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ZEGONA COMMUNICATIONS PLC ("Zegona")

 

LEI: 213800ASI1VZL2ED4S65

 4 april 2022

 

ZEGONA ANNOUNCES 2021 RESULTS

 

London, England, Zegona Communications PLC (LSE: ZEG) announces results and publishes its Annual Report for the year ended 31 December 2021.[1]

 

Enquiries

 

Tavistock (Public Relations adviser - UK)

Tel: +44 (0)20 7920 3150

Lulu Bridges - [email protected]

Jos Simson - [email protected]

 

About Zegona

 

Zegona was established in 2015 with the objective of investing in businesses in the European Telecommunications, Media and Technology sector and improving their performance to deliver attractive shareholder returns. Zegona is led by former Virgin Media executives Eamonn O'Hare and Robert Samuelson.

 

 

ZEGONA COMMUNICATIONS PLC

Annual Report

For the Year Ended 31 December 2021

 

I am pleased to present Zegona's annual report for 2021. This was a very important year for the Company. We crystalised significant shareholder value by completing the sale of Euskaltel and delivered on our commitment to return capital to shareholders promptly and efficiently.  

 

The completion of Zegona's journey in Spain validates its Buy-Fix-Sell strategy

On 28 March 2021, MásMóvil, the fourth largest telecommunications operator in Spain launched a tender offer to acquire 100% of Euskaltel for €11.17 per share in cash. This valued Euskaltel's equity at €2.0 billion, which equated to an Enterprise Value of €3.5 billion (over 10x EBITDA and 21x Operating Cash Flow), a significant premium

to European telecommunications multiples[2].

 

The sale of our Euskaltel investment represented the successful completion of our Buy-Fix-Sell strategy in Spain. This journey included four M&A transactions and two operational turnarounds. Our involvement in Telecable and Euskaltel created significant value, delivering an 88% return on shareholders' net invested capital[3].

 

The success of our investment strategy in Spain, culminating in the sale of Euskaltel to MásMóvil, demonstrated the strength and flexibility of our Buy-Fix-Sell strategy. We engineered the combination of three northern Spanish cable operators and leveraged our position as the leading shareholder in the enlarged business to drive significant change. These changes included restructuring the board, strengthening the senior management team, realising material synergies, returning the business to growth and expanding nationally across Spain through the launch of the Virgin brand.

 

As Euskaltel started to grow with improved operational and financial metrics, we were able to initiate consolidation discussions from a position of strength.  The eventual transaction with MásMóvil received support from the full Euskaltel Board and over 97% of Euskaltel's shareholders.  The transaction was completed in August 2021, and we received €428 million[4] (£370 million[5]) in total cash proceeds.

 

Capital returned to shareholders with management reinvesting

A core component of our Buy-Fix-Sell strategy is our commitment to return excess capital to shareholders promptly and efficiently. We did this in 2017 when we sold Telecable and we did the same again this year. Following the announcement of MásMóvil's tender offer, we sought the views of our shareholders before announcing in May 2021 our intention to return over 90% (£335 million) of the cash proceeds. We initiated this capital return with a £5.7 million dividend in June 2021 and the return of the full £335 million was completed less than two months later with a tender offer to acquire Zegona shares at £1.535 per share.

 

At the same time, the executive team agreed to reinvest a portion of the Management Incentive as a signal of our commitment to the business and confidence that we can once again deliver significant shareholder value by implementing Zegona's Buy-Fix-Sell strategy. This reinvestment has resulted in the management team becoming Zegona's largest shareholder. In addition, Robert Samuelson (Chief Operating Officer) and I waived our entitlement to any bonus in 2021 and Zegona will pay no bonuses to the senior team until we have made another investment. Management continue to be strongly aligned with shareholders, both through our significant ownership position and the long-term incentive scheme that links our remuneration directly to growth in shareholder value.

 

The next Buy-Fix-Sell Opportunity

After completing the Capital Return, Zegona is in a similar position to when it was founded in 2015. The company has retained sufficient capital to provide adequate time and resources to secure another attractive investment opportunity within the European TMT sector.

 

The broader European TMT landscape continues to be large and fragmented, with well over 100 operators, of which over half fit our desired investment size. We continue to see a very healthy environment for acquisitions

 

across the industry, demonstrated by a significant increase in deal activity with approximately 14 public telco businesses being acquired or subject to a public offer in the last two years.

 

This healthy acquisition environment is being driven by a number of core themes that we believe will present Zegona with attractive investment opportunities. These include, core telco business delivering poor capital returns, fixed/mobile convergence, in-market consolidation and large multi-national operators divesting non-strategic assets.

 

We are actively pursuing a number of attractive opportunities and have recently participated in a number of transaction processes. These are in markets which we know well and where we are confident we can apply our expertise and experience to again deliver superior returns for our shareholders. However, we remain patient and disciplined and will not complete a transaction unless we are confident that it meets our strict financial criteria. We are currently working on a shortlist of attractive opportunities and hope to be able to discuss these with shareholders in due course.

 

Annual general meeting

The next AGM will be held at 10 Snow Hill, London, EC1A 2AL at 1:00 pm on 28 June 2022. The AGM is an opportunity for shareholders to vote on certain aspects of Zegona's business. The Directors will also be available to answer any shareholder questions prior to and after the meeting.

 

 

 

 

Eamonn O'Hare

Chairman and Chief Executive Officer

3 April 2022

 

 

Vision

·    Execute our Buy-Fix-Sell strategy in the European TMT sector

·    Focus on businesses that require active change and fundamental improvement to realise their full value

·    Target significant long-term growth in shareholder value

 

Opportunity

Changing market dynamics in the TMT industry create multiple investment opportunities:

 

·    Demand for data and speed: Data consumption is growing strongly with customers willing to pay for speed and reliability. Gigabit broadband is increasingly offered in many markets but network roll-outs and upgrades need to be efficient.

·    Digital convergence: The fixed/mobile divide is increasingly disappearing for users, meaning significant growth in more valuable quad play[6] customers who are combining mobile and fixed services. This has driven an increase in merger and acquisition ("M&A") activity and improvements in economics for converged players since mobile data delivery is heavily dependent on high capacity fixed networks.

·    Industry consolidation: The sector has seen heightened M&A activity. Many private equity owners are looking to sell assets as economies return to growth and industry players are focusing on their core regions, delivering cost reductions and price repair to rebuild margins. Consolidation has also created opportunity as businesses are spun out by the major industry players to meet regulatory requirements and strategic objectives, creating opportunity for Zegona.

·    Infrastructure monetisation: The opportunity to enhance value through separating off and monetising infrastructure assets, started with mobile towers but has expanded to other assets including fixed networks.  This creates new commercial options, both through providing a route for incremental value creation and in the remaining 'servco' operations which may not have been the main focus of attention in the initial infrastructure led transaction.

·    Broad range of attractive assets: Our flexibility in terms of size, geography and category opens a broad universe of attractive target assets across the TMT market. We have identified many businesses of an appropriate scale, including operators which are active in one or more of the mobile, mid-sized cable, fixed fibre network, B2B[7], and network infrastructure sectors.

 

Advantage

A number of factors make Zegona well positioned to access attractive deals and deliver value:

 

·    Strong, aligned management team: Our management team has a proven track record of delivering superior business performance and investor returns. During 2017, it successfully sold Telecable and was then instrumental in returning Euskaltel to growth. This enabled us to initiate consolidation discussions with MásMovíl that lead to it acquiring Euskaltel in July 2021. The team has extensive real-world experience in senior operational roles in large public telecommunications companies and it interests are also strongly aligned with shareholders through a long-term incentive scheme that links remuneration directly to growth in shareholder value.

·      Entrepreneurial focus: We have considerable freedom in the projects we pursue and the ways we create value. Unlike most private equity businesses, Zegona is free to choose the optimal period to hold assets and can realise value using a range of approaches, of which a sale of the asset is only one. This also permits a focus on fundamental business improvements that are value accretive rather than relying on high leverage and multiple expansion. We are also able to act quickly on acquisition opportunities while still maintaining financial discipline. This is especially attractive to potential sellers and a key differentiator.

·      Major global investors: Zegona benefits from having a number of global public equity asset managers[8] with a long-term outlook as shareholders. The strong support which we have from such shareholders was illustrated by our successful placement of over £100 million of equity in February 2019 which enabled us to become Euskaltel's largest shareholder and drive change within the business. We have an effective investor relations programme which maintains regular contact with our major current and potential shareholders.

 

Strategy

We seek to provide shareholders with an attractive total return, primarily through appreciation in the value of Zegona's assets. Our strategy focuses on making investments in strategically sound businesses within the European TMT sector that require active change to realise their full value, thereby creating significant long-term returns through fundamental business improvements. The main elements of Zegona's strategy are set out below but our overall approach is to deal with each opportunity and situation individually as it arises. For example, in the case of the investment in Euskaltel, our successful strategy was to increase our ownership position and work constructively with the Euskaltel Board and management to improve the performance of the business and make it more attractive to potential buyers, thereby encouraging industry consolidation.

 

We evaluate potential investments using a disciplined set of financial and strategic criteria. We focus on:

 

·      Target businesses with an enterprise value range of £1-5 billion, although we may deviate outside of this range if we believe the returns are sufficiently attractive;

·      TMT, network-based communications and entertainment businesses, primarily in Europe;

·      Strategically sound businesses with established market positions and limited expected downside risk, but which have scope for fundamental improvement that is realistically achievable;

·      Appropriate financial leverage (usually 3-4x EBITDA[9]); and

·      Multiple viable exit options pre-identified.

 

Many businesses across the TMT sector currently deliver sub-optimal returns which could be significantly improved. We work with management to deliver fundamental business improvements, such as:

 

·      Changing the business market position;

·      Being actively involved in the management of the business to drive operational improvements;

·      Instilling strong discipline around cost efficiency;

·      Investing in products, services and other value-accretive activities to drive top line growth;

·      Focusing on operating profitability and cash generation;

·      Ensuring a balanced and efficient capital structure;

·      Innovative techniques to separate and monetise infrastructure assets; and

·      Value enhancing bolt-on acquisitions/divestments.

 

Buyer interest is stimulated as the performance of each investment improves, providing Zegona with a range of options to crystallise the value it has created:

 

·      We identify the optimal time to crystallise the value we have created, with flexibility to adapt to market changes and other opportunities;

·      Zegona's publicly listed structure allows shareholders to realise value at any time and provides multiple options for value delivery; and

·      Following a successful crystallisation, the value created will be reinvested or returned to shareholders.                  

 

Sale of the investment in Euskaltel and Return of Capital

On 28 March 2021, MásMóvil, the fourth largest telecommunications operator in Spain launched a tender offer to acquire 100% of Euskaltel for €11.17 per share in cash (the "Offer"). The Offer valued Euskaltel's equity at €2.0 billion which equated to an Enterprise Value of €3.5 billion and valued Euskaltel at 10.1x EBITDA and 21x Operating Cash Flow, a significant premium to European telecommunications multiples[10].

 

The offer price was subsequently adjusted to €11.00 per share following the payment by Euskaltel of a €0.17 per share dividend on 17 June 2021 which Zegona passed on to its shareholders in full through a £5.7 million dividend declared on 21 June 2021. The tender offer was successfully completed and Zegona received €421.3 million on 11 August 2021. Eamonn O'Hare and Robert Samuelson resigned as directors of Euskaltel on 10 August 2021.

 

The completion of MásMóvil's acquisition of Euskaltel underscores the success of Zegona's strategy in Spain and provided significant value creation for Zegona shareholders, with Zegona achieving a return of 87.6%[11] on shareholders' net invested capital. The sale, together with the dividend, delivered proceeds of €428 million (£370 million[12]) to Zegona and Zegona successfully passed substantially all of this[13] back to its shareholders by October 2021, through a £5.7 million dividend and a £329.3 million on-market share buyback by way of a tender offer launched in August 2021.

 

Up to the announcement of MásMóvil's tender offer on 28 March 2021, Zegona had accounted for its investment in Euskaltel as an associate. From this date, the investment in Euskaltel, and other related items[14] (see note 13 to the financial statements), were classified as a discontinued operation, with comparative periods also being restated. This resulted in Zegona recognising a profit for the period from discontinued operations, net of tax of €114.2 million (2020: €19.8 million).

 

Review of Zegona's continuing corporate and other activities

 

Loss for the period from continuing operations

Zegona's corporate and other activities resulted in a net loss for the period from continuing operations of €34.3 million (2020 €5.8 million net loss) which principally comprised:

 

Operating loss

Operating loss totalled €34.0 million (2020: €6.8 million) and included:

·      €4.6 million (2020: €5.6 million) for Zegona's ongoing corporate operations, with the reduction mainly driven by the Executive directors waiving their 2021 bonuses.  

·      €29.1 million (2020: €0.9 million) of Incentive scheme costs which were payments to management upon the redemption of the Management Shares in October (see note 19 to the financial statements).

·      €0.3 million (2020: €0.3 million) for significant project costs, principally professional fees paid in conjunction with exploring new opportunities and financing.

 

Net finance costs

Net finance costs totalled €0.2 million (2020: €0.2 million) and comprises interest incurred on bank borrowings recognised within Finance Costs, net of interest on cash balances earned recognised within Finance Income.

 

Other Comprehensive Income

Exchange differences on translation resulted in a gain of €0.6 million (2020: loss €18.7 million). The variance year on year arises as a result of movements in the closing €:£ exchange rates as the functional currency of Sterling ("£") is translated into the presentational currency of euro ("€").

 

Shareholder remuneration

Up to the sale of Euskaltel, Zegona was committed to paying dividends to shareholders and in 2021 continued to pass through 100% of dividends it received from Euskaltel. Zegona declared a first interim dividend on 21 December 2020 at a rate of 2.2p per share, totalling £4.8 million (€5.6 million) which was paid on 9 March 2021. Zegona also paid a second interim dividend of 2.6p per share, totalling £5.7 million (€6.7 million) on 23 July 2021.

 

Following the sale of Euskaltel, Zegona has ceased paying dividends and expects not to pay further dividends until such time as it has an income generating asset.

 

Key performance indicators and non-GAAP measures

As Zegona does not currently have an operating business, there are limited material key performance indicators that provide a useful measure of Zegona's business performance and position other than financial measures defined by IFRS, with the exception of:

 

Zegona's return on shareholders' net invested capital

Zegona uses its return on shareholders' net invested capital as a measure to demonstrate the value generated by the combination of the disposal of Euskaltel and the Return of Capital, compared to the amount originally invested by shareholders. Zegona believes it is both useful and necessary to report these amounts because they quantify Zegona's success in executing its Buy-Fix-Sell strategy in the same terms that investors use as a key metric when allocating capital. This is especially necessary as there are no IFRS measures that articulate this performance in terms that are consistent with those used by the investment community.

