TIDMZEG
RNS Number : 9667V
Zegona Communications PLC
20 April 2021
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ZEGONA COMMUNICATIONS PLC ("Zegona")
LEI: 213800ASI1VZL2ED4S65
20 April 2021
ZEGONA ANNOUNCES 2020 RESULTS
London, England, 20 April 2021 Zegona Communications PLC (LSE:
ZEG) announces results and publishes its Annual Report for the year
ended 31 December 2020.[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.
About Euskaltel
Euskaltel S.A. ("Euskaltel") is the leading converged
telecommunications provider in the North of Spain and has recently
expanded to offer services nationally. It provides high speed
broadband, data rich mobile, advanced TV and fixed communications
services to residential and business customers under the Euskaltel,
R Cable, Telecable and Virgin telco brands. Euskaltel is a public
company traded on the stock markets of Bilbao, Madrid, Barcelona
and Valencia.
ZEGONA COMMUNICATIONS PLC
Annual Report
For the Year Ended 31 December 2020
STRATEGIC REPORT | CHAIRMAN'S STATEMENT
I am pleased to present Zegona's annual report for 2020. During
2020, we worked closely with the board and management team at
Euskaltel and successfully laid the foundations for the recent
Tender Offer from MásMóvil Ibercom, S.A.U. ("MásMóvil").
The successful completion of Zegona's strategy in Spain
During 2020, we continued to be Euskaltel's largest shareholder
with 21.44% ownership, and Robert Samuelson and I served as
directors of Euskaltel. We have established a strong working
relationship with Euskaltel's board of directors and José Miguel
García, the CEO, and have actively supported the excellent progress
being made by the new management team. They have combined a focus
on operating efficiency within the existing business with driving
significant growth through national expansion under the Virgin
telco brand.
In March 2020, Euskaltel published its 2020-2025 Business Plan.
This sets out its key strategic initiatives and its ambition to
double the size of its customer base and grow revenues by more than
80% to over EUR1.2bn and EBITDA[2] by more than 6% CAGR[3] to over
EUR470m by 2025. During 2020, Euskaltel's focus was on implementing
the key strategic initiatives that will enable it to deliver this
ambitious business plan. Significant progress was made on
integrating the three original, separate operating companies into
one business with a number of initiatives targeted at generating
EUR40 million of annual run-rate efficiencies. Most importantly, in
2020 Euskaltel launched services nationally across Spain under the
Virgin telco brand with great success.
These changes have allowed Euskaltel to build on the growth it
delivered in 2019. Euskaltel's results for 2020 were strong in
spite of the global Coronavirus pandemic, with financial and
customer growth targets achieved, and top line growth driven in
particular by the outstanding success of Virgin telco. During 2020,
Euskaltel achieved the highest annual customer growth since it was
listed in 2015, and Virgin telco growth was more than 50% ahead of
plan. Customer growth drove accelerating revenue growth, with
fourth quarter revenue up 4.6% to EUR180 million and full year 2020
revenue up 1.7% to EUR697 million. Profitability and cash
generation were also strong. 2020 EBITDA of EUR343 million grew
2.3% and exceeded the business plan target. This growth has put
Euskaltel on a clear deleveraging path, with net debt down to
almost 4 times EBITDA.
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 values Euskaltel's equity at EUR2.0 billion
which equates to an Enterprise Value of EUR3.5 billion and values
Euskaltel at 10.1x EBITDA and 21x Operating Cash Flow, a
significant premium to European telecommunications multiples[4].
Zegona welcomes this transaction and alongside the two other
largest shareholders (Kutxabank and Alba, who together with Zegona
own over 52%) of Euskaltel, have entered into irrevocable
undertakings to tender all their shares. This gives a high level of
certainty that the tender condition of over 75% acceptances will be
achieved. The tender is expected to be completed before the end of
2021.
The sale of our Euskaltel investment will represent the
successful completion of our "Buy-Fix-Sell" strategy in Spain. This
journey has included four M&A transactions and two operational
turnarounds. When we originally invested in Telecable in 2015, we
identified an opportunity for substantial value creation through
the combination of the three independent northern Spanish cable
operators. In 2017 we successfully sold Telecable to Euskaltel and
took a 15% shareholding in the leading integrated
telecommunications operator in the north of Spain.
The enlarged Euskaltel was a strategically attractive business
with a strong competitive position in its home markets and created
the opportunity to deliver significant value from expanding
nationally. We also identified considerable further upside
potential from industry consolidation. In 2019, we raised more than
GBP100 million in new equity capital at GBP1.05 per share to
increase our investment and our influence in the business. As
Euskaltel's largest shareholder, we introduced José Miguel García
as CEO and, through our board representation, we successfully
implemented our plan to drive significant change in the business.
This included realising synergies from creating a single operating
platform for Euskaltel's three regional brands, returning the
combined business to growth and expanding nationally by launching
the Virgin telco brand.
MásMóvil's Offer underscores the success of our strategy in
Spain and provides significant value creation for Zegona
shareholders. The Offer values Zegona's shareholding at EUR428
million and equates to a Zegona Underlying Asset Value of GBP1.70
per share.[5] This represents an 80% premium to Zegona's share
price immediately before the announcement[6] and a return on
Zegona's Net Invested Capital of 87%[7] or 11[8]% on an annualised
basis.
Continuing to execute our buy fix-sell-strategy across European
TMT
Once we exit Spain, we will continue to execute our buy-fix-sell
strategy across the European TMT sector. We will focus on
businesses that require active change to realise full value,
creating long-term returns through fundamental business
improvements.
We see a very healthy environment for investments across the
broader European TMT industry. The market is large and fragmented,
with well over 100 operators, of which over half fit our desired
investment size. We have seen increased deal activity and greater
availability of assets driven by significant consolidation and
convergence. We believe this will continue over the coming years,
creating fertile ground to both buy and sell assets and once again
create significant shareholder value through fundamental
improvement.
Eamonn O'Hare
Chairman and Chief Executive Officer
19 April 2021
STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Vision
* Execute our 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[9]
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 of
corporates 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, which in the
telecommunications industry started with mobile
towers, 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 transaction.
* Broad range of attractive assets : Our flexibility in
terms of size, geography and category opens a broad
universe of attractive target assets. We have
identified many businesses of an appropriate scale
across a number of categories, including mobile-only
players, mid-sized cable, fibre operators, smaller
fixed incumbents, B2B[10] and network infrastructure.
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, the team successfully sold Telecable and were
instrumental in ensuring MásMovíl launched
its cash tender offer to acquire 100% of Euskaltel in
2021. The team has extensive real-world experience in
senior operational roles in large public
telecommunications companies. The team's interests
are also strongly aligned with shareholders as they
participate in a long-term incentive scheme that
links management 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 : A small number of global
public equity asset managers[11] with a long-term
outlook own more than 81% of Zegona. The placement of
equity in February 2019 with gross proceeds of more
than GBP100 million which was used to become
Euskaltel's largest shareholder and drive change
within the business underlines investor confidence in
our strategy. Our management team has an effective
investor relations programme which maintains regular
contact with Zegona's major shareholders 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. While
the main elements of Zegona's strategy are set out below, our
overall strategic approach is to deal with each opportunity and
situation presented to us individually as it arises. For example,
in the case of Zegona's current investment in Euskaltel, our
strategy has been to increase our ownership position and seek to
work constructively with the Euskaltel Board and management to
improve the performance of the business and make it more attractive
to buyers, therefore 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 GBP2-5
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;
-- Moderate leverage (usually 3-4x EBITDA[12]); 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 businesses' market positions;
-- Being actively involved in the management of the businesses
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; 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, any surplus value will be reinvested or returned to shareholders.
STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Zegona is currently organised into two segments:
(i) Investment in Euskaltel, which comprises Zegona's share of
the profit of Euskaltel and dividend income (and the movements in
fair value of the investment prior to recognising Euskaltel as an
associate); and
(ii) central costs, which comprises costs incurred in supporting
Zegona's corporate activities, including staff and premises costs
related to the management team, ongoing costs of maintaining the
corporate structure, the costs incurred by Zegona in driving
strategic initiatives at Euskaltel, evaluating new acquisition
opportunities and executing acquisition and disposal
activities.
Review of investment in Euskaltel
Strategic developments
During 2020, the new management team at Euskaltel has continued
to make excellent progress, combining a focus on operating
efficiency within the existing business with driving significant
growth through national expansion under the Virgin telco brand. In
March 2020, Euskaltel published its 2020-2025 Business Plan setting
out its key strategic initiatives and its ambition to double the
size of its customer base and grow revenues from EUR700 million to
over EUR1.2 billion and EBITDA from EUR340 million to over EUR470
million by 2025. The plan details the actions being taken to grow
in its existing core regions, to expand using the Virgin telco
brand to offer high value services to customers across Spain, and
to continue to drive operational efficiencies through a single
integrated organisation. During 2020, Euskaltel has delivered on
the key strategic initiatives that enable it to deliver its
ambitious business plan, with highlights including:
-- Integrating three operating companies into one business: A
number of initiatives have been focussed on generated EUR40 million
of annual run-rate efficiencies. These have included putting in
place a single efficient organization, implementing a
profit-focused sales structure, establishing a results-oriented
customer care program, rationalising IT and operating systems and
cancelling unprofitable football rights agreements. Further cost
savings have been identified and Euskaltel continues to
successfully reduce costs.
-- Expanding nationally: Euskaltel launched services nationally
across Spain under the Virgin telco brand in May 2020, reaching 85%
of the Spanish market where Euskaltel was not present before. This
has enabled Euskaltel to offer a full quad-play range of
telecommunications services, including high quality high speed FTTH
broadband, data-rich mobile, landline telephony and 4K premium TV.
The Virgin telco proposition allows customers to select the
services they want in order to design their own product bundle,
rather than having to take inflexible packages defined by the
operator. The result is much better value for customers as they
only pay for the services they want and has allowed Virgin telco to
become the brand in Spain with the highest Net Promoter
Scores[13].
-- Footprint expansion and 5G: Euskaltel has signed a number of
agreements to provide access to nationwide fibre networks,
resulting in the expansion of the footprint of its fibre optic
network by over 18 million new homes nationwide in 2020. Euskaltel
now covers more than 23 million homes across Spain through its four
brands. Increased network coverage and enhanced network management
are key drivers for significant continued profitable growth.
In addition to expanding its network footprint, during 2020,
Euskaltel also announced an agreement with Orange that will allow
it to offer its 5G mobile technology as a Mobile Virtual Network
Operator hosted on the Orange network from 1 January 2022, although
both parties may agree to bring this date forward to when Orange
launches its 5G Service.
-- Strengthening leadership: Euskaltel has continued to
strengthen the new organisation structure it adopted in 2019 with
key new executive hires including a new CFO appointed in January
2020. At the same time, the board structure has been simplified,
with the number of directors reduced from 13 to 10. This process
has also involved the appointment of two new independent directors
with strong relevant experience.
-- Debt refinancing: In July 2020, Euskaltel replaced its EUR215
million amortising debt with a new EUR215 million term loan with no
amortisation before December 2023. This initiative has eliminated
all term loan repayments until December 2023 and increased the
average maturity of Euskaltel's corporate debt to over 4 years. The
refinancing provides financial flexibility to increase investments
in its Virgin telco national expansion plan and accelerate the
realisation of profitable growth.
Operational and Financial performance
When it delivered its full-year results for 2020 on 25 February
2021, Euskaltel reported an acceleration of the growth achieved
since the new management team took over, with record figures in
terms of customer base and revenues, thus meeting the objectives
for the year set out in its ambitious 2020-2025 business plan. This
was despite the challenges faced during 2020 due to the Covid-19
pandemic. These results were primarily delivered through the
successful Virgin telco launch which offset the impact of small
declines caused by commercial pressure in Euskaltel's traditional
markets in The Basque Country, Galicia and Asturias.
Customers
Euskaltel achieved a new customer base record in 2020, with more
than 823,000 mass market which was an increase of 7% on 2019's base
of 771,000. Total customer net additions were 52,000 (2019: 1,000),
of which 47,000 were fixed lines customers (2019: 8,800). Of
Euskaltel's total mass market customers, 716,000 are fixed line
(2019: 669,000) and 107,000 are mobile-only (2019: 102,000).
The launch of Virgin telco has been highly successful, adding
71,000 new customers in just 7 months since launch, which was more
than 50% more than the target originally set for the end of 2020.
These additions more than offset a small number of customer losses
in Euskaltel's traditional markets.
The B2B segment also achieved growth of 1.4% in its customer
base, with 16,000 corporate customers for the Group at the end of
2020 (2019: 15,800). This growth was achieved in spite of the
impact of the pandemic and was due to strong demand for B2B
telecommunications services, as a result of ongoing remote working
practices and Euskaltel's solid commitment to quality service and
attentive customer care for companies.
Revenue
Euskaltel reported that in 2020 it had achieved its largest
revenue growth in the last few years. Building on the foundations
of growth in Virgin telco's customer base and the strength of its
other brands, revenue grew by 1.7% to a record EUR697.1 million,
compared to EUR685 million in 2019. The fourth quarter of 2020 was
the fifth consecutive quarter of revenue growth on a year-on-year
basis and, at 4.6%, Euskaltel's highest revenue growth in recent
years.
This increase in revenue has been driven by Virgin telco's
strong customer growth which has changed Euskaltel's revenue growth
profile and offset a small reduction in mass market revenues in its
traditional markets. Virgin telco generated revenue of EUR7 million
in the fourth quarter of the year and in just seven months it has
generated revenue of around EUR10 million. This is a reflection of
the significant rise in customer numbers, which are expected to
continue increasing.
Revenue from Euskaltel's traditional business also grew by 0.3%,
thanks to stable customer revenues and excellent results in the
business services segment. The B2B segment achieved the biggest
revenue growth in its history, with an increase of 3.3% to EUR114.5
million in 2020 (2019: EUR110 million).
Profitability and financial position
Thanks to revenue quality and its focus on cost-management,
Euskaltel reported a record Net Profit for 2020 of EUR79.4 million,
(2019: EUR62 million), which represents growth of 28%. Despite the
impact of Covid-19, Euskaltel met its EBITDA target for the year.
Reported EBITDA was EUR342.8 million and when the expected impact
of one-off costs relating to the launch of Virgin telco are
excluded, EBITDA would have been EUR352.4 million which represents
growth of 2.3% compared to 2019 (EUR344.5 million). A key reason
for this growth in underlying EBITDA was continued strong control
of costs, with SG&A[14] expenses reducing by 5.6% to EUR156.2
million from EUR165.4 million in 2019.
Reported Operating Cash Flow[15] was EUR164.5 million (2019:
EUR190.3 million). This was impacted by the costs of the Virgin
telco launch, particularly higher Capex in the fourth quarter as a
result of significantly faster than expected customer growth.
Excluding this, Operating Cash Flow would have been EUR201.1
million, which represents growth of 5.7% versus 2019.
Continued cash flow generation has allowed Euskaltel to continue
on a clear deleveraging path with net debt being reduced by EUR31
million in 2020. At 31 December 2020, Euskaltel's ratio of net debt
to EBITDA was 4.2 (2019: 4.3), its cost of debt was 2.6%, and its
average debt maturity was 3.6 years. Euskaltel has achieved these
improvements despite the impact of the Virgin telco launch and
dividend distributions of over EUR55 million in 2020.
Outlook for 2021
Euskaltel has announced that based on its strong performance in
2020 and the success of Virgin telco, it expects significant
further growth in 2021, both in terms of customer numbers and
revenue. Euskaltel expects to more than double the number of
customer net adds achieved in 2020, with expected total mass market
fixed customers at end 2021 growing to between 840,000 and 860,000,
compared to 716,000 at end 2020 (c.18% growth). Euskaltel has also
announced that it expects revenue growth of more than 6%, with
revenue of between EUR740 and EUR750 million by the end of 2021,
compared to EUR697 million in 2020.
Performance of Zegona's investment in 2020
During 2020, Zegona's share of Euskaltel's profit was EUR16.6
million (2019: EUR 9.1 million), which reflects Zegona's 21.44%
share of Euskaltel's adjusted net profit of EUR77.3 million for the
year. The increase is principally because the investment was not
accounted for as an associate until 10 July 2019.
The fair value of Zegona's investment in Euskaltel was EUR335.1
million at 31 December 2020 (2019: EUR341.6 million) with the
decrease principally due to a slightly lower share price on 31
December 2020 of EUR8.75 compared to EUR8.97 on 31 December 2019.
As at 19 April 2021, the fair value of Zegona's investment in
Euskaltel has increased substantially to EUR423.6 million which
reflects an increase in the share price to EUR11.06. This is within
0.98% of the price offered in MásMóvil's Tender Offer for
Euskaltel, which values Zegona's investment at EUR427.7 million.
Zegona has successfully hedged the future inflow of cash and will
receive GBP370 million if the Tender Offer is completed
successfully with no exposure if it is not.
During 2020, Zegona received EUR11.8 million in dividends from
Euskaltel (2019 EUR10.2 million)[16] which were promptly passed
back to Zegona's shareholders in full. The increase was due to the
increase in Zegona's holding in Euskaltel in 2020 compared to
2019.
Crystalising the value of Zegona's investment in Euskaltel
We are pleased with the progress that has been made at
Euskaltel. We have built a strong working relationship with the
board and management that is continuing to drive growth and create
value. Since we increased our investment in 2019, Euskaltel has
implemented many of the key strategic initiatives that we
identified at the time and this has resulted in Euskaltel
delivering a number of strong sets of results. Despite the impact
that Covid-19 has had on global equity markets, the value of
Euskaltel's market capitalisation has increased by 41% since
Zegona's plan for the business was initiated in June 2019 and
Euskaltel's share price has significantly outperformed its
competitors in Spain even before the MásMóvil Offer while also
paying dividends to Zegona of EUR11.8 million.
We believe our involvement with Euskaltel has created
significant incremental value for both Zegona and Euskaltel
shareholders. However we have always been clear that we do not
intend to hold our investment indefinitely. When we increased our
investment in Euskaltel in 2019, we committed to formally review
Euskaltel's performance and the role played by us in adding value
within two years and at regular intervals thereafter[17]. If we had
concluded that we could not continue to add significant further
value in the foreseeable future, we would either offer to return
our Euskaltel shares to our shareholders, or sell them and promptly
return the proceeds to Zegona shareholders.
