generating sufficient income to cover all the costs
and expenses incurred by usage of the asset.
q) Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares are shown in other
reserves as a deduction from the initial measurement of the equity
instrument.
r) Dividends payable
The Company recognises a liability to pay a dividend when the
distribution is authorised and the distribution is no longer at the
discretion of the Company. A corresponding amount is recognised
directly in equity.
s) Corporation tax
Corporation tax represents the sum of current and deferred tax
for the year.
Current tax is the expected tax payable on the taxable income
for the year. Taxable profit differs from profit reported in the
Consolidated Statement of Comprehensive Income because some items
of income and expense are taxable or deductible in different years
or may never be taxable or deductible. Zegona's current tax is
calculated using tax rates enacted or substantially enacted at the
balance sheet date, and any adjustment to taxes payable in respect
of previous periods.
Deferred tax is the tax expected to be payable or recoverable in
the future arising from temporary differences between the carrying
amounts of assets and liabilities in the Financial Statements and
the corresponding tax bases used in the computation of taxable
profit. It is accounted for using the balance sheet liability
method.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax
benefit will be realised.
Deferred tax is calculated on the tax rates that are expected to
apply in the year when the liability is settled or the asset
realised, based on tax rates that have been enacted or
substantively enacted by the year end date, and is not
discounted.
t) Pension benefits
Zegona pays contributions to externally administered pension
plans on behalf of employees, or the equivalent contribution is
paid in cash to the employee. Zegona has no further payment
obligations once the contributions have been paid. The
contributions are recognised as an expense on the accrual
basis.
u) Earnings per ordinary share
Basic earnings per share ("EPS") is calculated by dividing the
profit or loss attributable to ordinary shareholders of the Company
by the weighted average number of ordinary shares outstanding
during the year.
Diluted EPS is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all
potentially dilutive ordinary shares.
v) Share-based transactions
Equity-settled share-based payments are measured at the fair
value of the equity instruments at the grant date. The grant date
is the date on which an employer and an employee agree upon the
most essential terms and conditions associated with the award. If
shareholder approval is needed, then the grant date is delayed
until that approval has been obtained, unless shareholder approval
is considered to be perfunctory.
The fair value is expensed through administrative and other
operating expenses, with a corresponding increase in equity through
the share-based payment reserve, on a straight-line basis over the
period that the employees or others providing similar services
become unconditionally entitled to the awards or vesting
period.
The vesting period for these schemes may commence before the
legal grant date if the employees have started to render services
in respect of the award before the legal grant date, where there is
a shared understanding of the terms and conditions of the
arrangement. Expenses are recognised when the employee starts to
render service to which the award relates. The fair value of the
awards is calculated at each accounting reporting period until the
final fair value is measured at the legal grant date.
The dilutive effect of outstanding share-based payments is
reflected as share dilution in the computation of diluted EPS.
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Consolidated Financial Statements reflect management's
choice of accounting policies, assumptions and estimates. Estimates
and judgements are continually evaluated and are based on
historical experience and other factors including expectations of
future events that are believed to be reasonable under the
circumstances. In view of the inherent uncertainties and the high
level of subjectivity involved in the recognition or measurement of
items outlined below, it is possible that the outcomes in the next
financial year could differ from those on which management's
estimates are based. This could result in materially different
estimates and judgement from those reached by management for the
purpose of these Consolidated Financial Statements.
The most significant transactions during the year, the sale of
Euskaltel and the Return of Capital (and related transactions) did
not involve any material accounting estimates since the amounts
recorded were all based on realised amounts. The main accounting
judgements used by the Directors in applying the accounting
policies of Zegona that had the greatest impact on the Consolidated
Financial Statements in the current year were:
-- The components of discontinued operations . The presentation
of components of an entity as discontinued operations requires
judgement. Any components being classified as a discontinued
operation must meet certain criteria under IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations. Zegona has
concluded that the investment in Euskaltel, together with other
items directly related to it qualify as discontinued operations and
the main assumptions used in determining this are detailed in Note
13.
-- The classification of the delayed share subscription . The
classification of the Subscription Agreement as either an equity
item or a financial liability requires a certain amount of
judgement. Based on the terms of the Subscription Agreement, Zegona
has concluded that it meets the definition of an equity instrument
under IAS 32 Financial Instruments: Presentation because the
Subscription Agreement is a non-cancellable agreement for a fixed
number of shares. The main estimates and assumptions used in
determining the classification of the delayed share subscription
are detailed in Note 20.
-- The recoverability of the income tax receivable . During
2021, Zegona was required to pay two charging notices totalling
GBP4.4 million issued by HMRC in respect of the EU Commission's
decision that the Group Financing Exemption contained within the
UK's Controlled Foreign Company legislation constituted State Aid.
In prior periods, Zegona had concluded that no provision was
required on the basis that it was not probable that there would
ultimately be an outflow of resources required to settle the
obligation. Consequently, Zegona recorded an income tax receivable
on payment of the charging notices and has continued to evaluate
the receivable for recoverability. The determination of whether an
outflow is more likely than not requires judgement. An explanation
of the key judgements made in determining that the receivable
continues to be recoverable is provided in Note 15.
4. SEGMENTAL ANALYSIS
Following the disposal of Euskaltel, Zegona and its subsidiaries
is organised a single business which seeks to generate shareholder
returns by applying its Buy-Fix-Sell strategy to European TMT
assets. The chief operating decision maker is considered to be the
Board, who only receive consolidated information which does not
does not include an analysis of either profit and loss or assets
and liabilities to any lower level. Zegona has therefore concluded
that it only has a single operating segment for which the measure
of performance is Zegona's consolidated loss for the period from
continuing operations and all amounts required to be disclosed in
accordance with paragraph 23-24 of IFRS 8 Operating Segments are
the same as the equivalent consolidated amounts disclosed elsewhere
in these financial statements. All non-current assets are domiciled
in the United Kingdom.
5. ADMINISTRATIVE AND OTHER OPERATING EXPENSES - CORPORATE COSTS
Consolidated Consolidated
2021 2020
EUR000 EUR000
Salaries, bonuses and staff benefits 2,918 3,694
Employment related taxes 423 530
Pension costs 311 304
Other operating expenses 991 1,103
Corporate costs 4,643 5,631
============ ============
Staff numbers
The average number of employees (including Executive Directors
but excluding Non-Executive Directors) during the year by activity
was as follows:
Consolidated Consolidated
2021 2020
Operations 6 7
Administration 1 1
============ ============
7 8
============ ============
Further information in relation to pay and remuneration of the
directors can be found in the Directors' Remuneration Report,
starting on page 42.
6. ADMINISTRATIVE AND OTHER OPERATING EXPENSES - SIGNIFICANT PROJECT COSTS
Significant project costs are those incurred on projects that
are considered to be one-off or non-recurring in nature, where the
costs are so material individually or collectively that the
Directors believe that they require separate presentation and
disclosure to avoid distortion of the comparability of corporate
costs between periods. The classification of projects as
significant is subjective in nature and therefore judgement is
required in its determination and is a matter of qualitative
assessment. Significant projects are usually related to acquisition
or joint venture transactions where incremental and identifiable
external costs are incurred by Zegona in order to make or evaluate
the potential transaction, even if it is not consummated.
In 2021, EUR0.3 million (2020: EUR0.3 million) of significant
project costs recognised in 2021 were principally professional fees
in relation to potential acquisition vehicles. In addition,
significant project costs were recognised within discontinued
operations (see note 13).
7. FINANCE INCOME AND COSTS
Note Consolidated Consolidated
2021 2020
EUR000 EUR000
Net gain on currency forward instruments 137 16
Bank interest 21 13
Finance income 158 29
============ ============
Interest on bank borrowings (376) (310)
============ ============
Finance costs (376) (310)
============ ============
8. TAXATION
Consolidated Consolidated
2021 2020
EUR000 EUR000
Current tax expense
Current year - -
============ ============
Income tax expense for the year - -
============ ============
Zegona believes that no accruals for tax liabilities are
required for all open tax years based on its assessments of many
factors, including interpretations of tax law and prior experience.
The normal UK statute of limitations is four years from the end of
the accounting period.
Reconciliation of effective tax rate
Consolidated Consolidated
2021 2020
EUR000 EUR000
(Loss) before tax from continuing operations (34,258) (5,845)
============ ============
At UK statutory income tax rate (19% (2020:
19%)) (6,509) (1,100)
Expenses not deductible for tax purposes* 5,916 232
Unrecognised tax losses* 593 878
============ ============
Income tax expense - -
============ ============
* At UK statutory income tax rate (19% (2020: 19%))
Income relating to the investment in Euskaltel, including
dividends and gains in fair value and foreign exchange, is not
taxable as the dividends are in respect of non-redeemable ordinary
shares and the investment is expected to meet the substantial
shareholdings exemption which provides an exemption from
corporation tax for capital gains. The majority of significant
project costs is not deductible for tax purposes as the projects
relate to acquisitions or disposals and are therefore capital in
nature.
Unrecognised deferred tax assets
Deferred tax assets of the UK tax-resident companies of EUR7.7
million (2020: EUR5.0 million) have not been recognised in respect
of tax losses, because it is not probable that future taxable
profit will be available against which the companies can maximise
the benefits therefrom. Under UK law there is no expiry for the use
of tax losses.
In the UK 2021 Budget it was announced that the UK corporation
rate will increase to 25% from 1 April 2023. Consequently, Zegona
has remeasured its UK deferred tax assets at the end of the
reporting period at the rate of 25%.
9. INVESTMENT IN SUBSIDIARIES
The Consolidated Financial Statements in the current year
include the following subsidiaries:
Shares held Shares held
Country of directly indirectly
Subsidiary Nature of business incorporation by the Company by the Company
Zegona Limited Incentive company Jersey (1) 100% -
Zegona Spanish Holdco
Limited Dormant UK (2) - 100%
Zegona Borrower Limited Dormant UK (2) - 100%
Zegona Holdco Limited Dormant UK (2) - 100%
The registered office addresses of the subsidiaries are:
1. 47 Esplanade, St Helier, Jersey, JE1 0BD
2. 8 Sackville St, Mayfair, London, W1S 3DG
There are no restrictions on the Company's ability to access or
use the assets and settle the liabilities of the Company's
subsidiaries, other than immaterial assets controlled by
liquidators.