 

Below we set out the calculation of Zegona's return on the combination of the disposal of our investment in Euskaltel and the Return of Capital. This is the percentage by which the Asset Value exceeded Zegona's net invested capital at the completion of the tender offer on 14 October 2021. The Asset Value is the amount distributed to shareholders and management under the Incentive Scheme together with the total value of Zegona's assets immediately following the completion of the tender offer. Zegona's Net Invested Capital represents the net amount of all shareholder subscriptions less all returns to shareholders, including dividends, capital returns and share buy-backs since Zegona's initial quotation on the AIM Market in March 2015. There are no IFRS measures that provide an equivalent insight for this to be reconciled to

 

	14 October 2021 £000
Adjusted value of Zegona's assets immediately following the tender offer[15]	6,582
Capital Returned (see note 20 to the financial statements)	329,307
Incentive Scheme payments (see note 19 to the financial statements)	25,720
Asset Value	361,609
Net invested capital at 14 October 2021 (see page 46)	(192,818)
Excess	168,791
Return (%)	87.54

 

 

Principal and emerging risks

We have carried out robust assessments of the principal and emerging risks facing Zegona including those that would threaten our business model, future performance, solvency or liquidity. Detailed consideration is given to all of these risk factors by the Audit and Risk Committee and the board of Directors (the "Board").

 

Principal and emerging risks

 

Risk title	Risk rating	Change in risk assessment since the last Annual Report
Ability to maintain sufficient resources to identify and complete new acquisitions	Moderate		New
Ability to create value in acquired businesses	Moderate		New
Key management	Low	↔	No change
Brexit	Low	↔	No change
Foreign exchange	Moderate	↔	No change

 

The description, impact and mitigation of these risks are set out below:

 

Ability to maintain sufficient resources to identify and complete new acquisitions

Following the sale of its investment in Euskaltel, Zegona meets its day to day working capital requirements, including the costs of evaluating new acquisitions, from cash balances. At 3 April 2022, Zegona had approximately €9.2 million of cash and approximately €1.0 million of liabilities and we are already making progress on finding another attractive investment opportunity within the European TMT sector where we can again apply our successful Buy-Fix-Sell strategy. 

 

The success of Zegona's future investment strategy following the disposal of our interest in Euskaltel depends on our ability to acquire a suitable target at a price that allows for acceptable returns. Zegona's current cash resources are enough to allow us to continue searching for new acquisitions for a reasonable period of time, but we cannot be certain how long this will take and there is no guarantee that we will be successful in making a further investment during this period for a number of reasons, which could include:

 

·      We may face competition for attractive assets from other investors with greater resources than us;

·      We may not receive sufficient support from our existing Shareholders to raise additional equity, and new equity investors may be unwilling to invest;

·      Lenders may be unwilling to extend sufficient debt financing on reasonable term; and

·      We may fail to complete an agreed acquisition for reasons beyond our control.

 

If we do attempt an acquisition which is ultimately unsuccessful this would result in us incurring related costs for items such as legal and due diligence fees. These costs could be a significant proportion of our remaining cash and could materially adversely affect subsequent attempts to identify and acquire another target business, or even threaten our ability to continue as a going concern without raising further capital.

 

Ability to create value in acquired businesses

If Zegona is successful in acquiring a new business, there is a risk of unforeseen liabilities being later discovered which were not uncovered or known at the time of the transaction which may have an impact on the value created for shareholders.

 

In addition, the success of Zegona's acquisitions depends on our ability to implement the necessary strategic, operational and financial change programmes in order to refocus the acquired business and improve its performance. Implementing these change programmes may require significant modifications, including changes to business assets, operating and financial processes, business systems, management techniques and personnel, including senior management. There is a risk that we will not be able successfully to implement such change programmes within a reasonable timescale and cost.

 

We have a disciplined approach to valuation and, ultimately, we are only prepared to make investments at the right price and after undertaking a thorough due diligence process. When evaluating potential investments, we focus on targets that have strong fundamentals, high-quality customer offerings and strong market positions but which are underperforming their potential and have scope to generate long term sustainable performance and cash flow improvements.

 

Key management

Zegona's operations are currently managed by the Chief Executive Officer, supported by the Chief Operating Officer, the Investment Director and the Chief Financial Officer. The absence or loss of key management could significantly impede our financial plans, though there has been no such absence or loss since Zegona was founded.

 

We aim to retain our key staff by offering remuneration packages at market rates, as well as long term incentives through the issue of Management Shares and other management incentive plans. The management team is small which places a natural limit on the volume of deal flow that can be addressed. The management team itself along with the Non-Executive Directors continually challenge the focus of the business and the allocation of resources amongst projects.

 

Brexit

The UK ceased to be a member state of the European Union on 31 January 2020. In December 2020, the UK and EU signed the UK-EU Trade and Cooperation Agreement (the "TCA"). This agreement governs the relationship between the EU and the UK following the end of the transition period agreed after the UK officially left the EU. The agreement provides for free trade in goods and limited mutual market access in services, as well as for cooperation mechanisms in a range of policy areas, transitional provisions about EU access to UK fisheries, and UK participation in some EU programs. On 31 December 2020, the UK ceased to be a member of the EU Single Market and Customs Union.

 

While the TCA does clarify a number of matters concerning the UK's ongoing legal, political and economic relationship with the EU, there are number of areas that are not covered. Due to this and the size and importance of the UK economy, it is possible that the UK's exit from the EU may continue to be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax (including the tax treatment of cross border payments), fiscal, legal, regulatory or otherwise) for the foreseeable future. Such continued uncertainty could have an adverse impact on the number and attractiveness of acquisition opportunities available to Zegona.

 

The long-term effects of Brexit will depend on any agreements (or lack thereof) between the UK and the EU and, in particular, any arrangements for the UK to retain access to EU markets. Additionally, the exchange rate of Sterling vis-a-vis other currencies may continue to be relatively volatile, which could result in increasing costs of non-sterling denominated expenses and other obligations and in changes in the value of non-sterling denominated assets. Furthermore, UK regulatory requirements could be subject to significant change and could place an additional burden on Zegona.

 

Foreign exchange

Foreign currency translation risk exists due to the Company operating, and having equity denominated, in a different functional currency (GBP) to that of many of its likely acquisition targets. Since the disposal of Euskaltel and the Return of Capital, there are no material assets or liabilities denominated in foreign currencies or transactions in foreign currencies. This means there is currently minimal risk to Zegona's results of operations, however fluctuations in the exchange rate between Sterling and other European currencies could cause potential future acquisitions to become more expensive in Sterling, and therefore potentially less desirable.

 

The Board and the Chief Financial Officer control and monitor financial risk management, including foreign currency risk, in accordance with the internal policy and the strategic plan defined by the Board.

 

 

Longer term viability statement

 

Zegona's prospects

In accordance with provision 31 of the 2018 UK Corporate Governance Code, we have assessed Zegona's prospects over a longer period than the twelve months required by the "going concern" provision. This assessment has taken into account Zegona's current position, its strategy, the risk appetite of the Board and the principal risks and uncertainties which are described in detail in this Strategic Report.

 

Zegona's position changed fundamentally in 2021 with the sale of its investment in Euskaltel and the Return of Capital. Zegona no longer has an investment in an underlying operating business and is now solely focussed on identifying another attractive investment opportunity within the European TMT sector where we can again apply our successful Buy-Fix-Sell strategy. Until Zegona identifies and successfully executes a new investment, it meets its day to day working capital requirements, including the costs of evaluating new acquisitions, from its cash balances. While Zegona does have a small overdraft facility, this is repayable on demand, and it does not currently have other assets upon which it can raise additional liquidity.

 

The assessment period

We continue to believe that three years - in this case the three years to December 2024 - is the appropriate period over which Zegona should assess its viability for the following reasons:

 

·      Three years allows us to assess a full range of possibilities and covers Zegona's investment cycle; and 

·      A three-year period enables us to make an appropriate assessment of Zegona's principal risks.

 

The assessment process and key assumptions

The Directors approve a 3 year forecast on an annual basis which is sufficiently detailed to explain all cash inflows and outflows and includes a description of all reasonably possible risks and opportunities. Each month, the Board is provided with an analysis of actual performance against the forecast which is updated frequently. The most recent forecast is used as the base case ("Base Case") for the viability assumption without any significant adjustment.

 

Zegona's operations are now focused on finding the next investment opportunity and its ongoing running costs are relatively predictable as the most significant ongoing costs are the salary costs of the Board and management team. From 2022 until a new investment is made, no management bonuses will be paid. The most significant element of uncertainty is whether Zegona will incur substantial professional fees for costs such as legal advice and due diligence related to an unsuccessful attempt to acquire a new investment. Such costs are inherently unpredictable, so while a contingency is included in the base case for routine professional fees that would be expected to support Zegona's day-to-day operations, no amounts are included for any significant aborted transactions.

 

Equally, completing a new acquisition would likely represent a significant upside to the viability assessment since the addition of an income generating asset would deliver cash inflows to allow Zegona to fund its operation as well as giving the opportunity to raise additional capital in connection with the funds to complete the acquisition. The ability to execute such acquisitions, their timing and size are however inherently uncertain so no amounts have been included in the base case. 

 

We believe that this approach fairly represents the future prospects of Zegona while also properly considering the principal and emerging risks (as discussed on page 7). In terms of risks, we believe that the principal consequence should any of the risks occur would be to make it more difficult for Zegona to execute a new acquisition.

 

In addition to the Base Case, the Directors identified a severe but plausible downside scenario which was further used to stress test the base numbers. Given the nature of Zegona's current operations and generally high level of predictability of its costs, the downside scenario differs from the Base Case only by the inclusion of a 10% overrun on recurring costs and £ 2.0 million for aborted costs on unsuccessful acquisitions, assumed to be incurred by the end of 2022.

 

Results of the assessment

The assessment showed that in both the Base Case and the downside scenario, Zegona would have sufficient cash to continue in operation for at least 12 months from the date of issuance of this report throughout the assessment period without taking any mitigating actions available to it.

 

Over more than 12 months however, both the Base Case and the downside scenario showed that without the upside impact of completing a new acquisition, Zegona will need to seek additional equity funding during the viability assessment period, even if it takes liquidity enhancing actions such as reducing discretionary expenditure. Without such actions, the Base Case assumes Zegona would need to seek additional funding during the second quarter of 2024, while this would be sooner under the downside scenario, but still more than twelve months from the date of issuance of this report.

 

Statement of viability

Taking into account Zegona's current position and principal and emerging risks and uncertainties, the Directors confirm that we expect Zegona will be able to continue in operation and meet its liabilities as they fall due over the three years to December 2024 only if it is successfully able to raise funds and execute a new acquisition or otherwise obtain additional equity funding during the period.

 

The Strategic Report was approved by the Board on 3 April 2022 and is signed on its behalf by:

 

 

 

Eamonn O'Hare

Chairman and Chief Executive Officer

 

Corporate social responsibility

We recognise our obligations to act responsibly, ethically and with integrity in our dealings with staff, suppliers and the environment as a whole. We are committed to being a socially responsible business.

 

Our people

We value and respect the unique contributions of each individual, and we are committed to ensuring that every employee is treated with dignity and respect and has a meaningful opportunity to contribute to Zegona's success.

 

Zegona's employees are encouraged actively to engage with charitable activities.

 

Zegona recognises that a productive workforce requires a breadth of experience and perspectives which is achieved through hiring individuals with diversity of age, gender or educational and professional backgrounds. Given the size of the business and the very limited turnover of staff, Zegona achieves this on a case-by-case basis by ensuring that when it does appoint new members of staff or the board, it places diversity at the heart of its decision-making process to ensure it achieves both a diverse and a high performing workforce.

 

Board Directors and senior managers have been appointed to bring required skills, knowledge and experience. During 2020 and 2021, all individuals that have been appointed have diverse backgrounds including, two female independent Non-Executive Directors. The Nomination and Remuneration Committee will continue to consider the diversity of the Board for further new appointments.

 

The table below shows the breakdown of our workforce at the end of 2021.

 

	Male	Female	Total
Board Directors	4	2	6
Senior management	3	-	3
Other staff	-	2	2
Total	7	4	11

 

 

Culture

Ethical values and behaviours are embedded in the corporate culture which the Board upholds. The Directors foster a culture where transparency, openness, integrity and constructive challenge are actively encouraged, and the Board works closely with senior management to ensure a positive culture.

 

Human rights

As part of our effort to conduct business in an ethical manner, Zegona has not engaged in and will not engage in business practices or activities that compromise fundamental human rights.

 

Environmental matters

We are committed to minimising Zegona's impact on the environment. At present, Zegona has no operating investments and only 7 full time employees who all work from home as it has no office facilities. The most significant environmental impact is from limited business travel, however Zegona's overall impact is minimal, with total CO₂ emissions less than the average for a single UK household. Zegona's approach to minimise its environmental impact is therefore to seek to maintain lean working arrangements, utilise connectivity technology to minimise business travel and encourage our employee to recycle, minimise energy wastage, and do their part to ensure that Zegona acts responsibly.

 

We have compiled our greenhouse gas ("GHG") emissions in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013. Calculations follow the GHG Protocol Corporate Accounting and Reporting Standard (revised edition). The GHG reporting period aligns with the financial statements and boundaries are defined using the financial control approach. GHG emissions are broken down into three categories; reporting is required only on scope 1 and 2:

 

Scope 1 emissions: Direct emissions from sources owned or controlled by Zegona.

 

Scope 2 emissions: Indirect emissions attributable to Zegona due to its consumption of purchased electricity.

 

Scope 3 emissions: Other indirect emissions associated with activities that support or supply Zegona's operations.

 

Zegona has no Scope 1 emissions. Zegona Scope 2 and Scope 3 emissions for the year to 31 December 2021 and comparative period are shown below:

 

	Global tonnes of CO2e
	2021	2020
Scope 2 (electricity)	-	1.7
Per €m operating expenses	-	0.24
Scope 3 (water consumption, business travel)	4.5	4.9
Per €m operating expenses	0.12	0.7

 

All emission factors have been selected from the emissions conversion factors published annually by the Department for Environment, Food and Rural Affairs and the International Energy Agency. Scope 2 and Scope 3 emissions have decreased in 2021 due to homeworking arrangements and restrictions on travel imposed in response to the COVID-19 pandemic.

 

No further energy and carbon information is disclosed as the Group is exempt on the grounds of being a low energy user.

 

As a standard listed business, Zegona will be required to provide the information required under the Task Force on Climate-related Financial Disclosures ("TCFD") recommendations from its 2022 Annual Report.

