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ZEGONA COMMUNICATIONS PLC ("Zegona")

 

LEI: 213800ASI1VZL2ED4S65

 11 april 2023

 

ZEGONA ANNOUNCES 2022 RESULTS

 

London, England, Zegona Communications PLC (LSE: ZEG) announces results and publishes its Annual Report[1] for the year ended 31 December 2022[2].

 

Enquiries

 

Zegona Communications plc

Tel: +44 (0)20 3004 2017

Kim Lowe: [email protected]

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ZEGONA COMMUNICATIONS PLC

Annual Report

For the Year Ended 31 December 2022

 

 

 I am pleased to present Zegona's annual report for 2022.

 

Searching for the next Buy-Fix-Sell Opportunity

In the past year we have continued to focus on finding the right opportunity within the European telecommunications market where we can again successfully apply our proven "buy-fix-sell" strategy to generate attractive returns for our shareholders. We believe that we sold our investment in Euskaltel at a particularly good time and despite plenty of opportunities to make an acquisition in 2022, we instead chose to stay patient and disciplined as we believed more attractive opportunities would emerge later in the year and in early 2023. This has indeed been the case and while we are not yet in a position to announce a new acquisition, we are currently actively working on a short-list of opportunities which we believe offer significant upside potential.

 

The past year has been marked by significant geo-political and macro-economic developments that have impacted European economies. In particular, the ongoing war in Ukraine has created uncertainty and has led to increased commodity prices and inflation. Other developments, such as changes in government leadership and trade policies, have also resulted in more constrained financial market conditions.

 

These developments had an impact on the telecommunications sector in 2022. While the sector has performed well overall, it has not been immune to the broader economic and political trends. In particular, the market for mergers and acquisitions in European TMT assets has been affected. Overall, the level of European TMT mergers and acquisitions in 2022 has been lower than in the previous three years in terms of both deal value and volume. However, there have been several notable deals in the space, including KKR's acquisition of Altice Europe for €11.1 billion (April 2022), Cellnex Telecom's acquisition of CK Hutchison's European tower business for €10 billion (March 2022) and Deutsche Telekom's acquisition of Liberty Global's Eastern European assets for €6.2 billion (June 2022).

 

During the second half of the year in particular, macro-economic challenges such as the rapid increase in interest rates by central banks have had a significant impact on the availability and pricing of debt and equity funding for businesses seeking to make acquisitions. This has made it more challenging for companies to pursue their desired acquisition targets. In addition, the availability of acquisition targets was affected by these factors, with some companies delaying their sales processes while they waited for financial market conditions to improve. Since the end of 2022, however, we have seen new targets becoming available as businesses have adjusted to the new market dynamics. This allied with significant improvements in the availability of debt funding and with equity markets also having recovered, means we are now far more confident in our ability to find and complete a new acquisition.

 

Throughout the last year, we have continued to search for new opportunities. We have been active on a number of proprietary transactions where we see material upside potential. However, we have maintained our strong financial discipline and have not been prepared to make an acquisition if it does not meet our strict financial criteria.

 

As discussed in Note 2 to the financial statements, we believe we have sufficient time and resources to continue to be patient and disciplined in our search for the right opportunity.  We also believe that this approach will be rewarded as market conditions stabilise. While challenges remain in the current environment, we are optimistic that we will be able to make an acquisition during the coming year which can deliver attractive returns for our shareholders.

 

Annual general meeting

The next AGM will be held at 10 Snow Hill, London, EC1A 2AL at 10:30 am on 20 June 2023. The AGM is an opportunity for shareholders to vote on certain aspects of Zegona's business. The Directors will also be available to answer any shareholder questions prior to and after the meeting.

 

 

 

 

Eamonn O'Hare

Chairman and Chief Executive Officer

6 April 2023

 

Vision                  ·    Execute our Buy-Fix-Sell strategy in the European TMT sector ·    Focus on businesses that require active change and fundamental improvement to realise their full value ·    Target significant long-term growth in shareholder value   Opportunity     Changing market dynamics in the TMT industry create multiple investment opportunities: ·    Demand for data and speed: Data consumption is growing strongly with customers willing to pay for speed and reliability. Gigabit broadband is increasingly offered in many markets but network roll-outs and upgrades need to be efficient. ·    Digital convergence: The fixed/mobile divide is increasingly disappearing for users, meaning significant growth in more valuable triple and quad play[3] customers who are combining mobile and fixed services. This has driven an increase in merger and acquisition ("M&A") activity and improvements in economics for converged players since mobile data delivery is heavily dependent on high capacity fixed networks. ·    Industry consolidation: The sector has seen heightened M&A activity. Many private equity owners are looking to sell assets as economies return to growth and industry players are focusing on their core regions, delivering cost reductions and price repair to rebuild margins. Consolidation has also created opportunity as businesses are spun out by the major industry players to meet regulatory requirements and strategic objectives, creating opportunity for Zegona. ·    Infrastructure monetisation: The opportunity to enhance value through separating off and monetising infrastructure assets, started with mobile towers but has expanded to other assets including fixed networks.  This creates new commercial options, both through providing a route for incremental value creation and in the remaining 'servco' operations which may not have been the main focus of attention in the initial infrastructure led transaction. ·    Broad range of attractive assets: Our flexibility in terms of size, geography and category opens a broad universe of attractive target assets across the TMT market. We have identified many businesses of an appropriate scale, including operators which are active in one or more of the mobile, mid-sized cable, fixed fibre network, B2B[4], and network infrastructure sectors.   Advantage     A number of factors make Zegona well positioned to access attractive deals and deliver value: ·    Strong, aligned management team: Our management team has a proven track record of delivering superior business performance and investor returns. During 2017, it successfully sold Telecable and was then instrumental in returning Euskaltel to growth. This enabled us to initiate consolidation discussions with MásMovíl that lead to it acquiring Euskaltel in July 2021. The team has extensive real-world experience in senior operational roles in large public telecommunications companies and its interests are also strongly aligned with shareholders through a long-term incentive scheme that links remuneration directly to growth in shareholder value. ·      Entrepreneurial focus: We have considerable freedom in the projects we pursue and the ways we create value. Unlike most private equity businesses, Zegona is free to choose the optimal period to hold assets and can realise value using a range of approaches, of which a sale of the asset is only one. This also permits a focus on fundamental business improvements that are value accretive rather than relying on high leverage and multiple expansion. We are also able to act quickly on acquisition opportunities while still maintaining financial discipline. This is especially attractive to potential sellers and a key differentiator. ·      Major global investors: Zegona benefits from having a number of global public equity asset managers[5] with a long-term outlook as shareholders. The strong support which we have from such shareholders was illustrated by our successful placement of over £100 million of equity in February 2019 which enabled us to become Euskaltel's largest shareholder and drive change within the business. We have an effective investor relations programme which maintains regular contact with our major current and potential shareholders.   Strategy We seek to provide shareholders with an attractive total return, primarily through appreciation in the value of Zegona's assets. Our strategy focuses on making investments in strategically sound businesses within the European TMT sector that require active change to realise their full value, thereby creating significant long-term returns through fundamental business improvements. The main elements of Zegona's strategy are set out below but our overall approach is to deal with each opportunity and situation individually as it arises. For example, in the case of the investment in Euskaltel, our successful strategy was to increase our ownership position and work constructively with the Euskaltel Board and management to improve the performance of the business and make it more attractive to potential buyers, thereby encouraging industry consolidation.   We evaluate potential investments using a disciplined set of financial and strategic criteria. We focus on:   ·      Target businesses with an enterprise value range of £1-5 billion, although we may deviate outside of this range if we believe the returns are sufficiently attractive; ·      TMT, network-based communications and entertainment businesses, primarily in Europe; ·      Strategically sound businesses with established market positions and limited expected downside risk, but which have scope for fundamental improvement that is realistically achievable; ·      Appropriate financial leverage (usually 3-4x EBITDA[6]); 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