Carrying value of the Company's direct investment in
subsidiary
On 11 August 2021, Zegona Limited paid a distribution of GBP360
million (equivalent to EUR417.9 million) out of a combination of
its share premium account and retained earnings to fund the
Company's tender offer. The size of this distribution prompted
Zegona to review whether the carrying value of the investment in
subsidiary was recoverable. This review was also updated as at 31
December 2021.
Following these reviews, the carrying value of the investment
was impaired by EUR288.8 million in total, which has been
recognised in the profit or loss of the Company and included within
the movement in retained earnings in the Company's statement of
financial position. The recoverable amount of the Company's
investment in subsidiary at 31 December 2021 was EUR6.8 million,
being its fair value less costs of disposal. The fair value
measurement is categorised within level 3 of the fair value
hierarchy. The fair value was based on an adjusted net asset
method, whereby the fair values of the recognised and unrecognised
assets and liabilities of Zegona Limited were directly measured.
The majority of the value of the net assets held by Zegona Limited
as at 31 December 2021 was its cash holdings of EUR10.6
million.
10. FINANCIAL RISK MANAGEMENT
Zegona's activities expose it to market risk, principally
interest rate risk and currency risk, however these have been
significantly reduced since the sale of its investment in Euskaltel
(see note 12) and the Return of Capital (see note 20).
Interest rate risk
Interest rate risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate because of
changes in market interest rate. Zegona's exposure to interest rate
risk is limited as it only has a small overdraft facility, which
bears interest at 1.5% per annum over the Bank of England base rate
but is currently undrawn.
In the opinion of the Directors, even a significant movement in
LIBOR would not have a material impact on the cash flow of Zegona.
The Executive Directors and the Chief Financial Officer regularly
review the placing of cash balances and Zegona's leverage.
Foreign currency risk
The Board and the Chief Financial Officer control and monitor
financial risk management, including foreign currency risk, in
accordance with internal policy and the strategic plan defined by
the Board. Zegona is exposed to three types of exchange risk:
transaction, translation and economic risk.
Transaction risk is the risk of loss that Zegona bears when it
enters into monetary transactions denominated in currencies other
than Sterling, the currency in which Zegona operates. A loss (or
gain) may occur due to the change in relative value of currencies
from the date on which the transaction is entered to the date the
settlement takes place.
As at 31 December 2021, Zegona had euro monetary net assets of
EUR1.8 thousand (2020: EUR7.7 million). The table below shows the
transactional impact of a 10% change in euro against Sterling at 31
December 2021:
+/- 10% movement
Currency impact EUR000
Profit before tax gain/loss -/+ 0.14
Equity gain/loss -/+ 0.14
Zegona is also exposed to foreign exchange translation risk
which is accounting in nature. It is the risk that the value of net
assets and net profit will change as a result of translation of the
Financial Statements of companies within the group with a different
functional currency to the presentational currency from one period
to the next. In the case of Zegona, this is the conversion of
Sterling into euro.
The table below show the impact of a 10% movement in Sterling
against the euro on the translation of Zegona's reported financial
position as at 31 December 2021 and reported financial performance
for the year.
+/- 10% movement
Currency impact EUR000
Profit before tax gain/loss -/+ 3,425
Equity gain/loss -/+ 1,445
Credit risk
Credit risk arises from cash and cash equivalents, prepayments
and other. Zegona uses the ratings awarded by independent agencies,
where available, otherwise Zegona assesses the counterparty's
credit rating taking into account its financial situation, past
experience and other factors. There are no material financial
assets that are written down, past due or impaired as at 31
December 2021, and there is no collateral or other credit
enhancement feature on Zegona's financial assets.
The material exposures to credit risk by credit quality
classification and external rating at 31 December 2021 are shown in
the table below:
Cash and
Quality classification External credit cash equivalents Total
rating EUR000 EUR000
Strong A- and above 10,556 10,556
10,556 10,556
=================== =========
Credit quality classification definitions:
-- Strong exposures demonstrate a strong capacity to meet
financial commitments, with negligible or low probability of
default and/or low levels of expected loss.
The Directors consider that the carrying amounts best represent
the maximum exposure to credit risk.
Liquidity risk
Prudent liquidity risk management implies holding sufficient
cash and marketable securities and the availability of financing
through a sufficient level of available credit lines. Management
assesses regularly Zegona's liquidity forecasts which consider
cashflow projections and existing facilities.
At 31 December 2021, Zegona had cash balances held with banks
amounting to EUR10.6 million (2020: EUR15.2 million), compared to
Zegona's total liabilities amounting to EUR1.5 million (2020:
EUR13.2 million). In addition, Zegona has an undrawn overdraft
facility of GBP1.5 million, equivalent to EUR1.8 million although
this is repayable on demand. (2020: total facilities of GBP6.5
million including the overdraft, equivalent to EUR7.2 million).
11. FINANCIAL INSTRUMENTS
The following tables shows the carrying amounts and the fair
values of financial assets and financial liabilities, including
their levels in the fair value hierarchy. It does not include fair
value information for financial assets and financial liabilities
measured at amortised costs as their carrying amount is a
reasonable approximation of fair value.
Financial instrument classification and fair values -
Consolidated
Fair Amortised Fair Amortised
Value cost value cost
2021 2021 2020 2020
EUR000 EUR000 EUR000 EUR000
Income Tax receivable - 5,234 - -
------ --------- ------- ---------
Total non- current financial
assets - 5,234 - -
====== ========= ======= =========
Prepayments and other receivables - 197 - 170
Derivatives (Level 2) - - 39 -
Financial assets designated
at fair value (Level 3) - - 7,499 -
Cash and cash equivalents - 10,556 - 15,244
------ --------- ------- ---------
Total current financial
assets - 10,753 7,538 15,414
====== ========= ======= =========
Fair Amortised Fair Amortised
Value cost value cost
2021 2021 2020 2020
EUR000 EUR000 EUR000 EUR000
Accruals and other payables - 1,457 - 2,279
Bank borrowing - 106 - 10,971
Total current financial
liabilities - 1,563 - 13,250
====== ========= ====== =========
Further detail on the valuation technique used when measuring
the Level 3 Financial assets designated at fair value, the
reconciliation of movements during the year can be found in note
13.
The Directors consider that the carrying amounts of the
financial instruments measured at amortised cost equate to their
fair values.
Financial instrument classification and fair values -
Company
Fair Amortised Fair Amortised
Value cost value cost
2021 2021 2020 2020
EUR000 EUR000 EUR000 EUR000
Prepayments and other receivables - 3,820 - 183
Derivatives (Level 2) - - 39 -
Cash and cash equivalents - 16 - 15,149
------ --------- ------ ---------
Total current financial
assets - 3,836 39 15,332
====== ========= ====== =========
Fair Amortised Fair Amortised
Value cost value cost
2021 2021 2020 2020
EUR000 EUR000 EUR000 EUR000
Accruals and other payables - 620 - 22,528
Bank borrowings - 106 - 10,971
Total current financial
liabilities - 726 - 33,499
====== ========= ====== =========
12. DISPOSAL OF INVESTMENT IN ASSOCIATE
On 28 March 2021, a subsidiary of MásMóvil Ibercom, S.A.U
("MásMóvil"), the Spanish fourth national operator, launched a
tender offer to acquire all of the outstanding shares of Euskaltel
for EUR11.17 per share, which was subsequently adjusted to EUR11.00
per share following the payment by Euskaltel of a EUR0.17 per share
dividend.
The tender offer completed successfully and Zegona received
EUR421.3 million in cash on 11 August 2021. Eamonn O'Hare and
Robert Samuelson both resigned as directors of Euskaltel on 10
August 2021.
Up to the announcement of MásMóvil's tender offer on 28 March
2021, Zegona had accounted for its investment in Euskaltel as an
associate. On 28 March 2021, Zegona concluded that the investment
qualified as an asset held for sale under paragraph 7-10 of IFRS 5
Non-current Assets Held for Sale and Discontinued Operations
because on this date Zegona's board has resolved to participate in
the tender offer announced by MásMóvil, and it considered it highly
probable that the tender would be successful.
Accordingly, the investment in Euskaltel ceased to be an
associate on 28 March 2021 and from this date became an asset held
for sale with Zegona no longer recognising a share of Euskaltel's
profit from that date. The investment in Euskaltel, together with
other related items (see note 13), has also been classified as a
discontinued operation in all periods presented in these
Consolidated Financial Statements. The effect of the disposal on
the consolidated financial position and comprehensive income of
Zegona during year were as follows:
Assets held Interest in
for sale Associate
EUR000 EUR000
Balance at 31 December 2020 - 322,737
Share of loss of associate[33] - (454)
Dividend received - (5,362)
Balance at 28 March 2021 - 316,921
============ ============
Reclassification to Assets held for
sale 316,921 (316,921)
Dividend received (6,511) -
Balance at 11 August 2021 310,410 -
------------ ------------
The gain on sale was:
EUR000
Consideration received 421,275
Carrying amount of investment in associate (310,410)
Recycling of historical exchange differences on
sale of discontinued operations (625)
----------
Gain on sale of discontinued operations 110,240
==========
The disposal of Euskaltel does not attract a tax charge as it
qualifies for the Substantial Shareholding Exemption in Schedule
7AC of the Taxation of Chargeable Gains Act 1992.
13. DISCONTINUED OPERATIONS
The amounts recorded in the Consolidated statement of
comprehensive income in respect of discontinued operations were as
follows:
Consolidated Consolidated
2021 2020
EUR000 EUR000
Gain on sale of discontinued operation
(Note 12) 110,240 -
Share of (loss) / profit of associate (Note
12) (454) 16,309
Realised foreign exchange gains 8,391 -
Significant project costs (2,910) -
Finance costs (1,096) (244)
Finance income - 3,746
Discontinued operations 114,171 19,811
============ ============
The amounts recorded in the Consolidated statement of cash flows
in respect of discontinued operations were
as follows:
Consolidated Consolidated
2021 2020
EUR000 EUR000
Proceeds from sale of investment in Euskaltel 421,275 -
Dividends received from Euskaltel 11,872 11,842
Proceeds from sale of contingent consideration 6,400 -
Purchases of interests in Euskaltel - (1,690)
Net cash flow from discontinued investing
activities 439,547 10,152
============ ============
Realised foreign exchange gains
On 7 April 2021, Zegona entered into a Deal Contingent Forward
Purchase Agreement ("DCF") with Barclays Bank PLC to ensure it
would receive a fixed Sterling value if the tender offer to acquire
Euskaltel was completed successfully. Under the terms of the DCF,
if the tender offer successfully completed on any date between 7
July 2021 and 7 January 2022 and Zegona received proceeds as
expected, it would be obligated to sell EUR430 million at a fixed
exchange rate. If the tender offer did not complete, Zegona would
not be obligated to transact. The actual rate at which the contract
would settle was dependent on the exact settlement date but was
within a range of 1.1563 GBP/EUR and 1.1556 GBP/EUR.