 

Board engagement with our key stakeholders

Section 172 of the Companies Act 2006 requires a Director of a company to act in the way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. In doing this, section 172 requires a Director to have regard, among other matters, to: the likely consequences of any decision in the long term; the interests of the company's employees; the need to foster the company's business relationships with suppliers, and others; the impact of the company's operations on the community and the environment; the desirability of the company maintaining a reputation for high standards of business conduct; and the need to act fairly with members of the company.

 

The Directors give careful consideration to the factors set out above in discharging their duties under section 172. More information about who our key stakeholders are and how we engage with them is provided on page 12.

 

 

 

General

Details of the directors can be found on pages 18 to 19. A discussion on the role of the board, including the powers of the company's directors can be found in the Corporate Governance Statement beginning on page 20.The rules relating to the appointment and replacement of directors and details of any agreements with the company and its directors or employees for compensation for loss of office or employment that occurs because of a takeover bid can be found in the Directors' Remuneration Report beginning on page 42 .

 

Result

For the year ended 31 December 2021, Zegona's loss before tax from continuing operations was €34.3 million (2020: €5.8 million). Zegona's gain from discontinued operations was €114.2 million (2020: €19.8 million). Other comprehensive gain was €0.6 million (2020: loss of €18.7 million). Therefore, the total comprehensive income for 2021 was €80.5 million (2020: loss of €4.7 million). Reviews of performance and likely future developments are set out in the Strategic Report on pages 1 to 10.

 

Dividends

The Company declared a first interim dividend on 21 December 2020 at a rate of 2.2p per share, totalling £4.8 million (€5.6 million). The dividend was paid on 9 March 2021.

 

The Company also declared a second interim dividend on 21 June 2021 at a rate of 2.6p per share, totalling £5.7 million (€6.7 million). The dividend was paid on 23 July 2021.

 

Contracts of significance

There were no significant contracts to report.

 

Events since the end of the financial year

There have been no material events since the end of the financial year.

 

Capital structure

The Company's capital structure is comprised of 5,325,567 ordinary shares of £0.01 each ("Ordinary Shares"). The holders of Ordinary Shares have the right to receive notice of, attend and vote at all general meetings of the Company. Holders of Ordinary Shares have the right to participate in dividends and any surplus capital on a winding up pari passu as amongst themselves. Where the winding up of the Company entails or is concurrent with the winding up of the Company's subsidiary, Zegona Limited, the assets available for distribution among the holders of Ordinary Shares will be reduced by such amount as is required to satisfy the rights (if exercised) of Management Shares (as defined in the Directors' Remuneration Report on page 43, with further details set out in note 19 to the financial statements).

 

Share buy-back programme

The shareholders passed a resolution to authorise Zegona to make market purchases of up to 15% of its current issued ordinary share capital (within specified price parameters) in the 2020 AGM, which expires on the earlier of the end of 2022 AGM or 18 months after the date of 2021 AGM. A resolution to renew this authority is proposed for the 2022 AGM. It is intended that we will exercise this authority only if the Board considers that it is in the best interests of Zegona at the time, for instance if the traded price of the Company's ordinary shares is substantially below the value of its net assets. Any shares repurchased by Zegona may be held in treasury and subsequently resold for cash, cancelled or used for employee share scheme purposes.

 

In addition, on 13 August 2021, the Company announced the publication of a circular for a return of up to £329.3 million to shareholders by way of a tender offer. The tender offer completed on 14 October 2021 at a price of £1.535 per share, with a total of 214,532,103 ordinary shares purchased.

 

Details of shares repurchased in the year can be found in note 20 and note 21 to the financial statements.

 

Internal control and Financial Risk Management

A description of the main features of Zegona's internal control and risk management arrangements in relation to the financial reporting process can be found in the Audit and Risk Report on page 27. Details of the company's financial risk management activities and use of financial instruments can be found in note 10 and note 11 to the financial statements.

 

Significant agreements subject to change of control provisions

Zegona Limited has issued Management Shares as part of Zegona's incentive arrangements. On a change of control of Zegona, subject to the requirements of the Articles of Association of Zegona Limited, the Management Shares can be exercised with their value being delivered either through the issue of ordinary shares or in cash.

 

Substantial shareholders

At 31 December 2021 and up to the date of approval of this report, Zegona had been notified under DTR 5 of the following holdings in 3% or more of the issued ordinary shares, which are all held indirectly by asset managers:

 

Asset manager	Shareholding at 3 April 2022	% of ordinary share capital as at 3 April 2022	Shareholding at 31 December 2021	% of ordinary share capital as at 31 December 2021
Zegona board and management[16]	957,479	17.98%	957,479	17.98%
Marwyn Asset Management	774,321	14.54%	774,321	14.54%
Artemis Investment Management	586,691	11.02%	586,691	11.02%
Fidelity Investments Limited	403,395	7.61%	403,107	7.57%
Fidelity Management & Research	398,717	7.49%	403,067	7.57%
Credit Suisse	255,969	4.81%	255,969	4.81%
Aberforth Partners LLP	243,744	4.58%	243,744	4.58%
Chelverton Asset Management	184 091	3.46%	184 091	3.46%
Jarvis Investment Management	167,796	3.15%	122,546	2.30%
Canaccord Genuity Group Inc	152,215	2.86%	269,215	5.06%
	4,124,418	71.44%	4,200,230	78.87%

 

Independent auditor

KPMG has expressed its willingness to continue to act as auditor to Zegona and a resolution for its re-appointment will be proposed at the 2022 AGM. KPMG has confirmed that it remains independent of Zegona.

 

Political donations

Zegona does not make any political donations or contributions to political parties and has no intention of altering this policy.

 

Disclosure of information to the auditor

Each of the persons who is a Director at the date of approval of this report confirms that, so far as the Director is aware, there is no relevant audit information of which Zegona's auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that Zegona's auditor is aware of that information.

 

Statement of going concern

The Directors have considered all available information, including specific consideration of forecast financial information, about the possible future outcomes of events and changes of conditions, and the realistically possible responses to such events and conditions that are available to the Directors. The Board considers that there are no material uncertainties affecting Zegona's ability to continue in business or meet its liabilities as they fall due for the next 12 months and therefore believes it is appropriate to prepare the Financial Statements on the going concern basis.

 

 

By order of the Board

 

 

 

Eamonn O'Hare

Chairman and Chief Executive Officer

3 April 2022

 

 

Statement of Directors' responsibilities

 

The Directors are responsible for preparing the Strategic Report, Directors' Report, Directors' Remuneration Report, Corporate Governance Report and the Zegona group and parent company Financial Statements in accordance with applicable law and regulations.

 

Company law requires the directors to prepare Group and parent Company financial statements for each financial year.  Under that law they are required to prepare the Group financial statements in accordance with UK-adopted international accounting standards and applicable law and have elected to prepare the parent Company financial statements on the same basis.

 

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of the Group's profit or loss for that period.  In preparing each of the Group and parent Company financial statements, the directors are required to:

 

·      select suitable accounting policies and then apply them consistently; 

·      make judgements and estimates that are reasonable, relevant, reliable and prudent;

·      state whether they have been prepared in accordance with UK-adopted international accounting standards; 

·      assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

·      use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006.  They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.  Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Responsibility statement of the Directors in respect of the Annual Financial Report

 

We confirm that to the best of our knowledge:

 

·      The Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the parent company and the undertakings included in the consolidation taken as a whole;

·      The Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

·      The Annual Report as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess Zegona's position and performance, business model and strategy.

 

By order of the Board

 

 

 

Eamonn O'Hare

Chairman and Chief Executive Officer

3 April 2022

 

 

Eamonn O'Hare, Chairman and CEO (appointed 19 January 2015)

Eamonn has spent over two decades as a board member and senior executive of some of the world's fastest growing consumer and technology businesses. From 2009 to 2013 he was CFO and main board director of the UK's leading entertainment and communications business, Virgin Media. Eamonn helped lead the successful transformation of this business and its strategic sale to Liberty Global for US$24 billion, crystallising US$14 billion of incremental shareholder value. From 2005 to 2009, he served as the CFO for the UK division of one of the world's largest retailers, Tesco plc. Before joining Tesco, Eamonn was CFO and main board director of Energis Communications and helped lead the turnaround of this high profile UK telecommunications company. Prior to this, he spent 10 years at PepsiCo Inc. in senior executive roles in Europe, Asia and the Middle East. Eamonn's early career was spent in the aerospace industry with companies that included Rolls Royce and British Aerospace.

 

Eamonn was a proprietary director of Euskaltel until 10 August 2021 when he resigned following the sale of Euskaltel. He also served as a non-executive director on the main board of Dialog Semiconductor Plc until 30 August 2021, a leading edge consumer technology business that provides critical components for the world's most successful mobile device brands. The fees for these appointments are disclosed in the Directors' Remuneration Report on page 50.

 

Eamonn has a degree in Aerospace Engineering from the Queen's University Belfast and an MBA from the London Business School.

 

Robert Samuelson, Executive Director and COO (appointed 19 January 2015)

Robert was Executive Director Group Strategy of Virgin Media from 2011 to 2014, during which time he was centrally involved in the sale of the business to Liberty Global and in the post-merger integration process. Prior to this, Robert was a managing partner at Virgin Group with global responsibility for developing and realising returns from Virgin's telecommunications and media businesses. Before joining Virgin Group, Robert was a director at Arthur D Little Ltd, where he co-led the European corporate finance practice, providing strategic advice to major European telecommunications operators. His early career was spent with British Aerospace and Royal Ordnance in engineering and production management roles.

 

Robert was a proprietary director of Euskaltel until 10 August 2021 when he resigned following the sale of Euskaltel, and the fees for this appointment are disclosed in the Directors' Remuneration Report on page 50.

 

Robert studied Natural Sciences at Cambridge University and has an MBA from Cranfield School of Management.

 

Richard Williams, independent Non-Executive Director (appointed 9 November 2015)

Richard is an experienced Non-Executive Director with significant board level experience in both public and private companies and currently holds a number of Non-Executive Director roles. Richard spent most of his executive career in European telecommunications, most recently as a Director of Investor Relations at Altice, and prior to that, Virgin Media. Richard led Virgin Media's investor relations activity through to the acquisition of the company by Liberty Global in 2013. Richard then joined Altice, where he supported the company's IPO and Altice's acquisition of SFR and Portugal Telecom.

 

Richard is a member of both the Nomination and Remuneration Committee and the Audit and Risk Committee. Richard is a qualified Chartered Accountant.

 

Ashley Martin, independent Non-Executive Director (appointed 6 February 2017)

Ashley brings a wealth of complementary experience to the Board. Ashley was Audit Committee Chair at Rightmove plc from 2009 to 2018 and, in that role, gained valuable insight into an entrepreneurial, high-growth consumer technology business. On 1 September 2018, Ashley was appointed as a non-executive director of the international research data and analytics group YouGov plc. Ashley has also enjoyed a successful executive career spanning 35 years in larger listed companies, with a particular focus on mergers and acquisitions. Ashley was Global Chief Financial Officer of private equity-backed Engine Holding LLC, and was previously the Group Finance Director of Rok plc, the building services group, and Group Finance Director of the media services company, Tempus plc.

 

Ashley is a qualified Chartered Accountant and is Chair of the Audit and Risk Committee and a member of the Nomination and Remuneration Committee.

 

Kjersti Wiklund, independent Non-Executive Director (appointed 5 February 2020)

Kjersti brings significant experience from a series of senior global telecommunications roles, including as director of group technology operations at Vodafone and chief operating officer of VimpelCom. Kjersti has also held senior executive positions at Kyivstar, Digi Telecommunications and Telenor.

 

Kjersti has also gained valuable insight into an entrepreneurial, high growth consumer technology company as Remuneration Committee Chair at Trainline plc. She was previously a non-executive director of Laird plc in the UK, Cxense ASA and Fast Search & Transfer ASA in Norway and Telescience Inc in the USA and is currently a non-executive director of Babcock International Group PLC and Spectris PLC.

 

Kjersti is a member of the Audit and Risk Committee.

 

Suzi Williams, independent Non-Executive Director (appointed 5 February 2020)

Suzi brings skills and experience from over 25 years in telecommunications, media and consumer businesses in the UK and internationally. As Chief Brand and Marketing Officer at BT, she was part of the team who transformed the business. Prior to that, she was Commercial Development Director at Capital Radio Group and held senior leadership roles at Orange, the BBC, KPMG Consulting, and Procter & Gamble Europe.

 

Suzi is currently a NED at FTSE 250 Telecom Plus. Previously she was NED and Remco Chair at Workspace Group Plc, and at The AA plc (from 2015 until March 2021, when the business was acquired by a private equity consortium of Towerbrook and Warburg Pincus).  She also advises a number of early stage technology and AI businesses.

Suzi is the Chair of the Nomination and Remuneration Committee.

 

 

Overview

The corporate governance report, presented here, forms part of the Directors' Report and as such it has been approved by the Board and signed on its behalf by the Chairman.

 

We recognise the importance of sound corporate governance commensurate with the size of Zegona. Corporate governance provides the framework within which we form our decisions and build our business. The Board is focused on creating long-term sustainable growth for our shareholders and value for all our stakeholders, and we strongly believe our corporate governance framework helps us achieve this goal. It is our commitment to continue to seek opportunities to improve our corporate governance arrangements.

 

The following sections of this report show how Zegona applies the main provisions set out in the 2018 UK Corporate Governance Code (the "Code"), issued by the Financial Reporting Council ("FRC"), as would be required by the Listing Rules of the Financial Conduct Authority ("FCA") as applicable to non-FTSE 350 companies if Zegona were admitted to the Premium segment of the Official List, and how Zegona meets the relevant information provisions of the Disclosure and Transparency Rules of the FCA (the "DTR").

 

Zegona's principal risks are described on pages 7 to 8. The Directors' Report on pages 11 to 17 also contains information required to be included in this statement of corporate governance.

 

The Board of Directors

Zegona is led and controlled by an effective Board. The Board at the date of approval of this report comprises two Executive Directors and four independent Non-Executive Directors. The two Executive Directors are Eamonn O'Hare (Chairman and Chief Executive Officer ("CEO")) and Robert Samuelson (Chief Operating Officer ("COO")). The Non-Executive Directors are Richard Williams, Ashley Martin, Kjersti Wiklund and Suzi Williams.

 

Biographical details of all Directors and details of their committee membership at the date of approval of this report appear on pages 18 to 19. Consideration of the Board size and composition is kept under regular review by the Nomination and Remuneration Committee.