Zegona's Board conducted two such reviews during 2020, both of
which included input from external advisers, and will continue to
do them regularly if the MásMovíl's Offer for Euskaltel does not
complete successfully. In the first half of the year we conducted
our first review and concluded that we should continue to hold our
investment and work actively with Euskaltel, and we included a
discussion of our reasons in our interim report for the six months
ended 30 June 2020.
During the second half of 2020, we conducted our second review.
While the board recognised that the consideration was more finely
balanced, it concluded that it still remained appropriate for
Zegona to hold its investment in Euskaltel and continue in its role
to drive further value within the business.
A key consideration in making this decision was the fact that
Zegona is the leading shareholder in Euskaltel and its holding
represents a strategic stake, giving its owner significant
influence within Euskaltel including two Board seats. Zegona's
influence could be particularly significant in the event of any
further consolidation opportunity in the Spanish market.
This position was vindicated shortly thereafter when Euskaltel
was approached by MásMóvil. Zegona was actively involved in
discussions with MásMóvil and, as lead shareholder, was able to
maximise value for both Euskaltel's and Zegona's shareholders.
On 28 March 2021, MásMóvil, launched a tender offer to acquire
100% of Euskaltel for EUR11.17 per share in cash. The Offer values
Euskaltel's equity at EUR2.0 billion which equates to an Enterprise
Value of EUR3.5 billion. Zegona alongside the two other largest
shareholders (Kutxabank and Alba), who together with Zegona own
over 52% of Euskaltel, have entered into irrevocable undertakings
to tender all their shares. This gives us a high level of certainty
that the tender condition of over 75% acceptances will be
achieved.
Assuming it completes, this transaction will generate very
attractive returns for Zegona's shareholders. The Offer values
Zegona's shareholding at c.EUR427.7 million which equates to a
Zegona Underlying Asset Value of GBP1.70 per share, which
represents an 80% premium to Zegona's share price immediately
before the announcement and a return on Zegona's Net Invested
Capital of 87%, or 10.7% on an annualised basis. Zegona intends to
consult with shareholders to understand their views on allocation
of proceeds if and when the Offer is completed successfully.
Review of Zegona's corporate and other activities
Comprehensive Income
Zegona's corporate and other activities resulted in an operating
loss of EUR6.8 million (2019: EUR6.0 million) plus net finance
income of EUR3.2 million (2019: EUR37.5 million) and a foreign
exchange gain of EUR1.3 million (2019: EUR1.4 million),
contributing a total loss for the year of EUR2.3 million (2019:
EUR5.0 million).
Operating loss
Operating costs totalled EUR6.8 million (2019: EUR6.0 million)
and included:
-- EUR5.6 million (2019: EUR5.6 million) for Zegona's ongoing
corporate operations, with a reduction in staff bonuses offset by a
combination of non-recurring transitional costs incurred in
restructuring Zegona's accounting and finance functions (that have
already captured significant run-rate saving) and higher audit
fees.
-- EUR0.9 million (2019: nil) of costs related to Zegona's
incentive scheme. This consists mainly of a EUR0.8 million non-cash
charge calculated under IFRS 2, which requires the fair value the
award deemed to have been granted at the beginning of the new
Calculation Period to be estimated at each balance sheet date, and
an expense recognised from 24 June 2020. This estimate will be
recalculated and adjusted at each balance sheet date prior to
Zegona's 2021 AGM (see note 18 to the financial statements).
-- EUR0.3 million (2019: EUR0.3 million) for significant project
costs, which in 2020 were principally advisory and other
professional fees incurred on a variety of projects related to
potential acquisitions.
Net finance income
Net finance income totalled EUR3.2 million (2019: EUR37.5
million) and included:
-- Finance Income of EUR3.8 million (2019: EUR38.2 million)
which principally comprises a gain on the fair value of the
contingent consideration from the sale of Telecable that reflects
the reassessment of the value of the underlying credits by
Euskaltel (see note 15 to the financial statements). The principal
reason for the movement compared to 2019 was that 2019 included a
EUR28 million gain on the investment in Euskaltel and EUR10 million
dividend from Euskaltel before it was accounted for as an
associate.
-- Finance Costs of EUR0.6 million (2019: EUR0.7 million), being interest on bank borrowings.
Net foreign exchange
Net foreign exchange gain of EUR1.3 million (2019: EUR1.4
million), relates to gains on the revaluation of euro denominated
cash balances. In 2019 the gain also included the revaluation of
the investment in Euskaltel (prior to classification as an
associate), whose shares are quoted in euros, within Zegona Limited
and Zegona Communications plc, who both have a functional currency
of British pounds sterling (" Sterling ").
Other Comprehensive Income
Exchange differences on translation resulted in a loss of
EUR18,703 (2019: gain EUR15,195). The variance year on year arises
as a result of movements in the closing EUR:GBP exchange rates
(from 1.18 at 31 December 2019 to 1.11 at 31 December 2020) as the
Consolidated Financial Statements functional currency of Sterling
("GBP") is translated into presentational currency euro
("EUR").
Shareholder remuneration
Zegona remains committed to paying dividends to shareholders and
intends, while it continues to own its investment in Euskaltel, to
promptly return all dividends received from Euskaltel to its
shareholders. During 2020, Zegona paid EUR11.3 million in
dividends, representing a total of 4.6p per share. Zegona has also
received Euskaltel's final dividend for 2020 of EUR5.4 million
which was passed to shareholders via a 2.2p per share dividend on 9
March 2021. Zegona will provide an update to our dividend policy in
due course after the completion of the Offer for Euskaltel.
During 2020, Zegona launched two share buy-back programmes. As a
result of these, it bought back over GBP3.0 million worth of Zegona
shares at an average price of GBP1.03 per share, which were then
cancelled. These programmes successfully increased the Underlying
Asset Value per share for remaining shareholders.
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 generally accepted accounting
principles (" GAAP ") such as IFRS with the exception of:
Underlying Asset Value and Underlying Asset Value per share
Zegona's principal asset is its 21.44% ownership of Euskaltel,
where it is the largest shareholder. Zegona believes it is helpful
for its shareholders to be aware of the development in the value of
Euskaltel, and to understand what this represents in terms of the
value of the Euskaltel investment and Zegona's other main assets
per Zegona share, especially since Zegona no longer accounts for
its investment in Euskaltel at fair value, and how this compares to
the market value of Zegona's shares, and also how this value
compares to the Net Invested Capital and Preferred Return threshold
under Zegona's incentive scheme[18].
The Underlying Asset Value per share is a computation of the
Sterling equivalent of the fair value of Zegona's investment in
Euskaltel, its cash and cash equivalents, bank borrowings and
expected receipts under the contingent consideration, divided by
the total number of shares outstanding. Other assets and
liabilities are not included in the calculation but historically
have not been material. The calculation also includes no value
(liability) for Zegona's management incentive scheme. The
calculation is as follows:
28 March 2021(1) 31 December 2020 31 December 2019
----------------- ----------------- -----------------
Investment in Euskaltel
(EUR000) 427,785(2) 335,105(3) 341,584(3)
Cash and cash equivalents
(EUR000) 8,815 15,244 27,035
Bank borrowings (EUR000) (11,559) (11,128) (11,578)
Contingent consideration 8,650 - -
(EUR000)(4)
Underlying Asset Value
(EUR000) 433,691 339,221 357,041
Foreign exchange rate
(EUR / GBP) 1.16866 1.11278 1.17547
Underlying Asset Value
(GBP000) 371,101 304,841 303,743
Shares outstanding 218,970,076 218,970,076 221,935,177
----------------- ----------------- -----------------
Underlying Asset Value
per share (GBP) 1.70 1.39 1.37
================= ================= =================
1. Date of announcement of offer for Euskaltel by MásMóvil.
2. 38.3 million shares at the offer price of EUR11.17 per
share.
3. At Fair Value, see note 12 to the financial statements.
4. Expected by Zegona to be paid after the settlement of the
Offer at the value of EUR8.654 million, which is the liability to
Zegona recorded in Euskaltel's Financial Statements for the year
ended 31 December 2020 (see note 15 to the financial statements).
Not included in periods prior to 28 March 2021 due to the level of
uncertainty over amount.
Return on Zegona's Net Invested Capital
Zegona uses Return on Net Invested Capital as a measure to
demonstrate the value generated for investors by significant
transactions, compared to the amount originally invested. 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 GAAP measures that articulate this performance in
terms that are consistent with those used by the investment
community.
Return on Zegona's Net Invested Capital is calculated as the
percentage by which Zegona's Underlying Asset Value exceeds
Zegona's Net Invested Capital. 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 and is the same term as is used in calculating
amounts due on the Management Shares that form a part of Zegona's
management incentive scheme.
Return on Net Invested Capital as at 28 March 2021 was
calculated as follows:
28 March 2021
-----------------
Underlying Asset Value 371,101,068
Net Invested Capital at 31 December 2020(1) 203,330,255
Dividend Paid(2) (4,817,342)
-----------------
Net Invested Capital at 28 March 2021 198,512,913
-----------------
Return on Net Invested Capital(3) 87%
=================
1. See page 42.
2. See note 27 to the financial statements.
3. Calculated as the percentage by which Zegona's Underlying
Asset Value exceeds Zegona's Net Invested Capital.
STRATEGIC REPORT | RISKS
Principal and emerging risks
We have carried out robust assessments of the principal and
emerging risks facing Zegona including those that would threaten
our business model, future performance, solvency or liquidity.
Detailed consideration is given to all of these risk factors by the
Audit and Risk Committee and the board of Directors (the " Board
").
Principal and emerging risks
Risk title Risk rating Change in risk assessment
since the last Annual
Report
------------ --------------------------
Risks related to the investment Moderate Decreased
in Euskaltel
Acquisition of targets Moderate No change
Key management Moderate No change
Disposal of investments Low Decreased
Brexit Low Decreased
Foreign exchange Moderate Increased
The description, impact and mitigation of these risks are set
out below:
Risks related to the investment in Euskaltel
On 29 March 2021, Zegona announced that a subsidiary of MásMóvil
Ibercom, S.A.U ("MásMóvil"), the Spanish fourth national operator,
has launched a tender offer for Euskaltel. Zegona expects this
Offer will be successful, but if it is not, it will continue to
hold its 21.44% holding of Euskaltel, which was its sole operating
asset at 31 December 2020 and continue to be exposed to the risks
of this investment. The value of this investment is dependent on
Euskaltel's performance, which could, in turn, be adversely
impacted by risks that Euskaltel is exposed to. Some of these risks
are common to telecommunications operators in Spain and others that
are specific to Euskaltel itself. Whilst not exhaustive, Zegona
believes the most significant of these risks are:
-- Spanish economy and Covid-19: The resurgence in infections
since the autumn of 2020, together with the appearance of new, more
contagious variants of the coronavirus, have forced many countries
to reintroduce or tighten containment measures, including Spain.
Mobility and social interaction activities declined, thus weakening
economic activity in the final months of the year. Nonetheless, GDP
growth in the fourth quarter remained in positive territory, at
0.4%, even though domestic demand components strongly reduced their
pace of growth. As a result, GDP decreased by 11% in 2020 as a
whole. The near-term outlook for 2021 is clouded by the rise in
infection rates early in the year and the more restrictive measures
put in place by most Spanish regions. As a result, private
consumption and investment are expected to fall in the first
quarter before recovering slightly in the second. As the
vaccination process advances and restrictions are progressively
lifted, economic activity is expected to pick-up strongly over the
second half of 2021. Overall, GDP is forecast to grow by 5.6% in
2021. While Euskaltel has not been significantly impacted so far by
the Covid-19 pandemic, some uncertainty still remains over the
Spanish economy in general and its impact on the telecommunications
sector which could negatively impact Euskaltel's performance and
its equity value.
-- Competitive environment : The Spanish telecom market
continues to remain one of the most competitive in Europe, with six
operators with multiple brands competing for customers on a
national level. The value segment market remains crowded with
operators aiming to win share and with consumers opting for 'value'
bundles at the expense of the premium segment. This competition
includes offers with aggressive discounts and could negatively
impact Euskaltel's business. To compete effectively, Euskaltel will
need to continue to successfully design and market its services and
anticipate and respond to competitive factors. If it is unable to
do this, results could fall short of current expectations.
-- Delivery of change programme : José Miguel García has
instituted a comprehensive and wide-ranging organisational and
operational change programme across all aspects of Euskaltel's
business, which Zegona fully supports. While this programme has
already delivered significant benefits, it remains ongoing. There
is a risk that, if these improvements are not delivered, there
could be an adverse impact on Euskaltel's business.
-- Success of national expansion : A key part of Euskaltel's
growth strategy is to expand nationally using the Virgin brand to
offer high value services to customers across Spain. While this
provides a significant opportunity and the early growth of Virgin
telco has been well ahead of plan, it is a logistically complex
project that requires acquiring customers in a competitive market.
There is a risk that, if the project is not as successful as hoped,
this could have a negative impact on Euskaltel's performance and on
the value of Zegona's investment.
We regularly review the risk-adjusted returns of the Euskaltel
investment and, if the Tender Offer is unsuccessful, we will
consider whether it is appropriate to retain ownership or to
realise the value of our shareholding in Euskaltel.
In addition, Zegona's Chief Executive Officer Eamonn O'Hare and
Chief Operating Officer Robert Samuelson are both proprietary
directors[19]on Euskaltel's Board enables them to take a hands-on
role ensuring Euskaltel appropriately manages these risks while at
the same time delivering tangible improvement actions.
Acquisition of targets
The success of Zegona's future investment strategy depends on
our ability to identify and successfully acquire available and
suitable targets. There is a risk that we will not be able to:
-- identify available targets based on competition in the marketplace;
-- identify suitable targets at a price that allows for acceptable returns;
-- obtain any consents or authorisations required to carry out an acquisition;
-- procure the necessary financing, be this from equity, debt or a combination; or
-- be successful in the acquisition of an identified target
under all or any market conditions.
In making acquisitions, there is also a risk of unforeseen
liabilities being later discovered which were not uncovered or
known at the time of the due diligence process. In pursuit of new
acquisition targets, significant abort costs may be incurred if we
are not able to complete the proposed acquisition (for example,
because Zegona has been outbid by a competitor), which may deplete
Zegona's cash and available liquidity.
We have a disciplined approach to valuation and, ultimately, we
are only prepared to make investments at the right price and after
undertaking a very structured and thorough due diligence process.
When evaluating potential investments, we focus on targets that
have strong fundamentals, high-quality offerings and leading market
positions but which are underperforming their potential and have
scope to generate sustainable performance and cash flow
improvements.
The success of Zegona's acquisitions depend on our ability to
implement the necessary strategic, operational and financial change
programmes in order to refocus the acquired business and improve
its performance. Implementing these change programmes may require
significant modifications, including changes to business assets,
operating and financial processes, business systems, management
techniques and personnel, including senior management. There is a
risk that we will not be able to successfully implement such change
programmes within a reasonable timescale and cost.
As Covid-19 waves continue across Europe, it is possible that
access to significant debt and equity financing may become more
difficult, thus temporarily impacting Zegona's ability to complete
new acquisitions in a reasonable timeframe. Zegona believes that,
as countries begin to ease restrictions in the coming months and
economic activity begins to recover, the difficulties in accessing
debt and equity financing will reduce.
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 and
the execution of our planned strategy with respect to the Euskaltel
business, as well as other 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.
Disposal of investments
Our ability to dispose of Zegona's investment at the optimum
time, and the availability of a suitable buyer who is willing and
able to acquire the investment at an acceptable price or in a deal
with an acceptable structure, is key to the success of our
strategy. There is a risk that such suitable buyers cannot be
identified, thus reducing the returns on investments.
We have proven our ability to execute our strategy since the
formation of Zegona and due consideration is given to an exit
strategy as part of the acquisition process.
Brexit
The UK ceased to be a member state of the European Union on 31
January 2020. In December 2020, the UK and EU signed the UK-EU
Trade and Cooperation Agreement (the "TCA"). This agreement governs
the relationship between the EU and the UK following the end of the
transition period agreed after the UK officially left the EU. The
agreement provides for free trade in goods and limited mutual
market access in services, as well as for cooperation mechanisms in
a range of policy areas, transitional provisions about EU access to
UK fisheries, and UK participation in some EU programs. On 31
December 2020, the UK ceased to be a member of the EU Single Market
and Customs Union.
While the TCA does clarify a number of matters concerning the
UK's ongoing legal, political and economic relationship with the
EU, there are number of areas that are not covered. Due to this and
the size and importance of the UK economy, it is possible that the
UK's exit from the EU may continue to be a source of instability in
the international markets, create significant currency
fluctuations, and/or otherwise adversely affect trading agreements
or similar cross-border co-operation arrangements (whether
economic, tax (including the tax treatment of cross border
payments), fiscal, legal, regulatory or otherwise) for the
foreseeable future. Such continued uncertainty could have an
adverse impact on the number or attractiveness of acquisition
opportunities available to Zegona.
The long-term effects of Brexit will depend on any agreements
(or lack thereof) between the UK and the EU and, in particular, any
arrangements for the UK to retain access to EU markets.
Additionally, the exchange rate of Sterling vis-a-vis other
currencies may continue to be relatively volatile, which could
result in increasing costs of non-sterling denominated expenses and
other obligations and in changes in the value of non-sterling
denominated assets. Furthermore, UK regulatory requirements could
be subject to significant change and could place an additional
burden on Zegona.
Foreign exchange
Transactional foreign currency risk is the risk of loss that
Zegona bears when entering monetary transactions denominated in
currencies other than Sterling, the currency in which Zegona main
entities operate.
Zegona is also exposed to economic foreign currency risk, which
is the risk that fluctuations in the Sterling/ euro rate will
impact the Sterling value of proceeds from the sale of the
investment in Euskaltel, an investment that is accounted for as an
associated and therefore carried at historic cost. There is a risk
that unfavourable Sterling/ euro fluctuations from the time of the
offer announcement of MásMóvil's Offer to the completion of the
deal will result in a lower gain than expected and lower returns to
shareholders.
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.
Longer term viability statement
1. 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 does not control any operating businesses and, currently,
the most significant factor affecting Zegona's prospects is the
Offer from MásMóvil. If the Offer is completed successfully, Zegona
will receive EUR427.7 million in cash for its stake in Euskaltel.
This cash will be used to repay its loan, and Zegona will have
sufficient cash and liquid resources to continue in operation
throughout the assessment period. On choosing to return a portion
of the proceeds to its Shareholders, it will have discretion to
retain sufficient cash to ensure it remains viable.