Zegona settled the DCF in two tranches, first settling EUR7.7
million on 14 July 2021 in respect of the Euskaltel dividend passed
on to Zegona shareholders at a rate of 1.1563 GBP/EUR and secondly
settling EUR422.3 million on 13 August 2021 in respect of the
proceeds received from the sale of its investment in Euskaltel at a
rate of 1.1561 GBP/EUR, receiving GBP365.3 million. The 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
EUR0.4 million (2020 EUR0.2 million) of foreign exchange gains
arising from the revaluation of the Euro-denominated contingent
consideration.
Finance costs and finance income
During 2020 and up to 10 August 2021, Zegona recorded a
financial asset designated at fair value for contingent
consideration receivable from Euskaltel in relation to the sale of
Telecable in 2017.
The contingent consideration was payable by Euskaltel in cash up
to a maximum amount of EUR15 million in aggregate upon confirmation
that a range of net tax assets are available to Euskaltel and may
be used to offset its future tax payments. This asset was always
recorded at fair value using a probability-weighted discounted cash
flow model.
At December 31 2020, the fair value of the contingent
consideration was EUR7.5 million, which primarily reflected
Zegona's high confidence at the time that EUR8.7 million recorded
in Euskaltel's financial statements would be paid. This was an
increase compared to the prior year and this change in fair value
was recognised by recording EUR3.7 million of finance income.
Following the issuance of Zegona's financial statements for the
year ended 31 December 2020, it became apparent that Euskaltel
would in fact seek either substantially to reduce and delay the
payment or require Zegona to deliver a financial instrument to
cover any risk in the tax assets at Zegona's cost. Each of these
alternatives was not acceptable to Zegona, so it irrevocably sold
all of its rights (and associated obligations) to the contingent
payment to a third party for EUR6.4 million in cash, which was
received on 10 August 2021. The loss this crystalised of EUR1.1
million was recorded within Finance costs. As the sale of Euskaltel
would not have been undertaken without the settlement of the
contingent consideration Zegona concluded that the contingent
consideration was part of the discontinued operation. The movements
in the balance of the contingent consideration during the year were
as follows:
EUR000
Balance at 31 December 2019 3,997
Fair value changes recognised in discontinued operations 3,746
Foreign exchange differences recognised in discontinued
operations (244)
========
Balance at 31 December 2020 7,499
--------
Fair value changes recognised in discontinued operations (1,096)
Foreign exchange differences recognised in discontinued
operations (3)
Proceeds from sale 6,400
========
Balance at 31 December 2021 -
========
Significant project costs
Significant project costs are those incurred on projects that
are considered to be one-off or non-recurring in nature, where the
costs are so material individually or collectively that the
Directors believe that they require separate presentation and
disclosure to avoid distortion of the comparability of corporate
costs between periods. In 2021, EUR2.9 million of significant
project costs related to the disposal of the Euskaltel investment
and the Return of capital were recognised with discontinued
operations which were principally legal fees and stamp duty.
14. PREPAYMENTS AND OTHER RECEIVABLES
Consolidated Consolidated
31 December 31 December
2021 2020
EUR000 EUR000
Prepayments 46 42
VAT recoverable 151 24
Other receivables - 104
============ ============
Total 197 170
============ ============
Company Company
31 December 31 December
2021 2020
EUR000 EUR000
Prepayments 42 35
Amounts due from subsidiary undertakings 3,628 20
VAT recoverable 150 24
Other receivables - 104
=========== ===========
Total 3,820 183
=========== ===========
15. INCOME TAX RECEIVABLE
In October 2017, the European Commission (the "EC") announced it
was conducting a state aid investigation into the Group Financing
Exemption contained within the UK's Controlled Foreign Company
("CFC") legislation. On 20 August 2019, the EC published its final
decision which concluded that the Group Financing Exemption was an
aid scheme and amounted to illegal state aid to the extent that
there were UK Significant People or Function ("SPF") activities
involved in generating non-trading finance profits.
Both the UK Government and a number of other impacted taxpayers
have submitted appeals to the EU General Court to annul the EU
Commission's findings. On 31 March 2022, the court announced that
it will deliver its judgement on 8 June 2022. Any decision of the
General Court may be subject to further appeals which could take
considerable additional time.
While these appeals are ongoing, the UK Government is required
to recover the State Aid and a new law was enacted in December 2020
which empowers HMRC to issue a charging notice to cover all periods
for which they consider additional tax is due. These charging
notices must be paid within 30 days and while they may be appealed,
there is no right to postpone payment. However, this new law is a
charging mechanism only and not an arbitration on the merits of the
on-going litigation. If the state aid decision is annulled by the
EU General Court (or on appeal), then any amounts paid will be
returned to Zegona following this final determination.
Following the issuance of the European Commission judgement,
Zegona engaged an independent tax adviser to undertake a review of
its historic financing structures, to establish the extent to which
the relevant SPFs were carried out in the UK. This review
identified a small proportion of activities performed by UK
personnel. On this basis, Zegona estimated that if the Commission
judgement is upheld, a potential tax liability of between EUR1m and
EUR1.8m may exist, which reflects the relatively modest proportion
of SPFs undertaken in the UK.
HMRC have taken the view that SPF allocations should in almost
all cases be either 100% or 0% and consistent with this
interpretation, HMRC issued Zegona with a charging notice in
February 2021 in the amount of GBP4.1 million, (EUR4.9 million)
which represents 100% of the CFC tax relief received. Zegona
strongly disagrees with HMRCs interpretation, however as required
by the new legislation, Zegona paid the notice in full on 4 March
2021 (within 30 days of receipt). At the same time, Zegona
submitted an appeal against the determination and the notice which
was accepted by HMRC on 8 March 2021. This appeal is likely to be
stayed until the final outcome of all appeals to the EU Courts in
respect of the EU Commission's original decision are known, which
may take several years.
As mentioned above, the issuance of charging notices is a
collection mechanism only and not an arbitration on the merits of
the ongoing litigation. Consequently, the issuance and the
settlement of the charging notice does not change Zegona's view
that while it is finely balanced, it remains more likely than not
that the appeals made by other UK taxpayers and the UK Government
will be successful and ultimately Zegona will not incur any
liability. This conclusion is based on advice from Zegona's
independent tax advisor.
In accordance with the provisions of IFRIC 23, Zegona therefore
recognised a receivable against both HMRC charging notices. Zegona,
supported by its independent tax advisors, has continued to monitor
developments in the case since recognising the receivable. This has
confirmed that while there have been a number of administrative
hearings there have been no developments that would change Zegona's
original conclusion that the receivable is recoverable. Zegona will
continue to evaluate the recoverability of this receivable until a
final resolution is reached.
16. DERIVATIVES
The following table shows the notional amount and fair value
amounts by product contract type held by the Company
Notional Notional
contract Fair value- contract Fair value-
amount Assets amount Assets
31 December 31 December 31 December 31 December
2021 2021 2020 2020
EUR000 EUR000 EUR000 EUR000
Foreign exchange forward
contracts - - 4,343 39
- - 4,343 39
============== ============== ============== ==============
The notional contract amounts of foreign exchange contracts
indicate the nominal value of transaction outstanding at the
balance sheet date; they do not represent amounts at risk.
17. ACCRUALS AND OTHER PAYABLES
Consolidated Consolidated
31 December 31 December
2021 2020
EUR000 EUR000
Trade payables 250 372
Accrued interest - 57
Other accruals 1,207 1,850
1,457 2,279
============ ============
Company Company
31 December 31 December
2021 2020
EUR000 EUR000
Trade payables 47 57
Payable to direct subsidiary - 21,909
Other payables - 169
Accruals 573 393
620 22,528
=========== ===========
18. BANK BORROWINGS
Zegona has a GBP1.5 million overdraft facility with HSBC PLC
which is generally undrawn, however at 31 December 2021, GBP90.8
thousand (EUR106.4 thousand) of the facility was drawn for a brief
period to cover short-term working capital requirements. The
interest rate on the overdraft facility is 0.25% and it is
repayable on demand. The overdraft was repaid 13(th) January
2022.
Until the disposal of Euskaltel, Zegona had drawn GBP10 million
of a GBP15 million of a credit facility with Barclays Bank which
was secured on its investment in Euskaltel (GBP10 million (EUR11.1
million) was also drawn at 31 December 2020). Interest was payable
quarterly in arrears on the drawn amount at a rate of 2.6% per
annum above the 3-month LIBOR interest rate. A commitment fee of
0.6% per annum was payable on the undrawn amount of GBP5
million.
The Company had the right to prepay the loan at any time and
facility was due to mature on 14 October 2021. The facility was
secured by a pledge over 32.2 million Euskaltel shares.
The facility was repaid and terminated on 13 August 2021 using
the proceeds of the sale of the investment in Euskaltel.
19. MANAGEMENT INCENTIVE SCHEME
Incentive scheme arrangements were put in place at Zegona's
inception in 2015 to create incentives for Zegona's management team
who have been issued Class A Ordinary Shares in the Company's
subsidiary, Zegona Limited
("Management Shares").
The holders of the Management Shares are entitled to 15% of the
growth in value of Zegona during a series of five separate
Calculation Periods, provided that ordinary shareholders achieve a
5% per annum Preferred Return[34] in each Calculation Period.
Holders have the right to end each Calculation Period by
redeeming 99% of their Management Shares at any time between the
third and fifth anniversaries of the beginning of the Calculation
Period, although a Calculation Period may also end upon certain
specified events such as a winding up or takeover, or a change of
control of Zegona.