 

Powers and operation of the Board

In exercising its duty to promote the success of Zegona, the Board is responsible for overseeing the management of Zegona and, in doing so, may exercise its powers, subject to any relevant laws, regulations and Zegona's Articles of Association. The Board is presented with papers from management concerning financial information, information on investor relations and details of acquisition targets and deal progress, which it takes into account in discussions and in the decision-making process under section 172 of the Companies Act 2006.

 

Eamonn O'Hare, as the Chairman and CEO, is primarily responsible for the running of the Board and for the day-to-day running of Zegona. All Board members have full access to Zegona's advisers for seeking professional advice at Zegona's expense and our culture is to discuss openly any important issues and frequently engage with Board members outside of formal meetings. The operating and financial responsibility for all subsidiary companies is the responsibility of the Board.

 

The Board has adopted a Board Charter, available on Zegona's website, which sets out:

 

·      the Board's collective vision on Zegona's strategy and objectives;

·      the Board's approach to the conduct of its business and the parameters within which it will operate, including the management of any Board or investor disagreements; and

·      the Board's agreed focus areas for further action.

 

The Board meets formally at least six times a year but also frequently meets additionally on an ad hoc basis where necessary. The Directors are encouraged to have free and open contact with management at all levels and full access to all relevant available information. The Executive Directors actively and constructively encourage challenge and seek input from the Non-Executive Directors to draw on their extensive experience and knowledge. The Board believes that the role of the Non-Executive Directors in providing independent challenge is a vital component of an effective Board.

 

The Board delegates the day to day responsibility for running Zegona to the executive management, however there are a number of matters which are required to be or should only be decided by the Board of directors as a whole in accordance with the UK Corporate Governance Code. An updated schedule of Matters reserved for the Board, approved by the Board on 9 June 2020, can be found on Zegona's website[17].

 

Board committees

The Board has established two principal committees, the Audit and Risk Committee and the Nomination and Remuneration Committee, to assist it in the execution of its duties. If the need should arise, the Board may set up additional committees as appropriate. The committees' terms of reference are available on Zegona's website, www.zegona.com, or by request from the Company Secretary. Each of the committees is authorised, at Zegona's expense, to obtain legal or other professional advice to assist in carrying out its duties. No person other than a committee member is entitled to attend the meetings of these committees, except by invitation of the chairman of that committee.

 

Current membership of the committees is shown on pages 25 and 31. The composition of these committees is reviewed regularly, taking into consideration the recommendations of the Nomination and Remuneration Committee.

 

Independence of the Board

The Code specifies that the Board should identify in the annual report each Non-Executive Director it considers to be independent. The Board considers that Ashley Martin, Richard Williams, Kjersti Wiklund and Suzi Williams are independent Non-Executive Directors for the purposes of the Code and have no relationships or circumstances which are likely to affect, or could appear to affect, their judgement as Directors.

 

Board and committee attendance

Attendance at the Board and committee meetings held during 2021 was:

 

	Board	Nomination and Remuneration Committee	Audit and Risk Committee
Eamonn O'Hare	16/16	-	-
Robert Samuelson	16/16	-	-
Richard Williams	16/16	5/5	3/3
Ashley Martin	16/16	5/5	3/3
Suzi Williams	16/16	5/5	-
Kjersti Wiklund	15/16	-	3/3

 

 

Directors' terms of service

Zegona's Articles of Association require each Director to retire from office and offer themself for re-election or election, as the case may be, at each AGM. Accordingly, each of the Directors will retire from office at the 2022 AGM and seek to be re-elected by Zegona's shareholders. The Chairman is satisfied that the performance of the Directors continues to be effective and demonstrates their ongoing commitment to the role and as such supports their re-election.

 

The Executive Directors have service contracts which may be terminated on no less than 12 months' notice by either party. The Non-Executive Directors each have current service contracts which can be terminated on 6 months' notice. All Non-Executive Directors' continued service is dependent on annual re-election by shareholders and the annual Board effectiveness review. Details of the unexpired terms of the service contracts are set out in the Directors' Remuneration Report.

 

Directors' indemnities

As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third party indemnity provision as defined by section 234 of the Companies Act 2006 (the "Act"). The indemnity was in force throughout 2021 and is currently in force. This confirmation is given and should be interpreted in accordance with the provisions of section 236 of the Act.

 

Zegona also purchased and maintained throughout the year Directors' and Officers' liability insurance.

 

Conflicts of interest

Zegona's Articles of Association provide for a procedure for the disclosure and management of risks associated with Directors' conflicts of interest. Zegona's Board Charter sets out the process for managing significant Board or investor disagreements and/or conflicts. Notwithstanding that no material conflict of interest has arisen in the year, the Board considers these procedures to have operated effectively.

 

Company secretary

Crestbridge Corporate Services Limited was appointed Zegona's Company Secretary on 24 February 2021, replacing Mark Millar of Foot Anstey LLP. The Company Secretary assists the directors in ensuring Zegona is managed, controlled and administered within the parameters of its governing and constitutional documents. All Directors have access to the advice of the Company Secretary, which is responsible for guiding the Board on all governance matters.

 

Compliance with the UK Corporate Governance Code

The Code sets out a number of principles in relation to: board leadership and company purpose; division of responsibilities; composition, succession and evaluation; audit, risk and internal control; and remuneration. A copy of the Code is available on the FRC's website at www.frc.org.uk.

 

Following admission to the Main Market the Board has voluntarily (as Zegona has a Standard Listing) complied with the UK Corporate Governance Code except in the instances set out below:

 

Combined Chairman and CEO

Provision 9 of the Code recommends that the roles of Chairman and the Chief Executive Officer should not be exercised by the same person and that the Chairman should be independent on appointment. Zegona does not comply with this requirement. The Board presently believes that Eamonn O'Hare's skills, knowledge and leadership have enabled him to effectively perform both roles. Zegona also maintains a schedule of Matters reserved for the Board which prevents Eamonn from authorising certain corporate actions without a formal resolution of the Board which is re-enforced by the Board's culture of detailed review and robust challenge on significant matters. As discussed below, the board consider that it is important that this should continue to be kept under active review.

 

Zegona has paid close attention to this matter since its incorporation and has formally reconsidered it on a number of occasions. Separation of the roles was determined to be a low priority in the corporate governance review completed by Ernst & Young LLP, "EY" in 2017. This matter has also been actively reconsidered both as part of the EY-facilitated exercise to develop Zegona's Board Charter in 2018/19 and as part of each of Zegona's annual assessments of Board effectiveness. The Board considers that it is not appropriate to separate the roles at present given the significant simplification of the business since the sale of the investment in Euskaltel and the Return of Capital. The Board remains aware of this area of non-compliance, and it will ensure that this matter continues to be kept under active review, in particular if the structure of Zegona changes again by making another significant investment.

Appointment of a Senior Independent Director ("SID")

Provision 12 of the Code recommends that one Non-Executive Director should be appointed as a senior independent director to provide a sounding board for the chair and serve as an intermediary for the other Directors and shareholders. Zegona does not currently have a SID, and this has been the subject of active consideration since Zegona's formation. The Board fully recognises the value that can be provided by a SID and was intending to appoint one following its 2020 AGM, however the difficulties of remote working during the Covid-19 pandemic and the ongoing shareholder engagement exercise being led by the Chairs of the two Board committees at the time meant that Zegona concluded it was not appropriate to make an appointment. Zegona still considers this conclusion is valid, especially since the significant simplification of the business since the sale of the investment in Euskaltel and the Return of Capital. The Board will reconsider whether it should appoint a SID in conjunction with its ongoing active consideration of whether it remains appropriate for the Chairman and CEO roles to be combined.

 

Employee engagement

Provisions 2, 5 and 6 provide guidance for the implementation of procedures meant to ensure Zegona engages with and monitors its workforce. Given Zegona currently has only five employees (excluding Directors), the Board believes the implementation of any formal steps or procedures to engage with the workforce are not required as informal communications occur regularly between all employees and the Executive Directors, including weekly team meetings.

 

Equalisation of pension arrangements

Provision 38 recommends that the pension contribution rate for the Executive Directors be the same as for the majority of the workforce. During the year, this was not the case however, this will be resolved by the end of 2022 when the rate paid to the Executive Directors will be equalised with the rate paid to the majority of the workforce. 

 

Evaluation of the Board, committees and individual Directors

The Board has conducted an annual evaluation of its own performance and that of its committees by means of a questionnaire requiring written responses from the Directors. To ensure independence and objectivity, the questionnaire was designed, administered and reviewed on a confidential basis. The questionnaire was drafted having regard to the balance of skills, experience, independence and knowledge contributed by its members, as well as the successful operation of the Board as a unit, its diversity and the other key factors relevant to its effectiveness. The anonymous responses were sent to each Non-Executive Director for consideration and discussion at a meeting of the full Board.

 

The findings of the review were generally positive. The Board noted that 2021 was a year of very significant change in which the Board has had to address several sensitive, strategic issues of fundamental importance to Zegona, including the decision to sell Zegona's investment in Euskaltel and how to balance the opinions of a number of significant investors on what to do with the proceeds of the sale. These questions were significant to the ongoing operations of Zegona and needed to be addressed within a tight time frame. Understandably there were a range of views represented and robust challenge was provided by the Non-Executive Directors. The Board considered it a strong indication that it is operating effectively that the directors were able to work together to successfully build a consensus around a result that they believe was positive for all shareholders.

 

The review also highlighted a number of matters for the Board to focus on. These included ensuring that the questions of whether the Chairman and CEO roles should continue to be combined and/or a SID should be appointed are kept under active reconsideration, especially given any change in Zegona's operations, continuing to focus on strengthening governance and continuing to build on the improvements made in risk assessing key decisions.

 

Whistleblowing policy

All employees are encouraged to raise genuine concerns about possible improprieties in the conduct of Zegona's business, whether in matters of financial reporting or other malpractices, at the earliest opportunity and in an appropriate way. Zegona has put in place a whistleblowing policy to facilitate this, and the aims of this policy are:

 

·      to encourage employees to report suspected wrongdoing as soon as possible, in the knowledge that their concerns will be taken seriously and investigated as appropriate, and that their confidentiality will be respected;

·      to provide employees with guidance as to how to raise those concerns; and

·      to reassure employees that they should be able to raise genuine concerns in good faith without fear of reprisals, even if they turn out to be mistaken.

 

Share dealing

Zegona has in place systems to ensure compliance by the Board and its applicable employees in relation to dealings in securities of Zegona and Euskaltel. We believe that the share dealing code adopted by the Board is appropriate for Zegona's size and complexity and that it complies with the EU Market Abuse Regulation (2014/596/EU). The Board complies with these provisions and takes all reasonable steps to ensure compliance by Zegona's 'applicable employees.

 

Relations with Zegona's stakeholders

Zegona does not currently have an operating business and, until it does so again, has a limited number of stakeholders outside of its shareholders and employees given that Zegona has no customers and its suppliers are primarily professional advisers. All Directors have frequent interactions with Zegona's small workforce and the whole of the workforce are generally intimately involved with all key operating decisions.

 

The Board is always available for communication with shareholders and the Executive Directors frequently engage constructively with current and potential shareholders, with feedback regularly discussed in depth at Board meetings. This has been supplemented in the last two years with the consultations with major shareholders undertaken by management and the Committee Chairs.

 

During 2021, extensive shareholder feedback was sought on whether Zegona should return the proceeds of the Euskaltel sale to shareholders, and if so, how much. This involved shareholders speaking directly to Zegona's Executive Directors, certain non-Executive Directors as well as Zegona's brokers. The views emerging from this process were discussed in depth by Zegona's Board and they were key in coming to the eventual decisions to return £335 million to shareholders, for the Executive Directors to waive their 2021 bonuses and to pay no bonuses in 2022 and thereafter until Zegona acquires another operating business   

 

In addition, all shareholders have the opportunity, and are encouraged, to attend and vote at the general meetings during which the Board is available to discuss issues affecting Zegona. Barclays Bank plc and Canaccord Genuity Limited, as Zegona's joint corporate broker, provides reports and attend Board meetings, as appropriate, to provide feedback to the Non-Executive Directors on shareholders' views.

 

 

I am pleased to present the 2021 report of the Audit and Risk Committee (the "A&RC"). The A&RC is an essential part of Zegona's governance framework, to which the Board has delegated oversight of Zegona's financial reporting, internal controls, risk management and the relationship with the external auditor.

 

In discharging its duties, the A&RC embraces its role of protecting the interests of shareholders with respect to the integrity of financial information published by Zegona, control effectiveness and the effectiveness of the audit process[18].

 

Committee membership and meetings

The members of the A&RC during 2021 were Ashley Martin (Chairman), Richard Williams and Kjersti Wiklund, all of whom are independent Non-Executive Directors as required by provision 24 of the Code. The Board has determined that Ashley Martin has recent and relevant financial experience due to his previous CFO roles at listed and private equity backed businesses. Both Ashley and Richard qualified as Chartered Accountants. In line with the Code, the A&RC as a whole possesses competence relevant to the sector in which Zegona operates through the digital media and consumer experience of Ashley Martin and the telecommunications experience of Richard Williams and Kjersti Wiklund.

 

The A&RC normally meets at least three times a year with additional meetings arranged if necessary. In 2021, the A&RC met in April, August and September and has subsequently met in March. The scheduling of these meetings is designed to be aligned with the financial reporting timetable, thereby enabling the A&RC to review the interim financial report, the audit plan ahead of the year end audit and the annual report, as well as to maintain a view of the internal controls and risk management processes throughout the year.

 

The Company Secretary acts as secretary to the A&RC. The A&RC invites the Chief Financial Officer to all meetings and other members of the finance and management team as may be appropriate for the business of the meeting, as well as senior representatives of the external auditor. The A&RC meets separately with the external auditors to seek their views without management present, and the A&RC Chair keeps in touch with the Chief Financial Officer as well as other members of the management team and the lead audit partner periodically outside of formal meetings. The A&RC has the right to invite any other Directors and/or employees to attend meetings where this is considered appropriate.

 

The A&RC Chair reports formally to the Board on the key matters considered at each A&RC and minutes of those meetings are circulated to the Board.

 

Committee effectiveness

The effectiveness of the A&RC was considered by the Board as part of the annual Board effectiveness evaluation. The feedback was positive and confirmed that the A&RC remains effective and provides robust challenge.

 

Activities during the year

Since the last Audit and Risk Committee Report, the A&RC has undertaken the following activities:

 

Financial reporting:

·      Confirmed that the Financial Statements were fair balanced and understandable. In this respect, the A&RC considered, inter alia:

-       the key messages in the annual report and their consistent application in the front and back end of the report;

-       whether the whole story is presented and whether any sensitive material has been omitted; and

-       whether there is a clear and cohesive framework for the annual report.