In this context, Zegona has also assessed the impact if the
Offer was not successful on its viability assessment, as explained
further below.
2. The assessment period
We continue to believe that three years - in this case the three
years to December 2023 - 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.
3. The assessment process and key assumptions
The Directors approve a 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. Given the
straightforward nature of Zegona's financial operations at this
point, this forecast is considered appropriate to form the base
model for the viability assessment.
Under our base model, MásMóvil's Offer is successful and, Zegona
will receive EUR427.7 million in cash for its shares in Euskaltel.
The cash will be used to repay its GBP10 million loan from Barclays
and to continue its operations throughout the assessment period. On
choosing to return a portion of the proceeds to its Shareholders,
it has been assumed it will retain sufficient cash to ensure it
remains viable.
In addition to the base model, we also considered whether the
principal and emerging risks (as discussed in the Principal and
Emerging Risks section above) and the unlikely failure of the Offer
would have further impact in our assessed viability as shown below
under the downside scenario. Each of these principal risks take
account of the on-going impact of Covid-19:
Principal and Base model Downside Comment
emerging risks scenario
----------------- ----------- ---------- ----------------------------------------
Investment a r The base case model assumes that
in Euskaltel the Offer will go ahead. Under
the downside scenario, the Offer
does not progress and Zegona continues
to hold 21.44% of Euskaltel and
continues to pass through any
dividends received during the
period to Zegona's shareholders.
Since dividends are passed through,
the impact of declining performance
on cash flows, for example as
a result of Covid-19, are limited,
and therefore no further downside
impacts need to be modelled.
----------------- ----------- ---------- ----------------------------------------
Acquisition a a The most significant risk to viability.
of targets The base model assumes no acquisitions
but includes substantial abort
costs. In the downside scenario,
additional abort costs and other
operating costs are considered.
----------------- ----------- ---------- ----------------------------------------
Key management a r The most significant consequence
of the loss or absence of key
management would likely be on
our ability to execute another
acquisition. This is already included
in the base case, therefore no
further downside impacts need
to be modelled.
----------------- ----------- ---------- ----------------------------------------
Disposal of a r The base case model assumes that
investments the Offer will go ahead. Under
the downside scenario, the Offer
does not progress and Zegona continues
to hold 21.44% of Euskaltel
----------------- ----------- ---------- ----------------------------------------
Brexit a r The most significant consequence
of Brexit would likely be on our
ability to execute another acquisition
or exit Euskaltel at the desired
time, if the Offer does not progress,
which is already considered as
part of the 'Acquisition of targets'
and 'Disposal of investments'
risk.
----------------- ----------- ---------- ----------------------------------------
Foreign exchange a a Addressed in the base model through
the assumptions about Sterling/euro
rates for the proceeds from the
MásMóvil's tender offer.
In the event that the Offer does
not go ahead, the downside scenario
assumes dividends received from
Euskaltel during the assessment
period are passed in full to Zegona's
shareholders, therefore currency
fluctuations do impact the level
of dividends passed to shareholders
but not the net cashflow position.
----------------- ----------- ---------- ----------------------------------------
Based on the evaluation of the principal risks above, combined
with a consideration of other factors (including the impact of the
on-going Covid-19 pandemic) the Directors identified a severe but
plausible downside scenario which was further used to stress test
the base numbers.
The downside scenario includes principally the event that
MásMóvil's Offer does not complete successfully (which is
considered by Zegona to be unlikely) and Zegona refinances its
credit facilities in a similar amount and on similar terms as the
current facility.
4. Results of the assessment
The assessment showed that in both the base case and the
downside scenario, Zegona would have sufficient cash and liquid
resources to continue in operation throughout the assessment period
without taking any mitigating actions available to it.
In the event that the Offer from MásMóvil does not complete
successfully, given the small size of Zegona's existing facility
compared to the value of the Euskaltel shares that it is secured
on, Zegona believes it is highly probable it will be able to
refinance the facility. However, if the facility were not
refinanced, the current pledge to Barclays on Euskaltel shares will
cease and therefore Zegona could, when additional liquidity was
needed, sell part of its shareholding in Euskaltel or deploy one or
more liquidity enhancing actions, including reducing discretionary
expenditure or retaining part of the Euskaltel dividend.
5. Viability statement
Taking into account Zegona's current position and principal and
emerging risks and uncertainties, the Directors confirm that we
have a reasonable expectation that Zegona will be able to continue
in operation and meet its liabilities as they fall due over the
three years to December 2023.
STRATEGIC 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 to actively engage with
charitable activities.
Zegona recognises that a productive workforce requires a breadth
of experience and perspectives achieved through hiring individuals
with diverse experience. Board Directors and senior managers have
been appointed to bring required skills, knowledge and experience.
During the year two female independent Non-Executive Directors were
appointed to the Board, improving Zegona's diversity. 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 2020.
Male Female Total
---- ------ -----
Board Directors 4 2 6
Senior management 3 - 3
Other staff - 3 3
==== ====== =====
Total 7 5 12
==== ====== =====
This breakdown excludes directors of companies in liquidation at
31 December 2020. Senior management is per the definition in
section 414C of the UK Companies Act 2006.
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 and seek to encourage our employees 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 2020 and comparative period
are shown below:
Global tonnes of CO
2 e
----------------------
2020 2019
---------- ----------
Scope 2 (electricity) 1.7 5.7
Per EURm operating expenses 0.24 0.95
Scope 3 (water consumption, business
travel) 4.9 49.7
Per EURm operating expenses 0.7 8.3
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 2020 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.
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 25.
The Strategic Report was approved by the Board on 19 April 2021
and is signed on its behalf by:
Eamonn O'Hare
Chairman and Chief Executive Officer
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 is a proprietary director of Euskaltel. He also serves as
a non-executive director on the main board of Dialog Semiconductor
Plc, 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 46.
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 is a proprietary director of Euskaltel and the fees for
this appointment are disclosed in the Directors' Remuneration
Report on page 46.
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 qualified as a Chartered Accountant with Armitage &
Norton (now part of KPMG LLP).
Ashley 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 was a board member at The AA plc from 2015 until March
2021, when the business was acquired by a private equity consortium
of Towerbrook and Warburg Pincus. In 2020 she joined the Boards of
Workspace Group Plc (where she is Chair of Remuneration) and of the
multi-utility business, Telecom Plus plc. 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 REPORT
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 12 to 16. The
Directors' Report on pages 48 to 50 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 19 to 20. 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 [20] .
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 19 and
20. 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 2020
was:
Audit and Risk
Board Nomination and Remuneration Committee Committee
-------------------------- --------- --------------------------------------- ------------------
Eamonn O'Hare 15/15 - -
Robert Samuelson 15/15 - -
Mark Brangstrup Watts[21] 7/7 2/2 -
Murray Scott[22] 7/8 1/1 1/1
Richard Williams 15/15 4/4 3/3
Ashley Martin 15/15 4/4 3/3
Suzi Williams[23] 13/13 4/4 -
Kjersti Wiklund[24] 13/13 - 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 2021 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 2020 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, who replaced Axio Capital Solutions Limited
("Axio") as Zegona's Company Secretary on 15 July 2020. 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 remains aware
of this area of non-compliance and following discussion at its
recent annual assessment of Board effectiveness, it will ensure
that this matter continues to be kept under active review.
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 meant that
Zegona concluded it was not appropriate to make an appointment. The
Board intends to 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 six 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.
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 was 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 2020 has been a unique and challenging year which
coincided with a significant change in the composition of the
Board. The Board recognised that Zegona is unusually agile and
entrepreneurial and that has meant the Board has needed to meet the
considerable challenge of being flexible, fast-moving and decisive
while still upholding the highest governance standards. The Board
considered that this had been achieved and the robust challenge
provided by the Non-Executive Directors had been valuable. The
board also highlighted a number of matters for the Board to focus
on in the coming year, including. 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, 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.
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 given that Zegona has no customers and its
suppliers are primarily professional advisers. All Directors have
frequent interactions with Zegona's small workforce.
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 this year with the consultations with major
shareholders undertaken by the Committee Chairs. 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.
Annual general meeting
The next AGM will be held at 10 Snow Hill, London, EC1A 2AL at
12:00 p.m. on 30 June 2021. 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.
GOVERNANCE | AUDIT AND RISK REPORT
Audit and Risk Committee Report
I am pleased to present the 2020 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[25].
Committee membership and meetings
The members of the A&RC during 2020 were Ashley Martin
(Chairman), Richard Williams, Murray Scott and Kjersti Wiklund, all
of whom are independent Non-Executive Directors as required by
provision 24 of the Code. Kjersti Wiklund was appointed to the
A&RC on 5 February 2020, bringing additional IT and
telecommunications experience to the A&RC and Murray Scott
stepped down on 9 June 2020. 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 2020, the A&RC
met in May, August and December and has subsequently met in April
2021. 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:
- Valuation of the contingent consideration - the A&RC
reviewed the model and the conclusions related to the valuation of
the contingent consideration and the related disclosure. Euskaltel
has now provided for the full amount of EUR8.7million, therefore,
Zegona is confident that it will receive this amount shortly after
the Euskaltel board is released of its duty of passivity following
the completion of the Offer for Euskaltel. This formed the basis of
the inputs to the probability weighted discounted cashflow
valuation model that calculated the fair value of the contingent
consideration of EUR7.5 million at 31 December 2020. The A&RC
reviewed this model and was satisfied with the valuation.
- Treatment of the Contingent tax liability - 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 while the UK
Government has lodged an appeal for annulment of the decision, HMRC
had issued Zegona with a charging notice in February 2021 in the
amount of GBP4.1 million (EUR4.9 million). The issuance of charging
notices is a collection mechanism only and not an arbitration on
the merits of the on-going litigation. Consequently, this does not
change Zegona's view that while it is finely balanced, it remains
more likely than not that the appeals made by other UK taxpayers
and the UK Government will be successful and ultimately Zegona will
not incur any liability and therefore no provision is required in
respect of this matter. The A&RC reviewed the third party
advice and agreed with management's conclusion.
- Impairment considerations at the end of each reporting period.
Reviews of indicators of impairment and impairment assessments of
our investments in associates and subsidiaries are judgmental, in
particular for assets where a readily available market does not
exist. In the case of Zegona's associate, Euskaltel, Zegona has
used a range of external sources of information to conclude that no
indicators of impairment exist at 31 December 2020. The most
important source was Euskaltel's quoted share price and market
capitalisation at 31 December 2020, but other sources included
analysts' reports on Euskaltel and the telecommunications market in
Spain and other public information on Euskaltel such as its
business plans, results and other public announcements. The
A&RC reviewed the indicators of impairment assessments for our
investment in associates and subsidiaries and was satisfied with
the conclusions made and the related disclosures.
- Accounting treatment and valuation of the incentive
arrangements - the A&RC reviewed and agreed with management's
interpretation of IFRS 2 when concluding that the renewal of the
incentive scheme constitutes a new incentive scheme, whose grant
date cannot be until Zegona's shareholders vote to ratify the
renewal at the 2021 AGM. In these circumstances, IFRS 2 requires
the fair value of the award to be estimated at each balance sheet
date and an expense recognised in the Income Statement from the
date the holders of the shares begin to render services.
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.
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 by way of a
questionnaire;
-- 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, 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 2020;
-- 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
fifth audit and the A&RC is involved in the audit partner
rotation process. 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 advice to the
Committee on specific financial reporting and judgements.
KPMG was appointed as Zegona's external auditor on 15 December
2016, with no changes to the key audit partner since
appointment.
During 2020, non-audit fees were pre-approved in relation to
KPMG's agreed upon procedures on the interim financial statements
for the six months ended 30 June 2020. The fees for these
procedures totalled EUR29,000, which is significantly lower than
the audit fees for the Financial Statements for the year ended 31
December 2020 and therefore auditor objectivity and independence is
not deemed to be compromised by the level of non-audit fees.
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;
-- Regular updates directly from the CEO of Euskaltel on the
competitive landscape and on the prospects for the business;
-- A comprehensive system of budgeting, forecasting and monthly
reporting and rigorous analytical review procedures;
-- A comprehensive risk register which is reviewed at least
bi-annually and updated to take account of development within
Zegona;
-- Segregation of duties for all financial reporting and accounts payable critical tasks; and
-- An in-house treasury function responsible for managing cash,
foreign exchange risk and ensuring compliance with banking and loan
agreements.
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 REPORT
Nomination and Remuneration Committee Report
Dear Shareholder,
On behalf of the Board, I am pleased to present the Nomination
and Remuneration Committee ("the Committee") Report for the year
ended 31 December 2020, this being my first report having taken
over as Chair of the Committee from Richard Williams on 9 June
2020. I want to take this opportunity to thank Richard for his
tenure and for his ongoing contribution as a member of the
Committee.
The following pages set out the Committee's operations and
activities in the year and how we have addressed a number of
important matters. Zegona is committed to transparency, equivalence
and engagement with shareholders. And in these matters we have made
progress this year. The fundamental principles underpinning our
policy remain:
-- Alignment between management and shareholders over the long term
-- Focus on performance - with a high percentage of variable pay
-- Transparency and simplicity for the benefit of all stakeholders
The Committee met four times during 2020, supported by a number
of full board discussions. The matters we discussed are set out on
page 34. In addition to this, as 2020 was the final year of a five
year management incentive scheme and in order to specifically
consider the long-term incentive arrangements, we formed a separate
independent committee made up of the full group of Independent
Non-Executive directors. This Committee held a significant number
of discussions in relation to the outcomes to the Management
Incentive Plan and I include further details on this later in this
letter.
Zegona's approach to remuneration - ensuring management
interests are fully aligned with shareholders over the long
term
Zegona seeks to ensure that Executive directors and senior
management are remunerated fairly and transparently for creating a
high-performance culture that delivers Zegona's strategy, while
ensuring their interests are fully aligned with shareholders over
the long term.
Accordingly, Zegona has designed a Remuneration Policy to meet
these objectives. Under this Policy Executives and senior
management receive a mix of remuneration which is geared towards a
higher percentage of variable pay and includes an incentive
arrangement which rewards shareholder value creation over the long
term.
This approach to remuneration received strong support when it
was last presented to shareholders for approval at the 2019 AGM
with more than 86% of the votes cast in favour of the Remuneration
Policy. I have set out below how our implementation of that policy
fits with Zegona's strategy and the desired outcomes for our
shareholders.
Company performance and context - strong performance in a
challenging environment
In an unprecedented year, Zegona and Euskaltel performed well.
Zegona continued to be Euskaltel's largest shareholder, actively
supporting the management team in delivering operating efficiency
and expanding nationally. Zegona's leadership successfully drove a
number of key initiatives that contributed to Euskaltel delivering
strong results for 2020 in spite of the global Coronavirus
pandemic. These included:
-- Integrating three operating companies into one business to
generate EUR40 million of annual EBITDA run-rate efficiencies
within the existing business;
-- Driving significant growth by launching services nationally
across Spain under the Virgin telco brand in May 2020.
Euskaltel achieved the key financial and customer growth targets
it set itself in its business plan and saw accelerating growth,
driven in particular by the success of Virgin telco. During 2020,
Euskaltel achieved the highest annual customer growth since it was
listed in 2015, and Virgin telco growth was more than 50% ahead of
plan. This drove accelerating revenue growth, with fourth quarter
revenue up 4.6% to EUR179.5 million and full year 2020 revenue up
1.7% to EUR697.1 million. Profitability and cash generation were
strong, with the 2020 EBITDA target met and EBITDA growth in 2020
of 2.3%. This encouraging progress at Euskaltel forms the backdrop
of the key remuneration matters that we have dealt with in the
year, which have included:
Shareholder engagement - addressing last year's AGM results
An important Nomination and Remuneration Committee activity this
year was to engage with shareholders following the results of the
2020 Annual General Meeting ("AGM").
At the AGM on 9th June 2020, all resolutions were approved with
at least 60% of votes in favour. However, shareholders owning 32%
of Zegona's shares voted against the resolution approving the
Company's Remuneration Report while shareholders owning 20% voted
against the resolution re-appointing Richard Williams, the then
chair of the Nomination and Remuneration Committee to the Board.
Nearly all of these votes against these two resolutions were cast
by two shareholders, who together own 28.4% of Zegona. Both
shareholders voted against the Remuneration Report and one of them
also voted against the reappointment of Richard Williams. No other
shareholder owning more than 2.1% of Zegona voted against either
resolution.
Richard Williams had already announced his intention to step
down as Chair of the Committee and on 9th June 2020, I was
appointed as the new Chair of the Committee. Together with Ashley
Martin (Chair of the Audit & Risk Committee), we took the
opportunity across the summer to hold a fully independent
remuneration consultation with seven major shareholders
representing over 65% of the ownership of Zegona and nearly 90% of
the shareholders who had voted against or abstained on
remuneration-related resolutions at the 2020 AGM. The consultation
was conducted with a view specifically to understand any
shareholder concerns in relation to the vote at the 2020 AGM and
also, more generally, to ensure shareholder engagement and
transparency on remuneration matters.
Two specific areas directly related to remuneration were
highlighted by some of the shareholders involved in this
consultation:
1) A small number of shareholders raised the question of holding
periods. One significant shareholder wished to see changes to the
holding requirements upon the exercise of incentive rights. This
shareholder voted against the Remuneration Report as this
shareholder has a policy that recipients of share incentive awards
should be exposed to equity risk for at least five years. While
Zegona's scheme is designed to last for up to five years,
management can exercise the incentive between three and five years
without any post-vesting holding requirement. Following further
discussions between the Committee, this shareholder and the Board,
holders of the Management Shares have agreed - in line with best
practice governance - 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. This holding requirement will not apply in
certain situations, such as on a takeover of Zegona or a sale of
the main assets of the business. This additional commitment has
been agreed with the shareholder who raised the issue and is being
implemented through holders of the Management Shares entering into
irrevocable deeds[26].
2) Certain shareholders asked about the timing of the redemption
of the Management Shares in June 2020 and the calculation of the
resulting baseline share price for the next Calculation Period. A
core principle of the scheme is that management can exercise
between three and five years and the redemption occurred four years
and ten months into this maximum five-year Calculation Period. The
redemption resulted in the start of a new Calculation Period with a
baseline share price of GBP0.955 as discussed below. The Committee
has confirmed that both the redemption timing and baseline share
price for the new Calculation Period were in line with the rules of
the scheme and communicated this to the shareholders who had
requested clarification.