 

 

 

Review of Zegona's continuing corporate and other activities

 

Loss for the period from continuing operations

Zegona's corporate and other activities resulted in a net loss for the period from continuing operations of €3.3 million (2021: €34.3 million net loss) which principally comprised:

 

Operating loss

Operating loss totalled €3.3 million (2021: €34.0 million) and included:

·      €3.3 million (2021: €4.6 million) for Zegona's ongoing corporate operations, with the reduction mainly driven by the retirement of one of the members of Zegona's senior management during the period. The management team have performed a comprehensive review of operating costs during 2022, seeking to ensure the business is operating as efficiently as possible by eliminating expenditure where possible, reducing headcount and re-negotiating key supplier terms. As a result, we expect the costs of Zegona's ongoing corporate operations to reduce by approximately 10% in 2023 compared to 2022 and circa 30 - 35% compared to the average of 2020-2022.    

·      €34 thousand (2021: €29.1 million) of Incentive scheme costs which were the amortisation of the fair value of the Third Calculation Period of the Management Incentive Scheme. The substantial reduction in the period is due to the €25.7 million payments to management in 2021 upon the redemption of the Second Calculation Period (see note 17 to the financial statements).

·      €26 thousand (2021: €0.3 million) for significant project costs, principally professional fees paid in conjunction with exploring new opportunities.

 

Net finance income

Net finance income totalled €21 thousand (2021: €0.2 million of costs) and comprises interest earned on cash deposits recognised within Finance Income net of bank charges and overdraft interest recognised within Finance Costs.

 

Other Comprehensive Income

Exchange differences on translation resulted in a loss of €0.6 million (2021: gain €0.6 million). The variance year on year arises as a result of movements in the closing €:£ exchange rates as the functional currency of Sterling ("£") is translated into the presentational currency of euro ("€").

 

Financial Position

Zegona's Net Assets at 31 December 2022 were €10.5 million (2021: €14.5 million) which substantially comprised the Income tax receivable of €4.9 million and Cash and cash equivalents of €5.9 million. The reduction in the period is due to the use of cash to pay for Zegona's ongoing operating expenses during 2022 and the settlement of accruals and other payables at 31 December 2021.

 

Zegona's ongoing prospects

 

While Zegona has undertaken a comprehensive exercise to minimise its ongoing operating costs, it will continue to incur operating losses until it is able to make a new investment in a profitable business. We continue to see a very healthy environment for acquisitions across the industry, which has continued to see significant deal activity despite the war in Ukraine and the economic challenges it has created. While there are some short-term challenges, especially with raising debt financing, we believe we will be rewarded by remaining patient and disciplined and will not pursue a transaction unless we are confident that it meets our strict financial criteria.

 

Until we are able to make such an investment, Zegona will need to fund its operations with its current cash reserves or raise additional capital. We believe we have retained sufficient capital to provide adequate time and resources to remain patient and secure another attractive investment opportunity without raising additional capital and have £4.5 million (€5.3 million) of cash on hand at 6 April 2023. While we continue to search for our next investment, our ongoing costs are reasonably predictable and controllable and we expect that as long as Zegona does not incur any material unforeseen costs, its cash reserves can fund the business until the first quarter of 2025.

 

As further discussed in Note 2 to the financial statements however, there are certain risks which are unlikely, but could threaten Zegona's ability to continue as a going concern if they transpire. As a result, we have concluded that it is appropriate to prepare the financial statements on a going concern basis, but there is a material uncertainty that may cast significant doubt on our ability to continue as a going concern.

 

Shareholder remuneration

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

 

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

 

Principal and emerging risks

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

 

 

 

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	High	↑	Increased
Ability to create value in acquired businesses	Moderate	↔	No change
Loss of key management	Low	↔	No change
Foreign exchange	Moderate	↔	No change

 

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

 

Ability to maintain sufficient resources to identify and complete new acquisitions

Following the sale of its investment in Euskaltel, Zegona meets its day to day working capital requirements, including the costs of evaluating new acquisitions, from cash balances. At 6 April 2023, Zegona had approximately €5.3 million of cash and we are making progress on finding another attractive investment opportunity within the European TMT sector where we can again apply our successful Buy-Fix-Sell strategy. 