 

·       Reviewed the going concern assumption and the assessment forming the basis of the longer-term viability statement. The A&RC reviewed the work undertaken by management to assess Zegona's resilience to the principal risks under various stress test scenarios and confirmed that a 3-year assessment period remained appropriate.

·      Considered the key judgements and estimates made by management in preparing the Financial Statements, as follows:

-       Accounting for the disposal of the Euskaltel investment and related transactions - The judgements in relation to accounting for the disposal of Euskaltel relate to the assumptions applied in classifying it and related items as a disposal group and discontinued operation (in particular for the interim report prior to the completion of the disposal), as well as the calculation of the gain on sale of and other items recognised as discontinued operations. The A&RC also considered the related disclosures within the financial statements. This was also an area of focus for the external auditor, who reported its findings to the A&RC. The Committee considered management's approach, the assumptions applied and related disclosures and agreed with management's treatment and valuation.

 

-       Recoverability of the income tax receivable - The A&RC reviewed the conclusions related to the ongoing activity around the EU Commission decision that the Group Financing Exemption contained within the UK's Controlled Foreign Company (''CFC'') legislation constituted State Aid. The Committee noted that Zegona had recognised an income tax receivable in relation to the two charging notices paid during 2021 in the amount of £4.4 million (€5.2 million). The A&RC noted Zegona's conclusion that while it is finely balanced, it remains more likely than not that the appeals made by other UK taxpayers and the UK Government will be successful and ultimately Zegona will not incur any liability and therefore the receivable remains recoverable. The A&RC reviewed the third-party advice and agreed with management's conclusion.

-       Validating and accounting for the management share subscription - The A&RC reviewed the calculation of the price of the management share subscription. This review involved reviewing the results of agreed procedures performed by the Company's auditors that were designed to validate the accuracy of the calculations and agree factual information required. The A&RC also reviewed and agreed with management's conclusion on the classification of the delayed management subscription as an equity item under IAS 32 Financial Instruments: Presentation, primarily because the number of shares to be issued and price to be paid are fixed.

 

In all of the above judgements, the A&RC also considered the work undertaken by KPMG and reports to the A&RC in support of the position adopted by Management.

 

Ensuring compliance with key legal and governance requirements in relation to the Euskaltel disposal:

· Incentive scheme costs on the redemption of the Management Shares - In connection with the sale of Euskaltel and Return of Capital, the Management Shares became redeemable and a payment of £25.7 million became due which was recognised as an incentive scheme cost in the year. The A&RC supported the Nomination and Remuneration Committee by carefully reviewing the terms of the scheme to ensure that the conditions for redemption had been met and that the amount of the payment had been correctly calculated according to the payment waterfall in the terms of the scheme. This review involved receiving written advice from the Company's legal advisors that the terms of the waterfall had been correctly applied. The Company's auditors also performed agreed procedures that were designed to validate the accuracy of the calculations and agree factual information required.

· Validating the distributable reserves of Zegona Communications plc - In order for £335 million of Capital to be returned to shareholders, it was necessary to ensure that the Company had sufficient distributable reserves. This was achieved by taking into account the impact on reserves of the sale of the investment in Euskaltel, together with a court-approved reduction of the share premium account. This was also an area of focus for the external auditor, who reported its findings to the A&RC. The A&RC considered management's approach and agreed with management's treatment. 

 

Other considerations:

·      Reviewed the effectiveness of Zegona's risk management and internal controls and disclosures made in the annual report on this matter, including the review of an annual assurance statement provided by management assessing the effectiveness of Zegona's risk management and internal control systems;

·      Reviewed and agreed the scope of the audit work to be undertaken by the external auditor and assessed the audit and non-audit fees to be paid, as well as the independence and objectivity of the auditor;

·      Considered the effectiveness of the external audit process, following the receipt of feedback from the management team, Executive Directors, Non-Executive Directors and other service providers involved in the audit process;

·      Reviewed and made a recommendation to the Board with regard to the re-appointment of the external auditor, taking into account auditor effectiveness and independence, the recent partner rotation and other factors which may impact the external auditor's re-appointment;

·      Assess any potential threats to independence that were reported by KPMG. The A&RC considered KPMG to be independent and KPMG, in accordance with professional ethical standards, provided the A&RC with written confirmation of its independence for the duration of 2021;

·      Reviewed the need for an internal audit function and made a recommendation to the Board;

·      Reviewed the interim Financial Statements, including the critical accounting judgements and estimates used in preparing them;

·      Reviewed management's updates to Zegona's main control document, the Financial Position and Prospects memorandum. The A&RC also reviewed the updates made to Zegona's risk register; and

·      Reviewed Zegona's whistleblowing policy and anti-bribery and anti-corruption policy.

 

External auditor

Our external auditor, KPMG LLP ("KPMG"), has now completed its sixth audit and the A&RC was involved in the process to select the new audit partner. Zegona will not be required to tender for the audit until the 2026 financial year end. KPMG continues to provide robust challenge to management and independent reports to the Committee on specific financial reporting and judgements. 

 

KPMG was appointed as Zegona's external auditor on 15 December 2016. In line with applicable regulations, Simon Richardson was appointed as the lead engagement partner in April 2021, after the previous partner had issued his fifth annual audit opinion.

 

During 2021, non-audit fees were pre-approved in relation to KPMG's agreed upon procedures on the calculation of the proceeds from the redemption of the Management Incentive Scheme and the calculation of Zegona's adjusted net asset value in connection with the management subscription for new shares. The fees for these procedures totalled €44.1 thousand, which is significantly lower than the audit fees for the Financial Statements for the year ended 31 December 2021 and therefore auditor objectivity and independence is not deemed to be compromised by the level of non-audit fees. Zegona considered KPMG was best qualified to undertake this work because of their knowledge of the business.

 

The A&RC has set a threshold of €11,000 (£10,000) for pre-approving non-audit fees. All of KPMG's services have been pre-approved and reported to the A&RC.

 

Risk management and internal control systems

The Board is responsible for establishing and maintaining Zegona's system of internal control and reviewing its effectiveness. The Board has delegated the annual review of the adequacy and effectiveness of Zegona's internal financial controls and internal control and risk management systems to the A&RC.

 

Internal control systems are designed to meet the needs of Zegona and the risks to which it is exposed to ensure the integrity of the financial and accounting information, promote accountability and prevent fraud. The procedures are designed to manage rather than eliminate risk and, by their nature, can only provide reasonable but not absolute assurance against material misstatement or loss.

 

Zegona does not have a separate internal audit function as the Board does not feel this is currently necessary due to the size of the business and the simplicity and low volume of transactions, coupled with the nature and the extent of internal controls and Board oversight and involvement. The A&RC will continue to regularly review the need for an internal audit function as the business evolves and develops.

 

Zegona's risk management framework incorporates a risk assessment that identifies and assesses the strategic, operational and financial risks facing the business, mitigating controls, and appropriate corrective actions, if and when needed. This assessment is continually updated by management and reviewed and discussed by the A&RC at least twice per year.

 

Zegona has in place a robust internal controls system over financial reporting, which encompasses a mixture of detective, preventative and corrective controls, including:

 

·      Entity level controls which encompass guidelines for Zegona's governance, financial analysis and integrity, and its adherence to applicable laws and professional standards;

·      Systems and procedures in place to identify, assess, control and monitor principal and emerging strategic, commercial, financial and regulatory risks are considered by the Board regularly;

·      A team of professional advisers including legal, capital markets, M&A, accounting, regulatory, and PR providing advice to management and the Board;

·      A schedule of Matters reserved for the Board to ensure that the Board is involved in all critical decisions of Zegona which is reviewed regularly;

·      A comprehensive system of budgeting, forecasting and monthly reporting and rigorous analytical review procedures;

·      A comprehensive risk register which is reviewed at least twice a year and updated to take account of developments within Zegona; and

·      Segregation of duties for all financial reporting and accounts payable critical tasks.

 

Through the above procedures, the Board with advice from the A&RC has reviewed the effectiveness of the internal control system throughout the year and up to the day of this report. No significant control findings or weaknesses have been identified from this review.

 

 

Ashley Martin

Chairman of the Audit and Risk Committee

 

 

 

 

On behalf of the Board, I am pleased to present the Nomination and Remuneration Committee ("the Committee") Report for the year ended 31 December 2021. 

 

The Committee met 5 times during 2021, supported by a number of full board discussions and the matters we discussed are set out on page 31.  The following pages set out the Committee's activities and decisions made in the year. Zegona is committed to transparency, equivalence and engagement with shareholders on these most important matters and we have continued to make progress this year.

 

Zegona's performance and context - The sale of Euskaltel and the return of proceeds

Zegona underwent considerable change in 2021, fully in line with our Buy-Fix-Sell strategy. The sale of our investment in Euskaltel delivered an attractive return to Zegona's shareholders and brought a successful end to a multi-year strategy in Spain that included four M&A transactions and two operational turnarounds. The return of £335 million was also entirely in keeping with our stated strategy, which anticipates returning value created to shareholders promptly and efficiently. Zegona has established a good track record and is now actively evaluating a number of attractive investment opportunities within the European TMT sector where we can again apply our successful Buy-Fix-Sell strategy.

 

This success forms the backdrop of the key remuneration matters that we have dealt with in the year, as detailed below:

 

Remuneration decisions for 2021- Reviewing outcomes against company performance

 

Redemption and renewal of the Management Incentive Scheme

The second Calculation Period of the management incentive scheme was not due to become exercisable until June 2023, however the rules of the scheme allow the Management Shares held under the scheme to be redeemed for cash earlier than this if certain criteria are met. One of these criteria was met upon the successful return of £335 million to shareholders because Zegona had sold all, or substantially all, of its assets and distributed the net proceeds to shareholders. A cash payment of £25.7 million therefore became due to the management team. The Committee was heavily involved with ensuring that the conditions for redemption had been met and the amount of the payment had been correctly calculated.

 

The third Calculation Period automatically began on 14 October 2021 and the Management Shares may be redeemed between 14 October 2024 and 14 October 2026. All other terms remain the same as for the other Calculation Periods and the renewal of the scheme will be subject to a shareholder vote at Zegona's 2022 AGM.

 

More details on the redemption and renewal of the Management Incentive Scheme are provided on pages 90 to 91.

 

2021 Bonus

After listening to the views of key shareholders in connection with the Return of Capital, both Executive Directors have waived their bonus entitlement for 2021.

 

Developing Zegona's 2022 Remuneration policy

The Committee undertook a review of the Directors' Remuneration Policy during the year, taking into account alignment to business strategy and our executive remuneration principles. The approach to remuneration recognises and is designed to support the unique Zegona business model.

 

The resulting 2022 Directors' Remuneration Policy is largely consistent with the current Remuneration policy (which received 86.4% support at the 2019 AGM), with remuneration still delivered through the same basic elements of a fixed base salary and benefits, a performance-based annual bonus, and participation in the management incentive scheme. The most significant change compared to the existing policy is to ensure the management incentive scheme is designed to last for up to five years by requiring that if the share incentive is exercised in advance of the full five-year period, any shares received will be held by management until at least five years have elapsed from the start of that period.

 

Application of remuneration policy for 2022

Following a review of the executive remuneration arrangements for 2022 and listening to shareholder feedback, the Committee agreed that there would be no increase in base salary for either of the Executive Directors and as such their salaries will remain unchanged for the year ahead. In line with corporate governance best practice, the pension contribution for both of the Executive Directors will be reduced to 19% by the end of 2022, to be the same as the contribution available to the majority of the workforce.

 

The Committee has also agreed that given the fact that Zegona now has significantly less capital and no underlying asset it would not be appropriate to put in place the opportunity to earn bonuses to senior management in 2022 until such time as Zegona makes a new investment. This will remain under review during 2022.

 

 

I would like to take the opportunity again to thank shareholders for their engagement and feedback over the past year and look forward to your support at the upcoming AGM in June.

 

Suzi Williams

Chair of the Nomination and Remuneration Committee

 

 

 

The role of the Nomination and Remuneration Committee

The Committee is responsible for nomination and remuneration matters, from the recruitment and retention of high calibre individuals to the design of appropriate incentivisation mechanisms (and the ongoing monitoring of performance against these) while delivering value creation for shareholders and other key stakeholders.

 

The role of the Committee continues to be ensuring that the Directors are appropriately rewarded, through making recommendations regarding remuneration policy and framework. The Committee monitors and reviews the effectiveness of the Remuneration Policy and considers its impact and compatibility with remuneration policies across the wider workforce. To facilitate this remit, the Committee is provided with information and context on pay, benefits and incentive structures in place across Zegona to support its decision making.

 

Membership, attendance and other activities

The members of the Committee are Suzi Williams (Chairman), Richard Williams, and Ashley Martin. All members of the Committee are independent.

 

In 2021, the Committee met 5 times and has subsequently met in February and March. The Company Secretary attends these meetings and Executive Directors are invited at the Chairman's discretion. The scheduling of the formal Committee meetings is designed to be aligned with the Committee's recurring annual activities, including: setting of bonus metrics and evaluation of performance against them; overseeing the performance evaluation of the Board, its principal Committees and individual directors; overseeing succession planning for the Board and key members of the senior management team, taking into account expertise and diversity; and reviewing the annual nominations and remuneration report contained within the annual report.

 

In addition to the matters discussed above, since the last Nomination and Remuneration Committee Report, the Committee has also:

 

·      Reviewed the remuneration package for the Executive Directors and management team for 2022, including concluding that no bonuses will be paid until such time as Zegona owns a material underlying asset;

·      Reviewed the Articles of Association of Zegona Limited, which contain the terms of the Management Incentive Scheme;

·      Reviewed the Directors' remuneration policy and the nomination and remuneration disclosures in the annual report;

·      Reviewed the recommendations arising from the 2021 Board effectiveness review, its committees and its individual Directors and, where appropriate, proposed actions to address those recommendations; and

·      Reviewed workforce remuneration and its alignment to Zegona's purpose, values and strategy. 

 

Advisers

The Committee received input and advice from external advisers on specific topics during 2021. The Committee formally engaged PwC LLP's ("PwC") as an adviser in 2022. The Committee's decision reflected the quality and objectivity of the independent advice that PwC had provided to the Committee on remuneration matters during 2021.

 

For 2021, total fees of €19.7 thousand were incurred in relation to remuneration advice provided by PwC.