In considering all shareholder feedback received on the
management incentive arrangements, and whether any changes are
called for, the Committee has taken into account the Offer from
MásMovíl to acquire 100% of Euskaltel. It is important to note that
if, as is expected, Zegona's stake in Euskaltel is sold at the
Offer price of EUR11.17, Zegona will have generated an Annualized
Return since IPO of nearly 11%, significantly in excess of the
Management Incentive Scheme Preferred Return target of 5%.
Outside of remuneration matters, some shareholders also asked
questions and expressed views about the potential distribution by
Zegona of Euskaltel shares directly to its shareholders. As this is
not strictly a remuneration issue, this is discussed in the
Business and Financial Review on page 5, and has in any case been
superseded as an issue by the Offer from Masmovil for Zegona's
21.44% stake in Euskaltel.
This engagement from shareholders was much appreciated by the
Nomination and Remuneration Committee and led to a number of
further discussions between the Nomination and Remuneration
Committee, the Board and certain shareholders.
We will continue to engage with shareholders on remuneration and
will take into account the feedback received in the development and
implementation of remuneration policy. That policy will be put
forward to a formal vote at The AGM in 2022.
Remuneration decision for 2020 - reviewing outcomes against
company performance
Redemption of the management incentive scheme
Given that the first 5-year Calculation Period of the management
incentive scheme was due to end in August 2020, as I mentioned
above, an independent committee of the Board comprising all the
NEDs was formed in April 2020 to review a number of matters
relating to the incentive arrangements. It was determined by the
Committee that while the value of Zegona's underlying assets was
considerably above the preferred return, Zegona's Market
Capitalisation was not. This meant that under the terms of the
Zegona Limited Articles of Association ("Articles") which govern
the incentive scheme, no payment was made or due to management for
this initial five year period.
Following this decision, and in accordance with the Articles, on
25 June 2020, Zegona management redeemed 99% of A Ordinary shares
("Management Shares") in accordance with the terms of the Articles.
The redemption was shortly in advance of the end of the first
Calculation Period on 14 August 2020 and outside any anticipated
closed periods. Management received no payment from this
redemption.
As a result of this redemption, a new Calculation Period for the
unredeemed Management Shares commenced on 25 June 2020. These
unredeemed shares have rights to 15% of the growth in value of
Zegona on similar terms to the shares previously redeemed unless
75% of shareholders do not approve a resolution to renew the scheme
that will be presented to the 2021 AGM. The Baseline value for the
new Calculation Period was set at GBP0.955 being the higher of
Zegona's Market Capitalisation and its Net Shareholder Invested
Capital on this date as laid out in the Articles.
At the start of the first Calculation Period, Zegona's largest
and founding shareholder, Marwyn, was also issued Core Investor
Shares in Zegona Limited. This entitled them to 5% of the growth in
value of Zegona, provided that ordinary shareholders achieve a 5%
Preferred Return on a similar basis to the Management Shares. This
first Calculation Period started on the 14 August 2015 and expired
unexercised on 14 August 2020. As the Preferred Return was not met,
no payment was due or made to Marwyn and in accordance with the
Articles, the Core Investor incentive arrangements ceased to exist
after 14 August 2020.
2020 Bonus
The Committee carefully reviewed performance against the targets
set for the 2020 bonus scheme and determined an overall outcome of
75% was appropriate. Importantly this reflects targets being
largely met against the commercial aspects of the scorecard despite
a particularly challenging Spanish telecoms market. The commercial
outcomes relate to performance of Euskaltel, which was broadly in
line with targets and to the share price performance of Euskaltel
which outperformed the relevant indices across an extremely tough
period. Targets were met to a reasonable extent for the strategic
elements of the scorecard. See page 37 for more detail.
Application of remuneration policy for 2021 - no salary
increases and no changes to the bonus framework
Following a review of the executive remuneration arrangements,
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.
The Remuneration Committee will apply the same bonus approach as
for 2020 where Zegona Directors have an opportunity to earn 100% of
their salary as a bonus. Importantly no less than 85% of bonus
metrics will be commercial, with the remainder strategic and
personal. The detail of these metrics continues to be commercially
sensitive throughout the year. For this reason, the precise targets
will be shared retrospectively in the next annual report.
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. During 2020 Mark Brangstrup
Watts and Murray Scott served as members until their resignations
on 12 May 2020 and 9 June 2020 respectively. All members of the
Committee are now independent.
In 2020 the Committee met 4 times and has subsequently met in
April 2021. 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 2021, including bonus metrics;
-- 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 2020 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 2020. The Committee formally engaged PwC
LLP's ("PwC") as an adviser in 2021. The Committee's decision
reflected the quality and objectivity of the independent advice
that PwC had provided to the Committee on remuneration matters
during 2020.
For 2020, total fees of EUR11,285 were incurred in relation to
remuneration advice provided by PwC.
Executive pay at a glance
Base salary
Purpose Current policy 2020 Implementation 2021 Implementation
To reflect market Reviewed every twelve Effective from Effective from
value of the role months. 1 January 2020: 1 January 2021:
and individual's performance Base salary increases
and contribution and are applied in line CEO: GBP563,000 CEO: no increase
enable Zegona to recruit with the outcome of
and retain Executive the review. In respect COO: GBP419,000 COO: no increase
Directors of sufficient of existing Executive
calibre to drive Zegona's Directors, it is anticipated
ambitions. that salary increases
will generally be in
line with inflation
or those of salaried
employees as a whole.
Pension contributions
Purpose Current policy 2020 Implementation 2021 Implementation
To provide a market Pension contributions No change No change
competitive pension are made to the individual's
private pension arrangements
or paid to them in cash
in lieu of such arrangements.
Executive Directors
receive a pension contribution
of up to 20% of base
salary
Other benefits
Purpose Current policy 2020 Implementation 2021 Implementation
To provide market Benefits may include No change No change
competitive benefits car allowances, 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 2020 Implementation 2021 Implementation
To incentivise delivery Performance is measured Maximum: no Maximum: no change
of Zegona's annual on an annual basis for change
financial and strategic each Executive Director Award: 75% of
goals in respect of each financial salary
period.
The maximum annual bonus
available is 100% of
base salary per annum.
The Committee retains
discretion to apply
malus or clawback provisions
Management incentive scheme
Purpose Current policy 2020 Implementation 2021 Implementation
To drive performance, The Committee may allocate No payment on Next exercise
aid retention and Management Shares in redemption on period starts
align the interests Zegona Limited to Executive 25 June 2020 25 June 2023
of Executive Directors Directors or senior
and senior management management. No change For additional
with shareholders Zegona's management commitments made
over the long term incentive arrangements by management
entitle participants refer to page
in aggregate to receive 31.
up to 15% of the growth
in value of Zegona subject
to a shareholders' 5%
preferred return.
Incentive may be exercised
between 3 and 5 years
after each renewal.
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 2020 and how the Directors' remuneration policy will be
applied in 2021. The remuneration report will be subject to an
advisory vote at the 2021 AGM.
2020 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 are disclosed on page 46.
Executive Directors (Sterling)
----------------------------------------
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
-------------------- ------------------
2020 2019 2020 2019
GBP GBP GBP GBP
--------- --------- -------- --------
Base salary 563,000 500,000 419,000 375,000
Pension contributions 112,600 100,000 83,800 75,000
Taxable benefits 21,321 22,024 21,321 21,321
Company health insurance
scheme 6,548 5,866 6,304 5,659
--------- --------- -------- --------
Total fixed pay 703,469 627,890 530,425 476,980
--------- --------- -------- --------
Annual cash bonus 422,250 470,000 314,250 375,000
Incentive scheme redemptions - - - -
--------- --------- -------- --------
Total variable pay 422,250 470,000 314,250 375,000
========= ========= ======== ========
Total fixed and variable
pay 1,125,719 1,097,890 844,675 851,980
========= ========= ======== ========
Executive Directors (euros)
-----------------------------------------
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
--------------------- ------------------
2020 2019 2020 2019
EUR EUR EUR EUR
---------- --------- -------- --------
Base salary 635,320 570,174 472,822 427,631
Pension contributions 127,064 114,035 94,564 85,526
Taxable benefits 24,060 25,115 24,060 24,313
Company health insurance
scheme 7,389 6,690 7,114 6,453
---------- --------- -------- --------
Total fixed pay 793,833 716,014 598,560 543,923
---------- --------- -------- --------
Annual cash bonus 476,490 535,964 354,617 427,631
Incentive scheme redemptions - - - -
---------- --------- -------- --------
Total variable pay 476,490 535,964 354,617 427,631
---------- --------- -------- --------
Total fixed and variable
pay 1,270,323 1,251,978 953,177 971,554
========== ========= ======== ========
None of the Executive Directors' remuneration in 2020 was
attributable to Zegona's share price growth. No discretion has been
exercised to determine remuneration as a result of either Zegona's
share price appreciation or depreciation.
Components of remuneration: Base salary
Implementation in 2020
As advised in last year's Directors' Remuneration Report,
effective from 1 January 2020, the Committee awarded an increase of
12.6% to Eamonn O'Hare's base salary partly in recognition of the
fact that he had received no increase in base salary since 2015.
Also effective from 1 January 2020, the Committee also awarded an
11.7% increase to Robert Samuelson's base salary, which recognises
his role in supporting Euskaltel's partnership with Virgin and his
ongoing contribution to this aspect of Zegona's plan to create
value from its investment in Euskaltel.
Implementation in 2021
Following a review of the executive remuneration arrangements,
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.
Components of remuneration: Pension contributions
In 2020 both Executive Directors received a pension contribution
of 20% of their base salary, which will continue in 2021. This
level of pension contribution has remained the same since Zegona
was first listed.
Components of remuneration: Taxable benefits and Company Health
Insurance Scheme
In 2020 both Executive Directors received car allowances,
personal tax advice, private medical insurance, and death in
service cover, which will continue in 2021.
Components of remuneration: Annual cash bonus
Implementation in 2020
The Committee 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 2020 bonus scheme and Eamonn O'Hare
was rewarded with 75% and Robert Samuelson with 75% of their
maximum bonus opportunity of 100% of salary. The performance
against key objectives was as follows:
Objective Weighting Result Award
-------------------- ----------- -------------------------------------------------------------- ------
* Euskaltel successfully launched national expansion
with Virgin telco launching in May 2020.
* Refinancing of EUR215 million amortising debt to
December 2023 bullet repayment ensured appropriate
debt structure. Leverage reduced from 4.3x to 4.2x.
Achieve key * Euskaltel Board restructured: size reduced to 10
operational members.
and governance
milestones within
Euskaltel 35% * 2020 budget delivered broadly in line with targets. 31%
-------------------- ----------- -------------------------------------------------------------- ------
Drive Euskaltel 35% 31%
equity value * Euskaltel share price, considerably outperformed
peers during a difficult period for telcos.
* December 2020 VWAP between EUR9-EUR10 per share
-------------------- ----------- -------------------------------------------------------------- ------
Identify or 15% 3%
execute a new * Incredibly challenging year for M&A activity across
acquisition/ the sector in light of impact of Covid-19 pandemic on
sale macro-economic environment.
* Significant work carried out to explore the market
and prepare groundwork for M&A,
-------------------- ----------- -------------------------------------------------------------- ------
Excellence in 15% 10%
leadership and * Increased board diversity and independence, including
governance the appointment of two new independent NEDs as well
as a company secretary and an independent adviser to
the Nomination and Remuneration Committee
* Extensive engagement with investors and opportunity
to continue to enhance this, including more regular
and proactive dialogue, in order to achieve
"best-in-class" approach.
* Use of a fully Independent Committee approach to look
at key issues during the year.
------
Bonus awarded (% of base salary) 75 %
The Committee believes the Directors' remuneration policy in
respect of Executive Directors operated as intended in terms of
Zegona's performance and quantum.
Implementation in 2021
The Remuneration Committee will apply the same bonus approach as
for 2020 where Zegona Directors have an opportunity to earn 100% of
their salary as a bonus. Importantly no less than 85% of bonus
metrics will be commercial, with the remainder strategic and
personal. The detail of these metrics continues to be commercially
sensitive throughout the year. For this reason, the precise targets
will be shared retrospectively in the next annual report.
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 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% Preferred Return[27] in each Calculation Period. The first
Calculation Period began on 14 August 2015 and, as discussed below,
ended on 25 June 2020, at which point the Second Period began.
Holders of the Management Shares may exercise them at any point
between the third and fifth anniversary of the start of each
Calculation Period by redeeming substantially all of them. There
are also provisions for exercise by management if there is a
takeover or acquisition of Zegona (including by a scheme of
arrangement), or Zegona sells all or substantially all of its
assets and distributes the net proceeds to shareholders.
Upon exercise, 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 exercise of the Management Shares, a new Calculation Period
automatically begins for the 1% of unredeemed shares with
management still entitled to 15% of the growth in value of Zegona
over the new Calculation Period, provided the Preferred Return is
achieved over this period. The starting value against which the
growth in value and the Preferred Return are calculated (the
"Baseline") at the beginning of the new Calculation Period 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.(.) If shareholders
representing 75 per cent or more of the shares vote against the
renewal at the AGM, Management Shares are redeemed for no value.
Management could receive value prior to the AGM vote if there is a
takeover or acquisition of Zegona (including by a scheme of
arrangement), or Zegona sells all or substantially all of its
assets and distributes the net proceeds to shareholders.
Scheme developments in 2020
Exercise of shares and start of the Second Calculation
Period
The first Calculation Period began on 14 August 2015. In
recognition that the first 5-year Calculation Period was due to end
in August 2020, an independent committee of the Board was formed in
April 2020 to review a number of matters relating to the incentive
arrangements.
In accordance with the scheme rules, Zegona management redeemed
its Management Shares on 25th June 2020 which was in advance of the
end of the first Calculation Period on 14 August 2020 and outside
of anticipated closed periods. At this date, the value of Zegona's
investment in Euskaltel and its cash and cash equivalents net of
bank borrowings[28] on this date was worth GBP1.28 per Zegona
share. However, the value of Zegona shares (based on the 30-day
volume weighted average price, "VWAP") which was below the GBP1.234
level required for the Preferred Return to be met. Consequently,
management received no value from the redemption and the Baseline
for the new Calculation Period was equal to shareholders net
invested capital of GBP0.955 per share as shown in the table
below.
Net invested 5% pa Preferred Preferred Return
capital Return hurdle
(unadjusted) at 25 June 2020 at 25 June 2020
GBP GBP GBP
------------- ---------------- ----------------
Share issue - March
2015 30,000,000 38,789,862 8,789,862
Share issue - August
2015 256,567,440 325,284,925 68,717,485
Dividend - October
2016 (4,411,012) (5,298,047) (887,035)
Dividend - March 2017 (4,411,012) (5,190,725) (779,713)
Share buy-back - October
2017 (139,651,022) (159,249,709) (19,598,687)
Dividend - November
2017 (4,922,558) (5,610,350) (687,792)
Dividend - April 2018 (4,922,558) (5,472,174) (549,616)
Dividend - December
2018 (3,534,145) (3,800,946) (266,801)
Dividend - February
2019 (3,155,486) (3,364,849) (209,363)
Share issue - February
2019 100,501,514 107,460,544 6,959,030
Dividend - August 2019 (5,548,379) (5,785,669) (237,290)
Dividend - March 2020 (4,410,465) (4,476,103) (65,638)
Share buy-backs - 2020[29] (2,461,592) (2,506,488) (44,896)
------------- ---------------- ----------------
209,640,725 270,780,271 61,139,546
------------- ---------------- ----------------
Shares outstanding 219,492,730 219,492,730 219,492,730
Per share (GBP) 0.955 1.234 0.279
Following the redemption, 51,546,370 Management Shares in Zegona
Limited remained allotted, issued and fully paid. No Management
Shares were awarded during the year (2019: nil). At the time of
signing this report and as at 31 December 2020, 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% 30,500,000 GBP3.05
Robert Samuelson 4.44% 15,250,000 GBP1.53
Other Zegona senior managers 1.68% 5,796,370 GBP0.58
=========== ==============
51,546,370 GBP5.16
=========== ==============
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.
Expiry of Core Investor Shares
During the first Calculation Period, Marwyn Long Term Incentive
LP ("Marwyn"), Zegona's largest and founding shareholder, had been
issued Core Investor Shares in Zegona Limited. The Core Investor
Shares carried no voting rights. Marwyn, as holder of the Core
Investor Shares, was entitled to 5% of the growth in value of
Zegona, provided that ordinary shareholders achieve a 5% Preferred
Return on a similar basis to the Management Shares. This first
Calculation Period started on the 14 August 2015 and ended on 14
August 2020. As the Preferred Return was not met, no payment was
due or made to Marwyn and the Core Investor incentive arrangements
ceased to exist after 14 August 2020. Therefore, the aggregate
entitlement of the growth in value Zegona's value accruing to
incentive schemes has reduced from 20% to 15%, which leaves a
higher proportion of value growth for Ordinary shareholders.
Illustration of scheme value
To explain how Zegona's 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 2020, even though the Management Shares were not
exercisable at that date[30].
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
GBP233.8 million was higher than the Preferred Return target, the
holders of the Incentive Shares would have received a payment to
reflect this excess. At the same time, Zegona's Underlying Asset
Value[31] was GBP339.2 million and it is likely that had an
exercise occurred under certain specific conditions such as
takeover or a Board change of control, the holders of the
Management Shares would have received a payment that reflected some
or all of this higher value.
Since 25 June 2020 (GBP)
--------------------------------------------------------------
Net invested capital[32] 203,330,256
------------------------------ --------------------------
At 31 December 2020 (GBP)
--------------------------------------------------------------
Number of shares 218,970,076
Average share price[33] 1.0677
Deemed market capitalisation 233,788,779
------------------------------ ---------------- ------------
Growth in value
per the incentive
scheme 30,458,523
Split between:
------------------------------ ---------------- ------------
Management Shares 15% 4,568,779
------------------------------ ---------------- ------------
Ordinary Shares 85% 25,889,744
------------------------------ ---------------- ------------
5% pa Preferred Preferred Return
Net invested Return hurdle
capital at 31 December at 31 December
(unadjusted) 2020 2020
GBP GBP GBP
------------- --------------- ----------------
At 25 June 2020[34] 209,640,725 214,992,573 5,351,848
Share buy-backs[35] (604,456) (617,968) (13,512)
Dividend- July 2020 (5,706,014) (5,823,200) (117,186)
============= =============== ================
203,330,255 208,551,405 5,221,150
------------- --------------- ----------------
Shares outstanding 218,970,076 218,970,076 218,970,076
Per share (GBP) 0.929 0.952 0.023
2020 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).