 

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

 

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

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

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

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

 

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

 

Ability to create value in acquired businesses

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

 

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

 

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

 

Loss of key management

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

 

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

 

Foreign exchange

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

 

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

 

 

 

Longer term viability statement

 

Zegona's prospects

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

 

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

 

The assessment period

We continue to believe that three years - in this case the three years to December 2025 - is the appropriate period over which Zegona should assess its viability for the following reasons:

 

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

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

 

The assessment process and key assumptions

The Directors approve a 3-year forecast on an annual basis which is sufficiently detailed to explain all cash inflows (primarily interest on cash deposits) and outflows (which are primarily corporate costs) and includes a description of all reasonably possible risks and opportunities. Each month, an analysis of actual performance against the forecast is performed and updated frequently. The most recent forecast is used as the base case ("Base Case") for the viability assumption without any significant adjustment except for the addition of a £120 thousand per year contingency to account for unforeseen day-to-day expenditure.

 

Zegona's operations are now focused on finding the next investment opportunity and its ongoing running costs have been comprehensively reviewed during 2022 to ensure they are as low as possible with the result that ongoing costs in 2023 are expected to be circa 10% lower than in 2022. Costs are also relatively predictable as the most significant ongoing costs are the salary costs of the Board and management team. Until a new investment is made, no management bonuses will be paid. The most significant element of uncertainty is whether Zegona will incur substantial professional fees for costs such as legal advice and due diligence related to an unsuccessful attempt to acquire a new investment. Such costs are inherently unpredictable, so while a contingency is included in the base case for routine professional fees that would be expected to support Zegona's day-to-day operations, no amounts are included for any significant aborted transactions. To further increase prudence, no cash inflow is assumed for the recovery of the Income Tax Receivable (see note 14 to the financial statements).

 

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

 

We believe that this approach fairly represents the future prospects of Zegona while also properly considering the principal and emerging risks (as discussed on page 6). In terms of risks, we believe that the principal consequence should any of the risks occur would be to make it more difficult for Zegona to execute a new acquisition. Since the Base Case already assumes that there will be no new acquisition, there is no need to add any additional downside to the Base Case

 

In addition to the Base Case, the Directors identified a severe but plausible downside scenario in which Zegona incurs significant costs on unsuccessful acquisitions which was further used to stress test the base numbers. Given the nature of Zegona's current operations, the day-to-day contingency included in the base case and generally high level of predictability of its costs, the downside scenario differs from the Base Case only by the inclusion of £ 2.0 million for aborted costs on unsuccessful acquisitions, assumed to be incurred by the end of 2023. Zegona believes the £2.0 million represents costs associated with a medium-to-significant sized failed transaction and is consistent with costs it has previously incurred on similar sized transactions.

 

Results of the assessment

The assessment showed that in the Base Case, Zegona would have sufficient cash to continue in operation for at least 12 months from the date of issuance of this report throughout the assessment period without taking any mitigating actions available to it in the base-case. In the downside scenario, Zegona would only be able to absorb around £1.7 million of abort costs.

 

Over the full 3 year assessment period however, both the Base Case and the downside scenario showed that without the upside impact of completing a new acquisition Zegona will need to seek additional funding during the viability assessment period, even if it takes further liquidity enhancing actions that are in its control such as reducing discretionary expenditure. Without such actions, the Base Case assumes Zegona would need to seek additional funding during the first quarter of 2025.

 

Statement of viability

Taking into account Zegona's current position and principal and emerging risks and uncertainties, the Directors confirm that we expect Zegona will be able to continue in operation and meet its liabilities as they fall due over the three years from the issuance of this annual report only if it is able to successfully complete a new acquisition and obtain financing to do so or otherwise obtain additional funding during the period.

 

The Strategic Report was approved by the Board on 6 April 2023 and is signed on its behalf by:

 

 

 

 

Eamonn O'Hare

Chairman and Chief Executive Officer

 

 

 

Corporate social responsibility

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

 

Our people

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

 

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

 

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

 

Board Directors and senior managers have been appointed to bring required skills, knowledge and experience. During 2022 and 2021, all individuals that have been appointed have diverse backgrounds including, two female independent Non-Executive Directors. The Nomination and Remuneration Committee will continue to consider the diversity of the Board for further new appointments.

 

The table below shows the breakdown of our workforce at the end of 2022.

 

	Male	Female	Total
Board Directors	4	2	6
Senior management	2	-	2
Other staff	-	2	2
Total	6	4	10

 

 

Culture

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

 

Human rights

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

 

Environmental and climate matters

 

Climate risk management

The Chairman and the Zegona Board oversees and has ultimate responsibility for Zegona's sustainability initiatives, disclosures, and reporting. This includes, but is not limited to, climate risks and opportunities. As a shell company, Zegona is exempt from providing the disclosures required by the Taskforce on Climate-related Financial Disclosures ("TCFD"), however this section provides an overview of Zegona's approach to managing the very limited climate risks it currently faces. Details of how the Board delegates risk management authority across the business is described in the Risk management overview on pages 6 and 7. The Zegona management team have day-to-day responsibility for assessing and managing climate-related risks and opportunities.

 

We are committed to minimising Zegona's impact on the environment. As it is presently constituted, Zegona's environmental impact is minimal and climate-related risks and opportunities are extremely limited until it acquires another business.  At present, Zegona has no operating investments and only 6 full time employees. These employees perform largely information-based roles and they all work from home as Zegona no longer maintains business premises. The only environmental impact currently is from business travel, which has been extremely limited in the past three years and is expected to continue to be lower than previously as a result of the post-pandemic shift towards virtual tools.

 

Zegona's overall environmental impact is therefore minimal, with total CO₂ emissions less than the average for a single UK household. Zegona's approach is therefore to seek to maintain lean working arrangements, use technology to minimise business travel and encourage employees to recycle, minimise energy wastage, and do their part to ensure that Zegona acts responsibly.

 

If Zegona continues to operate as it is presently constituted it is therefore difficult to identify any climate related risks in the short, medium or long term that could significantly impact the business.  For this reason, Zegona does not presently feel it is appropriate or necessary to apply metrics or targets to assess climate related risks beyond the Greenhouse gas reporting presented below.

 

Clearly, Zegona does not intend to continue operating in its present form indefinitely, we intend to make acquisitions and disposals that will profoundly change the scale and climate-related risk profile of the business and the process for identifying and managing them. Is not possible to reach any sensible conclusions today about which risks Zegona may be exposed to in the future without knowing what businesses it will acquire. While it may be possible to identify generic risks across the European TMT market, the climate-related risks of each business will differ enormously, as will the processes to identify, assess and manage them.