When a Calculation Period ends, a new Calculation Period
automatically begins with the remaining 1% of unredeemed shares
retaining the entitlement to 15% of the growth in value of Zegona
for the next Calculation Period.
At 31 December 2021, 515,464 Management Shares in Zegona Limited
remain allotted, issued and fully paid as shown in the table
below:
Participation Number of Management Nominal value
in Shares of Management
growth in Shares
value
Eamonn O'Hare 8.88% 305,000 GBP305
Robert Samuelson 4.44% 152,500 GBP153
Zegona senior management 1.68% 57,964 GBP58
==================== ==============
515,464 GBP516
==================== ==============
The First Calculation Period
The First Calculation Period began on 14 August 2015 and ended
on 25 June 2020 when the holders of the shares redeemed 99% of them
for no value because the preferred return had not been met.
The Second Calculation Period
Accounting as an equity settled instrument:
The Second Calculation Period automatically began on 25 June
2020 with the starting value against which the growth in value and
the Preferred Return are measured ("Baseline Value Per Share")
being set at GBP0.955 per share, however this renewal was subject
to a vote of Zegona's shareholders at the 2021 AGM, which was duly
passed with 91.17% of votes in favour.
Under IFRS 2 Share Based Payment, the new Calculation Period
constituted a new share-based payment award for which the holders
of the Management Shares began to render services from June 25,
2020. However, for the purposes of IFRS 2, because the renewal of
the scheme required shareholder approval, the grant date of the
award could not be until 30 June 2021 when the shareholder approval
was given.
In such circumstances, IFRS 2 requires the fair value of the
award to be estimated at each balance sheet date, and an expense
recognised from the date that holders begin to render services.
This estimate is then recalculated and adjusted at each balance
sheet date prior to the grant date (Zegona's 2021 AGM), and finally
at the grant date. Zegona applied this treatment up to 24 May 2021,
recording EUR0.8 million of share-based payment expense in 2020 and
further EUR0.8 million in 2021, with a cumulative EUR1.6 million
recognised in the Share-based payment reserve. On this date, Zegona
concluded that the Management Shares no longer qualified as an
equity settled instrument.
Accounting as a cash settled instrument:
Zegona Limited's Articles of Association (the "Limited
Articles") allows the Management Shares to be redeemed within three
years of the beginning of a Calculation Period if certain criteria
("Takeover Provisions") are met. One of these Takeover Provisions
is if Zegona sells all, or substantially all, of its assets and
distributes the net proceeds (the "Substantial Sale and Return
Provision"). If any of these Takeover Provisions are met, then any
redemption must be in cash.
The announcement on 24 May 2021 that Zegona intended to return
GBP335 million to shareholders, following the sale of its
investment in Euskaltel (see note 12), meant that the Substantial
Sale and Return provision was expected to be met and a cash payment
of GBP25.7 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 EUR1.6 million
of cumulative share-based payment expense that it had recognised in
the share-based payment reserve as a liability instrument.
At the same time, an incremental liability was recorded to
recognise the portion of the fair value of the Management Shares
that had been earned on 24 May 2021. This liability was
subsequently remeasured at each balance sheet date until the date
of the successful Return of Capital when it was equal to the
GBP25.7 million (EUR30.3 million on the transaction date) actually
paid on 14 October 2021 when the holders of the Management Shares
delivered a redemption notice and the liability was
extinguished.
A Management Incentive Scheme cost of EUR29 million for 2021 was
recognised in the Consolidated Statement of Comprehensive Income,
being equal to the liability recorded in excess of the amount
reclassified from the Share based payment reserve plus the EUR0.8
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 GBP1.51 per share, which was equal to volume weighted
average mid-market price of Zegona shares for the previous 30
trading days. During the Third Calculation Period, the Management
Shares may be redeemed between 14 October 2024 and 14 October 2026.
All other terms remain the same as for the other Calculation
Periods and the renewal of the scheme will be subject to a
shareholder vote at Zegona's 2022 AGM.
Similar to the Second Calculation Period, this constituted a new
award with services rendered from 14 October 2021, however the
grant date of the award under IFRS 2 will not be until shareholders
ratify the renewal of the scheme at Zegona's 2022 AGM. Until this
date, Zegona will therefore estimate the fair value of the award at
each balance sheet date and recognise an expense reflecting the
date that holders began to render services. Zegona expects that any
amounts due under the third calculation period will be settled in
equity, therefore has concluded that the Management Shares are
equity settled instruments.
Accordingly, Zegona engaged an independent valuation specialist
to estimate the fair value of the award as at 31 December 2021.
The value of the award on the valuation date was GBP0.72 per
Management Share which will be recognised in the Consolidated
Statement of Comprehensive Income subject to any adjustments for
future revaluations discussed above. For the period to 31 December
2021 a total expense of EUR31 thousand was recognised, with a
corresponding amount recognised in the Share based payment
reserve.
The fair value of the award was calculated using a Monte Carlo
model. The fair value uses a volatility of between 50% and 60%
depending on the acquisition size, and an expected term of three
years. The Incentive Shares are subject to the Preferred Return
being achieved, which is a market performance condition, and as
such has been taken into consideration in determining their fair
value. A risk-free rate of 0.75% has been applied, based on the
implied yield available at the measurement date on the zero-coupon
government issues with a remaining term equal to the expected term
of the Awards. The model incorporates a range of probabilities for
the likelihood of a successful acquisition being made of a given
size in a range of GBP0.5 billion - GBP5 billion and includes a
number of discounts of 90% in aggregate to reflect the risks
inherent in the instrument such as the competition for assets and
the need to raise capital within a short timeframe.
20. RETURN OF CAPITAL AND RELATED TRANSACTIONS
On 24 May 2021, Zegona announced its intention to return GBP335
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 GBP5.7 million (EUR6.7 million)
dividend which returned the full dividend received from Euskaltel
on 17 June 2021. In order to deliver on the rest of its commitment,
Zegona undertook the following transactions:
Tender Offer
On 13 August 2021, Zegona announced the publication of a
circular for a Return of Capital of up to GBP329.3 million to
shareholders by way of a tender offer (the "tender offer") at a
price of GBP1.535 per share. This tender offer was approved by
shareholders on 6 September with 99.94% of votes cast in favour.
Zegona successfully repurchased and cancelled 214,532,103 shares
under the tender offer, returning the full balance of the GBP335
million, being GBP329.3 million, on 14 October 2021.
Reduction of share premium account
In order to complete a share buyback of at least GBP329.3
million, the Company needed to have distributable reserves of at
least that amount and in order to achieve this, the Company
announced on 29 July 2021 that it intended to reduce its share
premium account from GBP95,339,759 to GBP100,000 (the "Capital
Reduction"). In order to comply with applicable companies'
legislation, the Capital Reduction required approval by the
Shareholders at a General Meeting of the Company, confirmation by
the High Court and the registration of the Court's order at
Companies House.
On 20 August 2021, Shareholders approved the proposal with 100%
of votes cast in favour. The Court confirmed the Capital Reduction
on 7 September 2021, and it became effective on 8 September 2021.
Upon the reduction of the share premium account, the balance was
transferred to the Other reserve, which forms part of the
distributable reserves of the Company.
Management Subscription
The Zegona management team committed to re-invest up to GBP4.0
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 GBP1.438 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 GBP2.5 million,
which was paid by the management team on 14 October 2021. Following
the investment, the Board and management team would have held 29.1%
of Zegona's shares.
Upon applying for Admission of the new shares, Zegona was
informed that Admission was limited to a maximum of 20% of its
shares in issue immediately following its tender offer without
publishing a prospectus. Zegona, together with Eamonn O'Hare and
Robert Samuelson (the affected members of the management team),
elected to issue and Admit 887,594 shares on 27 October 2021[35]
with the remaining 846,857 shares to be issued the next time Zegona
prepares a prospectus[36]. Zegona entered into a revised
Subscription Agreement ("Subscription Agreement (as Amended)") with
Eamonn O'Hare and Robert Samuelson that confirmed they were both
committed to complete the subscription for the agreed number of
shares at the agreed price under any circumstances.
Zegona has concluded that the Subscription Agreement (as
Amended) is an equity instrument as it is defined in IAS 32
Financial Instruments: Presentation on the basis that (a) there is
no contractual obligation to deliver cash or another financial
asset to another party (b) there is no obligation to exchange
financial assets or liabilities with another party and (c) the
agreement is a non-derivative and obliges Zegona to deliver a fixed
number of shares.
The value of shares to be issued (being the cash paid) have
therefore been recognised within a new reserve, Shares to be
issued.
21. CALLED UP SHARE CAPITAL
2021 2021 2020 2020
Allotted, called up and
fully paid Number EUR000 Number EUR000
At 1 January 218,970,076 2,821 221,935,177 2,855
Shares issued 887,594 11 - -
Shares repurchased and
cancelled (214,532,103) (2,531) (2,965,101) (34)
-------------- -------- ------------- --------
At 31 December 5,325,567 301 218,970,076 2,821
============== ======== ============= ========
The nominal value of the total ordinary shares is GBP0.01 and
the total allotted, called up and fully paid equates to GBP53,256
(2020: GBP2,189,701).
On 13 August 2021, the Company announced the publication of a
circular for a return of up to GBP329.3 million to shareholders by
way of a tender offer. The tender offer completed on 14 October
2021 at a price of GBP1.535 per share, with a total of 214,532,103
ordinary shares tendered. Immediately following the completion of
the tender offer, there were 4,437,973 shares outstanding.
During 2020 Zegona purchased and cancelled a total of 2,965,101
ordinary shares for a nominal value of GBP29,651. For more
information on the share buyback programme refer to note 23.
All ordinary shares confer identical rights including in respect
of capital, dividends and voting. There are no restrictions on the
distributions of dividends or the repayment of capital.
22. RESERVES
Distributable reserves
Retained earnings
The retained earnings reserve includes cumulative net profits
and permitted transfers from the share-based payment reserve. This
is typically a distributable reserve.
Other reserve
The Other reserve is a distributable reserve which is comprised
of transfers from the Share premium reserve in 2016 and 2021
following court approved reductions of capital (see note 20), net
of all historical dividends paid and the total costs of buying back
shares (the nominal value of the shares and any premium paid),
which are charged against distributable reserves.
Following the completion of the tender offer (see note 20) the
full amount then outstanding in the Other reserve was utilised to
fund the tender offer. GBP178 million (EUR277.3 million at the rate
applied to the transaction) was debited to reflect the utilisation
of the whole of this distributable reserve to fund the tender
offer.
Total distributable reserves
While the Other reserve continues to be distributable, its
balance in Sterling is zero, therefore the Company's total
distributable reserves are now solely the Retained earnings
reserve. At 31 December 2021 the Company's Retained earnings
reserve in Sterling (Zegona's functional currency) was GBP 3.5
million, however a balance of EUR65.5 million remains in this
reserve on translation to Euro (Zegona's presentational currency).
This is because, in accordance with IAS 21 The Effects of Changes
in Foreign Exchange Rates, equity items are translated each period
at their historical exchange rates and not subsequently
retranslated and the remaining balance reflects the difference
between the Euro value of all previous amounts recorded in all
distributable reserves and the Euro value of the amount debited to
the Retained earnings reserve to fund the tender offer.
An offsetting amount is also recorded as a component of the
foreign currency translation reserve, however it is not recycled on
completion of the tender offer because as a component of the
Company's equity it does not represent the disposal of a foreign
operation. Distributable reserves at 31 December 2020 were GBP140
million.
Non - distributable reserves
Share-based payment reserve
The share-based payment reserve is a non-distributable reserve
that represents the cumulative build-up of the Management Incentive
Scheme costs over the vesting period as the employees gradually
render service while the Management Incentive Scheme is considered
to be an equity settled instrument.
The current balance of the reserve reflects the amortisation of
a portion of the fair value of the third Calculation Period as
discussed in Note 19.
Foreign currency translation reserve
The foreign currency translation reserve is a non-distributable
reserve that includes the foreign exchange differences arising from
the translation of the Consolidated Financial Statements functional
currency of Sterling ("GBP") to presentational currency euro
("EUR"). The movement in this reserve for the period is driven
primarily by the movement in the closing EUR:GBP exchange rates
from 1.11 at 31 December 2020 to 1.19 at 31 December 2021.
Capital redemption reserve
The capital redemption reserve is a requirement under s692 of
the Companies Act 2006 to preserve the Company's capital and is a
non-distributable reserve. When the Company buys back shares out of
profits and those shares are immediately cancelled, the amount by
which the Company's issued share capital is reduced must be
transferred to the capital redemption reserve.
During 2021, GBP2.1 million (EUR2.5 million at the rate
prevailing at the transaction date) has been transferred to the
capital redemption reserve which represents the nominal value of
the 214,532,103 shares repurchased in the tender offer (see note
20).
Share premium reserve
The share premium reserve is a requirement under s610 of the
Companies Act 2006 and is a non-distributable reserve. The reserve
comprises amounts subscribed for share capital in excess of nominal
value less costs directly attributable to the issue of new shares.
During 2021, the share premium account of the Company was reduced
to GBP100,000 (EUR114.1 thousand) with GBP95.239 million (EUR108.7
million) being transferred to the Other reserve (see note 20). This
was offset by GBP1.2 million, being the proceeds received in excess
of the nominal value of the 887,594 shares subscribed for by Eamonn
O'Hare and Robert Samuelson on 27 October 2021 (see note 20).
Shares to be issued
The Shares to be issued reserve is a non-distributable reserve
that relates solely to the GBP1.2 million (EUR1.4 million) of cash
received from Robert Samuelson and Eamonn O'Hare to subscribe for
shares which have not yet been admitted (see note 20).
23. SHARE BUYBACK
On 7 January 2020, Zegona commenced a share buyback programme to
purchase its ordinary shares up to a maximum consideration of GBP10
million (EUR11.1 million). Zegona's Board set a buyback policy that
allowed shares to be acquired at prices up to the Underlying Asset
Value per Share[37]. This programme concluded on 31 March 2020 and
2,442,447 ordinary shares, with a nominal value of GBP24,424,
(EUR28,369) were purchased and cancelled for a total of
GBP2,461,592 (EUR2,869,090).
On 24 June 2020, Zegona announced a further share buy-back
programme for the purchase of up to a maximum of GBP10 million
(EUR11.1 million) of its ordinary shares. This programme concluded
on 15 September 2020 and 522,654 ordinary shares, with a nominal
value of GBP5,227 (EUR5,786), were purchased and cancelled for a
total of GBP604,455 (EUR668,995).
During 2020 Zegona purchased and cancelled a total of 2,965,101
ordinary shares for a total of GBP3,066,047 (EUR3.4 million),
representing 1.35% of the total shares in issue.
24. CAPITAL MANAGEMENT
Our objective when managing capital is to maintain a flexible
capital structure that optimises the costs and availability of
capital at acceptable risk with the primary objective of maximising
shareholder value. In the management of capital and its definition,
we include share capital and all equity reserves attributable to
the equity holders of the Company.
Zegona manages its capital structure and makes adjustments in
light of changes in economic conditions and the requirements of any
covenants. To maintain or adjust the capital structure, Zegona may
adjust the dividend payment to shareholders, return capital to
shareholders, make distributions of non-cash assets to shareholders
or issue new shares.
The Company currently has authorisation to make market purchases
of up to 32,823,614 ordinary shares (within specified price
parameters) which was 15% of the issued ordinary share capital at
the date of issuance of its 2020 Annual Report and is now
significantly in excess of the total number of ordinary shares in
issue. This authorisation will continue until the end of the 2022
AGM, at which point it is expected to revert to 15% of the issued
ordinary share capital at the issuance of the 2021 Annual Report.
Any shares repurchased by the Company pursuant to this authority
may be held in treasury and subsequently resold for cash, cancelled
or used for employee share scheme purposes.
Throughout 2021, Zegona met the financial covenants associated
to the facilities described in note 18 which were repaid on 13
August 2021 .
25. EARNINGS PER ORDINARY SHARE
Basic EPS is calculated by dividing the profit attributable to
ordinary shareholders of the Company by the weighted average number
of ordinary shares in issue during the year.
Diluted EPS is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all
potentially dilutive ordinary shares. As more fully detailed in
note 19, Management Shares in the share capital of Zegona Limited
have been issued and, on exercise, the value of these shares is
expected to be delivered by the Company issuing new ordinary
shares. Hence, the Management Shares could have a dilutive effect,
although the Company has the right at all times to settle such
value in cash. No adjustment to EPS has been made in respect of the
Management Shares as, (a) they were anti-dilutive for the years
ended 31 December 2021 and 2020 and (b) the result from Continuing
Operations in 2021 was a loss.
2021 2020
Profit for the year attributable to equity
holders of the parent
- Total Operations (EUR000) 79,913 13,966
Loss for the year attributable to equity
holders of the parent
- Continuing Operations (EUR000) (34,258) (5,845)
Profit for the year attributable to equity
holders of the parent
- Discontinued Operations (EUR000) 114,171 19,811
Weighted average number of ordinary shares 168,580,851 219,658,462
Basic and diluted EPS - Total Operations
(EUR) 0.47 0.06
Basic and diluted EPS - Continuing Operations
(EUR) (0.20) (0.03)
Basic and diluted EPS - Discontinued Operations
(EUR) 0.68 0.09
26. DIVIDS PAID
The Company declared a first interim dividend on 21 December
2020 at a rate of 2.2p per share, totalling GBP4.8 million (EUR5.6
million). The dividend was paid on 9 March 2021. The Company also
declared a second interim dividend on 21 June 2021 at a rate of
2.6p per share, totalling GBP5.7 million (EUR6.7 million). The
dividend was paid on 23 July 2021.
In the comparative period, the Company declared an interim
dividend on 6 February 2020 at a rate of 2.0p per share, totalling
GBP4.5 million (EUR5.3 million), which was paid on 6 March 2020. On
9 June 2020 the Company declared an interim dividend at the rate of
2.6p per share for a total of GBP5.7 million (EUR6.3 million). The
dividend was paid on 31 July 2020.
27. RELATED PARTY TRANSACTIONS
In the opinion of the Directors, there is no one single
controlling party, nor any transactions with related parties for
the year ended 31 December 2021. Parties are considered to be
related if one party has the ability to control the other party or
exercise significant influence over the other party, or the parties
are under common control or influence, in making financial or
operational decisions.
Related party transactions of the Company in 2020
Mark Brangstrup Watts was a Non-executive Director of Zegona up
until 12 May 2020 and is a designated member of Marwyn Capital LLP
("Marwyn"), which was compensated for various office services
provided to the Company.
During the period to 12 May 2020, services totalling EUR25k were
received from Marwyn.
Mark Brangstrup Watts is an ultimate beneficial owner of Axio
Capital Solutions Limited ("Axio"), which provided company
secretarial, administrative and accounting services to Zegona
during 2020. During the period to 12 May 2020, services totalling
EUR173k were received from Axio.
There were no amounts owed to or from Marwyn or Axio at 31
December 2020.
Transactions with key management personnel
The Board considers the Executive Directors and Non-Executive
Directors of the Company to be the key management personnel of
Zegona. Details of the amounts paid to key management personnel are
detailed in the Directors' Remuneration Report on pages 42 and 48.
Holdings of Management Shares are detailed in note 19 and
subscriptions for shares by management are detailed in note 20.
28. AUDITOR'S REMUNERATION
2021 2020
EUR000 EUR000
Fees for the audit of the Company's annual
accounts 200 288
Total audit fees 200 288
====== ======
Fees for procedures on interim financial
statements 15 44
Agreed upon procedures 29 -
Total non-audit fees 44 44
====== ======
29. POST BALANCE SHEET EVENTS
There have been no material post balance sheet events that would
require disclosure or adjustment to these financial statements.
OTHER INFORMATION |NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the Annual General Meeting (the
"AGM") of Zegona Communications plc (the "Company") will be held at
the offices of Travers Smith LLP, 10 Snow Hill, London, EC1A 2AL on
28 June 2022 at 1.00 p.m. for the transaction of the following
business:
To consider and, if thought fit, to pass the following
resolutions, numbers 1 to 13 of which will be proposed as ordinary
resolutions and numbers 15 to 18 of which will be proposed as
special resolutions:
1. THAT the Company's financial statements for the year ended 31
December 2021, together with the Directors' report and the
auditor's report on those financial statements and on the auditable
part of the Directors' remuneration report, be received.