Non-Executive Directors fees[36]
---------------------------------------
2020 2019 2020 2019
GBP GBP EUR EUR
--------- -------- -------- --------
Richard Williams[37] 54,462 60,000 61,457 68,421
As hley Martin 60,000 60,000 67,707 68,421
Kjersti Wiklund[38] 45,128 - 50,925 -
Suzi Williams[39] 50,808 - 57,334 -
Mark Brangstrup
Watts[40] 18,174 50,000 20,508 57,017
Murray Scott[41] 21,987 50,000 24,812 57,017
Total 250,559 220,000 282,743 250,876
========= ======== ======== ========
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 ( Audited)
The total shareholder return graph below shows the value as at
31 December 2020 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 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.
http://www.rns-pdf.londonstockexchange.com/rns/9667V_1-2021-4-20.pdf
2015[42] 2016 2017 2018 2019 2020
---------------- ---------- -------- -------- ---------- -------- --------
Total
remuneration
EURm 0.67 0.77 1.29 0.71 1.25 1.27
Annual bonus
(% of maximum) 0% 0% 100% 0%[43] 94% 75%
As discussed on page 10, since Zegona acquired its investment in
Euskaltel, the market value of Zegona's shares has typically been
less than the Underlying Asset Value per share[44]. At 31 December
2020, the Underlying Asset Value per share was GBP1.39 per Zegona
share (2019: GBP1.37). This value was 34% higher than Zegona's
share price on 31 December 2020 of GBP1.04 (2019: 26% higher than
Zegona's share price of GBP1.09).
Comparison of Directors' and employees' pay and relative
importance of spend on pay (Audited)
The following table compares the changes in each Director's pay
with changes in employee pay between 2019 and 2020:
Base salary Taxable benefits Annual cash bonus
change % change % change %
----------- ---------------- -------------------
Executive Directors
Eamonn O'Hare 13% 3% 12%
Robert Samuelson 12% 2% 5%
Non-executive Directors
Mark Brangstrup Watts[45] n/a n/a n/a
Murray Scott[46] n/a n/a n/a
Richard Williams -9% n/a n/a
Ashley Martin 0% n/a n/a
Kjersti Wiklund[47] n/a n/a n/a
Suzi Williams[48] n/a n/a n/a
Employees 0% 87% -21%%
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:
2020 2019
EUR000 EUR000
------------------------ -------- --------
Employee pay 4,024 3,610
Returns to shareholders 14,886 9,860
Of which:
Dividends 11,348 9,860
Share buyback 3,538 -
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 2020, Eamonn O'Hare earned and retained Non-Executive
Director fees in relation to his external appointments of
EUR200,916 and EUR80,000 in relation to his appointment as a
propriety director of Euskaltel.
During 2020, Robert Samuelson earned and retained EUR71,000 in
relation to his appointment as a proprietary director of
Euskaltel.
Reappointment
Under the terms of Zegona's Articles of Association, all
Directors will be proposed for re-election at the 2021 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
No payment was due, and Zegona made no payment during the year
to Murray Scott or Mark Brangstrup Watts as compensation for loss
of office.
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.
Directors' interests in ordinary shares (Audited)
The Committee intends to keep under consideration the need to
adopt formal 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 incentive scheme.
The shareholdings of the Directors at 31 December 2020 are set
out below. There have been no changes in the shareholdings of the
Directors from 31 December 2020 to the date of this report.
Director Number of % of issued
shares share capital
------------------ ----------- ---------------
Eamonn O'Hare 2,032,185 0.93
Robert Samuelson 657,902 0.30
Richard Williams 62,570 0.03
Ashley Martin 10,479 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
Whilst there is 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
December 2019 9 June 2020 60.15% 39.85% -
(votes cast) 106,148,644 70,314,928 30,045,950
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
19 April 2021
GOVERNANCE | DIRECTORS' REPORT
Result
For the year ended 31 December 2020, Zegona's profit before tax
was EUR14.0 million (2019: EUR42.1 million). Other comprehensive
loss was EUR18.7 million (2019: gain of EUR15.2 million).
Therefore, the total comprehensive loss for 2020 was EUR4.7 million
(2019: income of EUR57.2 million). Reviews of performance, likely
future developments and corporate responsibility are set out in the
Strategic Report on pages 1 to 16.
Dividends
Zegona declared an interim dividend on 10 June 2020 at a rate of
2.6 pence per share, totalling GBP5.7 million (EUR6.3 million). The
dividend was paid on 31 July 2020.
Zegona declared a further interim dividend, in lieu of a final
dividend for 2020, on 21 December 2020 at a rate of 2.2 pence per
share, totalling GBP4.8 million (EUR5.6 million). The dividend was
paid on 9 March 2021.
Authority to make distributions in specie
At the general meeting on 22 September 2017, the shareholders
approved a resolution to permit the Board to satisfy the payment of
any dividends declared by Zegona wholly or partly by the
distribution of shares in Euskaltel or any successor entity of
Euskaltel, from time to time.
Contracts of significance
Mark Brangstrup Watts, a Non-Executive director until his
resignation on 12 May 2020, is an ultimate beneficial owner of
Axio. Zegona entered into an agreement with Axio dated 19 December
2016 pursuant to which Axio provided certain company secretarial
& administration services and financial & accounting
services. For the period to 12 May 2020, services totalling
EUR172,661 were received from Axio (2019: EUR354,182). Axio no
longer provides services to Zegona.
Mark Brangstrup Watts is a designated member of Marwyn Capital
LLP ("Marwyn"). Zegona entered into an agreement with Marwyn dated
14 March 2016 pursuant to which Marwyn provided office
accommodation, services and supplies. For the period to 12 May
2020, services totalling EUR25,372 were received from Marwyn (2019:
EUR68,717). This agreement was terminated on 13 November 2020.
Events since the end of the financial year
Zegona received a dividend on 12 February 2021 from Euskaltel at
a rate of EUR0.14 per share, totalling EUR5.4 million. In
accordance with Zegona's dividend policy, this was passed through
to Zegona's shareholders by payment of a dividend at a rate of 2.2p
per share, totalling GBP4.8 million (EUR5.6 million). The Zegona
dividend was declared on 21 December 2020 and paid on 9 March
2021.
On 2 March 2021, as part of an internal reorganisation designed
to simplify the structure of its holdings in Euskaltel, Zegona
Communications PLC contributed 3,878,965 shares in Euskaltel S.A.
with a value as at the closing mid-price on 2 March 2021 of
EUR31,807,513 to its subsidiary, Zegona Limited, in exchange for
one Ordinary Share of Zegona Limited.
On 28 March 2021, a wholly-owned subsidiary of MásMóvil Ibercom,
S.A.U. ("MásMóvil"), a Spanish telecommunications operator and
portfolio company of the private equity funds KKR, Providence and
Cinven, announced that it had launched a tender offer to acquire
100% of Euskaltel for EUR11.17 per share in cash (the "Offer"). The
Offer values Zegona's 21.44% shareholding at c.EUR427.7
million.
On 8 April 2021, Zegona Limited entered into a Deal Contingent
Forward Purchase Agreement with Barclays Bank PLC to hedge the full
amount of proceeds it expects to receive on the successful
completion of the Offer. Under the terms of the contract, Zegona
has sold EUR430 million and will receive between GBP371.9 million
and GBP372.1 million (depending on the actual date of settlement)
only if the Offer is successfully completed.
Share buy-back programme
The shareholders passed a resolution to authorise Zegona to make
market purchases of up to 10% of its current issued ordinary share
capital (within specified price parameters) in the 2020 AGM, which
expires on the earlier of the end of 2021 AGM or 18 months after
the date of 2020 AGM. A resolution to renew this authority is
proposed for the 2021 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. Any shares repurchased by Zegona
may be held in treasury and subsequently resold for cash, cancelled
or used for employee share scheme purposes.
During 2020 Zegona announced two buyback programmes of its
ordinary shares for an aggregate purchase price of up to GBP10
million (the "Buyback Programme"). Zegona's Board set a buyback
policy that allowed shares to be acquired at prices up to the
Underlying Asset Value Per Share (defined for any day as the value
in Sterling on the previous trading day of Zegona's investment in
Euskaltel (using the EUR/GBP FX rate on that day) and net cash
balance divided by the number of Zegona ordinary shares in issue).
Zegona purchased and cancelled a total of 2,965,101 ordinary shares
for a total of GBP3,066,047, representing 1.35% of the total shares
in issue. Further information can be found in Note 21 to the
Consolidated 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 2020 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 19 at 31 December as at 31
Asset manager at 19 April April 2021 2020 December
2021 2020
------------------------------ -------------- -------------- ---------------- --------------
Marwyn Asset Management
[49] 42,062,035 19.21 42,062,035 19.21
Artemis Investment Management 30,045,950 13.72 30,045,950 13.72
Fidelity Management &
Research 21,896,999 10.00 21,898,999 10.00
Canaccord Genuity Group
Inc 21,368,375 9.76 21,557,601 9.85
Fidelity Investments
Limited 20,328,930 9.28 20,328,930 9.28
Capital Research & Management
Company 17,921,987 8.18 17,921,987 8.18
Aberforth Partners LLP 13,650,347 6.23 13,404,347 6.12
Chelverton Asset Management 11,750,000 5.37 11,140,000 5.09
179,024,623 81.76 178,359,849 81.45
============== ============== ================ ==============
Independent auditor
KPMG has expressed its willingness to continue to act as auditor
to Zegona and a resolution for its re-appointment will be proposed
at the 2021 AGM. KPMG has confirmed that it remains independent of
Zegona.
Political donations
Zegona does not make any political donation 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
19 April 2021
GOVERNANCE | 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 Zegona group Financial
Statements in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union ("IFRSs as adopted by the EU") and
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
their 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 and reliable;
-- state whether they have been prepared in accordance with IFRSs as adopted by the EU;
-- 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
19 April 2021
Robert Samuelson
Chief Operating Officer
19 April 2021
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2020 2019
Notes EUR000 EUR000
Administrative and other operating expenses:
Corporate costs 5 (5,631) (5,639)
Incentive scheme costs 18 (914) -
Significant project costs 6 (292) (342)
======= =======
Operating loss (6,837) (5,981)
Finance income 7 3,775 38,190
Finance costs 7 (554) (674)
Share of profit of associate 12 16,309 9,094
Net foreign exchange gains 1,273 1,427
======= =======
Profit for the year before income tax 13,966 42,056
Income tax expense 8 - -
======= =======
Profit for the year attributable to equity
holders of
the parent 13,966 42,056
EUR EUR
Earnings per share
Basic and diluted earnings per share
attributable to equity holders of the
parent 23 0.06 0.20
The notes on pages 68 to 95 form an integral part of these
Consolidated Financial Statements .
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
2020 2019
EUR000 EUR000
Profit for the year 13,966 42,056
Other comprehensive (loss)/ income - items
that will or may be reclassified subsequently
to profit or loss
Exchange differences on translation of
foreign operations (18,703) 15,195
Total other comprehensive (loss)/ income (18,703) 15,195
Total comprehensive (loss)/ income for
the year, net of tax,
attributable to equity holders of the parent (4,737) 57,251
======== ======
The notes on pages 68 to 95 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 As at 31
December December
2020 2019
Notes EUR000 EUR000
Assets
Non-current assets
Property, plant and equipment 12 2
Interest in associate 12 322,737 334,343
========= =========
322,749 334,345
Current assets
Derivatives 14 39 -
Prepayments and other receivables 13 170 92
Financial assets measured at fair value
through profit or loss 15 7,499 3,997
Cash and cash equivalents 15,244 27,035
========= =========
22,952 31,124
========= =========
Total assets 345,701 365,469
========= =========
Equity and liabilities
Equity
Share capital 19 2,821 2,855
Other reserves 20 289,643 304,556
Share-based payment reserve 20 799 105
Foreign currency translation reserve 20 (6,884) 11,819
Retained earnings 20 46,072 32,000
========= =========
Total equity attributable to equity
holders of the Parent 332,451 351,335
Non-current liabilities
Bank borrowings 17 - 11,578
Current liabilities
Accruals and other payables 16 2,279 2,556
Bank borrowings 17 10,971 -
========= =========
13,250 2,556
========= =========
Total liabilities 13,250 14,134
========= =========
Total equity and liabilities 345,701 365,469
========= =========
The notes on pages 68 to 95 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 19 April 2021 and were signed on its behalf by:
Eamonn O'Hare Robert Samuelson
Director Director
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 As at
December 31 December
2020 2019
Notes EUR000 EUR000
Assets
Non-current assets
Property, plant and equipment 12 2
Investment in subsidiaries 9 252,322 265,711
Interest in associate 32,194 31,736
========= =======================
284,528 297,449
Current assets
Derivatives 14 39 -
Prepayments and other receivables 13 183 110
Cash and cash equivalents 15,149 26,023
========= =======================
15,371 26,133
========= =======================
Total assets 299,899 323,582
========= =======================
Equity and liabilities
Equity
Share capital 19 2,821 2,855
Other reserves 289,643 304,556
Share based payment reserve 694 -
Foreign currency translation reserve (79,268) (63,686)
Retained earnings 52,510 52,186
========= =======================
Total equity attributable to the shareholders
of the Company 266,400 295,911
Non-current liabilities
Bank borrowings 17 - 11,578
Current liabilities
Accruals and other payables 16 22,528 16,093
Bank borrowings 17 10,971 -
========= =======================
33,499 16,093
========= =======================
Total liabilities 33,499 27,671
========= =======================
Total equity and liabilities 299,899 323,582
========= =======================
The notes on pages 68 to 95 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 19 April 2021 and were signed on its behalf by:
Eamonn O'Hare Robert Samuelson
Director Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign
Share-based currency
Share Other payment translation Retained Total
capital reserves reserve reserve earnings equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1 January
2020 2,855 304,556 105 11,819 32,000 351,335
Profit for the year - - - - 13,966 13,966
Other comprehensive
loss - - - (18,703) - (18,703)
Cancellation of
shares purchased 21 (34) (3,565) - - - (3,599)
Net cost of incentive
arrangements 18 - - 694 - 106 800
Dividends paid 24 - (11,348) - - - (11,348)
========= ========== =========== ============ ========== =========
Balance at 31 December
2020 2,821 289,643 799 (6,884) 46,072 332,451
========= ========== =========== ============ ========== =========
Foreign
Share-based currency Retained
Share Other payment translation (deficit)/ Total
capital reserves reserve reserve earnings equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1 January
2019 1,763 205,623 105 (3,376) (10,056) 194,059
Profit for the year - - - - 42,056 42,056
Other comprehensive
loss - - - 15,195 - 15,195
Issue of shares,
net of directly
attributable costs 19,20 1,092 108,793 - - - 109,885
Dividends paid 24 - (9,860) - - - (9,860)
========= ========== =========== ============ ============ =========
Balance at 31 December
2019 2,855 304,556 105 11,819 32,000 351,335
========= ========== =========== ============ ============ =========
The notes on pages 68 to 95 form an integral part of these
Consolidated Financial Statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
Foreign
Share-based currency
Other payment translation Retained Total
Share capital reserves reserve reserve earnings equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1 January
2020 2,855 304,556 - (63,686) 52,186 295,911
Profit for the year - - - - 219 219
Other comprehensive
loss - - - (15,582) - (15,582)
Cancellation of shares
purchased 21 (34) (3,565) - - - (3,599)
Net cost of incentive
arrangements 18 - - 694 - 105 799
Dividends paid 24 - (11,348) - - - (11,348)
=============== ========== =========== ============ ========== =========
Balance at 31 December
2020 2,821 289,643 694 (79,268) 52,510 266,400
=============== ========== =========== ============ ========== =========
Foreign
currency
translation Retained
Share capital Other reserves reserve earnings Total equity
Note EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1 January
2019 1,763 205,623 (77,020) 55,159 185,525
Loss for the year - - - (2,973) (2,973)
Other comprehensive
income - - 13,334 - 13,334
Issue of shares, net
of directly attributable
costs 19,20 1,092 108,793 - - 109,885
Dividends paid 24 - (9,860) - - (9,860)
============= ============== ============ ========= ============
Balance at 31 December
2019 2,855 304,556 (63,686) 52,186 295,911
============= ============== ============ ========= ============
The notes on pages 68 to 95 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
2020 2019
Note EUR000 EUR000
Operating activities
Profit before income tax 13,966 42,056
Adjustments to reconcile profit before
income tax to operating cash flows:
Depreciation of property, plant and equipment 3 1
Share of profit in associate (16,309) (9,094)
Incentive scheme costs 18 793 -
Net foreign exchange gains (1,273) (1,427)
Finance income 7 (3,775) (38,190)
Finance costs 7 554 674
Working capital adjustments:
(Increase)/decrease in prepayments and
other receivables (78) 2,036
(Decrease) in accruals and other payables (435) (887)
Interest received 13 45
Interest paid (518) (427)
Net cash flows used in operating activities (7,059) (5,213)
========= ==========
Investing activities
Purchase of property, plant and equipment (13) (1)
Dividends received 7 11,842 10,236
Purchases of non-current financial assets
measured at fair value through profit
or loss and of interest in associate 12 (1,690) (92,798)
Proceeds from current financial assets
measured at fair value through profit
or loss 15 - 981
========= ==========
Net cash flows from/(used in) investing
activities 10,139 (81,582)
========= ==========
Financing activities
Dividends paid to shareholders 24 (11,348) (9,860)
Shares purchased and cancelled 19,21 (3,599) -
Net proceeds from loans and borrowings 17 - 10,980
Proceeds from issue of shares, net of
directly attributable costs 19,20 - 109,885
Net cash flows (used in)/from financing
activities (14,947) 111,005
========= ==========
Net (decrease)/increase in cash and cash
equivalents (11,867) 24,210
Net foreign exchange difference 76 (313)
Cash and cash equivalents at the beginning
of the year 27,035 3,138
========= ==========
Cash and cash equivalents at the end
of the year 15,244 27,035
========= ==========
The notes on pages 68 to 95 form an integral part of these
Consolidated Financial Statements.