 

While it is not possible to know today what climate related risks it will inherent, Zegona is conscious that such risks and opportunities will exist in any potential acquisition and considers that the most important objective is to ensure these are properly understood in the due diligence phase of any transaction so appropriate decisions can be taken on risk mitigation tools. Zegona's Board have concluded that the most appropriate way to address this is to ensure that climate-related risk are specifically scoped in when undertaking due diligence on acquisition targets.

 

Greenhouse gas emissions

Considering the non-material environmental impacts of Zegona's business as described in this report, management takes the view that greenhouse gas emissions are the most important metric to track and against which future targets may be set.

 

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

 

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

 

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

 

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

 

Zegona has no Scope 1 emissions. Zegona Scope 2 and Scope 3 emissions for the year to 31 December 2022 and comparative previous period are shown below:

 

	Global tonnes of CO2e
	2022	2021
Scope 2 (electricity)	-	-
Per €m operating expenses	-	-
Scope 3 (water consumption, business travel)	4.5	4.5
Per €m operating expenses	1.35	0.12

 

All emission factors have been selected from the emissions conversion factors published annually by the Department for Environment, Food and Rural Affairs and the International Energy Agency. Scope 2 and Scope 3 emissions have decreased in 2022 due to homeworking arrangements and restrictions on travel imposed in response to the COVID-19 pandemic.

 

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

 

At the present time, Zegona does not consider it appropriate to set emissions reduction targets, particularly given the low levels of emissions already achieved. Zegona does not currently hold any investments. When investments are held, Zegona will keep under review whether it would be appropriate to support investee companies in tracking metrics and setting targets.

 

Board engagement with our key stakeholders

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

 

The Directors give careful consideration to the factors set out above in discharging their duties under section 172. More information about who our key stakeholders are and how we engage with them is provided on page 23.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

 

 

 

 

General

Details of the directors can be found on pages 17 to  19. A discussion on the role of the board, including the powers of the company's directors can be found in the Corporate Governance Statement beginning on page 19.The rules relating to the appointment and replacement of directors and details of any agreements with the company and its directors or employees for compensation for loss of office or employment that occurs because of a takeover bid can be found in the Directors' Remuneration Report beginning on page 31.

 

Result

For the year ended 31 December 2022, Zegona's loss before tax from continuing operations was €3.3 million (2021: €34.3 million). Other comprehensive loss was €0.6 million (2021: gain of €0.6 million). Therefore, the total comprehensive loss for 2022 was €4.0 million (2021: gain of €80.5 million). Reviews of performance and likely future developments are set out in the Strategic Report on pages 1 to 9.

 

Dividends

In accordance with its policy of not paying any dividends until it owns a material operating asset, the Company did not declare or pay any dividends in 2022 (2021: €12.3 million).

 

Contracts of significance

There were no significant contracts to report.

 

Events since the end of the financial year

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

 

Capital structure

The Company's capital structure is comprised of 6,172,424 ordinary shares of £0.01 each ("Ordinary Shares"). The holders of Ordinary Shares have the right to receive notice of, attend and vote at all general meetings of the Company. Holders of Ordinary Shares have the right to participate in dividends and any surplus capital on a winding up pari passu as amongst themselves. Where the winding up of the Company entails or is concurrent with the winding up of the Company's subsidiary, Zegona Limited, the assets available for distribution among the holders of Ordinary Shares will be reduced by such amount as is required to satisfy the rights (if exercised) of Management Shares (as defined in the Directors' Remuneration Report on page 31, with further details set out in note 17 to the financial statements).

 

Share buy-back programme

The shareholders passed a resolution to authorise Zegona to make market purchases of up to 15% of its current issued ordinary share capital (within specified price parameters) in the 2022 AGM, which expires on the earlier of the end of 2023 AGM or 18 months after the date of 2022 AGM. A resolution to renew this authority is proposed for the 2023 AGM. It is intended that we will exercise this authority only if the Board considers that it is in the best interests of Zegona at the time, for instance if the traded price of the Company's ordinary shares is substantially below the value of its net assets. Any shares repurchased by Zegona may be held in treasury and subsequently resold for cash, cancelled or used for employee share scheme purposes.

 

Internal control and Financial Risk Management

A description of the main features of Zegona's internal control and risk management arrangements in relation to the financial reporting process can be found in the Audit and Risk Report on page 24. Details of the company's financial risk management activities and use of financial instruments can be found in note 10 and note 11 to the financial statements.

 

Significant agreements subject to change of control provisions

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

 

Substantial shareholders

At 31 December 2022 and up to the date of approval of this report, Zegona had been notified under DTR 5 of the following holdings in 3% or more of the issued ordinary shares, which are all held indirectly by asset managers:

 

Asset manager	Shareholding at 6 April 2023	% of ordinary share capital as at 6 April 2023	Shareholding at 31 December 2022	% of ordinary share capital as at 31 December 2022
Zegona board and management[7]	1,803,294	29.22%	1,804,336	29.33%
Marwyn Asset Management	774,321	12.54%	774,321	12.54%
Artemis Investment Management	586,691	9.51%	586,691	9.51%
Fidelity Management & Research	403,107	6.53%	403,107	6.53%
Fidelity Investments Limited	398,717	6.46%	398,717	6.46%
Credit Suisse	255,969	4.15%	255,969	4.15%
Aberforth Partners LLP	243,744	3.95%	243,744	3.95%
	4,465,843	72.36%	4,466,885	72.47%

 

Independent auditor

KPMG has expressed its willingness to continue to act as auditor to Zegona and a resolution for its re-appointment will be proposed at the 2023 AGM. KPMG has confirmed that it remains independent of Zegona.

 

Political donations

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

 

Disclosure of information to the auditor

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

 

Statement of going concern

The Directors have considered all available information, including specific consideration of forecast financial information, about the possible future outcomes of events and changes of conditions, and the realistically possible responses to such events and conditions that are available to the Directors. The Board believes it is appropriate to prepare the Financial Statements on the going concern basis but, as discussed in note 2 to the financial statements, has concluded that there is a material uncertainty affecting Zegona's ability to continue in business or meet its liabilities as they fall due for the next 12 months.