2. THAT Eamonn O'Hare be re-elected as a Director.
3. THAT Robert Samuelson be re-elected as a Director.
4. THAT Richard Williams be re-elected as a Director.
5. THAT Ashley Martin be re-elected as a Director.
6. THAT Kjersti Wiklund be re-elected as a Director.
7. THAT Suzi Williams be re-elected as a Director.
8. THAT KPMG LLP be re-appointed as auditor to the Company until
the conclusion of the next annual general meeting of the
Company.
9. THAT the Directors be authorised to fix the auditor's remuneration.
10. THAT the payment of the interim dividend, in lieu of a final
dividend, of 2.6p per ordinary share to the Company's shareholders
on 23 July 2021 be and is confirmed, approved and ratified for all
purposes.
11. THAT the Directors' remuneration report, which is set out in
pages 42 to 51 of the annual report of the Company for the year
ended 31 December 2021, be approved.
12. THAT the Directors' remuneration policy, which is set out in
pages 33 to 41 of the annual report of the Company for the year
ended 31 December 2021, be approved.
13. THAT for the purposes of section 551 Companies Act 2006 (the
"Act") (and so that expressions used in this resolution shall bear
the same meanings as in the said section 551), the Directors be and
are generally and unconditionally authorised to exercise all powers
of the Company to allot:
13.1 shares and to grant such subscription and conversion rights
as are contemplated by sections 551(1)(a) and (b) of the Act
respectively up to a maximum nominal amount of GBP17,751 to such
persons and at such times and on such terms as they think proper;
and further
13.2 equity securities (as defined in section 560 of the Act) in
connection with a rights issue in favour of the holders of equity
securities and any other persons entitled to participate in such
issue where the equity securities respectively attributable to the
interests of such holders and persons are proportionate (as nearly
as may be) to the respective number of equity securities held by
them up to a maximum nominal amount of GBP17,751 ,
subject only to such exclusions or other arrangements as the
Directors may consider necessary or expedient to deal with treasury
shares, fractional entitlements or legal or practical problems
under the laws of any territory or requirements of any recognised
regulatory body or stock exchange in any territory, provided that
such authority shall expire at the conclusion of the next annual
general meeting of the Company or the date which is 18 months after
the date on which this resolution is passed, whichever is the
earlier, save that the Company be and is hereby authorised to make,
prior to the expiry of such periods, any offer or agreement which
would or might require such shares or rights to be allotted or
granted after the expiry of the said periods and the Directors may
allot such shares or grant such rights under any such offer or
agreement as if the authority had not expired.
14. THAT the Company be and is hereby authorised to renew the
rights attached to the Management Shares following the commencement
of a new Calculation period.
15. THAT if resolution 13 set out in the Notice convening this
Meeting is passed, the Directors be and are hereby authorised to
allot equity securities (as defined in section 560 of the Act) for
cash under the authority given by that resolution and/or to sell
ordinary shares held by the Company as treasury shares for cash as
if section 561 of the Act did not apply to any such allotment or
sale, such authority to be limited to:
15.1 the allotment of equity securities in connection with an
issue or offering in favour of holders of equity securities (but in
the case of an allotment pursuant to the authority granted under
resolution 13.2, such power shall be limited to the allotment of
equity securities by way of a rights issue only) and any other
persons entitled to participate in such issue or offering where the
equity securities respectively attributable to the interests of
such holders and persons are proportionate (as nearly as may be) to
the respective number of equity securities held by or deemed to be
held by them on the record date of such allotment, subject only to
such exclusions or other arrangements as the Directors may consider
necessary or expedient to deal with treasury shares, fractional
entitlements or legal or practical problems under the laws of any
territory or requirements of any recognised regulatory body or
stock exchange in any territory; and
15.2 the allotment (otherwise than pursuant to paragraph 15.1
above) of equity securities up to a nominal amount of GBP2,662,
such authority, unless renewed, to expire at the conclusion of
the next annual general meeting of the Company or the date which is
18 months after the date on which this resolution is passed,
whichever is the earlier, but in each case, prior to its expiry the
Company may make offers, and enter into agreements, which would, or
might, require equity securities to be allotted (and treasury
shares to be sold) after the authority expires and the Directors
may allot equity securities (and sell treasury shares) under any
such offer or agreement as if the authority had not expired.
16. THAT if resolution 13 set out in the Notice convening this
Meeting is passed, the Directors be and are hereby authorised in
addition to any authority granted under resolution 13 to allot
equity securities (as defined in section 560 of the Act) for cash
under the authority given by that resolution and/or to sell
ordinary shares held by the Company as treasury shares for cash as
if section 561 of the Companies Act 2006 did not apply to any such
allotment or sale, such authority to be:
16.1 limited to the allotment of equity securities or sale of
treasury shares up to a nominal amount of GBP2,662; and
16.2 used only for the purposes of financing (or refinancing, if
the authority is to be used within six months after the original
transaction) a transaction which the Board of the Company
determines to be an acquisition or other capital investment of a
kind contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights most recently published by the Pre-Emption Group
prior to the date of this notice;
such authority, unless renewed, to expire at the conclusion of
the next annual general meeting of the Company or the date which is
18 months after the date on which this resolution is passed,
whichever is the earlier, but in each case, prior to its expiry the
Company may make offers, and enter into agreements, which would, or
might, require equity securities to be allotted (and treasury
shares to be sold) after the authority expires and the Directors
may allot equity securities (and sell treasury shares) under any
such offer or agreement as if the authority had not expired.
17. THAT the Company be and is hereby generally and
unconditionally authorised for the purpose of section 701 Companies
Act 2006 to make market purchases (as defined in section 693 of the
said Act) of ordinary shares of GBP0.01 each in the capital of the
Company ("ordinary shares") provided that:
17.1 the maximum number of ordinary shares hereby authorised to
be purchased is 798,302, being equal to 14.99 per cent. of the
issued ordinary shares;
17.2 the minimum price (exclusive of expenses) which may be paid
for such ordinary shares is GBP0.01 per share, being the nominal
amount thereof;
17.3 the maximum price (exclusive of expenses) which may be paid
for such ordinary shares shall be an amount equal to the higher of
(i) 5% above the average of the middle market quotations for such
shares taken from The London Stock Exchange Daily Official List for
the five business days immediately preceding the day on which the
purchase is made and (ii) the higher of the price of the last
independent trade of an ordinary share and the highest current
independent bid for an ordinary share as derived from the London
Stock Exchange Trading System (SETS);
17.4 the authority hereby conferred shall (unless previously
renewed or revoked) expire on the earlier of the end of the next
annual general meeting of the Company and the date which is 18
months after the date on which this resolution is passed; and
17.5 the Company may make a contract to purchase its own
ordinary shares under the authority conferred by this resolution
prior to the expiry of such authority, and such contract will or
may be executed wholly or partly after the expiry of such
authority, and the Company may make a purchase of its own ordinary
shares in pursuance of any such contract.
18. THAT the Company be and is hereby authorised to provide
notice to shareholders of general meetings of the Company of at
least 14 clear days' notice.
BY ORDER OF THE BOARD
Secretary: Crestbridge Corporate Services Ltd
Date: 3 April 2022
Registered Office: 47 Esplanade, St Helier, Jersey, JE1 0BD
Notes:
(i) A member entitled to attend and vote at the Meeting convened
by the above Notice is entitled to appoint a proxy to exercise all
or any of the rights of the member to attend and speak and vote on
his behalf. A proxy need not be a member of the Company. A member
may appoint more than one proxy in relation to the Meeting,
provided that each proxy is appointed to exercise the rights
attached to a different share or shares held by that member. The
right to appoint a proxy does not apply to any person to whom this
notice is sent who is a person nominated under section 146 of the
Companies Act 2006 (the "Act") to enjoy information rights (a
"Nominated Person").
(ii) To ap point a proxy, you may:
(a) Submit your proxy online at www.signalshares.com (the
"Website") by following the on-screen instructions, in particular
at the "Proxy Voting" link, by no later than 1:00pm on 24 June
2022. In order to appoint a proxy using the Website, members will
need to log into their Signal Shares account, or register if they
have not previously done so. To register members will need to
identify themselves with their Investor Code which is detailed on
their share certificate or available from our Registrar, Link
Group, on Tel: 0371 664 0300. Calls are charged at the standard
geographic rate and will vary by provider. Calls outside the United
Kingdom will be charged at the applicable international rate. Lines
are open between 09:00 - 17:30, Monday to Friday excluding public
holidays in England and Wales.
(b) You may request a hard copy form of proxy directly from our
Registrar, Link Group, on Tel: 0371 664 0300 or by emailing
shareholderenquiries@linkgroup.co.uk . Calls are charged at the
standard geographic rate and will vary by provider. Calls outside
the United Kingdom will be charged at the applicable international
rate. Lines are open between 09:00 - 17:30, Monday to Friday
excluding public holidays in England and Wales.
To be effective the completed and signed form of proxy must be
lodged at the office to Link Group, PXS1 Central Square, 29
Wellington Street, Leeds, LS1 4DL (together with any power of
attorney or other authority under which it is signed or a
notarially certified copy of such power or authority) by no later
than 1:00pm on 24 June 2022.
Please indicate in the appropriate box how you wish your votes
to be cast. In the absence of any specific direction, the proxy
will vote (or abstain from voting) at his or her discretion. On any
other business which properly comes before the Annual General
Meeting (including any motion to amend any resolution or to adjourn
the Meeting) the proxy will vote or abstain at his or her
discretion.
(c) if you hold your shares in uncertificated form, use the
CREST electronic proxy appointment service as described in the
CREST manual or in the Explanatory Notes to the resolutions set out
below.
(iii) Completion of the Form of Proxy or appointment of a proxy
through CREST will not prevent a member from attending and voting
in person if he/she wishes to do so.
(iv) Any corporation which is a shareholder in the Company may
appoint one or more corporate representatives who may exercise on
its behalf all of that corporation's powers as a shareholder of the
Company provided that, where there is more than one corporate
representative appointed, they do not attempt to exercise the
corporation's rights in respect of the same shares.
(v) Any member or his corporate representative or proxy
attending the Meeting has the right to ask any question at the
Meeting relating to the business of the Meeting.
(vi) Pursuant to section 360B of the Act and Regulation 41 of
the Uncertificated Securities Regulations 2001 (as amended), only
shareholders registered in the register of members of the Company
as at close of business on 24 June 2021 shall be entitled to attend
and vote at the AGM in respect of the number of shares registered
in their name at such time. If the Meeting is adjourned, the time
by which a person must be entered on the register of members of the
Company in order to have the right to attend and vote at the
adjourned Meeting is close of business, 48 hours before the time
fixed for the adjourned Meeting. Changes to the register of members
after the relevant times shall be disregarded in determining the
rights of any person to attend and vote at the Meeting.
(vii) In the case of joint holders, the vote of the senior
holder who tenders a vote whether in person or by proxy shall be
accepted to the exclusion of the votes of the other joint holders
and, for this purpose, seniority shall be determined by the order
in which the names stand in the register of members of the Company
in respect of the relevant joint holding.
(viii) From the date of this notice, copies of the terms and conditions of appointment of the Non-Executive Directors and the service contracts of the Zegona Chairman and Executive Directors are available for inspection at the registered office of the Company, 8 Sackville Street, Mayfair, London, W1S 3DG, during usual business hours on any weekday (Saturdays, Sundays and public holidays excluded) until the conclusion of the AGM and will be available for inspection at the place of the AGM for at least 15 minutes prior to and during the Meeting.
(ix) Save as set out in these notes, members who have general
queries relating to the AGM should contact Link Group on 0371 664
0300. Calls are charged at the standard geographic rate and will
vary by provider. Calls outside the United Kingdom will be charged
at the applicable international rate. Lines are open between 09:00
- 17:30, Monday to Friday excluding public holidays in England and
Wales. Please note that you may not use any electronic address or
other contact details provided in this notice of AGM, or any
related documents (including the Chairman's letter and Form of
Proxy), for any purpose other than those expressly stated.
(x) As at 19 April 2022 (being the last business day prior to
the publication of this notice) the Company's issued share capital
consists of 5,325,567 ordinary shares, carrying one vote each.
Therefore, the total voting rights in the Company as at 19 April
2022 are 5,325,567.
(xi) The information required to be published by section 311A of
the Act (information about the contents of this notice and numbers
of shares in the Company and voting rights exercisable at the AGM
and details of any members' statements, members' resolutions and
members' items of business received after the date of this notice)
may be found at www.zegona.com . Sub ject 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 .
(xii) A Nominated Person may under an agreement between him/her
and the member who nominated him/ her, have a right to be appointed
(or to have someone else appointed) as a proxy entitled to attend
and speak and vote at the Meeting. Nominated Persons are advised to
contact the member who nominated them for further information on
this and the procedure for appointing any such proxy.
OTHER INFORMATION |EXPLANATORY NOTES TO THE RESOLUTIONS
The purpose of these notes is to explain the resolutions and
business to be conducted at the Company's AGM. Resolutions 1 to 13
set out in the Notice detail the ordinary resolutions and
resolutions and 15 to 18 detail the special resolutions. Further
explanation in relation to the resolutions is set out below.
Resolution 1 - To approve the Annual Report and Financial
Statements
Resolution 1 proposes the receipt and adoption of the Annual
Report, which includes the Financial Statements of the Company for
the year ended 31 December 2020, together with the Directors'
report and auditor's report on those Financial Statements.
The Company's Annual Report, including the Financial Statements
for the year ended 31 December 2021, is available on the Company's
website, www.zegona.com . The Annual Report was prepared in
compliance with the requirements of the Act and the requirements of
the Listing Rules of the Financial Conduct Authority that would
apply if the Company was listed on the Premium segment of the
Official List as at the date of their approval by the Board.
Resolutions 2 to 7 - Election of Directors
Resolutions 2 to 7 deal with the re-election of each Director of
the Company that, subject to the Articles of Association of the
Company (the "Articles"), is required to retire at every annual
general meeting of the Company. All Directors on the Board will
retire at the AGM for this reason. Each of such Directors is
offering himself for re-election and resolutions 2 to 7 propose the
re-election of such Directors. Biographies of each of the Directors
retiring in accordance with the Articles are set out on pages 18
and 19 of the Annual Report. Suzi Williams is the chair of the
Nomination and Remuneration Committee. Ashley Martin is the chair
of the Audit and Risk Committee and, if re-elected, will continue
in this role.
The Chairman has confirmed that, following a performance review
in line with the UK Corporate Governance Code, all of the Directors
continue to perform effectively and contributed positively to the
Board meetings that they attended during 2021 as set out on page 21
of the Annual Report and subsequently to the date of this
notice.
Resolutions 8 and 9 - Re-appointment and remuneration of
auditor
The appointment of KPMG LLP as auditor of the Company, which
started on 18 November 2016, terminates at the conclusion of the
AGM. KPMG LLP has indicated its willingness to stand for
re-appointment as auditor of the Company until the conclusion of
the annual general meeting to be held in 2022. The Directors, as
well as the Audit and Risk Committee, recommend that KPMG LLP be
re-appointed and that its remuneration be fixed.
Resolution 10 - Dividend payment
This resolution seeks to ratify the payment by the Company of an
interim dividend, in lieu of a final dividend, of 2.6 p per
ordinary share to shareholders of the Company on 23 July 2021.
Resolution 11 - Directors' remuneration report
In accordance with the requirements under the Act, shareholders
are being asked to approve the Directors' remuneration report set
out on pages 42 to 51 of the Annual Report. The actual remuneration
paid to Directors in 2021 was made within the boundaries of the
Directors' remuneration policy approved by shareholders at the 2019
Annual General Meeting.
Resolution 12 - Directors' remuneration policy
In accordance with the requirements under the Act, shareholders
are being asked to approve the Directors' remuneration policy set
out on pages 33 to 41 of the Annual Report.
Resolution 13 - Directors' authority to allot shares
The existing power granted to the Directors to allot ordinary
shares expires at the conclusion of the AGM. Accordingly,
resolution 13 is proposed to renew the Directors' authority to
allot ordinary shares of up to a maximum nominal amount of (i)
GBP17,715 (being one-third of the Company's issued ordinary share
capital as at 3 April 2022) to such persons and upon such
conditions as the Directors may determine; and (ii) a further
maximum aggregate nominal amount of GBP17,715 (being one-third of
the Company's issued ordinary share capital as at 3 April 2022) in
connection with a rights issue (as defined in resolution 12 of the
Notice), 3 April 2022, being the latest practicable date before the
publication of this notice.
This request for authority to allot shares up to a maximum of
two-thirds of the Company's issued ordinary share capital is in
line with the guidelines published by the Investment
Association.
The authorities sought under resolution 13 will expire on the
earlier of (i) the end of the next annual general meeting of the
Company and (ii) the date which is eighteen months after the date
on which this resolution is passed. The resolution replaces a
similar resolution passed at the Annual General Meeting of the
Company held on 30 June 2021. The Directors have no present
intention of exercising such authority. However, the Directors
consider it important to have the maximum ability and flexibility
commensurate with good corporate governance guidelines to raise
finance to enable the Company to respond to market developments and
conditions. No shares are currently held by the Company in
treasury.
Resolution 14 - Authorisation to renew the Management Incentive
Scheme
This resolution seeks authority from shareholders for the
Company to renew the rights attached to the Management Shares
following the commencement of a new Calculation Period on 14
October 2021. A core feature of the Management Incentive Scheme is
that there must be a shareholder vote to renew the rights attached
to the Management Shares (as described in more detail in Note 19 to
the financial statements) when a Calculation Period ends and
another one automatically starts. If shareholders representing 75
per cent. or more of the shares vote against this resolution, the
Management Shares will cease to have any rights and will be
redeemed for no value.
Resolutions 15 and 16 - Disapplication of pre-emption rights
The Act requires that shares or other equity securities allotted
for cash are offered first to existing shareholders in proportion
to their existing holdings. The passing of resolutions 15 and 16
would allow the Directors to allot shares (or sell any shares which
the Company may hold in treasury following a purchase of its own
shares) without first offering the securities to existing
shareholders.
Accordingly, resolution 15 allows the Directors to allot shares
and sell treasury shares for cash (i) in connection with a
pre-emptive offer or pre-emptive rights issue and/or (ii) otherwise
up to a nominal value of GBP2,662, equivalent to 5 per cent. of the
total issued ordinary share capital of the Company (excluding
treasury shares) as at 3 April 2022, being the latest practicable
date prior to the date of publication of this notice, without first
having to offer them to existing shareholders in proportion to
their holdings.
The Pre-Emption Group's Statement of Principles also supports
the annual disapplication of pre-emption rights in respect of
allotments of shares and sales of treasury shares for cash
representing no more than an additional 5 per cent. of issued
ordinary share capital (exclusive of treasury shares), to be used
only in connection with an acquisition or specified capital
investment. The Pre-Emption Group's Statement of Principles defines
"specified capital investment" as meaning one or more specific
capital investment related uses for the proceeds of an issue of
equity securities, in respect of which sufficient information
regarding the effect of the transaction on the Company, the assets
the subject of the transaction and (where appropriate) the profits
attributable to them is made available to shareholders to enable
them to reach an assessment of the potential return.
Accordingly, resolution 16 authorises the Directors to allot new
shares pursuant to the allotment authority given by resolution 13,
or sell treasury shares, for cash up to a further nominal amount of
GBP2,662, being an additional 5 per cent. of the entire issued
share capital of the Company as at 3 April 2022, only in connection
with an acquisition or specified capital investment which is
announced contemporaneously with the allotment, or which has taken
place in the preceding six-month period and is disclosed in the
announcement of the allotment. If the authority given in resolution
16 is used, the Company will publish details of the allotment in
its next annual report.
The authorities will expire on the earlier of: (i) the end of
the next annual general meeting of the Company; and (ii) the date
which is 18 months after the date on which this resolution is
passed. This resolution replaces a similar resolution passed at the
Annual General Meeting of the Company held on 30 June 2021.
Resolution 17 - Purchases of own shares by the Company
This resolution seeks authority from shareholders for the
Company to make market purchases of its own ordinary shares,
limited to the purchase of 14.99 per cent. of the ordinary shares
in issue as at 3 April 2022.
The maximum and minimum prices payable are also limited in the
resolution. The authority will only be exercised if the Directors
consider that there is likely to be a beneficial impact on earnings
per ordinary share and that it is in the best interests of the
Company at the time. The Company will be able to hold the ordinary
shares which have been repurchased as treasury shares and re-sell
them for cash, cancel them or use them for the purposes of any
employee share schemes. No options to subscribe for ordinary shares
have been granted and are outstanding as at 3 April 2022, although
shares issued in the Company's Management Incentive Schemes may be
exchanged for ordinary shares in certain circumstances.
Resolution 18 - Reduction of notice period for general meetings
of the Company
This resolution seeks authority from shareholders for the
Company to call general meetings at 14 clear days' notice, as
opposed to 21 clear days' notice. While the Company's Articles
already provide that the Company can call any general meeting
(other than an annual general meeting) at 14 clear days' notice,
the Act requires that, in order to do so, the reduction from 21
days to 14 days must be approved by way of a special resolution of
the Company's shareholders. It is the Company's intention to
continue to call annual general meetings at 21 clear days'
notice.
Action to be taken
You are asked to either:
1. If you hold your shares in certificated form, unlike previous
years, and in order to reduce the Company's environmental impact,
you will not receive a hard copy form of proxy for the 2022 Annual
General Meeting in the post automatically. Instead, you will be
able to appoint a proxy electronically using the link
www.signalshares.com by no later than 1:00pm on 24 June 2022.
Details of how to appoint a proxy in this way are set out on page
101 of this document.
2. if you hold your shares in uncertificated form, use the CREST
electronic proxy appointment service as described below.
Completion of the Form of Proxy or appointment of a proxy
through CREST does not prevent a member from attending and voting
in person.
Shares held in uncertificated form - electronic proxy
appointment through CREST
CREST members who wish to appoint a proxy or proxies by
utilising the CREST electronic proxy appointment service may do so
for the AGM and any adjournment(s) thereof by utilising the
procedures described in the CREST Manual. CREST personal members or
other CREST sponsored members, and those CREST members who have
appointed (a) voting service provider(s), should refer to their
CREST sponsor or voting service provider(s), who will be able to
take the appropriate action on their behalf.
In order for a proxy appointment made by means of CREST to be
valid, the appropriate CREST message (a "CREST Proxy Instruction")
must be properly authenticated in accordance with Euroclear UK
& Ireland's specifications and must contain the information
required for such instructions, as described in the CREST Manual
(www. euroclear.com/CREST). The message must be transmitted so as
to be received by the issuer's agent, Link Group (ID RA10), by 1:00
p.m. on 24 June 2022. For this purpose, the time of receipt will be
taken to be the time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which the issuer's
agent is able to retrieve the message by enquiry to CREST in the
manner prescribed by CREST.
CREST members and, where applicable, their CREST sponsors or
voting service providers should note that Euroclear UK &
Ireland does not make available special procedures in CREST for any
particular messages. Normal system timings and limitations will
therefore apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal
member or sponsored member or has appointed (a) voting service
provider(s), to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members and, where
applicable, their CREST sponsors or voting service providers are
referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and
timings.
The Company may treat as invalid a CREST Proxy Instruction in
the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001 (as amended).
OTHER INFORMATION |ADVISERS
Joint Corporate Brokers
J.P. Morgan Cazenove
25 Bank Street
London
E14 5JP
Telephone: +44 (0)20 7134 4000
Barclays Bank plc
5 The North Colonnade
Canary Wharf
London
E14 4BB
Telephone: +44 (0)20 3134 9801
Canaccord Genuity Limited
88 Wood Street
London, UK
EC2V 7QR
Telephone: +44 (0)20 7523 8000
Public Relations Adviser
Tavistock Communications Limited
1 Cornhill
London
EC3V 3ND
Telephone: +44 (0)20 7920 3150
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Telephone: +44 (0)20 7311 1000
Registrar
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
Telephone: +44 (0)20 8639 3399
Company Secretary
Crestbridge Corporate Services Ltd
47 Esplanade
St Helier
Jersey
JE1 0BD
Telephone: +44 (0)1534 835 600
Solicitors to the Company
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Telephone: +44 (0)20 7295 3000
Milbank, Tweed, Hadley & McCloy LLP
10 Gresham Street
London
EC2V 7JD
Telephone: +44 (0)20 7615 3000
[1] Zegona has also issued, posted, or made available to
shareholders, the Notice of Annual General Meeting and Form of
Proxy for the Annual General Meeting. These documents are also
available on the Zegona's website at www.zegona.com
[2] Euskaltel multiples based on its Enterprise Value divided by
its reported 2020 EBITDA (as defined by Euskaltel) of EUR342.8
million and reported 2020 Operating Cash Flow (as defined by
Euskaltel as EBITDA-Capex) of EUR164.5 million. Comparable European
Cable company multiples of 6.7x 2020 EBITDA and 13.3x 2020
Operating Cash Flow (Source: Citigroup).
[3] See page 46 for calculation of Zegona's return on
shareholders' net invested capital.
[4] Being the EUR421.3 million received from the tender offer
plus the dividend of EUR6.5 million received in June 2021 following
the announcement of the tender offer.
[5] At the actual GBP rates achieved, see note 13 to the
financial statements.
[6] Quad play: customers with four services (pay TV, fixed
voice, broadband and mobile).
[7] Business to Business.
[8] Those with holdings in 3% or more of the issued ordinary
shares of the Company are listed on page 14.
[9] O perating profit excluding depreciation of property, plant
and equipment and amortisation of intangible assets.
[10] Euskaltel multiples based on its Enterprise Value divided
by its reported 2020 EBITDA (as defined by Euskaltel) of EUR342.8
million and reported 2020 Operating Cash Flow (as defined by
Euskaltel as EBITDA-Capex) of EUR164.5 million. Comparable European
Cable company multiples of 6.7x 2020 EBITDA and 13.3x 2020
Operating Cash Flow (Source: Citigroup).
[11] See page 46 for calculation of Zegona's return on
shareholders' net invested capital.
[12] At the actual GBP rates achieved, see note 13 to the
financial statements.
[13] As defined in Zegona Limited's articles of
incorporation.
[14] Including a deal contingent foreign exchange forward
purchase agreement and the contingent consideration due from
Euskaltel in connection with the sale of Telecable.
[15] Being equal to the Net Asset Value excluding the Income Tax
Receivable (which was excluded given the uncertainty inherent in
the asset, see note 15 to the financial statements) as defined in
the management Subscription Agreement of GBP1.438 per share (see
note 20 to the financial statements) multiplied by the 4,437,973
shares outstanding immediately following the completion of the
tender offer (see note 21 to the financial statements).
[16] Including Zegona management, directors and related
holdings. At both 3 April 2022 and 31 December 2021 Eamonn O'Hare
owned 502,891 shares (9.44% of Zegona's issued share capital) and
Robert Samuelson owned 243,275 shares (4.57%). Eamonn and Robert
have also irrevocably committed to subscribe for 564,571 and
282,286 new shares of Zegona at such time that they can be admitted
to Immediately following this subscription, Eamonn and Robert will
hold 17.29% and 8.51% respectively of Zegona's ordinary share
capital (see note 20 to the financial statements).
[17]
https://www.zegona.com/investor-relations/shareholder-information.aspx.
[18] The A&RC's role and responsibilities are set out in its
terms of reference, which are available on Zegona's website and
from the Company Secretary.
[19] The incentive scheme redemption amount was a proportion of
the value created for Zegona's shareholders, but it was calculated
by reference to Zegona's growth in value from the sale of its
interest in Euskaltel rather than share price
[20] Return (a 5% per annum return on a compounded basis on
shareholders' net investment).
[21] Includes cost of all shares bought back in the period and
calculation of the preferred returns using the underlying purchase
dates.
[22] The scheme will actually become exercisable either on 14
October 2024, or at the date that certain specific conditions such
as a takeover or a Board change of control occur as explained in
note 18 to the Consolidated Financial Statements. At the date of
this report, none of these conditions have occurred and the rights
under the incentive schemes are not exercisable.
[23] Calculated in accordance with Zegona Limited's Articles of
Association as the sum of Zegona Communications plc's subscription
proceeds minus dividends and capital returns.
[24] Calculated in accordance with Zegona Limited's Articles of
Association as the volume weighted average mid-market price of
Zegona Communications plc's ordinary shares for the previous 30
trading days to 31 December 2021.
[25] The Non-Executive Directors have not received any other
form of remuneration during the current or prior year.
[26] Mark Brangstrup-Watts resigned on 12 May 2020.
[27] Murray Scott did not stand for re-election and ceased to be a Director on 9 June 2020.
[28] Period from incorporation on 19 January 2015 to 31 December
2015.
[29] Eamonn did meet several indicators of achievement in
relation to his 2018 bonus objectives, however Eamonn waived his
2018 bonus in order to maximise the cash raised from the equity
placing in February 2019.
[30] Eamonn met a significant majority of the indicators of
achievement in relation to the 2021 bonus scheme, however in
connection with the Return of Capital he agreed to waive any
amounts due.
[31] Eamonn O'Hare has also irrevocably committed to subscribe
for 564,571 new shares of Zegona at such time that they can be
admitted to trading for total consideration of GBP811,853.
Immediately following this subscription, and that of Robert
Samuelson, Eamonn will hold 17.29% of Zegona's ordinary share
capital.
[32] Robert Samuelson has also irrevocably committed to
subscribe for 282,286 new shares of Zegona at such time that they
can be admitted to trading for total consideration of GBP405,927.
Immediately following this subscription, and that of Eamonn O'Hare,
Robert will hold 8.51% of Zegona's ordinary share capital.
[33] Being 21.44% of Euskaltel's Comprehensive Loss of EUR2.1
million for the period.
[34] The preferred Return is a 5% per annum return on a
compounded basis on shareholders' net investment.
[35] Being the maximum number of shares that could be Admitted
on that date.
[36] The remaining shares may also be Admitted without the need
for a prospectus from 27 October 2023.
[37] Defined as the value of Zegona's investment in Euskaltel,
Zegona's cash and cash equivalents net of bank borrowings per share
as discussed in the Nomination and Remuneration Report on page
29.
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END
FR UPUCWCUPPUMW
(END) Dow Jones Newswires
April 04, 2022 02:00 ET (06:00 GMT)
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