COMPANY STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December
2020 2019
Note EUR000 EUR000
Operating activities
Profit/(loss) before income tax 219 (2,973)
Adjustments to reconcile profit before
income tax to operating cash flows:
Depreciation of property, plant & equipment 3 1
Share of profit in associate (1,617) (793)
Net foreign exchange gains/(losses) (1,193) 1,520
Finance income 7 (29) (346)
Finance costs 7 554 674
Working capital adjustments:
(Increase)/decrease in prepayments and
other receivables (73) 2,034
Increase in accruals and other payables 6,277 8,013
Interest received 13 45
Interest paid (518) (427)
============ =============
Net cash flows from operating activities 3,636 7,748
============ =============
Investing activities
Purchase of property, plant and equipment (13) (1)
Dividends received 1,172 492
Purchases of non-current financial assets
measured at fair value through profit
or loss and of interest in associate 12 (1,690) (92,798)
Net cash flows used in investing activities (531) (92,307)
============ =============
Financing activities
Dividends paid to shareholders 24 (11,348) (9,860)
Shares purchased and cancelled (3,599) -
Net proceeds from loans and borrowings 17 - 10,980
Proceeds from issue of shares, net of
directly attributable costs 19,20 - 109,885
Net cash flows (used in)/from financing
activities (14,947) 111,005
============ =============
Net (decrease)/increase in cash and
cash equivalents (11,842) 26,446
Net foreign exchange differences 968 (843)
Cash and cash equivalents at the beginning
of the year 26,023 420
============ =============
Cash and cash equivalents at the end
of the year 15,149 26,023
============ =============
The notes on pages 68 to 95 form an integral part of these
Consolidated Financial Statements.
NOTES TO THE FIANNCIAL STATEMENTS
1. GENERAL INFOR MATI ON
The Consolidated Financial Statements of Zegona Communications
plc (the "Company") and its subsidiaries (collectively, "Zegona")
for the year ended 31 December 2020 (the "Consolidated Financial
Statements") were authorised for issue in accordance with a
resolution of the Directors on 19 April 2021. 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 20
April 2021. The financial information set out in this document does
not constitute Zegona's statutory accounts for the years ended 31
December 2020 or 2019 but is derived from those accounts. Statutory
accounts for 2019 have been delivered to the registrar of
companies, and those for 2020 will be delivered in due course,
following the Company's Annual General Meeting, which will be held
at 12:00 p.m. on 30 June 2021. 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 2020 have been prepared in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
("IFRSs as adopted by the EU"), and with those parts of the
Companies Act 2006 as applicable to companies reporting under
international accounting standards.
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 2020 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 2020:
-- 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 preparation of the Consolidated Financial Statements.
There are no events or conditions that give rise to doubt the
ability of Zegona to continue as a going concern for a period of
twelve months after the preparation of the Consolidated Financial
Statements. The assessment includes the review of Zegona cashflow
forecast and budget, which included considerations on expected
developments in liquidity, debt and capital as well as t he
potential impact of the on-going COVID-19 pandemic. The Directors
have also considered sensitivities in respect of potential downside
scenarios in concluding that Zegona is able to continue in
operation for a period of at least twelve months from the date of
approving the Consolidated Financial Statements.
Zegona meets its day to day working capital requirements from
cash balances and bank facilities (see Note 17).
On 29 March 2021, Zegona announced that a subsidiary of MásMóvil
Ibercom, S.A.U ("MásMóvil"), the Spanish fourth national operator,
has launched a Tender Offer for Euskaltel. Zegona expects this
offer will be successful. If the offer is completed, Zegona's will
receive c. EUR427.7 million in cash for its entire stake in
Euskaltel. This cash will be used to repay its loan in full, and
Zegona will have sufficient cash and liquid resources to continue
in operation for the foreseeable future. On choosing to return a
portion of the proceeds to its shareholders, Zegona will have
discretion to retain sufficient cash to ensure it remains viable.
Once Zegona exits Spain, it will continue to execute its
buy-fix-sell strategy across the European TMT sector.
In the highly unlikely event that the Tender Offer is not
successful, Zegona will continue to hold its 21.44% holding of
Euskaltel. Euskaltel, Zegona's associate, has indicated that the
impact of the on-going Covid-19 pandemic on its operations and
financial performance has been limited. Zegona is not dependent on
receiving any cash inflows from Euskaltel to meet its
liabilities.
In the unlikely scenario that the Tender Offer does not
progress, the Directors have prepared cash flow forecasts for a
period of 12 months from the date of approval of these Financial
Statements, which indicate that, taking account of reasonably
possible downsides, including possible impacts of the Covid-19
outbreak, Zegona will have sufficient funds to meet its liabilities
as they fall due for that period . In addition, the Directors are
confident that they will be able to replace or renew the current
facilities that mature in October 2021 in similar amounts and on
similar terms.
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 12 to 16, this included key changes to principal risks,
including the impact of COVID-19, scenario analysis and mitigating
actions to downside scenarios.
In conclusion, based on their review the Directors have a
reasonable expectation that the Company and Zegona group have
adequate resources to continue in operational existence for the
foreseeable future, Accordingly, the Directors continue to adopt
the going concern basis in preparing the Consolidated 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 2020, none of which had a material effect on Zegona.
Standard Effective date
Amendments to References to the Conceptual 1 January 2020
Framework in IFRS Standards
Amendments to IAS 1 and IAS 8: Definition of 1 January 2020
Material
Amendments to IFR3: Definition of a Business 1 January 2020
Standards, amendments and interpretations not yet adopted:
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
Amendments to IFRS3: Reference to the conceptual 1 January 2022*
framework
Annual improvements to IFRS Standards 2018-2020 1 January 2022*
Amendments to IFRS 16: Property, Plant and 1 January 2022*
Equipment
Amendments to IAS 1 Presentation of Financial 1 January 2023*
Statements: Classification of Liabilities as
Current or Non-current
* subject to UK endorsement
(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) 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.
(g) 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 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.
(h) 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.
(i) 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
-- 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.
(j) 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 market place (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.
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.
(k) 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.
(l) 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.
(m) 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.
(n) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with an original maturity of three months or less.
(o) Investments in subsidiaries
Investments in subsidiaries within the Company's separate
Statement of Financial Position are stated at cost.
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.
(p) 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.
(q) 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.
(r) 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.
(s) 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.
(t) 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.
(u) 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 main accounting estimates and 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 are:
Accounting estimates
-- Measurement of share-based payments transactions . Valuation
techniques are used in determining the fair value of the management
incentive award, which feature significant unobservable inputs and
are subject to substantial uncertainty. The main estimates and
assumptions used in determining the GBP0.0786 per share fair value
of the management incentive are detailed in note 18.
-- The fair value remeasurement of the contingent consideration
receivable . As there is no observable market data for the
valuation of the contingent consideration receivable, the
measurement methodology of the fair value is highly judgemental.
The main estimates and assumptions used in determining the EUR7.5
million fair value of the contingent consideration on the basis of
significant unobservable inputs are detailed in note 15.
Accounting judgements
-- Impairment considerations at the end of each reporting period
. Reviews of indicators of impairment and impairment assessments of
our investments in associates and subsidiaries are judgmental, in
particular for assets where a readily available market does not
exist. In the case of Zegona's associate, Zegona has used a range
of external sources of information to conclude that no indicators
of impairment exist at 31 December 2020. The most important source
was Euskaltel's quoted share price and market capitalisation at 31
December 2020, but other sources included analysts' reports on
Euskaltel and the telecommunications market in Spain and other
public information on Euskaltel such as its business plans, results
and other public announcements.
-- The treatment of the contingent tax liability . IFRIC 23
Uncertainty over Income Tax Treatments ("IFRIC 23") requires a
provision to be made if it is considered that it is more likely
than not (i.e. it is probable) that there will be an outflow of
resources required to settle an obligation related to an uncertain
tax position in the event of an inquiry into the relevant items.
The determination of whether an outflow is more likely than not
requires significant judgement. An explanation of the key
judgements made in determining that a provision was not required
under IFRIC 23 in respect of the decision that the Group Financing
Exemption contained within the UK's Controlled Foreign Company
legislation constituted State Aid are detailed in note 8.
4. SEGMENTAL ANALYSIS
For management purposes, Zegona is currently organised into two
segments:
(i) investment in Euskaltel, which comprises Zegona's share of
the profit of Euskaltel (and dividend income and the movements in
fair value of the investment prior to recognising Euskaltel as an
associate); and
(ii) central costs, which comprises costs incurred in supporting Zegona's corporate activities.
The information presented to the Board does not include a
detailed analysis of the assets and liabilities of each segment and
as such this information has not been included in the information
on reportable segments set out below.
Investment Central
in Euskaltel costs Consolidated
2020 2020 2020
For the year ended 31 December 2020 EUR000 EUR000 EUR000
Incentive scheme costs - (914) (914)
Depreciation and amortisation - (3) (3)
Other operating expenses - (5,920) (5,920)
=============== ======== ============
Operating loss - (6,837) (6,837)
Finance income - 3,775 3,775
Finance costs - (554) (554)
Share of profit of associate 16,309 - 16,309
Net foreign exchange gains - 1,273 1,273
=============== ======== ============
(Loss)/profit before tax 16,309 (2,343) 13,966
Income tax - - -
=============== ======== ============
(Loss)/profit for the year 16,309 (2,343) 13,966
=============== ======== ============
Cash flows
Net cash used in operating activities - (7,059) (7,059)
Net cash (used in)/from investing
activities 11,842 (1,703) 10,139
Net cash used in financing activities - (14,947) (14,947)
=============== ======== ============
Net cash flows 11,842 (23,709) (11,867)
=============== ======== ============
Investment Central
in Euskaltel costs Consolidated
2019 2019 2019
For the year ended 31 December 2019 EUR000 EUR000 EUR000
Depreciation and amortisation - (1) (1)
Other operating expenses - (5,980) (5,980)
=============== ======= ============
Operating loss - (5,981) (5,981)
Finance income 37,993 197 38,190
Finance costs - (674) (674)
Share of profit of associate 9,094 - 9,094
Net foreign exchange gains - 1,427 1,427
=============== ======= ============
Profit/(loss) before tax 47,087 (5,031) 42,056
Income tax - - -
=============== ======= ============
Profit/(loss) for the year 47,087 (5,031) 42,056
=============== ======= ============
Cash flows
Net cash used in operating activities - (5,213) (5,213)
Net cash (used in)/from investing
activities (82,562) 980 (81,582)
Net cash from financing activities - 111,005 111,005
=============== ======= ============
Net cash flows (82,562) 106,772 24,210
=============== ======= ============
5. ADMINISTRATIVE AND OTHER OPERATING EXPENSES - CORPORATE COSTS
Consolidated Consolidated
2020 2019
EUR000 EUR000
Salaries, bonuses and staff benefits 3,694 3,610
Employment related taxes 530 504
Pension costs 304 268
Other operating expenses 1,103 1,257
Corporate costs 5,631 5,639
============ ============
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
2020 2019
Operations 7 5
Administration 1 1
============ ============
8 6
============ ============
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, disposal 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 2020, EUR54,000 (2019: EUR0.3 million) of significant project
costs were principally professional fees related to projects
related to increasing Zegona's investment in Euskaltel.
7. FINANCE INCOME AND COSTS
Note Consolidated Consolidated
2020 2019
EUR000 EUR000
Dividend income - 10,236
Net gain on currency forward instruments 16 -
Gain on fair value changes of investment
in Euskaltel - 27,756
Gain on fair value changes of contingent
consideration 15 3,746 152
Bank interest 13 46
Finance income 3,775 38,190
============ ============
Interest on bank borrowings (554) (674)
============ ============
Finance costs (554) (674)
============ ============
Dividend income
Dividend income relates to dividends received from the
investment in Euskaltel when it was recognised as an investment
prior to 10 July 2019.
Gain on fair value of investment in Euskaltel
Gain on fair value of investment in Euskaltel relates to fair
value movements on the interest in Euskaltel recognised as a
financial instrument at fair value through profit and loss prior to
10 July 2019, when Euskaltel become an associate.
8. TAXATION
Consolidated Consolidated
2020 2019
EUR000 EUR000
Current tax expense
Current year - -
============ ============
Income tax expense for the year - -
============ ============
Zegona believes that its accruals for tax liabilities are
adequate 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
2020 2019
EUR000 EUR000
Profit before tax from continuing operations 13,966 42,056
============ ============
At UK statutory income tax rate (19% (2019:
19%)) 2,653 7,991
Effect of tax rate used in other jurisdictions - (20)
Income not taxable (3,810) (9,771)
Expenses not deductible for tax purposes 232 155
Unrecognised tax losses 925 1,645
============ ============
Income tax expense - -
============ ============
In the UK 2019 Budget it was announced that the UK corporation
tax rate would not reduce to 17% but would remain at 19% from 1
April 2020. Consequently, Zegona has remeasured its UK deferred tax
assets at the end of the reporting period at the rate of 19%. In
the UK 2021 Budget it was announced that the UK corporation rate
will increase to 25% from 1 April 2023.
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 EUR5.0
million (2019: EUR3.0 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.
Contingent tax liability
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.
The EC 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. No date has yet been set for a General Court
Hearing in respect of these appeals and 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 on-going 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 and therefore no provision is required in respect of this
matter.
In accordance with the provisions of IFRIC 23, Zegona intends to
recognise a receivable against both HMRC charging notice paid in
March 2021 and further notice of approximately GBP250,000 that it
expects to receive and pay in respect of interest. Zegona will
continue to evaluate the recoverability of this receivable until a
final resolution is reached.
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
The movement in value of the Company's direct investment in
subsidiary during 2020 have decreased due to the foreign exchange
translation of the Company's Sterling denominated Financial
Statements, the functional currency of the Company, into euro, the
presentational currency of Zegona.
10. FINANCIAL RISK MANAGEMENT
Zegona's activities expose it to market risk, principally
interest rate risk and currency risk.
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. On 18 December 2020, Zegona
extended its facility agreements for a total GBP15 million which
bear interest at a spread over the 3-month LIBOR. GBP10 million has
been drawn on these facilities with an additional GBP5m available
until 14 September 2021. Zegona also 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, a significant movement in LIBOR
would be required to 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 2020, Zegona had euro monetary net assets of
EUR7.7 million (2019: EUR25.4 million). The table below shows the
transactional impact of a 10% change in euro against Sterling at 31
December 2020:
+/- 10% movement
Currency impact EUR000
Profit before tax gain/loss -/+ 631
Equity gain/loss -/+ 631
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 translation impact of 10% movement in
Sterling against the euro at 31 December 2020:
+/- 10% movement
Currency impact EUR000
Profit before tax gain/loss -/+ 1,399
Equity gain/loss -/+ 33,246
Lastly, Zegona is exposed to economic risk due to its interest
in associate operating in euros. Dividends from Zegona's investment
in Euskaltel will be received in euro and therefore an exchange
rate risk may arise on conversion of those dividends into Sterling.
In addition, the Sterling value of the proceeds from any future
sale of Euskaltel shares will impact the amount in Sterling that
Zegona will distribute to its shareholders unless Zegona chooses to
hedge the foreign exchange exposure.
Credit risk
Credit risk arises from cash and cash equivalents, prepayments
and other receivables and contingent consideration. 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 2020, 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 2020 are shown in
the table below:
Cash and Contingent
Quality classification External credit cash equivalents consideration Total
rating EUR000 EUR000 EUR000
Strong A- and above 15,244 - 15,244
Satisfactory BB + to B - 7,499 7,499
15,244 7,499 22,743
=================== ================ =========
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.
-- Satisfactory exposures require closer monitoring and
demonstrate and average-to-fair capacity to meet financial
commitments, with moderate default risk.
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 2020, Zegona had cash balances held with banks
amounting to EUR15.2 million (2019: EUR27.0 million), compared to
Zegona's total liabilities amounting to EUR13.8 million (2019:
EUR14.1 million). In addition, Zegona has unsecured undrawn
facilities of GBP6.5 million, equivalent to EUR7.2 million (2019:
GBP21.5 million, equivalent to EUR25.3 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
2020 2020 2019 2019
EUR000 EUR000 EUR000 EUR000
Prepayments and other receivables - 170 - 92
Derivatives (Level 2) 39 - - -
Financial assets designated
at fair value (Level 3) 7,499 - 3,997 -
Cash and cash equivalents - 15,244 - 27,035
------- --------- ------- ---------
Total current financial
assets 7,538 15,414 3,997 27,127
======= ========= ======= =========
Fair Amortised Fair Amortised
Value cost value cost
2020 2020 2019 2019
EUR000 EUR000 EUR000 EUR000
Bank borrowings - - - 11,578
------ --------- ------ ---------
Total non-current financial
liabilities - - - 11,578
====== ========= ====== =========
Accruals and other payables - 2,279 - 2,556
Bank borrowing - 10,971 - -
Total current financial
liabilities - 13,250 - 2,556
====== ========= ====== =========
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 and the significant
unobservable inputs used can be found on Note 15. There have been
no transfers fair value hierarchy levels during the year (2019:
Nil).
Financial instrument classification and fair values -
Company
Fair Amortised Fair Amortised
Value cost value cost
2020 2020 2019 2019
EUR000 EUR000 EUR000 EUR000
Prepayments and other receivables - 183 - 22
Derivatives (Level 2) 39 - - -
Cash and cash equivalents - 15,149 - 26,023
------ --------- ------ ---------
Total current financial
assets 39 15,332 - 26,045
====== ========= ====== =========
Fair Amortised Fair Amortised
Value cost value cost
2020 2020 2019 2019
EUR000 EUR000 EUR000 EUR000
Bank borrowings - - - 11,578
------ --------- ------ ---------
Total non-current financial
liabilities - - - 11,578
====== ========= ====== =========
Accruals and other payables - 22,528 - 16,093
Bank borrowings - 10,971 - -
Total current financial
liabilities - 33,499 - 16,093
====== ========= ====== =========
12. INTEREST IN ASSOCIATE
At 31 December 2020, Zegona owned 38.3 million shares (2019:
38.1 million) in Euskaltel, a Spanish telecommunications company
incorporated in Spain and operating in the Basque Country, Asturias
and Galicia under regional brands and nationally under the Virgin
telco brand, which represents approximately 21.44% (2019: 21.3%) of
the ordinary shares and voting rights of Euskaltel.