 

By order of the Board

Eamonn O'Hare                                   

Chairman and Chief Executive Officer

6 April 2023

 

 

 

Statement of Directors' responsibilities

 

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

 

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

 

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

 

·      select suitable accounting policies and then apply them consistently; 

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

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

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

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

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

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

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

 

We confirm that to the best of our knowledge:

 

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

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

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

By order of the Board

Eamonn O'Hare

Chairman and Chief Executive Officer

6 April 2023

 

 

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

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

 

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

 

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

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

 

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

 

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

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

 

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

 

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

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

 

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

 

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

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

 

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

 

Kjersti is a member of the Audit and Risk Committee.

 

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

Suzi brings skills and experience from over 25 years in telecommunications, media and consumer businesses in the UK and internationally. This includes a decade as Chief Brand and Marketing Officer at BT plc. Prior to that, she was Commercial Development Director at Capital Radio Group and held senior commercial leadership roles at Orange, the BBC, KPMG Consulting, and Procter & Gamble. 

 

Suzi is currently a non executive director and chair of remuneration at FTSE 100 JD Sports plc, and NED and Chair of nominations at Telecom Plus plc. She also advises a number of early stage technology and AI businesses and is an advisor to Gresham House private equity. 

 

Previously she held NED and Remco Chair roles at Workspace Group Plc, and at The AA plc (the latter from 2015 until March 2021). Suzi was also a member of The Great Advisory board , promoting British business overseas. 

 

Suzi Chairs the Nomination and Remuneration Committee.

 

Overview

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

 

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

 

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

 

Zegona's principal risks are described on pages 6 to 7. The Directors' Report on pages 10 to 16 also contains information required to be included in this statement of corporate governance.

 

The Board of Directors

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

 

Biographical details of all Directors and details of their committee membership at the date of approval of this report appear on pages 17 to 18. Consideration of the Board size and composition is kept under regular review by the Nomination and Remuneration Committee.

 

Powers and operation of the Board

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

 

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

 

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

 

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

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

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

 

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

 

The Board delegates the day to day responsibility for running Zegona to the executive management, however there are a number of matters which are required to be or should only be decided by the Board of directors as a whole in accordance with the UK Corporate Governance Code. An updated schedule of Matters reserved for the Board, approved by the Board on 9 June 2020, can be found on Zegona's website[8].

 

Board committees

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

 

Current membership of the committees is shown on pages 17 to 19. The composition of these committees is reviewed regularly, taking into consideration the recommendations of the Nomination and Remuneration Committee.

 

Independence of the Board

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

 

Board and committee attendance

Attendance at the Board and committee meetings held during 2022 was:

 

	Board	Nomination and Remuneration Committee	Audit and Risk Committee
Eamonn O'Hare	5/5	-	-
Robert Samuelson	5/5	-	-
Richard Williams	5/5	2/2	3/3
Ashley Martin	5/5	2/2	3/3
Suzi Williams	5/5	2/2	-
Kjersti Wiklund	5/5	-	2/3

 

 

Directors' terms of service

Zegona's Articles of Association require each Director to retire from office and offer themself for re-election or election, as the case may be, at each AGM. Accordingly, each of the Directors will retire from office at the 2023 AGM and seek to be re-elected by Zegona's shareholders. The Chairman is satisfied that the performance of the Directors continues to be effective and demonstrates their ongoing commitment to the role and as such supports their re-election.

 

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

 

Conflicts of interest

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

 

Company secretary

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

 

Compliance with the UK Corporate Governance Code

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

 

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

 

Combined Chairman and CEO

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

 

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

 

Appointment of a Senior Independent Director ("SID")

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

 

Employee engagement

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

 

Equalisation of pension arrangements

Provision 38 recommends that the pension contribution rate for the Executive Directors be the same as for the majority of the workforce. During the year, this was not the case however, this has been resolved in 2023, when the rate paid to the Executive Directors was equalised with the rate paid to the majority of the workforce.

 

Evaluation of the Board, committees and individual Directors

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

 

The findings of the review were generally positive. The Board noted that 2022 was significantly less eventful than the previous year with the board continuing to work well as it supported the management team in identifying an attractive new investment. The review also highlighted a number of areas that the Board believe could be beneficial for it to continue to work on to further improve its effectiveness. The Board is currently considering which of these it should prioritise in 2023 and how it should address them.   

 

Whistleblowing policy

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

 

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

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

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

 

Share dealing

Zegona has in place systems to ensure compliance by the Board and its applicable employees in relation to dealings in securities of Zegona. We believe that the share dealing code adopted by the Board is appropriate for Zegona's size and complexity and that it complies with the EU Market Abuse Regulation (2214/596/EU). The Board complies with these provisions and takes all reasonable steps to ensure compliance by Zegona's 'applicable employees.

 

Relations with Zegona's stakeholders

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

 

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

 

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

 

 

 I am pleased to present the 2022 report of the Audit and Risk Committee (the "A&RC"). The A&RC is an essential part of Zegona's governance framework, to which the Board has delegated oversight of Zegona's financial reporting, internal controls, risk management and the relationship with the external auditor.

 

In discharging its duties, the A&RC embraces its role of protecting the interests of shareholders with respect to the integrity of financial information published by Zegona, control effectiveness and the effectiveness of the audit process[9].

 

Committee membership and meetings

The members of the A&RC during 2022 were Ashley Martin (Chairman), Richard Williams and Kjersti Wiklund, all of whom are independent Non-Executive Directors as required by provision 24 of the Code. The Board has determined that Ashley Martin has recent and relevant financial experience due to his previous CFO roles at listed and private equity backed businesses. Both Ashley and Richard qualified as Chartered Accountants. In line with the Code, the A&RC as a whole possesses competence relevant to the sector in which Zegona operates through the digital media and consumer experience of Ashley Martin and the telecommunications experience of Richard Williams and Kjersti Wiklund.

 

The A&RC normally meets at least three times a year with additional meetings arranged if necessary. In 2022, the A&RC met in March, September and December and has subsequently met in April. The scheduling of these meetings is designed to be aligned with the financial reporting timetable, thereby enabling the A&RC to review the interim financial report, the audit plan ahead of the year end audit and the annual report, as well as to maintain a view of the internal controls and risk management processes throughout the year.