 

Executive pay at a glance

Base salary
Purpose	Current policy	2021 Implementation	2022 Implementation
To reflect market value of the role and individual's performance and contribution and enable Zegona to recruit and retain Executive Directors of sufficient calibre to drive Zegona's ambitions.	Reviewed every twelve months. Base salary increases are applied in line with the outcome of the review. In respect of existing Executive Directors, it is anticipated that no salary increases will be considered before Zegona completes its next investment.	No salary increases for either Executive Director	No salary increases for either Executive Director
Pension contributions
Purpose	Current policy	2021 Implementation	2022 Implementation
To provide a market competitive pension.	Pension contributions are made to the individual's private pension arrangements or paid to them in cash in lieu of such arrangements. Executive Directors receive a pension contribution of up to 19% of base salary, which is the same as the amounts available to a majority of the workforce.	No change	Contribution reduced to 19% by the end of 2022.
Other benefits
Purpose	Current policy	2021 Implementation	2022 Implementation
To provide market competitive benefits.	Benefits may include 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.	No change	No change
Annual cash bonus
Purpose To incentivise delivery of Zegona's annual financial and strategic goals.	Current policy Performance is measured on an annual basis for each Executive Director in respect of each financial period. The maximum annual bonus available is 100% of base salary per annum. The Committee retains discretion to apply malus or clawback provisions.	2021 Implementation Executive Directors waived their entitlement to receive a bonus	2022 Implementation No bonuses to be paid to senior management until Zegona owns a material underlying asset
Management Incentive Scheme
Purpose	Current policy	2021 Implementation	2022 Implementation
To drive performance, aid retention and align the interests of Executive Directors and senior management with shareholders over the long term.	The Committee may allocate Management Shares in Zegona Limited to Executive Directors or senior management. Zegona's management incentive scheme entitles participants in aggregate to receive up to 15% of the growth in value of Zegona subject to a shareholders' 5% per annum preferred return. Incentive may be exercised between 3 and 5 years after each renewal or on the occurrence of certain specific events including a sale of Zegona's main assets and return of net proceeds to shareholders.	Next exercise period starts 14 October 2024	No change

 

 

 

Directors' remuneration policy

 

Background

In setting the policy for Directors' remuneration, the Committee has sought to promote the long-term success of Zegona, applying incentives which are compatible with Zegona's corporate strategy, risk policies and systems. In particular, the Committee has been mindful of aligning shareholders' and management's interests.

 

Zegona may not make a remuneration payment to a Director, including a payment for loss of office, unless the payment is consistent with the approved Directors' remuneration policy or an amendment to the Directors' remuneration policy to make the payment permissible is approved by resolution of Zegona's shareholders.

 

This revised policy will apply from the date of the 2022 AGM, replacing the policy approved at the 2019 AGM. Zegona seeks to be consistent and transparent with its remuneration arrangements, therefore there are no substantial changes to the remuneration policy compared to the policies approved at the 2019 and 2016 AGM's.

 

All Directors' service contracts and letters of appointment are available for inspection at Zegona's registered office.

 

Zegona's Remuneration Strategy drives its Remuneration Policy

Since Zegona was first established, the Committee has followed a consistent remuneration strategy that closely aligns the Executive Directors with Zegona's shareholders, drives the Company's Buy-Fix-Sell model and has been central to its success. This strategy is based around four key principles - namely, that executive remuneration is:

 

(1) Simple - Since Zegona was first established, Executive Directors have received the same remuneration elements as the rest of the Zegona employees - base salary, annual bonus, pension contribution and other benefits - as well as being eligible under a single and consistent long-term incentive plan based on a single value creation metric.

 

(2) Transparent - Each year, there is full and detailed disclosure in the Directors' Remuneration Report of each component of remuneration, including an explanation of the calculation of any variable element and the current value of any unvested award pursuant to the Management Incentive Scheme.

 

(3) Focused on performance - Executive Directors receive a mix of remuneration which is geared towards a higher percentage of variable pay which means the opportunity for any significant reward is heavily weighted to the long-term incentive plan, which is entirely based on the creation of shareholder value.

 

(4) Fully aligned with shareholders - Remuneration for the Executive Directors is heavily weighted to the long-term incentive plan, which pays nothing to participants unless the executive Directors deliver a threshold return to shareholders over a three-to-five-year period or on the occurrence of certain specific events including the sale of Zegona's main assets and return of net proceeds to shareholders, and only pays a significant award if they materially outperform in the creation of shareholder value.

 

The Committee has always ensured these four key principles form the basis of Zegona's Remuneration Policy, as well as its application to Executive Directors and this approach has historically received strong support from shareholders. In updating the policy this year, we have sought to remain as faithful to these principles and past practice as possible. I have set out below how our implementation of that policy fits with Zegona's strategy and the desired outcomes for our shareholders.

 

Overview of the 2022 Remuneration Policy

The 2022 remuneration policy is largely consistent with the current Remuneration policy, with remuneration still delivered through the same basic elements of a fixed base salary and benefits, a performance-based annual bonus and participation in the Management Incentive Scheme. The most significant change compared to the existing policy is to ensure the Management Incentive Scheme is designed to last for up to five years by requiring that if the share incentive is exercised in advance of the full five-year period, any shares received will be held by management until at least five years have elapsed from the start of that period.

 

The 2022 policy is consistent with the current policy, primarily because the Committee concluded that the current policy was well aligned with Zegona's core Buy-Fix-Sell strategy, even following the sale of Euskaltel and the Return of Capital and effectively delivered the four key principles of Zegona's remuneration strategy.

 

The Committee also considered how the 2022 policy aligned with the UK Corporate Governance Code factors as follows:

 

Clarity	Variable pay depends on delivering Zegona's strategy to create sustainable long-term shareholder value. This provides absolute clarity on the relationship between the delivery of the strategy and remuneration paid. Zegona also presents its remuneration arrangements in the clearest and most transparent way possible and maintains an open and transparent dialogue with investors, both through formal engagement processes, ad hoc discussions, and the disclosures in its annual reports.
Simplicity	Total remuneration is heavily weighted to variable elements, of which there are only two: the annual bonus and the Management Incentive Scheme, both of which are based on simple and transparent metrics. The operation of the Annual Bonus Plan is directly linked to key quantitative and qualitative strategic objectives and the Management Incentive Scheme rewards the creation of shareholder value over a three-to-five-year period or on the occurrence of certain specific events including the sale of Zegona's main assets and return of net proceeds to shareholders.
Risk	The 2022 Policy includes the following elements to mitigate against the potential risks of target-based incentives: · Capping the annual bonus to a maximum of 100% of base salary. · Ensuring the Management Incentive Scheme is designed to last for up to five years by requiring that if the share incentive is exercised in advance of the full five-year period, any shares received will be held by management until at least five years have elapsed from the start of that period. · Aligning the remuneration performance conditions with the "Buy-Fix-Sell" strategy of the Company. · Ensuring there is sufficient flexibility for the Remuneration Committee to apply discretion to depart from formulaic outcomes
Predictability	Fixed remuneration for the Executive Directors is generally kept constant. Variable remuneration is limited to the annual bonus, which is capped at 100% directly linked to key quantitative and qualitative strategic objectives, and the Management Incentive Scheme. The method of calculation, limits and discretions under the 2022 Policy are clearly set out.
Proportionality	The restricted fixed remuneration and capped Annual Bonus Plan is compensated by the opportunity for potentially significant reward entirely dependent on performance pursuant to the Management Incentive Scheme that is directly linked to the Company's long term value creation strategy.
Alignment to culture	The focus on responsible stewardship and long-term sustainable performance is a key part of the Company's culture. This is supported by the 2022 Directors Remuneration Policy, which ensures that the four key principles of Zegona's remuneration strategy are delivered.

 

Directors' fixed remuneration

In setting the Directors' fixed remuneration, the Committee considers that Zegona should have regard to:

 

·      Zegona's objective to reward all employees fairly according to their role, experience and performance;

·      The individual Director's performance, responsibility, skills and experience;

·      Whether increases in fixed remuneration above inflation are appropriate or justifiable; and

·      The pension and bonus consequences and associated costs to Zegona of any basic salary.

 

The Committee considers that the Directors' fixed remuneration should be reviewed annually.

 

Executive Directors' incentive arrangements

The Committee considers that the Directors' remuneration policy should, as well as aligning the interests of the Executive Directors with Zegona's long-term success, incentivise delivery of Zegona's financial and strategic goals over a financial period.

 

The Committee considers that the Executive Directors should be rewarded principally through participation in a long-term incentive scheme. Therefore, whilst the Committee continues to adopt an annual bonus policy for Executive Directors pursuant to which the maximum bonus opportunity is capped at 100% of base salary, remuneration is principally driven through the Executive Directors' ownership of Management Shares. The Management Shares enable the Executive Directors to participate in the growth in value of Zegona, subject to shareholders achieving a Preferred Return of 5% per annum, thereby aligning their interests with those of shareholders and hence providing a long-term incentive arrangement.

 

There are up to five periods in which the Management Shares can be exercised. The current period - which is the third period - began on 14 October 2021 following the completion of the tender offer to return £329.4 million to shareholders and is expected to end (subject to shareholder approval) between 14 October 2024 and 14 October 2026. The fourth and fifth periods, which are subject to shareholder approval, are three to five years from the earlier of the date of the Management Shares becoming exercisable and the end of the previous period if the Management Shares did not become exercisable in that period. The Committee believes that the period during which the Management Shares may be exercised is appropriate to ensure that growth is achieved over a material period of time and that the Executive Directors and senior management are incentivised to remain with the business for the longer term.

 

The full Executive Directors' remuneration policy is as follows:

 

Base Salary
Purpose and link to strategy:	To reflect market value of the role and individual's performance and contribution and enable Zegona to recruit and retain Executive Directors in the short term of sufficient calibre to drive Zegona's ambitions and thereafter to retain those Directors prior to remuneration from their Management Shares, which is driven by Zegona's long-term goals.
Operation:	Reviewed every twelve months.
Opportunity:	Base salary increases are applied in line with the outcome of the review.   In respect of existing Executive Directors, it is anticipated that salary increases will generally be in line with inflation or those of salaried employees as a whole.   In exceptional circumstances (including, but not limited to, a material increase in job size or complexity) the Committee has the discretion to make appropriate adjustments to salary levels to ensure they remain competitive in the marketplace.
Performance Metrics:	Both Zegona's and individual performance will be considered in setting Executive Director base salaries.
Pension
Purpose and link to strategy:	To provide a market competitive pension, with a contribution rate that is the same as the majority of the workforce.
Operation:	Pension contributions are made to the individual's private pension arrangements or paid to them in cash in lieu of such arrangements.
Opportunity:	Executive Directors receive a pension contribution of up to 19% of base salary by the end of 2022, reduced from 20%.
Performance Metrics:	Not performance-related.
Benefits
Purpose and link to strategy:	To provide market competitive benefits.
Operation:	Benefits may include car allowances, personal tax advice, private medical insurance, critical life and death in service cover. Other benefits may be awarded as appropriate, such as relocation benefits.
Opportunity:	Benefits may vary by role and individual circumstances and will be reviewed periodically.   The Committee retains the discretion to approve a higher cost in exceptional circumstances (e.g. relocation) or in circumstances where factors outside of Zegona's control have materially changed (e.g. increases in medical insurance premiums).
Performance Metrics:	Not performance related.
Annual Bonus
Purpose and link to strategy:	To incentivise delivery of Zegona's annual financial and strategic goals by evaluating performance each year against a number of predefined quantitative and qualitative targets that reflect Zegona's key strategic objectives for the year.
Operation:	Performance is measured on an annual basis for each Executive Director in respect of each financial period and bonuses are paid in cash.
Opportunity:	The maximum annual bonus available is 100% of base salary per annum.
Performance Metrics:	Performance measures and targets will generally be set annually in advance by the Committee to ensure that they are appropriately stretching and to ensure that they reflect the particular financial and strategic goals of Zegona for the financial period in question.   If any of the performance measures and targets set for the year become inapplicable (for example, due to a change in group structure), the Committee retains discretion to amend the measures and targets for the period.

 

Management Incentive Arrangements
Purpose and link to strategy:	To drive performance, aid retention ensure the interests of Executive Directors and senior management are closely aligned with shareholders over the long term by allowing participants in the arrangement to share in the growth in value of Zegona.
Operation:	The Committee may allocate Management Shares in Zegona Limited to Executive Directors or senior management. These shares entitle holders to 15% of the growth in value of Zegona during a series of up to five separate Calculation Periods, provided that ordinary shareholders achieve a 5% per annum Preferred Return in each Calculation Period.   Holders of Management Shares are required to exercise all their rights at a single time during the period from 14 October 2024 to 14 October 2026, which is between three and five years from the beginning of the current Calculation Period unless specific criteria enabling earlier exercise are met.   After this period, there can be up to another two periods in which the Management Shares can be exercised, subject to shareholder approval.   If the Management Shares are exercised less than five years from the beginning of any Calculation Period, any shares received will be held by management until at least five years have elapsed from the beginning of the relevant Calculation Period.
Opportunity:	Zegona's management incentive arrangements entitle participants in aggregate to receive up to a maximum of 15% of the growth in value of Zegona. The minimum amount payable under the scheme is nil.   The maximum aggregate amount available to participants in the incentive arrangements is capped at that level irrespective of the number of participants in the scheme.
Performance Metrics:	Subject to shareholders achieving a Preferred Return of 5% per annum on a compounded basis on their net invested capital.   Further details on the management incentive arrangements are set out in note 19 to the financial statements

 

Non-Executive Directors' remuneration policy

Pursuant to Zegona's Articles of Association, the Board determines the remuneration policy and level of fees for the Non-Executive Directors, within the limits set out in the Articles of Association (or as specified by Zegona in a general meeting). The Committee recommends the remuneration policy and level of fees for the Board to approve.

 

Annual fee
Purpose and link to strategy:	To reflect market competitive rates for the role, as well as individual performance and contribution.
Operation:	Non-Executive Directors receive a basic fee for their respective roles with additional fees to Non-Executive Directors for additional services, such as chairing a Board committee or supporting the Board on matters or projects that require significant time commitment beyond that typically expected of a Non-Executive Director.   The Committee will review fees annually, but there will be no obligation for fees to be increased.   Fees are payable in cash.
Opportunity:	Fee increases are applied in line with the outcome of the annual review. There is no prescribed maximum fee per Non-Executive Director. It is expected that increases to Non-Executive Director fee levels will be in line with inflation or salaried employees over the life of the policy. However, in the event that there is a material misalignment with the market or a change in the complexity, responsibility or time commitment required to fulfil a Non-Executive Director role, fee levels may be appropriately adjusted.
Performance Metrics:	Not performance related.

 

Approach to recruitment remuneration

In the cases of hiring or appointing a new Executive Director, the Committee may make use of any or all of the existing components of remuneration, as follows:

 

Component	Approach
Base salary	The base salaries of new appointees will be determined by reference to the individual's role and responsibilities, experience and skills, relevant market data, internal relativities and their current basic salary. Where new appointees have initial basic salaries set below market, any shortfall may be managed with phased increases over a specified period subject to their development in the role.
Pension	New appointees will be eligible to receive a cash allowance.
Benefits	New appointees will be eligible to receive benefits in line with the Directors' remuneration policy.
Annual bonus	New appointees will be eligible to participate in the Zegona's annual bonus scheme on the same terms as other Executive Directors in line with the Directors' remuneration policy.
Management incentive arrangements	New appointees may be invited to participate in Zegona's long term incentive plan on the same terms as other Executive Directors, as described in the remuneration policy table.

 

There is no maximum value, other than it is noted that the total Directors' fees in aggregate is capped at £3 million per annum. At present, only non-Executive Directors receive fees.

 

In determining an appropriate remuneration package, the Committee will take into consideration all relevant factors (including quantum, nature of remuneration and the jurisdiction from which the candidate was recruited) to ensure that arrangements are in the best interests of both Zegona and its shareholders. In addition to the above elements of remuneration, the Committee may consider it appropriate to grant an award under a different structure in order to facilitate the recruitment of an individual, exercising discretion to replace incentive arrangements forfeited on leaving a previous employer. Such 'buyout awards' would have a fair value no higher than that of the awards forfeited. In doing so, the Committee will consider relevant factors including any performance conditions attached to these awards, the likelihood of those conditions being met and the proportion of the vesting period remaining. Generally, such buyout awards would be in the form of share awards although the Committee retains discretion to make cash payments.

 

In the case of appointing a new Non-Executive Director, the Committee will follow the policy as set out in the section entitled "Non-Executive Directors' remuneration policy" above. A base fee reflecting current competitive rates and the individual's anticipated contribution would be payable for Board membership, with additional fees payable for additional services, such as chairing a Board committee.

 

Notice periods and remuneration on loss of office

The Committee considers that notice periods of Executive Directors should be one year or less and that any payments to a departing Executive Director should be determined with full regard to the duty of mitigation. In certain circumstances, it may be appropriate for an Executive Director to be placed on gardening leave or to receive payment in lieu of notice. In such circumstances, the Committee considers that it is appropriate for the Executive Director to receive the basic salary they would have received for the remaining term of their notice period (provided that such notice period is less than twelve months), along with any benefits that would have accrued during that period (including pension and holiday entitlements).

 

Notwithstanding the foregoing, no payments in respect of unearned bonus will be made where the Executive Director's appointment is terminated for (amongst other things) fraud or gross misconduct and any Management Shares would be forfeit.

 

Non-Executive Directors' appointments are terminable on 6 months' notice. On termination, Non-Executive Directors will only be entitled to such fees as may have accrued to the date of termination, together with reimbursement in the normal way of any expenses properly incurred before that date.

 

Executive Directors' shareholdings

The Committee recognises the importance of Executive Directors aligning their interests with shareholders through building up a significant shareholding in Zegona. The Committee notes that over time, the Executive Directors together are now the largest shareholders in Zegona and have done so without the need to impose a minimum shareholding requirement. Given the size of this holding, and the fact that the Executive Directors are integral to Zegona's future prospects the Committee does not consider it necessary to impose such a requirement at this point, nor a requirement for them to continue to hold shares post cessation of their employment with Zegona.

 

Illustrative application of the remuneration policy

The charts below show an illustration of the level of remuneration that each Executive Director could receive in 2022, which is the first year of the policy as it is described above. The charts are presented in Sterling because this is the currency that the Executive Director's pay is set in. The charts show illustrative remuneration under three scenarios:

 

• Minimum performance: This scenario only includes the fixed elements of remuneration; Base salary effective from 1 January 2022, and benefits and pension rate as set out in the single figure table for the year ended 31 December 2021 on page 42.

 

• On-target performance: This scenario includes the fixed elements of remuneration as above, plus a bonus that reflects achievement of 50% of the bonus targets. In practice, the Committee has determined that no bonuses will be paid to senior management in 2022 and thereafter unless Zegona makes a new investment, at which point new bonus targets will be established. In order, therefore, for this scenario to be achieved Zegona would need to complete a new investment during 2022. No amounts have been included in respect of the Management shares because they are not exercisable until 2024.

 

• High performance: This scenario includes the fixed elements of remuneration as above, plus a bonus that reflects achievement of 100% of the bonus targets assuming Zegona does pay bonuses in 2022 as discussed above. As in the previous scenario, no amounts are included in respect of the Management Shares for the same reasons.

 

 

Chart 1: http://www.rns-pdf.londonstockexchange.com/rns/0571H_1-2022-4-3.pdf

 

Zegona FY 2021 - Chart 1

 

 

 

Remuneration arrangements for Zegona

The approach to annual salary and bonus reviews is consistent across Zegona, with consideration given to the level of experience, responsibility, individual performance and salary levels in comparable companies. Given the small number of employees, the Committee has not sought, or taken account of, the views of Zegona's employees in drawing up the Directors' remuneration policy. However, the Committee has regard to Zegona's objective to reward all employees fairly according to their role, experience and performance when setting the Directors' fixed remuneration.

 

Consideration of shareholder views

Zegona remains committed to open and transparent engagement with its investors on all matters, including remuneration. The Committee believes that this Directors' remuneration report should communicate clearly how much our Executive Directors are earning and how this is linked to performance. The Committee has considered shareholder views on remuneration matters since the last policy was approved, including as discussed in our 2020 Annual Report and will continue to include those views as part of its decision-making process in respect of remuneration issues.

 

 GOVERNANCE | DIRECTORS' REMUNERATION REPORT

 

 

All disclosures in the Directors' remuneration report are unaudited unless otherwise stated. The annual report on remuneration gives details on the amounts earned in the year ended 31 December 2021 and how the Directors' remuneration policy will be applied in 2022. This remuneration report will be subject to an advisory vote at the 2022 AGM.

 

2021 Executive Directors remuneration summary (Audited)

In the interests of clarity, since the Executive Directors' salaries are set and paid in Sterling, the table has been presented in both Sterling and euros (Zegona's presentational currency). These tables only include remuneration received by the Executive Directors In respect of their employment by Zegona. The fees received from their appointments as proprietary Directors of Euskaltel prior to their resignation are disclosed on page 50.

 

	Executive Directors (Sterling)
	Eamonn O'Hare (Chairman & CEO)		Robert Samuelson (COO)
	2021 £	2020 £	2021 £	2020 £
Base salary	563,000	563,000	419,000	419,000
Pension contributions	112,600	112,600	83,800	83,800
Taxable benefits	21,321	21,321	21,321	21,321
Company health insurance scheme	7,271	6,548	6,954	6,304
Total fixed pay	704,192	703,469	531,075	530,425
Annual cash bonus	-	422,250	-	314,250
Management Incentive Scheme redemptions	15,218,252	-	7,609,126	-
Total variable pay	15,218,252	422,250	7,609,126	314,250
Total fixed and variable pay	15,922,444	1,125,719	8,140,201	844,675

 

 

	Executive Directors (euros)
	Eamonn O'Hare (Chairman & CEO)		Robert Samuelson (COO)
	2021 €	2020 €	2021 €	2020 €
Base salary	653,582	635,320	486,414	472,822
Pension contributions	130,716	127,064	97,283	94,564
Taxable benefits	24,751	24,060	24,751	24,060
Company health insurance scheme	8,441	7,389	8,073	7,114
Total fixed pay	817,490	793,833	616,521	598,560
Annual cash bonus	-	476,490	-	354,617
Management Incentive Scheme redemptions	17,666,748	-	8,833,374	-
Total variable pay	17,666,748	476,490	8,833,374	354,617
Total fixed and variable pay	18,484,238	1,270,323	9,449,895	953,177

 

None of the Executive Directors' remuneration in 2021 was attributable to Zegona's share price growth[19]. No discretion has been exercised to determine remuneration as a result of either Zegona's share price appreciation or depreciation.

 

Components of remuneration: Base salary

In 2021 and for 2022, following a review of the executive remuneration arrangements in both periods, the Committee agreed that there would be no increase in base salary for either of the Executive Directors and as such their salaries remained unchanged in 2021 and will do so for the year ahead.

 

Components of remuneration: Pension contributions

In 2021 both Executive Directors received a pension contribution of 20% of their base salary. In line with corporate governance best practice, the pension contribution for both of the Executive Directors will be reduced to 19% by the end of 2022, to be the same as the contribution available to the majority of the workforce.

 

Components of remuneration: Taxable benefits and Company Health Insurance Scheme

In 2021 both Executive Directors received car allowances, personal tax advice, private medical insurance, and death in service cover, which will continue in 2022.

 

Components of remuneration: Annual cash bonus

 

Implementation in 2021

For 2021, the Committee set a number of bonus targets and carefully reviewed performance against the key bonus objectives during the year and concluded that the Executive Directors met a significant majority of their indicators of achievement in relation to the 2021 bonus scheme, however in connection with the agreement to return the proceeds of the Euskaltel sale to shareholders both Executive Directors agreed to waive any amounts due to them.

 

Implementation in 2022

The Committee have concluded that it is not appropriate for the Executive Directors or any of Zegona's senior management team to receive any bonus for any period when Zegona does not own a material underlying asset. Should Zegona make a new acquisition during 2022, the Committee will develop appropriate bonus targets at the appropriate time.

 

Components of remuneration: Management Incentive Scheme

Although the Committee feels it is important to remunerate and incentivise the Executive Directors through their basic pay, benefits and annual bonus, it also feels very strongly that Executive Directors' long-term incentives should be linked to the creation and delivery of real returns to shareholders. A key element of Zegona's remuneration policy for the Executive Directors and senior management is Management Shares in Zegona Limited, which were put in place when Zegona was founded and were designed to provide ongoing remuneration closely aligned with shareholders.

 

Overview of the scheme

The holders of the Management Shares are entitled to 15% of the growth in value of Zegona during a series of up to five separate Calculation Periods, provided that ordinary shareholders achieve a 5% per annum Preferred Return[20] in each Calculation Period. The first Calculation Period began in 2015 and ended in 2020. The second Calculation Period ended during 2021, at which point the third Calculation Period began.

 

Holders have the right to end each Calculation Period by redeeming 99% of their Management Shares at any time between the third and fifth anniversaries of the beginning of the Calculation Period, although a Calculation Period may also end upon certain specified events such as a winding up, takeover, or a change of control of Zegona, or if Zegona sells all or substantially all of its assets and distributes the net proceeds to shareholders.

 

Upon redemption, if the Preferred Return has been met, holders of the Management Shares receive 15% of the increase in value of Zegona in either Zegona ordinary shares or cash at the discretion of Zegona's Board at the time of the exercise on advice from the Committee in accordance with the Articles. If the Preferred Return has not been achieved, no payment is made. It is currently anticipated that the exercise of Management Shares could result in management receiving ordinary shares, which, depending on the amount of value created, could potentially lead to management becoming a significant shareholder.

 

Upon redemption of the Management Shares, a new Calculation Period automatically begins with the remaining shares retaining the entitlement to 15% of the growth in value of Zegona for the next Calculation Period, provided the Preferred Return is achieved over this period. The starting value against which the growth in value and the Preferred Return are calculated (the "Baseline") at the beginning of the new Calculation Period is set at the higher of the Market Capitalisation of Zegona, defined as 30-day VWAP, and the Net Shareholder Invested Capital on that date.

 

Each time a new Calculation Period begins, the renewal of the Management Shares' rights is subject to a vote by Zegona's shareholders at the next Annual General Meeting ("AGM") and so there will be such a vote at the upcoming AGM on the beginning of the third Calculation Period. If shareholders representing 75 per cent or more of the shares vote against the renewal at the AGM, the Management Shares are redeemed for no value.

 

Scheme developments in 2021

 

Exercise of shares and the end of the Second Calculation Period

Zegona Limited's Articles of Association (the "Limited Articles") allows the Management Shares to be redeemed within three years of the beginning of a Calculation Period if certain criteria ("Takeover Provisions") are met. One of these Takeover Provisions is if Zegona sells all, or substantially all, of its assets and distributes the net proceeds to shareholders (the "Substantial Sale and Return Provision"). If any of these Takeover Provisions are met, then any redemption must be in cash.

 

The successful return of £335 million to shareholders, completed on 14 October 2021, following the sale of Zegona's investment in Euskaltel (see notes 12 and 20 to the financial statements), meant that the Substantial Sale and Return provision was met and a cash payment became due to holders of the Management Shares under the terms of this scheme. A summary of the calculation of the amount paid is shown below:

 

 

Calculation of management share redemption value (£000)
Cash received on sale	364,362			The Sterling proceeds received on conversion of the €421.3 million received from the sale of the shares in Euskaltel under the terms of the deal contingent forward purchase contract (see notes 12 and 13 to the financial statements).
Less:  liabilities	(76)			The total liabilities of Zegona Limited as at the completion date of the tender offer.
Takeover consideration	364,286
Less: net invested capital			(192,818)	See below
Growth in value			171,468
Split between:
Ordinary Shares	85%	145,746
Management shares	15%	25,720
Split between:
Eamonn O'Hare				15,218
Robert Samuelson				7,609
Other Zegona Senior Managers				2,892

 

In making this payment, the Nomination and Remuneration Committee provided a recommendation to the Board to approve the payment. In order to make this recommendation, it carefully reviewed the terms of the scheme to ensure that the conditions for redemption had been met and that the amount of the payment had been correctly calculated according to the payment waterfall in the terms of the scheme that allocates the Takeover Consideration between the holders of the Management Shares and Zegona's Ordinary Shareholders.

 

This review was supported by the Audit and Risk Committee and involved receiving written advice from the Company's legal advisors that the terms of the waterfall had been correctly applied. The Company's auditors also performed agreed procedures that were designed to validate the accuracy of the calculations and agree factual information required.

 

On the redemption of the Management Shares, shareholders net invested capital was comprised of as shown in the table below:

 

	Net invested capital (unadjusted) £	5% pa Preferred Return  at 14 Oct 2021 £	Preferred Return hurdle at 14 Oct 2021 £
Baseline Value - June 25,2020	209,640,725	223,398,679	13,757,954
Dividend - July 2020	(5,706,811)	(6,074,738)	(367,927)
Dividend - March 2021	(4,817,342)	(4,959,778)	(142,436)
Dividend - July 2021	(5,693,222)	(5,772,471)	(79,249)
Share buy-backs - 2020[21]	(605,188)	(642,911)	(37,723)
	192,818,162	205,948,781	13,130,619
Shares outstanding	218,970,076	218,970,076	218,970,076
Per share (£)	0.881	0.941	0.060

 

Start of the Third Calculation Period

The Third Calculation Period automatically began on 14 October 2021, with the Baseline Value Per Share for the new Calculation Period being £1.51 per share, which was equal to volume weighted average mid-market price of Zegona shares for the previous 30 trading days. During the Third Calculation Period, the Management Shares may be redeemed between 14 October 2024 and 14 October 2026. All other terms remain the same as for the other Calculation Periods and the renewal of the scheme will be subject to a shareholder vote at Zegona's 2022 AGM. The Nomination and Remuneration Committee approved the new Baseline value based on advice from Zegona's brokers of the accuracy of the calculation of the weighted average trading price.

 

 

No Management Shares were awarded during the year (2020: nil). At the time of signing this report and as at 31 December 2021, the total Management Shares held by the Directors were as shown in the table below:

 

		Participation in growth in value	Number of Management Shares	Nominal value of Management Shares
Eamonn O'Hare		8.88%	305,000	£ 305
Robert Samuelson		4.44%	152,500	£153
Other Zegona senior managers		1.68%	57,964	£58
			515,464	£516

 

The Executive Directors are entitled to keep their Management Shares for a period of time if they are terminated, save if they are terminated for cause. The time period is two exercise periods, save in the case of death or permanent disability when it is until the end of the current exercise period.

 

Illustration of scheme value

To explain how Zegona's Management Incentive Scheme operates, we have set out here an illustration of how much value would be earned by the management team assuming a hypothetical exercise date of 31 December 2021, even though the Management Shares were not exercisable at that date[22].

 

The illustration assumes that the exercise was based on the market value of Zegona's ordinary shares at the hypothetical exercise date and, since the deemed market capitalisation of £5.0 million was lower than both the Preferred Return target and the net invested capital, the holders of the Incentive Shares would have received no payment.

 

Since 14 October 2021 (£)
Net invested capital[23]			7,976,812
At 31 December 2021 (£)
Number of shares	5,325,567
Average share price[24]	0.936
Deemed market capitalisation				4,982,454
Growth in value per the incentive scheme				(2,994,358)
Split between:
Management Shares		15%		-
Ordinary Shares		85%		(2,994,358)

 

Shareholders' net invested capital at 31 December 2021 was calculated as follows:

 

	Net invested capital (unadjusted) £	5% pa Preferred Return  at 31 Dec 2021 £	Preferred Return hurdle at 31 Dec 2021 £
Baseline Value - October 14, 2021	6,700,452	6,770,741	70,290
Share Issue - October 2021	1,276,360	1,287,479	11,119
	7,976,812	8,058,220	81,409
Shares outstanding	5,325,567	5,325,567	5,325,567
Per share (£)	1.498	1.513	0.015

 

2021 Non-Executive Directors remuneration summary (Audited)

The remuneration of the Non-Executive Directors during the year is detailed below. Non-Executive Directors fee is a basic fixed salary of £50,000 with a fixed increment of £10,000 if the Non-Executive Director is Chair of a Committee. In the interest of clarity, since the Non-Executive Directors' salaries are set and paid in Sterling, the table has been presented in both Sterling and euros (Zegona's presentational currency). There have been no payments to anyone who was not a director of the company at the time the payment was made, but who had been a director of the company before that time.

 

	Non-Executive Directors fees[25]
	2021 £	2020 £	2021 €	2020 €
Richard Williams	50,000	54,462	58,045	61,457
Ashley Martin	60,000	60,000	69,654	67,707
Kjersti Wiklund	50,000	45,128	58,045	50,925
Suzi Williams	60,000	50,808	69,654	57,334
Mark Brangstrup Watts[26]	n/a	18,174	n/a	20,508
Murray Scott[27]	n/a	21,987	n/a	24,812
Total	220,000	250,559	255,398	282,743

 

There is no element of the Non-Executive Directors' remuneration that is linked to the performance of the business.

 

Summary of total shareholder return and Chief Executive remuneration

The total shareholder return graph below shows the value as at 31 December 2021 of £100 invested on IPO on 19 March 2015, compared with £100 invested in the OMSCI Europe/Communication Telecom Services Index. The Committee considers this index to be appropriate for the purposes of this comparison because it includes mostly European telecommunications companies. The data shown below assumes that all cash returns to shareholders made by Zegona (including the share buyback) are immediately reinvested in ordinary shares. The maximum value of £159.6 in October 2021 reflects the return Zegona achieved from the disposal of its investment in Euskaltel before reducing its share capital by 98%. The reduction in the shaded area reflects the trading value of Zegona's significantly reduced capital base since October 2021.

 

Chart 2: http://www.rns-pdf.londonstockexchange.com/rns/0571H_2-2022-4-3.pdf

 

Zegona FY 2021 - Chart 2

 

 

The single figure remuneration for the Chief Executive over the same period, together with the outcomes of the respective annual incentive awards, is presented in the following table

 

	2015[28]	2016	2017	2018	2019	2020	2021
Total remuneration €m	0.67	0.77	1.29	0.71	1.25	1.27	18.48
Annual bonus (% of maximum)	0%	0%	100%	0%[29]	94%	75%	0%[30]

 

 

Comparison of Directors' and employees' pay and relative importance of spend on pay

 

The following table compares the changes in each Director's pay with changes in employee pay between 2020 and 2021:

 

		Base salary change %	Taxable benefits change %	Annual cash bonus change %
Executive Directors
Eamonn O'Hare		0%	0%	(100%)
Robert Samuelson		0%	0%	(100%)
Non-executive Directors
	Richard Williams	0%	n/a	n/a
	Ashley Martin	0%	n/a	n/a
	Kjersti Wiklund	0%	n/a	n/a
	Suzi Williams	0%	n/a	n/a
Employees		0%	0%	(100%)

 

The table below shows the relative importance of the spend on remuneration paid to or receivable by all employees in Zegona when compared to distributions to shareholders by way of dividend or share buyback:

 

 

	2021	2020
	€000	€000
Employee pay	32,776	4,024
Returns to shareholders	400,698	14,886
Of which:
Dividends	12,169	11,348
Share buyback	-	3,538
Capital Return	388,529	-

 

Directors' terms and conditions

 

Service contract duration

 

Director	Contract duration	Notice period
Eamonn O'Hare	Unlimited*	12 months
Robert Samuelson	Unlimited*	12 months
Richard Williams	Unlimited*	6 months
Ashley Martin	Unlimited*	6 months
Kjersti Wiklund	Unlimited*	6 months
Suzi Williams	Unlimited*	6 months

 

*    Under the terms of the service agreements, these appointments are contingent on annual re-election by shareholders and completion of the annual Board effectiveness review.

 

Other than payments for notice periods, the service agreements contain no entitlements to termination payments. There are no malus or clawback provisions in respect of base salary, pension contributions or benefits, however, the Committee retains discretion to apply such provisions in the case of any bonus award paid to an Executive Director whose appointment is subsequently terminated.

 

External appointments

Executive Directors are allowed to accept external appointments with the consent of the Board as long as these are not likely to lead to conflicts of interests or significant time commitments. Executive Directors are allowed to retain the fees paid.

 

During 2021, Eamonn O'Hare earned and retained Non-Executive Director fees in relation to his external appointments of €138.0 thousand, which he resigned from on 30 August 2021 and €61.6 thousand in relation to his appointment as a propriety director of Euskaltel, which he resigned from on 10 August 2021.

 

During 2021, Robert Samuelson earned and retained €52.4 thousand in relation to his appointment as a proprietary director of Euskaltel, which he resigned from on 10 August 2021.

 

Reappointment

Under the terms of Zegona's Articles of Association, all Directors will be proposed for re-election at the 2022 AGM. All Board members have service contracts and details of the unexpired terms of these service contracts are set out above.

 

Compensation for loss of office (Audited)

The Directors are not entitled to any special compensation for loss of office pursuant to their directorship or employment contracts following a change of control. However, certain changes of control will entitle the Directors to exercise rights held by them as holders of Management pursuant to the long-term incentive plan in force in respect of Zegona. No payments for loss of office were made in either 2021 or 2020.

 

Directors' interests in ordinary shares (Audited)

The Committee intends to keep under consideration the need to adopt formal requirements or guidelines in connection with the building of shareholdings in Zegona by Executive Directors. During the year, no such formal requirements or guidelines were adopted and the Committee remains of the view that no such requirements or guidelines are currently needed given that the Executive Directors acquired ordinary shares in the Placing and their interests are significantly aligned with shareholders through their participation in the Management Incentive Scheme.

 

The shareholdings of the Directors at 31 December 2021 are set out below. There have been no changes in the shareholdings of the Directors from 31 December 2021 to the date of this report.

 

Director	Number of shares	% of issued share capital
Eamonn O'Hare[31]	502,891	9.44%
Robert Samuelson[32]	243,275	4.57%
Richard Williams	1,153	0.02%
Ashley Martin	212	0.00%
Kjersti Wiklund	-	-
Suzi Williams	-	-

 

The following information provided in this part of the Directors' Remuneration Report is not subject to audit.

 

Review of workforce remuneration matters

Although there are only a small number of employees in Zegona, in line with the provisions of the UK Corporate Governance Code, the Committee continues to review the effectiveness of the remuneration framework for Zegona's workforce. This involves being kept up to date with changes in workforce remuneration and ensuring that workforce remuneration continues to remain aligned to Zegona's purpose, values and strategy.

 

Statement of voting at General Meetings

The following table sets out the voting results in respect of the resolutions to approve the Directors' Remuneration Report and the Directors' Remuneration Policy:

 

	Date of AGM	For the resolution	Against the resolution	Votes withheld
Directors' Remuneration Report for the year ended 31 December 2021	30 June 2021	92.25%	7.75%	-
(Votes cast)		175,022,743	14,707,674	13,203,833
Directors' Remuneration Policy	10 June 2019	86.41%	13.59%	-
(Votes cast)		137,477,802	21,628,261	42,325,186

 

 

Suzi Williams

Chairman of the Nomination and Remuneration Committee

3 April 2022

 

 

		2021		2020
	Notes	€000		€000
Continuing Operations
Administrative and other operating expenses:
Corporate costs	5	(4,643)		(5,631)
Management Incentive Scheme costs	19	(29,072)		(914)
Significant project costs	6	(295)		(292)
Operating loss		(34,010)		(6,837)
Finance income	7	158		29
Finance costs	7	(376)		(310)
Net foreign exchange (loss) / gain		(30)		1,273
Loss for the year before income tax		(34,258)		(5,845)
Income tax expense	8	-		-
Loss for the period from continuing operations		(34,258)		(5,845)
Discontinued Operations
Profit for the period from discontinued operation, net of tax	13	114,171		19,811
Profit for the period attributable to equity holders of the parent		79,913		13,966
		€		€
Earnings per share - total operations
Basic and diluted earnings per share attributable to equity holders of the parent	25	0.47		0.06
Earnings per share - continuing operations
Basic and diluted earnings per share attributable to equity holders of the parent	25	(0.20)		(0.03)
Earnings per share - discontinued operations
Basic and diluted earnings per share attributable to equity holders of the parent	25	0.68		0.09

 

The notes on pages 70 to 97 form an integral part of these Consolidated Financial Statements.

			2021		2020
			€000		€000
Profit for the year			79,913		13,966
Other comprehensive income / (loss) - items that will or may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations			1,484		(689)
			(884)		(18,014)
Total other comprehensive income/(loss)			600		(18,703)
Total comprehensive income / (loss) for the year, net of tax, attributable to equity holders of the parent			80,513		(4,737)

 

The notes on pages 70 to 97 form an integral part of these Consolidated Financial Statements.

 

 

 

FINANCIAL STATEMENTS |CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

		As at 31 December		As at 31 December
		2021		2020
	Notes	€000		€000
Assets
Non-current assets
Property, plant and equipment		30		12
Interest in associate	12	-		322,737
Income tax receivable	15	5,234		-
		5,264		322,749
Current assets
Derivatives	16	-		39
Prepayments and other receivables	14	197		170
Financial assets measured at fair value through profit or loss	13	-		7,499
Cash and cash equivalents		10,556		15,244
		10,753		22,952
Total assets		16,017		345,701
Equity and liabilities
Equity
Share capital	21	301		2,821
Capital redemption reserve	22	2,565		34
Share premium reserve	22	1,616		108,793
Other reserve	22	-		180,816
Shares to be issued	22	1,443		-
Share-based payment reserve	22	31		799
Foreign currency translation reserve	22	(6,284)		(6,884)
Retained earnings	22	14,782		46,072
Total equity attributable to equity holders of the Parent		14,454		332,451
Current liabilities
Accruals and other payables	17	1,457		2,279
Bank borrowings	18	106		10,971
Total liabilities		1,563		13,250
Total equity and liabilities		16,017		345,701

  

    The notes on pages 70 to 97 form an integral part of these Consolidated Financial Statements

 

    The Financial Statements of Zegona Communications plc (registered number 09395163) were approved by the    

    Board of Directors on 3 April 2022 and were signed on its behalf by:

 

Eamonn O'Hare

Director

 

Robert Samuelson

Director

 

 

 

 

		As at 31   December		As at 31 December
		2021		2020
	Notes	€000		€000
Assets
Non-current assets
Property, plant and equipment		30		12
Investment in subsidiaries	9	6,824		252,322
Interest in associate		-		32,194
		6,854		284,528
Current assets
Derivatives	16	-		39
Prepayments and other receivables	14	3,821		183
Cash and cash equivalents		16		15,149
		3,837		15,371
Total assets		10,691		299,899
Equity and liabilities
Equity
Share capital	21	301		2,821
Capital redemption reserve	22	2,565		34
Share premium reserve	22	1,616		108,793
Other reserve	22	-		180,816
Shares to be issued	22	1,443		-
Share based payment reserve	22	31		694
Foreign currency translation reserve	22	(61,477)		(79,268)
Retained earnings	22	65,486		52,510
Total equity attributable to the shareholders of the Company		9,965		266,400
Current liabilities
Accruals and other payables	17	620		22,528
Bank borrowings	18	106		10,971
Total liabilities		726		33,499
Total equity and liabilities		10,691		299,899

 

The notes on pages 70 to 97 form an integral part of these Consolidated Financial Statements.

 

As permitted by section s408 of the Companies Act 2006, no profit and loss account for the company is presented. The company's profit for the financial year was €124.2 million (2020: €0.2 million)

 

The Financial Statements of Zegona Communications plc (registered number 09395163) were approved by the Board of Directors on 3 April 2022 and were signed on its behalf by:

 

 

 

Eamonn O'Hare

Director

 

Robert Samuelson

Director