Summarised financial information for associate
The following tables summarise the Statement of Financial
Position and Statement of Comprehensive Income of Euskaltel as
disclosed in its own audited financial statements prepared in
accordance with IFRS as adopted by the EU, adjusted to recognise
certain assets and liabilities in line with their fair value at
acquisition date and differences in accounting policies. The
preparation of Euskaltel's financial statements for the year ended
31 December 2020 required certain estimates and judgements
concerning the future. There is a risk that different judgements
would have led to materially different accounting treatments or
that the final outcome of those estimates may differ from the
amounts initially recognised. The estimates and judgements that
present a significant risk of material adjustment to Euskaltel's
carrying amounts of assets and liabilities in subsequent reporting
periods, and therefore to Zegona's carrying value of investment in
associate, are: capitalisation of tax credits, volume discounts
from suppliers, share-based payments and the useful life of cable
network assets.
Statement of Comprehensive Income
For the period to 31 December 2020 EUR000
Revenue 677,785
Profit for the period (continuing operations) 77,306
Total comprehensive income for the period 77,306
Zegona's share of profit for the period
(21.37 % weighted average) 16,560
Statement of Financial Position
As at 31 December 2020 EUR000
Non-current assets 2,039,629
Current assets 233,779
Non-current liabilities (1,613,053)
Current liabilities (381,957)
------------
Net assets 278,398
Reconciliation to Zegona's carrying value of investment in
associate:
31 December
2020
EUR000
Euskaltel's net assets 278,398
------------
Zegona's share of Euskaltel's net assets
(21.44%) 59,688
Goodwill recognised* 264,556
Foreign exchange and other movements (1,507)
------------
Interest in associate 322,737
============
Fair value of interest in associate 335,105
*Includes EUR1.4 million of additional goodwill[50] recognised
on purchases, with a cost of EUR1.7 million, made in 2020.
The fair value of the interest in associate is based on its
quoted market price. Euskaltel had no contingent liabilities as at
31 December 2020.
Zegona has granted security to Euskaltel by a share pledge over
1,663,158 of its shares in Euskaltel with respect to certain tax
assets generated in favour of Telecable. At 31 December 2020,
4,478,965 shares are unpledged, with the remainder granted as
security to Barclays as described in Note 17.
13. PREPAYMENTS AND OTHER RECEIVABLES
Consolidated Consolidated
31 December 31 December
2020 2019
EUR000 EUR000
Prepayments 42 70
VAT recoverable 24 21
Other receivables 104 1
============ ============
Total 170 92
============ ============
Company Company
31 December 31 December
2020 2019
EUR000 EUR000
Prepayments 35 67
Amounts due from subsidiary undertakings 20 21
VAT recoverable 24 21
Other receivables 104 1
============ ============
Total 183 110
============ ============
14. 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
2020 2020 2019 2019
EUR000 EUR000 EUR000 EUR000
Foreign exchange 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.
15. CURRENT FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
The current financial assets balance of EUR7.5 million (31
December 2019: EUR4.0 million) comprises solely the contingent
consideration receivable from the sale of Telecable. The contingent
consideration is 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.
Note EUR000
Balance at 31 December 2019 3,997
Fair value changes recognised in profit or loss 7 3,746
Foreign exchange differences (244)
Balance at 31 December 2020 7,499
=======
Calculation of fair value at 31 December 2020
For all periods prior to December 2020, the fair value of the
contingent consideration was calculated using a
probability-weighted discounted cash flow model that calculated a
value based on the assumption that the contingent consideration
would be resolved by applying the mechanisms established in the
Telecable Sale and Purchase Agreement ("SPA"). The SPA required
Euskaltel to obtain a binding ruling from the Spanish General
Directorate of Taxation ("DGT") confirming certain tax assets are
eligible for use upon a qualifying merger of the Telecable
entities. This was applied for in 2018 with the expectation that it
would take approximately six months to be delivered but has yet to
be issued and this delay is a common issue with taxpayers with open
rulings before the DGT.
Given this delay, during the second half of 2020, Zegona engaged
with Euskaltel to try to devise an alternative arrangement for
settling the contingent consideration. As a result of this,
Euskaltel carried out a new analysis of the underlying tax credits
together with its tax advisers and concluded that they are
recoverable. Euskaltel therefore recognized both a deferred tax
asset to reflect the credits of approximately EUR25 million and a
short-term financial liability with related parties of EUR8.7
million in respect of Zegona's entitlement to receive 35% of the
value of the credits. Zegona considers that this disclosure
constitutes an adjusting post balance sheet event in accordance
with the terms of IAS 10 Events after the reporting period and has
therefore used this information in calculating the fair value of
the contingent consideration. Zegona is therefore confident that
Euskaltel will settle the full EUR8.7million liability shortly
after the Euskaltel board is released of its duty of passivity
following the completion of the Tender Offer for Euskaltel
discussed in note 27.
Zegona has calculated the fair value of the contingent
consideration financial asset by updating its probability-weighted
discounted cash flow model that calculates the present value of the
expected cash flows for two main outcomes. The fair value was
determined by calculating a weighted average of those cash flows
according to the probability of each scenario occurring. As a
result, a fair value of EUR7.5 million was assigned to the
contingent consideration which primarily reflects Zegona's high
confidence in the base case assumption that the full EUR8.7 million
recorded in Euskaltel's financial statements will be paid shortly
after the successful completion of the Tender Offer. The
assumptions with the most significant impact on fair value are the
time period (227 days) and discount rate (7.5%) applied in
discounting for the time value of money and the probability
assigned to each outcome. A +/- 10% change in any of the key
assumptions would not result in a material impact on the fair
value.
Calculation of fair value at 31 December 2019
As at 31 December 2019, Zegona still expected to resolve the
contingent consideration by applying the mechanisms established in
the Telecable Sale and Purchase Agreement SPA. Applying these
mechanisms, the eventual amount to be received depends on several
factors that are entirely specific to Euskaltel. These factors
include the availability of tax assets, the extent to which there
will be sufficient taxable profits to utilise these assets, and
assumptions around the outcome of certain open interactions with
the Spanish tax authorities.
The fair value of the contingent consideration was calculated
using a probability-weighted discounted cash flow model that
calculates the present value of the expected cash flows for 12
different plausible combinations of outcomes. The fair value was
determined by calculating a weighted average of those cash flows
according to the probability of each scenario occurring. As a
result of this analysis, a fair value of EUR3.9 million was
assigned to the contingent consideration. This value recognises the
possibility of certain material downside cases that Zegona
considered to be unlikely to occur (particularly in relation to the
merger approval discussed below not being granted) and therefore
the eventual amount received could be greater than this fair
value.
The significant unobservable inputs used in the base case (which
had a present value of EUR5.9 million), being management's
assessment of the present value of the most likely outcome and the
impact of each input on the value of the base case at 31 December
2019, holding the other inputs constant, are shown below:
Merger approval:
--------------------------------------------------------------------
The likelihood of receiving a binding ruling by the Spanish
General Directorate of Taxation confirming certain tax assets
are eligible for use upon a qualifying merger of the Telecable
entities.
Input used in the base case model: Sensitivity of the base case:
Successful If the merger is unsuccessful,
the revised base case present
value would be EURnil
Usability of available assets:
---------------------------------------------------------------------
The proportion of the available net tax assets that are deemed
to be usable by the Telecable entities in future periods to
offset future taxable profits according to the terms of the
SPA.
Input used in the base case model: Sensitivity of the base case:
82% usable Usability scenarios ranged
from 41% to 100%, causing the
present value of the base case
to range from EUR3 million
to EUR7.2 million
Timing of merger approval:
---------------------------------------------------------------------
The time it will take to receive a positive tax ruling on the
merger described above (which is not relevant for scenarios
where the merger is not approved).
Input used in the base case model: Sensitivity of the base case:
6 months If the timing is increased
to 18 months, the revised base
case present value would be
EUR5.5 million
16. ACCRUALS AND OTHER PAYABLES
Consolidated Consolidated
31 December 31 December
2020 2019
EUR000 EUR000
Trade payables 372 267
Accrued interest 57 103
Other accruals 1,850 2,186
2,279 2,556
============ ============
Company Company
31 December 31 December
2020 2019
EUR000 EUR000
Trade payables 57 106
Payable to direct subsidiary 21,909 15,527
Other payables 169 74
Accruals 393 386
22,528 16,093
=========== ===========
17. BANK BORROWINGS
In December 2020, the Company extended its credit facility with
Barclays Bank PLC ("Barclays") for a total of GBP15 million. The
drawdown amount remained unchanged at GBP10 million. Interest was
payable quarterly in arrears on the drawn amount at a rate of 2.6%
per annum above the 3-month LIBOR interest rate. A commitment fee
of 0.6% per annum was payable on the undrawn amount of GBP5
million. The Company had the right to prepay the loan at any
time.
The Barclays facility is due to mature on 14 October 2021.
Additionally, any amounts outstanding would have become immediately
repayable on the occurrence of certain events of default including
a drop in the value of Euskaltel shares to EUR3.42 or below, a
change of control of Euskaltel or Zegona and other customary events
of default. The Barclays facility was secured by a charge over 32.2
million Euskaltel shares.
18. MANAGEMENT INCENTIVE SCHEME
The holders of the Management Shares are entitled to 15% of the
growth in value of Zegona during a series of separate Calculation
Periods, provided that ordinary shareholders achieve a 5% Preferred
Return (a 5% per annum return on a compounded basis on
shareholders' net investment) in each Calculation Period.
Holders of the Management Shares may exercise their shares by
redeeming them at any point between the third and fifth anniversary
of the start of each Calculation Period. When management exercises
its Management Shares, 99% of these shares are redeemed, with the
remaining Management Shares continuing to have rights to the
management incentive. There are also provisions for exercise by
Management if there is a takeover or acquisition of Zegona
(including by a scheme of arrangement), or Zegona sells all or
substantially all of its assets and distributes the net proceeds to
shareholders.
Upon exercise, provided 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. If the Preferred Return has not been
achieved, no payment is made.
The first Calculation Period began on 14 August 2015. In
recognition that the first 5-year Calculation Period was due to end
in August 2020, an independent committee of the Board was formed in
April 2020 to review a number of matters relating to the incentive
arrangements.
In accordance with the scheme rules, Zegona management redeemed
its Management Shares on 25th June 2020 which was in advance of the
end of the first Calculation Period on 14 August 2020 and outside
of anticipated closed periods. At this date, the value of Zegona
shares (based on the 30-day volume weighted average price, "VWAP")
was below the GBP1.21 level required for the Preferred Return to be
met. The value of Zegona's investment in Euskaltel and its cash and
cash equivalents net of bank borrowings ([51]) on this date was
worth GBP1.28 per Zegona share, which was above both the Preferred
Return level and the Net Shareholder Invested Capital per share of
GBP0.955.
Following the redemption, 51,546,370 Management Shares in Zegona
Limited remain allotted, issued and fully paid as shown in the
table below:
Participation Number of Nominal value
in Management of Management
growth in Shares Shares
value
Eamonn O'Hare 8.88% 30,500,000 GBP3.05
Robert Samuelson 4.44% 15,250,000 GBP1.53
Zegona senior management 1.68% 5,796,370 GBP0.58
============= ==============
51,546,370 GBP5.16
============= ==============
Upon exercise of the Management Shares, a new Calculation Period
automatically begins, with Management entitled to 15% of the growth
in value of Zegona over the new Calculation Period, provided the
Preferred Return is achieved over this period. The starting value
against which the growth in value and the Preferred Return are
calculated (the "Baseline") at the beginning of the new Calculation
Period 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. Therefore, a new Calculation Period commenced on 25 June
2020 with the new Baseline value set at GBP0.955 per Zegona
share.
Each time a new Calculation Period begins, the renewal of the
Management Shares' rights is subject to a vote by Zegona's
shareholders at the next Annual General Meeting ("AGM"). If
shareholders representing 75 per cent or more of the shares vote
against the renewal at the AGM, the Management Shares will cease to
have any rights and will be redeemed for no value. Management could
receive value prior to the AGM vote if there is a takeover or
acquisition of Zegona (including by a scheme of arrangement), or
Zegona sells all or substantially all of its assets and distributes
the net proceeds to shareholders.
Under IFRS 2, the new Calculation Period constitutes a new
share-based payment award for which the holders of the Management
Shares began to render services from June 25, 2020. However, for
the purposes of IFRS 2, the grant date of the award cannot be until
Zegona's shareholders vote to ratify the renewal of the management
incentive scheme at Zegona's 2021 AGM.
In these 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 will be recalculated and adjusted at each balance
sheet date prior to Zegona's 2021 AGM. Once Zegona's shareholders
have voted to ratify the renewal of the management incentive scheme
at the 2021 AGM, the fair value will be recalculated and the
cumulative expense adjusted for a final time.
Accordingly, Zegona engaged an independent valuation specialist
to estimate the fair value of the award as at 31 December 2020
using a Monte Carlo model. The value of the award on the valuation
date was GBP0.0786 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 2020 a total of EUR0.8 million was recognised and
EUR0.1 million in relation to 3(rd) party costs incurred in the
renewal of Scheme.
The key inputs to the Monte Carlo model used to estimate the
fair value of the award were as follows:
Share price at measurement GBP1.055
date
Expected volatility 16%
Dividend yield 0%
Risk-free interest rate 0%
Number of simulations 100,000
19. CALLED UP SHARE CAPITAL
2020 2020 2019 2019
Allotted, called up
and fully paid Number EUR'000 Number EUR'000
At 1 January 221,935,177 2,855 126,219,449 1,763
Shares issued - - 95,715,728 1,092
Less: shares repurchased
and cancelled (2,965,101) (34) - -
--------------- ========= =============== ---------
At 31 December 218,970,076 2,821 221,935,177 2,855
=============== ========= =============== =========
The nominal value of the total ordinary shares is GBP0.01 and
the total allotted, called up and fully paid equates to
GBP2,189,701 (2019: GBP2,219,352).
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 21.
All ordinary shares confer identical rights including in respect
of capital, dividends and voting. There are no restrictions on the
distributions of dividends or the repayment of capital.
20. RESERVES
Foreign currency translation reserve
The foreign currency translation reserve includes the foreign
exchange differences arising from the translation of the
Consolidated Financial Statements functional currency of Sterling
("GBP") to presentational currency euro ("EUR"). This reserve is a
non-distributable reserve. The movement in this reserve for the
period is driven primarily by the movement in closing EUR:GBP
exchange rates from 1.18 at 31 December 2019 to 1.11 at 31 December
2020.
Share-based payment reserve
The share-based payment reserve represents the cumulative
build-up of the incentive scheme costs over the vesting period as
the employees gradually render service. More information on the
share-based Management incentive scheme can be found on Note 18.
This is a non-distributable reserve.
Retained earnings
The retained earnings reserve includes cumulative net profits
and permitted transfers from the share-based payment reserve. This
is a distributable reserve.
Other Reserves
Capital
redemption Share premium Other Total Other
reserve reserve reserve Reserves
EUR'000 EUR'000 EUR'000 EUR'000
At 1 January 2020 - 108,793 195,763 304,556
Cancellation of shares
purchased 34 - (3,599) (3,565)
Dividend paid - - (11,348) (11,348)
------------- --------------- ---------- ---------------
At 31 December 2020 34 108,793 180,816 289,643
============= =============== ========== ===============
Capital
redemption Share premium Total Other
reserve reserve Other reserve Reserves
EUR'000 EUR'000 EUR'000 EUR'000
At 1 January 2019 - - 205,623 205,623
Issue of shares, net
of costs - 108,793 - 108,793
Dividend paid - - (9,860) (9,860)
------------ ============== ============== --------------
At 31 December 2019 - 108,793 195,763 304,556
============ ============== ============== ==============
Capital redemption reserve
When the Company buys back shares out of distributable reserves
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. The capital redemption reserve is a
requirement under s692 of the Companies Act 2006 to preserve the
Company's capital and is a non-distributable reserve.
Share premium reserve
The reserve comprises amounts subscribed for share capital in
excess of nominal value less costs directly attributable to the
issue of new shares. The share premium reserve is a requirement
under s610 of the Companies Act 2006 and is a non-distributable
reserve.
Other reserve
On 8 June 2016, following approval by special resolution of the
shareholders at the Annual General Meeting of the Company on 15
April 2016, the share premium account of the Company was cancelled,
as confirmed by an Order of High Court of Justice, Chancery
Division. Upon the cancellation of the share premium account, the
balance of EUR386.045 million was transferred to the Other reserve.
The Other reserve forms part of the distributable reserves of the
Company.
The Other reserve also comprise the total costs of buying back
shares (the nominal value of the shares and any premium paid),
which are charged against distributable reserves.
Distributable reserves
The Company's total distributable reserves as at 31 December
2020 were GBP140 million, which equates to EUR156 million at 31
December 2020 foreign exchange rates (2019: GBP142 million, which
equates to EUR167 million at 31 December 2019 foreign exchange
rates).
21. 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. Zegona's Board set a buyback policy that allowed shares to
be acquired at prices up to the Underlying Asset Value per
Share[52]. This programme concluded on 31 March 2020 and 2,442,447
ordinary shares, with a nominal value of GBP24,424, were purchased
and cancelled for a total of GBP2,461,592.
On 24 June 2020, Zegona announced a further share buy-back
programme for the purchase of up to a maximum of GBP10 million of
its ordinary shares. This programme concluded on 15 September 2020
and 522,654 ordinary shares, with a nominal value of GBP5,227, were
purchased and cancelled for a total of GBP604,455.
During 2020 Zegona purchased and cancelled a total of 2,965,101
ordinary shares for a total of GBP3,066,047, representing 1.35% of
the total shares in issue.
22. 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 has authorisation to make market purchases of up to
10% of its current issued ordinary share capital (within specified
price parameters) until the end of the 2021 AGM. Any shares
repurchased by the Company pursuant to this authority may be held
in treasury and subsequently resold for cash, cancelled or used for
employee share scheme purposes.
Throughout 2020, Zegona met the financial covenants associated
to the facilities described in note 17.
23. 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 18, 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 they were anti-dilutive for the year ended 31
December 2020.
2020 2019
Profit for the year attributable to equity
holders of the parent (EUR000) 13,966 42,056
Weighted average number of ordinary shares 219,658,462 211,183,547
Basic and diluted EPS (EUR) 0.06 0.20
24. DIVID PAID
The Company declared an interim dividend on 6 February 2020 at a
rate of 2.0p per share, totalling GBP4.4 million (EUR5.1 million).