 

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

 

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

 

Committee effectiveness

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

 

Activities during the year

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

 

Financial reporting:

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

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

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

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

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

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

 

Going Concern The A&RC reviewed Management's assessment of the entity's ability to continue as a going concern, which involved reviewing the underlying assumptions around on-going cash flows and challenging Management's judgments around Zegona's ability to meet liabilities as they fall due for a period of at least twelve months from the approval of the financial statements, including considering whether these judgements were consistent with Zegona's strategic position and its current acquisition pipeline. The A&RC also reviewed the appropriateness of management's conclusion that the going concern basis is appropriate but that there is a material uncertainty over Zegona's ability to continue as a going concern. The A&RC also reviewed the proposed disclosure around going concern in the annual report.

 

-       Accounting treatment and valuation of the incentive arrangements - the A&RC reviewed and agreed with management's estimate of the final value of the Third Calculation Period of the Management Incentive Scheme.

 

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

 

In all of the above judgements, the A&RC also considered KPMG's audit findings and reports by Management to the A&RC in support of the positions adopted.

 

Other activities during the year:

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

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

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

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

·      Assess any potential threats to independence that were reported by KPMG. The A&RC considered KPMG to be independent and KPMG, in accordance with professional ethical standards, provided the A&RC with written confirmation of its independence for the duration of 2022;

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

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

·      Reviewed management's updates to Zegona's risk register; and

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

 

External auditor

Our external auditor, KPMG LLP ("KPMG"), has now completed its seventh audit and the A&RC was involved in the process to select the new current audit partner for the 2021 audit. Zegona will not be required to tender for the audit until the 2026 financial year end. KPMG continues to provide robust challenge to management and independent reports to the Committee on specific financial reporting and judgements. 

 

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

 

During 2022, there were no non-audit fees paid to KPMG. The A&RC has set a threshold of €11,000 (£10,000) for pre-approving non-audit fees.

 

Risk management and internal control systems

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

 

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

 

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

 

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

 

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

 

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

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

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

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

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

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

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

 

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

 

 

 

 

 

Ashley Martin

Chairman of the Audit and Risk Committee

 

 

 

On behalf of the Board, I am pleased to present the Nomination and Remuneration Committee ("the Committee") Report for the year ended 31 December 2022.

 

The Committee met twice during 2022, supported by a number of full board discussions and the matters we discussed are set out on page 29.  The following pages set out the Committee's activities and decisions made in the year. Zegona is committed to transparency, equivalence and engagement with shareholders on these most important matters and we have continued to make progress this year.

 

Zegona's performance and context - Continuing to search for the next opportunity

Following last year's successful sale of Euskaltel, management has been looking for Zegona's next investment in the European Telecommunications market. We have been active on a number of proprietary transactions where we see material upside potential while maintaining strong financial discipline. This approach has served us well in the current macro-economic environment as we are now seeing an increased pipeline of even better opportunities where we have the potential to drive significant value.

 

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

 

Remuneration decisions for 2022- Reviewing outcomes against company performance

 

2022 Bonus and salaries

The Committee have concluded that the Executive Director's salary and benefit arrangements should remain unchanged. After listening to the views of key shareholders in previous years, and in accordance with its previously announced policy, both the Executive Directors and Zegona's senior management team were not eligible to earn a bonus in 2022.

 

Application of remuneration policy for 2023

Following a review of the executive remuneration arrangements for 2023 and listening to shareholder feedback, the Committee agreed that there would be no increase in base salary for either of the Executive Directors and as such their salaries will remain unchanged for the year ahead. In line with corporate governance best practice, the pension contribution for both of the Executive Directors has been reduced in 2023 to 19% to be the same as the contribution available to the majority of the workforce.

 

The Committee has also agreed that given the fact that Zegona now has significantly less capital and no underlying asset it would not be appropriate to put in place the opportunity to earn bonuses to senior management in 2023 until such time as Zegona makes a new investment. This will remain under review during 2023.

 

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

 

 

 

 

Suzi Williams

Chair of the Nomination and Remuneration Committee

 

 

The role of the Nomination and Remuneration Committee

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

 

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

 

Membership, attendance and other activities

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

 

In 2022, the Committee met twice and has subsequently met in April. The Company Secretary attends these meetings and Executive Directors are invited at the Chairman's discretion. The scheduling of the formal Committee meetings is designed to be aligned with the Committee's recurring annual activities, including: setting of bonus metrics and evaluation of performance against them; overseeing the performance evaluation of the Board, its principal Committees and individual directors; overseeing succession planning for the Board and key members of the senior management team, taking into account expertise and diversity; and reviewing the annual nominations and remuneration report contained within the annual report.

 

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

 

·      Reviewed the remuneration package for the Executive Directors and management team for 2023, including concluding that no bonuses will be paid until such time as Zegona owns a material underlying asset;

·      Reviewed the recommendations arising from the 2022 Board effectiveness review, its committees and its individual Directors and, where appropriate, proposed actions to address those recommendations; and

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

 

Advisers

The Committee received input and advice from external advisers on specific topics during 2021. The Committee formally engaged PwC LLP's ("PwC") as an adviser in 2021, however no advice has been sought in respect of 2022.

 

 

Executive pay at a glance

Base salary
Purpose	Current policy	2022 Implementation	2023 Implementation
To reflect market value of the role and individual's performance and 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	2022 Implementation	2023 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. In 2022, Executive Directors received a pension contribution of up to 20% of base salary. This was reduced in 2023 to 19%,  which is the same as the amounts available to a majority of the workforce.	20% contribution	Contribution reduced to 19%
Other benefits
Purpose	Current policy	2022 Implementation	2023 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.	2022 Implementation No bonuses paid to senior management until Zegona owns a material underlying asset	2023 Implementation No bonuses to be paid to senior management until Zegona owns a material underlying asset
Management Incentive Scheme
Purpose	Current policy	2022 Implementation	2023 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.	No change	No change

 

 

 

All disclosures in the Directors' remuneration report are unaudited unless otherwise stated. The annual report on remuneration gives details on the amounts earned in the year ended 31 December 2022 and how the Directors' remuneration policy will be applied in 2023. This remuneration report will be subject to an advisory vote at the 2023 AGM.

 

2022 Executive Directors remuneration summary (Audited)

In the interests of clarity, since the Executive Directors' salaries are set and paid in Sterling, the table has been presented in both Sterling and euros (Zegona's presentational currency). These tables only include remuneration received by the Executive Directors In respect of their employment by Zegona.

 

	Executive Directors (Sterling)
	Eamonn O'Hare (Chairman & CEO)		Robert Samuelson (COO)
	2022 £	2021 £	2022 £	2021 £
Base salary	563,000	563,000	419,000	419,000
Pension contributions	112,600	112,600	83,800	83,800
Taxable benefits	21,321	21,321	21,321	21,321
Company health insurance scheme	8,582	7,271	8,152	6,954
Total fixed pay	705,503	704,192	532,273	531,075
Annual cash bonus	-	-	-	-
Management Incentive Scheme redemptions	-	15,218,252	-	7,609,126
Total variable pay	-	15,218,252	-	7,609,126
Total fixed and variable pay	705,503	15,922,444	532,273	8,140,221

 

 

	Executive Directors (euros)
	Eamonn O'Hare (Chairman & CEO)		Robert Samuelson (COO)
	2022 £	2021 £	2022 £	2021 £
Base salary	658,811	653,582	490,305	486,414
Pension contributions	131,762	130,716	98,061	97,283
Taxable benefits	24,950	24,751	24,950	24,751
Company health insurance scheme	10,043	8,441	9,539	8,073
Total fixed pay	825,565	817,490	622,855	616,521
Annual cash bonus	-	-	-	-
Management Incentive Scheme redemptions	-	17,666,748	-	8,833,374
Total variable pay	-	17,666,748	-	8,833,374
Total fixed and variable pay	825,565	18,484,238	622,855	9,449,895

 

None of the Executive Directors' remuneration in 2022 was attributable to Zegona's share price growth. No discretion has been exercised to determine remuneration as a result of either Zegona's share price appreciation or depreciation.

 

 

Components of remuneration: Base salary

In 2022 and for 2023, following a review of the executive remuneration arrangements in both periods, the Committee agreed that there would be no increase in base salary for either of the Executive Directors and as such their salaries remained unchanged in 2022 and will do so for 2023.

 

Components of remuneration: Pension contributions

 

Implementation in 2022

In 2022 both Executive Directors received a pension contribution of 20% of their base salary.

 

Implementation in 2023

In line with corporate governance best practice, the pension contribution for both of the Executive Directors was reduced from 1 January 2023 to 19% to be the same as the contribution available to the majority of the workforce.

 

Components of remuneration: Taxable benefits and Company Health Insurance Scheme

In 2022 both Executive Directors received car allowances, personal tax advice, private medical insurance, and death in service cover, which will continue in 2023.

 

Components of remuneration: Annual cash bonus

 

Implementation in 2022

No bonuses were awarded to either the Executive Directors or other members of Zegona's senior management team in respect of 2022 because the Committee had previously concluded in 2021 that it is not appropriate for the Executive Directors or of Zegona's senior management team to receive any bonus for any period when Zegona does not own a material underlying asset.

 

Implementation in 2023

The Committee will continue to apply the same policy not to pay any bonus the Executive Directors or any of Zegona's senior management team for any period when Zegona does not own a material underlying asset. Should Zegona make a new acquisition during 2023, the Committee will develop appropriate bonus targets at the appropriate time.

 

Components of remuneration: Management Incentive Scheme

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

 

Overview of the scheme

The holders of the Management Shares are entitled to 15% of the growth in value of Zegona during a series of up to five separate Calculation Periods, provided that ordinary shareholders achieve a 5% per annum Preferred Return[10] in each Calculation Period. The first Calculation Period began in 2015 and ended in 2020. The second Calculation Period ended during 2021, at which point the third Calculation Period began.

 

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

 

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

 

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

 

Each time a new Calculation Period begins, the renewal of the Management Shares' rights is subject to a vote by Zegona's shareholders at the next Annual General Meeting ("AGM"). If shareholders representing 75 per cent or more of the shares vote against the renewal at the AGM, the Management Shares are redeemed for no value. There was such a vote at the 2022 AGM to ratify the commencement of the Third Calculation Period, with 98.03% of votes in favour.

 

Scheme developments in 2022

 

There was a vote at the 2022 AGM to ratify the commencement of the Third Calculation Period, with 98.03% of votes in favour.

 

Illustration of scheme value

To explain how Zegona's Management Incentive Scheme operates, we have set out here an illustration of how much value would be earned by the management team assuming a hypothetical exercise date of 31 December 2022, even though the Management Shares were not exercisable at that date[11].

 

The illustration assumes that the exercise was based on the market value of Zegona's ordinary shares at the hypothetical exercise date and, since the deemed market capitalisation of £4.9 million was lower than both the Preferred Return target and the net invested capital, the holders of the Incentive Shares would have received no payment.

 

 

Since 14 October 2021 (£)
Net invested capital[12]			9,194,592
At 31 December 2022 (£)
Number of shares	6,172,424
Average share price[13]	0.795
Deemed market capitalisation				4,907,103
Shortfall in value per the incentive scheme				(4,287,489)
Split between:
Management Shares		15%		-
Ordinary Shares		85%		(4,287,489)

 

Shareholders' net invested capital at 31 December 2022 was calculated as follows:

 

 

	Net invested capital (unadjusted) £	5% pa Preferred Return  at 31 Dec 2022 £	Preferred Return hurdle at 31 Dec 2022 £
Baseline Value - 14 October, 2021	6,700,452	408,827	7,109,279
Share Issue - October 2021	1,276,360	75,493	1,351,853
Share Issue - November 2022	1,217,780	8,613	1,226,393
As at 31 December 2022	9,194,592	492,933	9,687,525
Shares outstanding	6,172,424	6,172,424	6,172,424
Per share (£)	1.490	0.080	1.569

 

 

2022 Non-Executive Directors remuneration summary (Audited)

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

 

	Non-Executive Directors fees[14]
	2022 £	2021 £	2022 €	2021 €
Richard Williams	50,000	50,000	58,509	58,045
Ashley Martin	60,000	60,000	70,211	69,654
Kjersti Wiklund	50,000	50,000	58,509	58,045
Suzi Williams	60,000	60,000	70,211	69,654
Total	220,000	220,000	257,439	255,398

 

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

 

Summary of total shareholder return and Chief Executive remuneration.