The dividend was paid on 6 March 2020. In the comparative period,
the Company declared an interim dividend on 31 January 2019 at a
rate of 2.5p per share, totalling GBP3.2 million (EUR3.7 million),
which was paid on 1 March 2019.
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. In the comparative
period, the Company declared a dividend on 2 August 2019 at a rate
of 2.5 pence per share, totalling GBP5.5 million. The dividend was
paid on 6 September 2019.
25. RELATED PARTY TRANSACTIONS
In the opinion of the Directors, there is no one single
controlling party.
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
Mark Brangstrup Watts, a Non-executive Director of Zegona up
until 12 May 2020, 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 (2019: EUR69k).
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 the period to 12 May 2020, services totalling EUR173k were
received from Axio (2019: EUR354k).
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 36 and 43.
Holdings of Management Shares are detailed in note 18.
26. AUDITOR'S REMUNERATION
2020 2019
EUR000 EUR000
Fees for the audit of the Company's annual
accounts 288 270
Total audit fees 288 270
====== ======
Fees for procedures on interim financial
statements 44 11
Total non-audit fees 44 11
====== ======
27. POST BALANCE SHEET EVENTS
Tender Offer for Euskaltel
On 28 March 2021, a wholly-owned subsidiary of MásMóvil Ibercom,
S.A.U. ("MásMóvil"), a Spanish telecommunications operator and
portfolio company of the private equity funds KKR, Providence and
Cinven, announced that it had launched a tender offer to acquire
100% of Euskaltel for EUR11.17 per share in cash (the "Offer"). The
Offer values Zegona's 21.44% shareholding at c.EUR427.7 million
On 27 March 2021 Zegona and MásMóvil entered into an irrevocable
agreement, by virtue of which MásMóvil has undertaken to launch the
Offer and Zegona to accept the Offer and tender its shareholding
during the acceptance period (the "Irrevocable Undertaking").
Kutxabank (19.9% shareholder in Euskaltel) and Alba (11%
shareholder in Euskaltel) have signed substantially equivalent
irrevocable undertakings, resulting in over 52% of Euskaltel's
total outstanding shares being subject to irrevocable undertakings
to tender in the Offer.
The main terms of the Irrevocable Undertaking are as
follows:
The remaining obligations on the offeror, MásMóvil, include
(amongst others):
-- No right to withdraw the Offer without the authorisation of
Zegona if any conditions are required for regulatory approvals.
-- A range of commitments in the event that the Offer is
successful and MásMóvil is the controlling shareholder of
Euskaltel, including to maintain Euskaltel's Basque headquarters
and not execute a mass redundancy programme for a period of at
least five years, to prioritise the deployment of a 5G network in
the Basque Region, and to promote actions to ensure prompt access
for Euskaltel's customers to ultra-fast FTTH broadband
services.
-- An undertaking not to sell, directly or indirectly,
Euskaltel's shares to a third party at a price higher than that
finally paid in the Offer within a period of 2 years from
settlement of the Offer, save in the event of an eventual sale or
IPO of MásMóvil Ibercom, S.A.U.
The remaining obligations on Zegona include (amongst
others):
-- To tender all its Euskaltel shares in the Offer during the
acceptance period and not to sell or transfer its Euskaltel shares
during the period of the Offer.
-- To use its voting rights in Euskaltel to vote against any
resolution that could prevent or frustrate the Offer or which could
significantly reduce the synergies available.
In the event of a material breach of the Irrevocable Undertaking
by either party, the breaching party shall pay the non-breaching
party, as liquidated damages, an amount equivalent to 15% of the
value of Zegona's Euskaltel shareholding as calculated at the Offer
price. This is not an exhaustive remedy for wilful misconduct,
gross negligence or fraud.
The Offer is subject to regulatory approvals and the acceptance
of the Offer by a number of shares representing at least 75% plus
one share of the total outstanding share capital of Euskaltel.
Hedging instrument
On 8 April 2021, Zegona Limited entered into a Deal Contingent
Forward Purchase Agreement with Barclays Bank PLC to hedge the full
amount of proceeds it expects to receive on the successful
completion of the Offer. Under the terms of the contract, Zegona
has sold EUR430 million and will receive between GBP371.9 million
and GBP372.1 million (depending on the actual date of settlement)
only if the Offer is successfully completed.
Interim dividends
Zegona received a dividend on 12 February 2021 from Euskaltel at
a rate of EUR0.14 per share, totalling EUR5.4 million. In
accordance with Zegona's dividend policy, this was passed through
to Zegona's shareholders by payment of a dividend at a rate of 2.2p
per share, totalling GBP4.8 million (EUR5.6 million). The Zegona
dividend was declared on 21 December 2020 and paid on 9 March
2021.
Intercompany transfer of Euskaltel shares
On 2 March 2021, as part of an internal reorganisation designed
to simplify the structure of its holdings in Euskaltel, Zegona
Communications PLC contributed 3,878,965 shares in Euskaltel S.A.
with a value as at the closing mid-price on 2 March 2021 of
EUR31,807,513 to its subsidiary, Zegona Limited, in exchange for
one Ordinary Share of Zegona Limited.
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
30 June 2021 at 12:00 p.m. for the transaction of the following
business:
To consider and, if thought fit, to pass the following
resolutions, numbers 1 to 12 of which will be proposed as ordinary
resolutions and numbers 13 to 17 of which will be proposed as
special resolutions:
1. THAT the Company's financial statements for the year ended 31
December 2020, 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 2.2p per ordinary share to the Company's shareholders
on 9 March 2021 be and is confirmed, approved and ratified for all
purposes.
11. THAT the Directors' remuneration report, which is set out in
the annual report of the Company for the year ended 31 December
2020, be approved.
12. 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:
12.1 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 GBP729,900 to such
persons and at such times and on such terms as they think proper;
and further
12.2 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 GBP729,900 ,
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.
13. 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.
14. THAT if resolution 12 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:
14.1 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 12.2, 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
14.2 the allotment (otherwise than pursuant to paragraph 14.1
above) of equity securities up to a nominal amount of
GBP109,485,
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.
15. THAT if resolution 12 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 12 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:
15.1 limited to the allotment of equity securities or sale of
treasury shares up to a nominal amount of GBP109,485; and
15.2 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.
16. 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:
16.1 the maximum number of ordinary shares hereby authorised to
be purchased is 32,823,614, being equal to 14.99 per cent. of the
issued ordinary shares;
16.2 the minimum price (exclusive of expenses) which may be paid
for such ordinary shares is GBP0.01 per share, being the nominal
amount thereof;
16.3 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);
16.4 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
16.5 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.
17. 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: 19 April 2021
Registered Office: 47 Esplanade, St Helier, Jersey, JE1 0BD
EXPLANATORY NOTES TO THE RESOLUTIONS
Notes:
Proposed AGM arrangements
(i) As you may know, we are required by law to hold an AGM
within six months of our financial year end. However, given the
unprecedented circumstances, the Board has decided to put in place
contingency arrangements that mean the AGM will not follow its
usual format. Only the statutory, formal business (consisting of
voting on the resolutions proposed in the Notice of AGM) to meet
the minimum legal requirements will be conducted and the AGM will
proceed as set out below:
(a) the AGM will be at 10 Snow Hill, London, EC1A 2AL or, if
those offices are closed, immediately outside the offices;
(b) the Chairman of the Board and another member of the
executive management team who holds shares in the Company will
attend the AGM to ensure that the AGM is quorate;
(c) no other Directors will be present in person;
(d) there will be no presentation at the AGM, nor will there be
any opportunity to ask questions of the Board;
(e) as would normally be the case, the votes on the resolutions
to be proposed at the AGM will be conducted on a show of hands and
the chairman of the meeting will vote on a show of hands in
accordance with the proxies held; and
(f) the results of the proxy votes will be published immediately
following the conclusion of the AGM by way of a stock exchange
announcement and on the Company's website.
(ii) Although this is a very unusual approach, the Board
considers that in light of the "lockdown" legislation currently in
force, proceeding with a "technical" AGM is in the best interests
not only of the Company, but also of each of its individual
shareholders. By allowing the voting to proceed in accordance with
instructions received by proxy, our share allotment and buyback
resolutions can be put to shareholders for renewal before they
expire and we can comply with our legal requirements, while
ensuring that no one will have to travel unnecessarily to attend
the AGM.
(iii) Of course, if circumstances change and the restrictions
are lifted or relaxed before the AGM, the Company will notify
shareholders of any changes to the proposed format for the AGM as
soon as possible via its website. The timetable published by the
Government gives 21 June as the current intended date for all
Covid-related restrictions to be withdrawn. The Company will
continue to monitor the situation over the coming weeks.
(iv) 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").
(v) To appoint a proxy you may:
(a) use the Form of Proxy enclosed with this Notice of Annual
General Meeting. To be valid, the Form of Proxy, together with the
power of attorney or other authority (if any) under which it is
signed or a notarially certified or office copy of the same, must
be received by post or (during normal business hours only) by hand
to Link Group, PXS1 Central Square, 29 Wellington Street, Leeds,
LS1 4DL or at the electronic address provided in
the proxy form, in each case no later than 12:00 p.m. on 28 June 2021; or
(b) 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.
Alternatively, you may submit your proxy electronically using
the share portal service at www.signalshares.com. If not already
registered for the share portal, you will need your investor code
which is located on your share certificate.
Further details on how to direct your proxy to vote on
resolutions or withhold their vote are set out in the notes to the
Form of Proxy.
(vi) 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.
(vii) 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
corporations rights in respect of the same shares.
(viii) 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.
(ix) 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 28 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.
(x) 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.
(xi) 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.
(xii) 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.
(xiii) As at 19 April 2021 (being the last business day prior to
the publication of this notice) the Company's issued share capital
consists of 218,970,076 ordinary shares, carrying one vote each.
Therefore, the total voting rights in the Company as at 19 April
2021 are 218,970,076.
(xiv) 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
.
(xv) 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.
The purpose of these notes is to explain the resolutions and
business to be conducted at the Company's AGM. Resolutions 2 to 13
set out in the Notice detail the ordinary resolutions and
resolutions 1 and 14 to 17 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 2020, 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 19
and 20 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 2020 as set out on page 22
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 2021. 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 a
second interim dividend, in lieu of a final dividend, of 2.2 p per
ordinary share to shareholders of the Company on 9 March 2021. The
dividend payment followed the Company's interim dividend payment of
2.6 p per ordinary share in July 2020, thus bringing the total
shareholder dividend payments for 2020 to 4.8 p per share.
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 30 to 47 of the Annual Report. The actual remuneration
paid to Directors in 2020 was made within the boundaries of the
Directors' remuneration policy approved by shareholders at the 2019
Annual General Meeting.
Resolution 12 - 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 12 is proposed to renew the Directors' authority to
allot ordinary shares of up to a maximum nominal amount of (i)
GBP729,900 (being one-third of the Company's issued ordinary share
capital as at 19 April 2021) to such persons and upon such
conditions as the Directors may determine; and (ii) a further
maximum aggregate nominal amount of GBP729,900 (being one-third of
the Company's issued ordinary share capital as at 19 April 2021) in
connection with a rights issue (as defined in resolution 12 of the
Notice), 19 April 2021 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 12 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 13 - 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 25 June
2020. A core feature of the 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 18 to the financial
statements) when a Calculation Period ends and another one
automatically starts.
Resolutions 14 and 15 - 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 14 and 15
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 14 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 GBP109,485, equivalent to 5 per cent. of
the total issued ordinary share capital of the Company (excluding
treasury shares) as at 19 April 2021, 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 15 authorises the Directors to allot new
shares pursuant to the allotment authority given by resolution 12,
or sell treasury shares, for cash up to a further nominal amount of
GBP109,485, being an additional 5 per cent. of the entire issued
share capital of the Company as at 19 April 2021, 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 15 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 16 - 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 10 per cent. of the ordinary shares in
issue as at 19 April 2021.
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 19 April 2021, although
shares issued in the Company's incentive schemes may be exchanged
for ordinary shares in certain circumstances.
Resolution 17 - 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. complete the Form of Proxy enclosed with this Notice of
Annual General Meeting and return it, together with any power of
attorney or other authority under which it is signed or a
notarially certified or office copy thereof, to Central Square, 29
Wellington Street, Leeds LS1 4DL, so as to arrive no later than 12
:00 p.m. on 28 June 2021 ; or
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
12:00 p.m. on 28 June 2021. 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)
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 Stre et
London
EC2V 7JD
Telephone: +44 (0)20 7615 3000
NOTES
[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] Operating profit excluding depreciation of property, plant
and equipment and amortisation of intangible assets.
[3] Compound Annual Growth Rate.
[4] 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).
[5] See page 10 for calculation.
[6] Premium to Zegona's share price at market close on 26 March
2021 of 94.5 pence.
[7] See page 11 for calculation.
[8] 10.7%.
[9] Quad play: customers with four services (pay TV, fixed
voice, broadband and mobile).
[10] Business to Business.
[11] Those with holdings in 3% or more of the issued ordinary
shares of the Company are listed on page 49.
[12] O perating profit excluding depreciation of property, plant
and equipment and amortisation of intangible assets.
[13] Euskaltel Q420 results press release, 25 February 2021.
[14] Selling, General and Admin expenses.
[15] Operating Cash Flow = EBITDA - Capex.
[16] In 2020, and from 10 July 2019 to 31 December 2019,
dividends received are recorded as a decrease to the carrying value
of the Interest in Associate in Zegona's Statement of Financial
Position. Prior to 10 July 2019, dividends received were recorded
as Finance Income in Zegona's Statement of Comprehensive
Income.
[17] Zegona's commitment in its January 2019 Prospectus was as
follows:
Within 2 years of the placing, and at regular intervals
thereafter, Zegona's Board will formally review the Euskaltel
business performance and the role Zegona has played in adding
value. If Zegona shares are trading at a material discount to the
value implied by the market value of its equity interest in
Euskaltel at this time, Zegona expects to continue to hold its
stake in Euskaltel only if:
a. It is clear that during the period from the placing to the
time of the review, Zegona has contributed significant value to the
Euskaltel business through its involvement; and
b. Zegona is confident that it can continue to add significant
further value in the foreseeable future.
If Zegona's Board concludes that these conditions have not been
met, Zegona would expect to return its Euskaltel shares to Zegona
shareholders via a dividend in specie or sell its stake in
Euskaltel and promptly return the proceeds to Zegona shareholders,
depending on which approach is expected to maximise value.
[18] As defined on page 42.
[19] Proprietary director means a director of a company who is
the beneficial owner of or is able, either directly, either
directly or indirectly, to control more than 15% of the ordinary
share capital of the company.
[20]
https://www.zegona.com/investor-relations/shareholder-information.aspx.
[21] Mark Brangstrup Watts resigned on 12 May 2020.
[22] Murray Scott did not stand for re-election and ceased to be
a Director on 9 June 2020.
[23] Suzi Williams was appointed Non-Executive Director on 5 February 2020.
[24] Kjersti Wiklund was appointed Non-Executive Director on 5 February 2020.
[25] 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.
[26] The holders of Management Shares may exercise their rights
during Measurement Periods, which are three to five years after the
previous Calculation Date. Shares received upon the exercise of
performance rights, net of tax obligations, must generally be
retained until a period of at least five years has elapsed since
the previous Calculation Date. This additional post-exercise
holding period will be waived in the event that substantially all
of the company's main assets are sold, or there is a Takeover,
Board Change of Control, liquidation or Winding Up of the company,
if the Parent ceases to be the Holder of 50% or more in nominal
value of the issued ordinary Shares in the capital of the Company,
or if a Drag Along Notice has been issued.
[27] Return (a 5% per annum return on a compounded basis on
shareholders' net investment).
[28] Defined by Zegona at 31 December 2020 as "Underlying Asset
Value per Share" - excludes the value of contingent consideration
receivable and any value for Zegona Management Shares.
[29] Includes cost of all shares purchased back under the first
programme (7 January - 31 March) and calculation of the preferred
returns using the underlying purchase dates.
[30] The scheme will actually become exercisable either on 25
June 2023 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.
[31] The value of Zegona's main assets is the Sterling
equivalent of the fair value of Zegona's investment in Euskaltel
and its net cash position on 31 December 2019 as discussed on page
10.
[32] 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.
[33] 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 2020.
[34] Net invested capital on 25 June 2020, the date of
commencement of the second Calculation Period.
[35] Includes cost of all shares purchased back under the second
programme (24 June- 15 September) and calculation of the preferred
returns using the underlying purchase dates.
[36] The Non-Executive Directors have not received any other
form of remuneration during the current or prior year.
[37] Richard Williams stepped down as Chairman of the
Nominations and Remuneration Committee on 9 June 2020.
[38] Kjersti Wiklund was appointed Non-Executive Director on 5
February 2020.
[39] Suzi Williams was appointed Non-Executive Director on 5
February 2020 and Chairman of the Nominations and Remuneration
Committee on 9 June 2020.
[40] Mark Bangstrup-Watts resigned on 12 May 2020.
[41] Murray Scott did not stand for re-election and ceased to be a Director on 9 June 2020.
[42] Period from incorporation on 19 January 2015 to 31 December
2015.
[43] 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.
[44] The Underlying Asset Value is the Sterling equivalent of
the fair value of Zegona's investment in Euskaltel and its net cash
position and other assets as discussed on page 10.
[45] Mark Brangstrup Watts resigned on 12 May 2020.
[46] Murray Scott did not stand for re-election and ceased to be
a director on 9 June 2020.
[47] Kjersti Wiklund was appointed Non-Executive Director on 5
February 2020.
[48] Suzi Williams was appointed Non-Executive Director on 5
February 2020 and Chairman of the Remuneration and Nominations
Committee on 9 June 2020.
[49] Mark Brangstrup Watts is a Non-Executive Director of Marwyn
Asset Management Limited and was a Non-Executive Director of the
Company until 12 May 2020.
[50] Zegona has applied an allocation approach similar to that
applied on the date Euskaltel become an associate, whereby goodwill
is calculated on incremental interest acquired as a residual after
valuing the incremental share of identifiable net assets at fair
value of EUR0.3 million.
[51] Defined by Zegona as "Underlying Asset Value per Share" at
31 of December 2020 -excludes the value of contingent consideration
receivable and any value for Zegona management.
[52] 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
42.
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END
FR PPUMPCUPGUGU
(END) Dow Jones Newswires
April 20, 2021 02:00 ET (06:00 GMT)
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