The total shareholder return graph below shows the value as at 31 December 2022 of £100 invested on IPO on 19 March 2015, compared with £100 invested in the OMSCI Europe/Communication Telecom Services Index. The Committee considers this index to be appropriate for the purposes of this comparison because it includes mostly European telecommunications companies. The data shown below assumes that all cash returns to shareholders made by Zegona (including the share buyback) are immediately reinvested in ordinary shares. The maximum value of £159.6 in October 2021 reflects the return Zegona achieved from the disposal of its investment in Euskaltel before reducing its share capital by 98%. The reduction in the shaded area reflects the trading value of Zegona's significantly reduced capital base since October 2021.

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

 

	2015[15]	2016	2017	2018	2019	2020	2021	2022
Total remuneration €m	0.67	0.77	1.29	0.71	1.25	1.27	18.48	0.83
Annual bonus (% of maximum)	0%	0%	100%	0%[16]	94%	75%	0%[17]	0%[18]

 

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

 

The following table compares the changes in each Director's pay with changes in employee pay between 2021 and 2022:

 

			Base salary change %		Taxable benefits change %		Annual cash bonus change %
Executive Directors
Eamonn O'Hare			0%		4.6%		n/a
Robert Samuelson			0%		4.2%		n/a
Non-executive Directors
	Richard Williams	0%		n/a		n/a
	Ashley Martin	0%		n/a		n/a
	Kjersti Wiklund	0%		n/a		n/a
	Suzi Williams	0%		n/a		n/a
Employees			0%		0%		0%

 

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

 

 

	2022	2021
	€000	€000
Employee pay	2,212	32,776
Returns to shareholders	-	400,698
Of which:
Dividends	-	12,169
Capital Return	-	388,529

 

Directors' terms and conditions

 

Service contract duration

 

Director	Contract duration	Notice period
Eamonn O'Hare	Unlimited*	12 months
Robert Samuelson	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.

 

Reappointment

Under the terms of Zegona's Articles of Association, all Directors will be proposed for re-election at the 2023 AGM. All Board members have service contracts and details of the unexpired terms of these service contracts are set out above.

 

Compensation for loss of office (Audited)

The Directors are not entitled to any special compensation for loss of office pursuant to their directorship or employment contracts following a change of control. However, certain changes of control will entitle the Directors to exercise rights held by them as holders of Management pursuant to the long-term incentive plan in force in respect of Zegona. No payments for loss of office were made in either 2022 or 2021.

 

Directors' interests in ordinary shares (Audited)

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

 

The shareholdings of the Directors at 31 December 2022 are set out below. There have been no changes in the shareholdings of the Directors from 31 December 2022 to the date of this report.

 

Director	Number of shares	% of issued share capital
Eamonn O'Hare	1,067,462	17.29%
Robert Samuelson	525,561	8.51%
Richard Williams	1,153	0.02%
Ashley Martin	212	0.00%
Kjersti Wiklund	-	-
Suzi Williams	-	-

 

In addition the directors owned the following Management Shares in Zegona Limited

 

		Participation in 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
Zegona senior management		1.68%	57,964	£58
			515,464	£516

 

 

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

 

Review of workforce remuneration matters

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

 

Statement of voting at General Meetings

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

 

	Date of AGM	For the resolution	Against the resolution	Votes withheld
Directors' Remuneration Report for the year ended 31 December 2021	28 June 2022	98.21%	1.79%	-
(Votes cast)		3,704,882	67,352	13,223,833
Directors' Remuneration Policy	28 June 2022	98.21%	1.79%	-
(Votes cast)		3,704,882	67,352	13,223,833

 

 

 

 

 

Suzi Williams

Chair of the Nomination and Remuneration Committee

 

		2022		2021
	Notes	€000		€000
Continuing Operations
Administrative and other operating expenses:
Corporate costs	5	(3,271)		(4,643)
Management Incentive Scheme costs	17	(34)		(29,072)
Significant project costs	6	(26)		(295)
Operating loss		(3,331)		(34,010)
Finance income	7	25		158
Finance costs	7	(4)		(376)
Net foreign exchange (loss) / gain		(3)		(30)
(Loss) for the year before income tax		(3,313)		(34,258)
Income tax expense	8	-		-
(Loss) for the period from continuing operations		(3,313)		(34,258)
Discontinued Operations
Profit for the period from discontinued operation, net of tax	12	-		114,171
(Loss)/Profit for the period attributable to equity holders of the parent		(3,313)		79,913
		€		€
Earnings per share - total operations
Basic and diluted earnings per share attributable to equity holders of the parent	22	(0.61)		0.47
Earnings per share - continuing operations
Basic and diluted earnings per share attributable to equity holders of the parent	22	(0.61)		(0.22)
Earnings per share - discontinued operations
Basic and diluted earnings per share attributable to equity holders of the parent	22	-		0.68

 

The notes on pages 57 to 80 form an integral part of these Consolidated Financial Statements.

 

 

			2022		2021
			€000		€000
(Loss) for the year			(3,313)		79,913
Other comprehensive income / (loss) - items that will or may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations			(638)		1,484
Exchange differences on translation of discontinued operations			-		(884)
Total other comprehensive (loss) / income			(638)		600
Total comprehensive loss / (income) for the year, net of tax, attributable to equity holders of the parent			(3,951)		80,513

 

 

 

		As at 31 December		As at 31 December
		2022		2021
	Notes	€000		€000
Assets
Non-current assets
Property, plant and equipment		13		30
Income tax receivable	14	4,961		5,234
		4,974		5,264
Current assets
Prepayments and other receivables	13	75		197
Cash and cash equivalents	10	5,890		10,556
		5,965		10,753
Total assets		10,939		16,017
Equity and liabilities
Equity
Share capital	19	311		301
Capital redemption reserve	20	2,565		2,565
Share premium reserve	20	3,049		1,616
Other reserve	20	-		-
Shares to be issued	20	-		1,443
Share-based payment reserve	20	65		31
Foreign currency translation reserve	20	(6,922)		(6,284)
Retained earnings	20	11,469		14,782
Total equity attributable to equity holders of the Parent		10,537		14,454
Current liabilities
Accruals and other payables	17	402		1,457
Bank borrowings	18	-		106
Total liabilities		402		1,563
Total equity and liabilities		10,939		16,017

  

    The notes on pages 57 to 80 form an integral part of these Consolidated Financial Statements.

 

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

    Board of Directors on 6 April 2023 and were signed on its behalf by: