TIDMZEG
RNS Number : 8853M
Zegona Communications PLC
14 May 2020
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ZEGONA COMMUNICATIONS PLC ("Zegona")
LEI: 213800ASI1VZL2ED4S65
14 MAY 2020
ZEGONA ANNOUNCES 2019 RESULTS
London, England, 14 May, 2020 - Zegona Communications plc (LSE:
ZEG) announces results and publishes its Annual
Report for the year ended 31 December 2019(1) . Highlights include:
PROGRESS AT EUSKALTEL, DIVID POLICY CONFIRMED
-- Positive operational developments at Euskaltel : including a
new five year Business Plan designed to double the customer base,
grow revenues to over EUR1.2bn and EBITDA to over EUR470m by
expanding nationally using the Virgin brand.
-- Q1 growth and limited impact of Covid-19 at Euskaltel :
growth in all financial metrics, national expansion program ready
for launch, full year guidance reconfirmed and expects to pay
EUR0.17 per share dividend in July.
-- Zegona confirms it will pass through 100% of the Euskaltel
dividend: expects to declare an interim dividend of 2.6p per share
in July which equates to an annualised yield of 5.2% 2 .
Enquiries
Tavistock (Public Relations adviser)
Tel: +44 (0)20 7920 3150
Lulu Bridges - lulu.bridges@tavistock.co.uk
Jos Simson - jos.simson@tavistock.co.uk
About Zegona
Zegona was established in 2015 with the objective of investing
in businesses in the European Telecommunications, Media and
Technology sector and improving their performance to deliver
attractive shareholder returns. Zegona is led by former Virgin
Media executives Eamonn O'Hare and Robert Samuelson.
About Euskaltel
Euskaltel S.A. ("Euskaltel") is the leading converged
telecommunications provider in the North of Spain, with its network
covering 2.3 million households. It provides high speed broadband,
data rich mobile, advanced TV and fixed communications services to
residential and business customers under the Euskaltel, R Cable and
Telecable brands. During 2020, Euskaltel intends to expand its
addressable footprint to 18m households through its national
expansion plan using the Virgin brand. Euskaltel is a public
company traded on the stock markets of Bilbao, Madrid, Barcelona
and Valencia.
1. Zegona has also issued, posted, or made available to
shareholders, the Notice of Annual General Meeting and Form of
Proxy for the Annual General Meeting. These documents are also
available on the Zegona's website at www.zegona.com
2. Based on the closing price of Zegona's shares on 13 May 2020 of GBP0.89.
ZEGONA COMMUNICATIONS PLC
Annual Report
For the Year Ended 31 December 2019
STRATEGIC REPORT | CHAIRMAN'S STATEMENT
I am pleased to present Zegona's annual report for 2019. This
year we made significant progress in working constructively with
all stakeholders to put in place the foundations needed for
Euskaltel to return to growth.
Investment in Euskaltel
Early in 2019, we increased our investment in Euskaltel,
eventually becoming the largest shareholder with 21.3%. At the same
time, we continued to engage constructively with the Euskaltel
Board of directors and other major shareholders with the objective
of improving the performance of the business. This resulted in
Euskaltel making a number of changes in the second half of the year
that Zegona believes have been positive. In particular, Euskaltel's
shareholders ratified the appointment of José Miguel García (the
ex-CEO of Jazztel) as CEO and Robert Samuelson and I were appointed
to the Euskaltel Board on 10 July 2019.
Since then, Euskaltel has made a series of encouraging changes.
In addition to José Miguel's arrival, there have been changes to
key leadership positions including a new Chairman, CFO and Company
Secretary and the Board has recently resolved to become more
focused by reducing in size from 13 to 11. A new streamlined
organisation structure has also been put in place with key new
hires and a 25% reduction in the senior executive team. Euskaltel
has also renegotiated its wholesale access agreements with Orange
and Telefonica and signed an agreement to use the Virgin brand to
expand nationally.
In March 2020, Euskaltel published its 2020-2025 Business Plan
setting out its key strategic initiatives and its ambition to
double the size of its customer base and grow revenues to over
EUR1.2bn and EBITDA to over EUR470m by 2025. The plan details the
actions being taken to grow in its existing core regions, to expand
using the Virgin brand to offer high value services to customers
across Spain, and to continue to drive operational efficiencies
through a single integrated organisation.
These changes are already delivering positive results, with
Euskaltel returning to growth in both revenue and profitability in
the fourth quarter of 2019, with the trend continuing in the first
quarter of 2020. Euskaltel has also reported that the early impact
of the Coronavirus pandemic ("Covid-19") has been "limited and
controlled," enabling it to reconfirm its full year guidance for
2020, reconfirm that it still intends to pay a final dividend of
EUR0.17 per share in July and confirm that it is ready to begin its
national expansion program.
We believe that the changes put in place during the second half
of 2019 and Euskaltel's 2020-2025 Business Plan set the business on
an exciting growth trajectory. We think the combination of
increasing its market footprint in its current regions with a
continued focus on operating efficiency will lead to positive
results for the existing business. Additionally, addressing the 85%
of the Spanish market where Euskaltel is not currently present
using the well-recognised Virgin brand creates a major new growth
driver which we expect to transform the financial profile of the
business. Moreover, José Miguel and members of his team have an
excellent track record of building a highly valued national
business from their time at Jazztel, which makes us confident in
their national expansion plans.
Outlook
In our view, the underlying outlook for telecommunications
businesses in Spain continues to be fundamentally sound, which
provides Euskaltel with a solid foundation for growth. The
telecommunications market in Spain continues to be competitive but
rational, with most players seeking to build profitable growth and
we continue to believe Euskaltel can be successful in the national
market with a well-designed and well-targeted offering.
The broader Spanish economy has continued to perform well, with
GDP growth of 2.0% in 2019 and, before the outbreak of Covid-19,
GDP growth of 1.6%(1) was expected in 2020. It is still too early
to tell what the impact of Covid-19 will be, although many
commentators are forecasting significant but relatively short-lived
declines in GDP which could impact Euskaltel. Like many other
telecommunications businesses, Euskaltel has historically proved to
be resilient during a downturn, even growing revenue each year
during the last financial crisis. Encouragingly, Euskaltel has
already announced that it has not seen a significant impact on its
business and financial results during the first quarter of
2020.
Beyond Spain, we continue to see a very healthy environment for
investments across the broader European TMT(2) landscape. There was
an increase in deal activity in 2019 and we have also seen growth
in the availability of assets. We continue to evaluate new
acquisition opportunities and actively pursue those which meet our
rigorous financial and strategic criteria.
Dividends
We remain committed to paying dividends to our shareholders and
we intend, for the foreseeable future, to promptly return all
dividends we receive from Euskaltel to our shareholders. During
2019, we paid EUR9.9 million in dividends, representing a total of
5p per share. Euskaltel has already confirmed that it intends to
pay a dividend of EUR0.17 per share in July 2020 and we intend to
pass through 100% of this dividend once we receive it. We expect to
declare an interim dividend of 2.6p per share in July, which
equates to an annualised yield of 5.2%(3) .
Board Changes
We are reshaping our Board and committees to create a more
independent structure in line with good corporate governance. We
have recently appointed two new independent Non-Executive
Directors, Kjersti Wiklund and Suzi Williams, with very strong
industry and governance credentials. Two Directors are also
stepping down from the Board, Murray Scott and Mark Brangstrup
Watts. This leaves us with a more effective and efficient Board
structure with two Executive Directors and four fully independent
Non-Executives.
In addition, Suzi will become the chair of the Nomination and
Remuneration Committee at the next Annual General Meeting ("AGM")
and we intend to appoint one of our Non-Executives as a Senior
Independent Director. We expect to announce this appointment after
the AGM. With these changes, all Non-Executive Directors and all
Board committees are fully independent. We believe this is the
right Board structure to support Zegona's future development.
Zegona is committed to delivering a high standard of corporate
governance and I am delighted that our governance structure is
continuing to develop alongside our operations. We are already
benefitting from Suzi and Kjersti's wealth of industry knowledge
and governance experience. Mark and Murray have served on the Board
for around five years and in this time have made hugely valuable
contributions to the establishment and development of Zegona. We
greatly appreciate the assistance they have provided to both the
business and the management team and look forward to continuing to
work with Mark in his role as a shareholder.
Annual General Meeting
Zegona's 2020 AGM will be held at 12:00 p.m. on 9 June 2020 at
10 Snow Hill, London EC1A 2AL. Further details on the 2020 AGM and
the business to be conducted on the day can be found on pages 86 to
94. We will ensure that appropriate social distancing measures are
in place and my colleagues and I look forward to meeting you in
June.
Eamonn O'Hare
Chairman and Chief Executive Officer
13 May 2020
1 As published by the European Commission in February 2020.
2 Technology, media and telecommunications.
(3) Based on the closing price of Zegona's shares on 13 May 2020
of 89p.
(4) Pending her re-election at the AGM.
STRATEGIC REPORT | STRATEGY AND BUSINESS MODEL
Vision
* Execute our strategy in the European TMT sector
* Focus on businesses that require active change and
fundamental improvement to realise their full value
* Target significant long-term growth in shareholder
value
Opportunity
Changing market dynamics in the TMT industry create multiple
investment opportunities:
* Demand for data and speed : Data consumption is
growing strongly with customers willing to pay for
speed. Gigabit broadband is now offered in some
markets but network roll-outs and upgrades need to be
efficient.
* Digital convergence : The fixed/mobile divide is
increasingly disappearing for users, meaning
significant growth in more valuable quad play(5)
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 acquired pre-financial
crisis and industry players are focusing on their
core regions, delivering cost reductions and price
repair to rebuild margins. Consolidation has also
created opportunity as businesses are spun out of
corporates to meet regulatory requirements and
strategic objectives, creating opportunity for
Zegona.
* Broad range of attractive assets : Our flexibility in
terms of size, geography and category opens a broad
universe of attractive target assets. We have
identified many businesses of an appropriate scale
across a number of categories, including mobile only
players, mid-sized cable, satellite pay TV, smaller
fixed incumbents, B2B(6) and network infrastructure.
Advantage
A number of factors make Zegona well positioned to access attractive
deals and deliver value:
* Strong, aligned management team : Our management team
has a proven track record of delivering superior
business performance and investor returns and
successfully sold Telecable during 2017. The team has
extensive real world experience in senior operational
roles in large public telecommunications companies.
The team's interests are also strongly aligned with
shareholders as they participate in a long-term
incentive scheme that links management remuneration
directly to growth in shareholder value.
* Entrepreneurial focus : We have considerable freedom
in the projects we pursue and the ways we create
value. Unlike most private equity businesses, Zegona
is free to choose the optimal period to hold assets
and can realise value using a range of approaches, of
which a sale of the asset is only one. This also
permits a focus on fundamental business improvements
that are value accretive rather than relying on high
leverage and multiple expansion. We are also able to
act quickly on acquisition opportunities while still
maintaining financial discipline. This is especially
attractive to potential sellers and a key
differentiator.
* Major global investors : A small number of global
public equity asset managers(7) with a long-term
outlook own more than 81% of Zegona. The successful
placement of equity in February 2019 with gross
proceeds of more than GBP100 million underlines
investor confidence in our strategy, as do recent
significant investments in Zegona, including by
Fidelity Management and Research, Aberforth Partners
LLP and Chelverton Asset Management. Our management
team has an effective investor relations programme
which maintains regular contact with Zegona's major
shareholders and potential shareholders.
Strategy
We seek to provide shareholders with an attractive total return,
primarily through appreciation in the value of Zegona's assets, and
we believe that opportunities exist to create significant value for
shareholders. Our strategy focusses on making investments in
strategically sound businesses within the European TMT sector that
require active change to realise their full value, thereby creating
significant long-term returns through fundamental business
improvements. While the main elements of Zegona's strategy are set
out below, our overall strategic approach is to deal with each
opportunity and situation presented to us individually as it
arises. For example, in the case of Zegona's current investment in
Euskaltel, our strategy has been to increase our ownership position
and seek to work constructively with the Euskaltel Board and
management to improve the performance of the business.
We evaluate potential investments using a disciplined set of
financial and strategic criteria. We focus on:
-- Target businesses with an enterprise value range of GBP1-3
billion, although we may deviate outside of this range if we
believe the returns are sufficiently attractive;
-- TMT, network-based communications and entertainment businesses, primarily in Europe;
-- Strategically sound businesses with established market
positions and limited expected downside risk, but which have scope
for fundamental improvement that is realistically achievable;
-- Moderate leverage (usually 3-4x EBITDA(8) ); and
-- Multiple viable exit options pre-identified.
Many businesses across the TMT sector currently deliver
sub-optimal returns which could be significantly improved. We work
with management to deliver fundamental business improvements, such
as:
-- Changing the businesses' market positions;
-- Being actively involved in the management of the businesses
to drive operational improvements;
-- Instilling strong discipline around cost efficiency;
-- Investing in products, services and other value-accretive
activities to drive top line growth;
-- Focussing on operating profitability and cash generation;
-- Ensuring a balanced and efficient capital structure; and
-- Value enhancing bolt-on acquisitions/divestments.
Buyer interest is stimulated as the performance of each
investment improves, providing Zegona with a range of options to
crystallise the value it has created:
-- We identify the optimal time to crystallise the value we have
created, with flexibility to adapt to market changes and other
opportunities, to maximise shareholder value;
-- Zegona's publicly listed structure allows shareholders to
realise value at any time and provides multiple options for value
delivery; and
-- Following a successful crystallisation, any surplus value
will be reinvested or returned to shareholders.
(5) Quad play: customers with four services (pay TV, fixed
voice, broadband and mobile).
(6) Business to Business
(7) Those with holdings in 3% or more of the issued ordinary
shares of the Company are listed on page 41.
8 O perating profit excluding depreciation of property, plant
and equipment and amortisation of intangible assets.
STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Zegona is currently organised into two segments:
(i) investment in Euskaltel, which comprises Zegona's share of
the profit of Euskaltel and dividend income (and the movements in
fair value of the investment prior to recognising Euskaltel as an
associate); and
(ii) central costs, which comprises costs incurred in supporting
Zegona's corporate activities, including staff and premises costs
related to the management team, ongoing costs of maintaining the
corporate structure, evaluating new acquisition opportunities and
executing acquisition and disposal activities.
Review of investment in Euskaltel
Strategic developments
During 2019, we sought to increase our existing 15% ownership of
Euskaltel through market purchases or privately regulated
transactions up to a maximum of an additional 12.5% of the
outstanding issued share capital of Euskaltel at a price we
considered attractive for our shareholders based on prevailing
market conditions. To fund this, in February 2019 we received gross
proceeds of GBP100.5 million pursuant to a non pre-emptive
institutional placing (the "Placing") and entered into debt
facilities with Barclays and Virgin in January 2019. To date, we
have drawn down GBP10 million under these facilities. Zegona now
owns the largest shareholding in Euskaltel with 21.3%.
At the same time, we continued to engage constructively with the
Euskaltel Board and other major shareholders with the objective of
improving the performance of the business. This eventually resulted
in Euskaltel making a number of changes in the second half of the
year that Zegona believes have been positive for the business. In
particular, José Miguel García (the ex-CEO of Jazztel) was
appointed as CEO of Euskaltel by its Board with unanimous agreement
on 5 June 2019, and his appointment was overwhelmingly endorsed by
Euskaltel's shareholders at the Extraordinary Shareholder Meeting
on 10 July 2019. At the same shareholder meeting, Eamonn O'Hare and
Robert Samuelson were also confirmed as proprietary(9) directors on
Euskaltel's Board.
Since appointing José Miguel, Euskaltel has made significant
progress in developing and implementing a new plan for the
business. Highlights include:
-- Integrating three operating companies into one business .
This is designed to simplify operations and reduce costs. A new
organisation structure has been implemented, with key hires on
board, including a new Chairman, CFO and Company Secretary and a
significantly streamlined senior executive team. This has created
clearer accountability for results and a stronger and more agile
leadership. Euskaltel is also creating a single technical platform,
whilst integrating the sales strategies of its existing three
brands, taking best practice from each and expanding the more
efficient on-line/direct channels.
-- Improving the customer proposition . Euskaltel is focussed on
reducing churn and enabling ARPU(10) growth. A new mobile offer has
been launched in partnership with Samsung, giving customers a
high-quality handset and large data allowance at highly attractive
rates. In addition, Euskaltel has increased broadband speed for its
customers at no extra cost. A carefully targeted 'more-for-more'
price rise has also been implemented.
-- Expanding nationally . On 12 February 2020, Euskaltel
announced that it had signed a trademark licence agreement to use
the Virgin brand in Spain to drive its expansion into the 85% of
Spain where Euskaltel is not present today and, on 23 March 2020,
Euskaltel confirmed that it is ready to being its national
expansion strategy and already has access to over 13 million homes
in Spain. Pilot tests have successfully been carried out with
customers around Spain who have access to all convergent fixed and
mobile phone services, ultra-fast broadband and 4K TV.
-- Euskaltel believes that expanding nationally will enable it
to offer customers in these regions great value, high quality
quad-play services, leveraging Euskaltel's existing advanced
capabilities. Using the Virgin brand will accelerate growth in this
untapped market for Euskaltel. The national expansion strategy is
also supported by a new wholesale agreement giving Euskaltel
long-term access to Orange's fibre network covering 14 million
households and access to data-rich mobile services across Spain. In
addition, Euskaltel has also announced the renewal of its mobile
access agreement with Telefonica on improved financial terms.
Operational and Financial performance
On 26 February 2020, Euskaltel reported significantly improved
operating KPIs for the year. In 2019, Euskaltel grew its fixed
subscribers by 8,757, with 17,700 broadband net additions and
46,900 postpaid mobile net additions. This is the first year of
customer growth after two years of subscriber losses. The number of
products and services also grew with more convergent customers,
reaching an average of almost 3.7 services per subscriber. In the
B2B market, Euskaltel similarly increased its customer base
materially during 2019, reaching a record high of 15,263 customers
(31 December 2018:14,827).
Euskaltel's financial results were also strong, with revenues
returning to growth in Q4 2019. Actions taken to create a single
unified operational platform serving Euskaltel's multiple regional
brands have already resulted in material cost savings, with
SG&A(11) expenses 11% lower than Q4 2018. These savings, along
with improvements in Euskaltel's main wholesale agreements with
Orange and Telefonica, resulted in EBITDA for Q4 2019 reaching a
record level of EUR92 million, an increase of almost 8%. This
represents the second consecutive quarter of EBITDA growth. For the
full year 2019, EBITDA grew 2.4% to EUR344 million, profit after
tax remained stable at EUR62 million and operating cash flow
increased by 4% to EUR190 million.
Euskaltel continued to report growth in its key operating and
financial results in the first quarter of 2020. Euskaltel recorded
a sixth consecutive quarter of growth in fixed line customers, with
400 new users and 3,000 broadband net additions, driven mainly by
the expansion that has taken place outside the Group's three
traditional regions. Euskaltel saw a second consecutive quarter of
revenue growth with 0.1% in Q1 2020 compared to the same period in
2019. Operating efficiencies also delivered savings that
contributed to EBITDA of EUR88 million, which was an increase of
8.1% compared to the same period in 2019.
Euskaltel also reported that the impact of the Covid-19 pandemic
was limited and controlled. Restrictions on customer portability
imposed due to the State of Emergency have resulted in an
approximately 50% reduction in both daily gross adds and churn from
normal levels, resulting in a stable customer base. There has also
been a limited impact on revenue from unpaid bills and customers
suspending services so far and mitigation measures are already in
place to limit the impact of this in future. The financial position
of the business remains strong with continued operating cash flow
generation. At the end of the first quarter of 2020, Euskaltel had
EUR98 million of cash, which was increased by EUR150 million in
April due to the full drawdown of its revolving credit
facility.
As a result of the strong first quarter results and the limited
impact of Covid-19, Euskaltel also confirmed that, subject to
approval from shareholders, it still intends to pay the final
instalment of the dividend against 2019 results of EUR0.17 on 5
July 2020. Euskaltel also reconfirmed its guidance for 2020 and
indicated that the national expansion plan is ready for full
commercial launch.
Investment performance
Zegona had previously concluded that it did not have significant
influence over Euskaltel and therefore accounted for its investment
in Euskaltel as a financial asset carried at fair value through
profit and loss in accordance with IFRS 9 Financial Instruments. As
more fully discussed in note 3 to the Financial Statements, during
the second half of 2019, Zegona identified certain factors that
indicated that from 10 July 2019 Zegona has the ability to
participate in Euskaltel's financial and operating policy decisions
and therefore accounted for its investment in Euskaltel as an
associate using the equity method.
In the period to 10 July 2019, the investment in Euskaltel
segment generated finance income of EUR38.0 million (2018: EUR12.5
million), being dividend income of EUR10.2 million (2018: EUR7.5
million) and a gain on the fair value of the investment of EUR27.9
million (2018: EUR5.1 million). The gain in fair value reflects the
increase in the Euskaltel share price from EUR6.99 at 31 December
2018 to EUR8.09 at 9 July 2019. The increase in dividend income
reflects an increase in dividend per share paid by Euskaltel from
EUR0.278 per share in 2018 to EUR0.310 per share, together with an
increase in Zegona's ownership since the start of 2019.
During the second half of 2019, Zegona's share of Euskaltel's
profit was EUR9.1 million, which reflects Zegona's 21.3% share of
Euskaltel's adjusted net profit of EUR42.9 million for the period
from 10 July 2019 (2018: EURnil).
The fair value of Zegona's investment in Euskaltel was EUR341.6
million at 31 December 2019 (2018: EUR187.3 million) with the
increase due to a combination of an increase in the number of
shares owned and a 28.3% increase in Euskaltel's share price during
the year.
Review of Zegona's corporate and other activities
Zegona's corporate and other activities resulted in an operating
loss of EUR6.0 million (2018: EUR4.7 million) plus net finance
income of EUR1.0 million (2018: EUR2.1 million), contributing a
total loss for the year of EUR5.0 million (2018: EUR2.6
million).
Operating loss
Operating costs totalled EUR6.0 million (2018: EUR4.7 million)
and include: (1) EUR5.6 million (2018: EUR3.9 million) related to
Zegona's ongoing corporate operations, with the increase primarily
due to higher bonuses paid to management; and (2) EUR0.3 million
(2018: EUR0.8 million) for significant project costs, which in 2019
were principally advisory and other professional fees incurred on
projects related to increasing Zegona's influence over
Euskaltel.
Net finance income
The net finance income comprises a net foreign exchange gain of
EUR1.4 million (2018: EUR2.4 million) plus a gain on fair value of
the contingent consideration from the sale of Telecable of EUR0.2
million (2018: EUR0.2 million), less interest on bank borrowings of
EUR0.7 million (2018: EURnil). The change in fair value during 2019
reflects a revision to the timing of receipt of the contingent
consideration.
The net gain on foreign exchange principally arises from the
revaluation of the investment in Euskaltel (prior to classification
as an associate), whose shares are quoted in euros, within Zegona
Limited and Zegona Communications plc, a company with a functional
currency of British pounds sterling (" Sterling ").
Key performance indicators and non-GAAP measures
As Zegona does not currently have an operating business, there
are limited material key performance indicators that provide a
useful measure of Zegona's business performance and position other
than financial measures defined by generally accepted accounting
principles (" GAAP ") such as IFRS with the exception of:
Value of Main Assets per share
Zegona's principal asset is its 21.3% ownership of Euskaltel,
where it is the largest shareholder. Zegona believes it is helpful
for its shareholders to be aware of the development in the value of
Euskaltel, and to understand what this represents in terms of value
of the Euskaltel investment and Zegona's net cash position (its "
Main Assets ") per Zegona share, especially since Zegona no longer
accounts for its investment in Euskaltel at fair value, and how
this compares to the market value of Zegona's shares, and also how
this value compares to the Net Invested Capital and Preferred
Return threshold under Zegona's incentive scheme(12) .
The value of Zegona's Main Assets per share is a computation of
the Sterling equivalent of the fair value of Zegona's investment in
Euskaltel, its cash and cash equivalents and its bank borrowings,
divided by the total number of shares outstanding(13) as
follows:
13 May 31 December 31 December
2020 2019 2018
----------- ----------- -----------
Fair value of investment in
Euskaltel (EUR000) 272,277 341,584 187,332
Cash and cash equivalents
(EUR000) 20,844 27,035 3,138
Bank borrowings (EUR000) (11,179) (11,578) -
----------- ----------- -----------
Value of Main Assets (EUR000) 281,942 357,041 190,470
Foreign exchange rate (EUR
/ GBP) 1.1292 1. 17547 1.11258
Value of Main Assets (GBP000) 249,683 303,743 171,196
Shares outstanding 221,492,730 221,935,177 126,219,449
----------- ----------- -----------
Value of Main Assets per share
(GBP) 1.14 1.37 1.36
=========== =========== ===========
(9) Proprietary director means a director of a company who is
the beneficial owner of or is able, either directly or indirectly,
to control more than 15% of the ordinary share capital of the
company.
(10) Average revenue per user.
1 (1) Selling, General and Administrative.
1 (2) As defined on pages 29 and 34.
(13) No value for Zegona Management and Core Investor Incentive
Schemes is included.
STRATEGIC REPORT | RISKS
Principal and emerging risks
We have carried out robust assessments of the principal 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 commercial risks
Risk title Risk rating Change in risk assessment
since the last Annual
Report
-------------------------------- ------------ --------------------------
Risks related to the investment High Increased
in Euskaltel
Acquisition of targets Moderate No change
Key management Moderate No change
Disposal of investments Moderate No change
Brexit Moderate No change
Foreign exchange Low No change
The description, impact and mitigation of these risks are set
out below:
Risks related to the investment in Euskaltel
At 31 December 2019, Zegona's sole investment was its holding of
approximately 21% of Euskaltel. The value of this investment is
dependent on Euskaltel's performance, which could, in turn, be
adversely impacted by risks that Euskaltel is exposed to. Some of
these risks are common to telecommunications operators in Spain and
others that are specific to Euskaltel itself. Whilst not
exhaustive, Zegona believes the most significant of these risks
are:
-- Spanish economy and Covid-19: Deteriorating economic
conditions and rising unemployment rates could have a significant
impact on Euskaltel's performance. The Spanish economy has
experienced healthy growth in recent years following a significant
downturn in 2012 and 2013, which was expected to continue in 2020.
Spain has, however, been severely impacted by Covid-19 and in
mid-March imposed a strict lockdown with restrictions being eased
from the beginning of May 2020. It is still difficult to tell what
the impact will be for the Spanish economy generally and
telecommunication providers in general, although Euskaltel has
already announced that the outbreak has been "limited and
controlled". Despite the relatively limited impact on Euskaltel so
far, there remains a risk that the Spanish economy in general and
Euskaltel's performance and its equity value in particular could be
negatively impacted in the medium and longer term. This impact
could come either directly from the disruption related to
restrictions to address Covid-19 in early 2020, or from a
longer-term economic decline caused indirectly by the outbreak.
-- Competitive environment: Euskaltel faces significant
competition from both established and new competitors that provide
similar services in Spain. This competition includes offers with
aggressive discounts and could negatively impact Euskaltel's
business. To compete effectively, Euskaltel will need to continue
to successfully design and market its services and anticipate and
respond to competitive factors. If it is unable to do this, results
could fall substantially short of current expectations.
-- Delivery of change programme : José Miguel García has
instituted a comprehensive and wide-ranging organisational and
operational change programme across all aspects of Euskaltel's
business, which Zegona fully supports. While this programme has
already delivered significant benefits, there still remains a
considerable amount of work to be done. There is a risk that, if
these improvements are not delivered, this could have an adverse
effect on Euskaltel's business.
-- Success of national expansion : A key part of Euskaltel's
growth strategy is to expand nationally using the Virgin brand to
offer high value services to customers across Spain. While this
provides a significant opportunity, it is a logistically complex
project that requires acquiring customers in a competitive market.
There is a risk that, if the project is not as successful as hoped,
this could have a negative impact on Euskaltel's performance and on
the value of Zegona's investment.
We regularly review the risk-adjusted returns of the Euskaltel
investment and consider whether it is appropriate to retain
ownership or continue increasing our shareholding in Euskaltel.
The appointment of Zegona's Chief Executive Officer Eamonn
O'Hare and Chief Operating Officer Robert Samuelson as proprietary
directors on Euskaltel's Board enables them to take a hands-on role
in delivering tangible improvement actions within the Euskaltel
business, including national expansion in partnership with
Virgin.
Acquisition of targets
The success of Zegona's future investment strategy depends on
our ability to identify and successfully acquire available and
suitable targets. There is a risk that we will not be able to:
-- identify available targets based on competition in the
marketplace;
-- identify suitable targets at a price that allows for
acceptable returns;
-- obtain any consents or authorisations required to carry out
an acquisition;
-- procure the necessary financing, be this from equity, debt or
a combination; or
-- be successful in the acquisition of an identified target
under all or any market conditions.
In making acquisitions, there is also a risk of unforeseen
liabilities being later discovered which were not uncovered or
known at the time of the due diligence process. In pursuit of new
acquisition targets, significant abort costs may be incurred if we
are not able to complete the proposed acquisition (for example,
because Zegona has been outbid by a competitor), which may deplete
Zegona's cash and available liquidity.
We have a disciplined approach to valuation and, ultimately, we
are only prepared to make investments at the right price and after
undertaking a very structured and thorough due diligence process.
When evaluating potential investments, we focus on targets that
have strong fundamentals, high-quality offerings and leading market
positions but which are underperforming their potential and have
scope to generate sustainable performance and cash flow
improvements.
The success of Zegona's acquisitions depend on our ability to
implement the necessary strategic, operational and financial change
programmes in order to refocus the acquired business and improve
its performance. Implementing these change programmes may require
significant modifications, including changes to business assets,
operating and financial processes, business systems, management
techniques and personnel, including senior management. There is a
risk that we will not be able to successfully implement such change
programmes within a reasonable timescale and cost.
As Covid-19 outbreaks continue across Europe, it is possible
that access to significant debt and equity financing may become
more difficult, thus temporarily impacting Zegona's ability to
complete new acquisitions in a reasonable timeframe. Zegona
believes that, as countries begin to ease restrictions in the
coming months and economic activity begins to recover, the
difficulties in accessing debt and equity financing will
reduce.
Key management
Zegona's operations are currently managed by the Chief Executive
Officer, supported by the Chief Operating Officer and Chief
Financial Officer. The absence or loss of key management, due to
Covid-19 or other reasons, could significantly impede our financial
plans and the execution of our planned strategy with respect to the
Euskaltel business, as well as other plans, though there has been
no such absence or loss since Zegona was founded. Zegona will
continue to monitor the Covid-19 situation and do all it can to
ensure the safety of key management and all employees.
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 challenges the
focus of the business and the allocation of resources amongst
projects.
Disposal of investments
Our ability to dispose of Zegona's investment at the optimum
time, and the availability of a suitable buyer who is willing and
able to acquire the investment at an acceptable price or in a deal
with an acceptable structure, is key to the success of our
strategy. There is a risk that such suitable buyers cannot be
identified, thus reducing the returns on investments.
We have proven our ability to execute our strategy since the
formation of Zegona and consideration is given to an exit strategy
as part of the acquisition process.
Brexit
The uncertainty and unpredictability concerning the UK's legal,
political and economic relationship with the EU following the UK's
exit from the EU may continue to be a source of instability in the
international markets, create significant currency fluctuations,
and/or otherwise adversely affect trading agreements or similar
cross-border co-operation arrangements (whether economic, tax,
fiscal, legal, regulatory or otherwise) for the foreseeable future.
Such continued uncertainty could have an adverse impact on the
number or attractiveness of acquisition opportunities available to
Zegona.
The long-term effects of Brexit will depend on any agreements
(or lack thereof) between the UK and the EU and, in particular, any
arrangements for the UK to retain access to EU markets either
during the current transitional period or more permanently.
Additionally, the exchange rate of Sterling vis-a-vis other
currencies may continue to be relatively volatile, which could
result in increasing costs of non-sterling denominated expenses and
other obligations. Furthermore, UK regulatory requirements could be
subject to significant change and could place an additional burden
on Zegona.
Foreign exchange
Foreign currency translation risk exists due to certain Zegona
companies operating, and having equity denominated, in a different
functional currency (Sterling) to that of the investment in
Euskaltel (euro) and of many of our likely acquisition targets.
Transactional foreign currency risk is limited and the principal
ongoing impact is that fluctuations in the Sterling/euro rate could
have a significant impact on the Sterling value of the investment
in Euskaltel, meaning that the Sterling value of the proceeds from
any future sale of Euskaltel shares that Zegona may distribute to
shareholders may be reduced.
The Board and the Chief Financial Officer control and monitor
financial risk management, including foreign currency risk, in
accordance with the internal policy and the strategic plan defined
by the Board.
Longer term viability statement
1. Zegona's prospects
In accordance with provision 31 of the 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, our
strategy, the risk appetite of the Board and the principal risks
and uncertainties which are described in detail in this Strategic
Report.
Zegona does not control any operating businesses and, currently,
the most significant factor affecting Zegona's prospects is
delivering additional value from the investment in Euskaltel.
2. The assessment period
We continue to believe that three years - in this case the three
years to December 2022 - is the appropriate period over which
Zegona should assess its viability for the following reasons:
-- Three years is considered to be an appropriate period over
which to assess the impact that we have had on Euskaltel; and
-- We have reasonable clarity over a three-year period, which
enables us to make an appropriate assessment of Zegona's principal
risks.
3. The assessment process and key assumptions
The Directors approve a forecast on an annual basis which is
sufficiently detailed to explain all cash inflows and outflows and
includes a description of all reasonably possible risks and
opportunities. Each month, the Board is provided with an analysis
of actual performance against the forecast. Given the
straightforward nature of Zegona's financial operations at this
point, this forecast is considered appropriate to form the base
model for the viability assessment.
The forecast takes into account Zegona's dividend policy to pass
through the Sterling equivalent of all dividends received from
Zegona's investment in Euskaltel to shareholders and factors in the
successful fundraising in early 2019 from both issuing new ordinary
shares and entering into loan facilities.
In preparing the viability assessment, we have deliberately
sought to include a significant element of conservatism into the
base model even before applying further sensitivities. In
particular, the assessment includes the following key
assumptions:
-- Zegona will not acquire another business, or dispose of its
investment in Euskaltel, during the assessment period. This is a
particularly conservative assumption since any new acquisition
would be expected to have a significant positive impact on Zegona's
viability, both through contributing operating cash flows and the
fact that sufficient additional funds could also be raised to
ensure Zegona's viability in the longer term. Despite the fact that
Zegona is hopeful that a successful acquisition will be made during
the assessment period, given the uncertainty over the timing and
size of it, it was not considered appropriate to include it in the
assessment. Similarly, a disposal of the investment in Euskaltel
would be expected to have a significant positive impact on Zegona's
viability, through sale proceeds, therefore it was not considered
appropriate to include it in the assessment;
-- Zegona will incur substantial abort costs on failed
transactions without taking actions; and
-- Zegona has drawn down GBP10 million from its current debt
facility with Barclays, which expires on 14 January 2021. Under the
facility agreement, Zegona can no longer draw the remaining amount.
The GBP10 million credit facility provided by Virgin matured on 30
April 2020. Zegona expects to refinance the current debt facility
during the assessment period in a similar amount and on similar
terms as the existing facility. This is considered to be reasonable
given the small size of the facility compared to the value of the
Euskaltel shares that it is secured on. In the unlikely event that
the facility agreement is not refinanced, the current pledge to
Barclays on Euskaltel shares will cease and therefore Zegona could,
if additional liquidity was needed, sell part of its shareholding
in Euskaltel.
In addition to the already deliberately conservative base model,
we also considered the principal and emerging risks discussed under
section 3 above to determine how far they had already been captured
in the base model and whether any of them needed to be further
considered in assessing viability as shown below. Each of these
principal risks take account of the impact of Covid-19 as an
emerging risk:
Principal and Base model Downside Comment
emerging risks scenario
----------------- ----------- ---------- ----------------------------------------
Investment a r Addressed in the base model through
in Euskaltel the assumptions about dividends
received during the assessment
period and the amount passed through
to Zegona's shareholders. Since
dividends are passed through,
the impact of declining performance,
for example as a result of Covid-19
are limited, therefore no further
downside impacts need to be modelled.
----------------- ----------- ---------- ----------------------------------------
Acquisition a a The most significant risk to viability.
of targets The base model assumes no acquisitions
but includes substantial abort
costs. In the downside scenario,
additional abort costs and other
operating costs are considered.
----------------- ----------- ---------- ----------------------------------------
Key management a r The most significant consequence
of the loss or absence of key
management would likely be on
our ability to execute another
acquisition or exit of Euskaltel
at the desired time. This is already
included in the base case, therefore
no further downside impacts need
to be modelled.
----------------- ----------- ---------- ----------------------------------------
Disposal of r r Not relevant as no disposals are
investments included in the base case.
----------------- ----------- ---------- ----------------------------------------
Brexit a r The most significant consequence
of Brexit would likely be on our
ability to execute another acquisition
or exit of Euskaltel at the desired
time, which is already considered
as part of the 'Acquisition of
targets' and 'Disposal of investments'
risk.
----------------- ----------- ---------- ----------------------------------------
Foreign exchange a a Addressed in the base model through
the assumptions about dividends
received from Euskaltel during
the assessment period and the
amount passed through to Zegona's
shareholders. The base model assumes
constant Sterling:euro rates during
the assessment period. In the
downside scenario, a depreciation
of Sterling against the euro has
been considered.
----------------- ----------- ---------- ----------------------------------------
Based on the evaluation of the principal risks above, combined
with a consideration of a number of other factors (including the
different ways Covid-19 could be expected to impact Zegona) the
Directors identified a severe but plausible downside scenario which
was further used to stress test the base numbers.
The downside scenario includes a number of negative developments
occurring in combination without considering the impact of a number
of achievable mitigating actions. The scenario includes: a
reduction in the amount of debt facility that can be refinanced
from GBP30 million to GBP15 million; a doubling of abort costs; and
a significant increase in operating costs resulting from a range of
sources.
4. Results of the assessment
The assessment showed that in both the base case and the
downside scenario, Zegona would have sufficient cash and liquid
resources to continue in operation throughout the assessment period
without taking any mitigating actions available to it.
Given the small size of the drawn portion of Zegona's existing
facility compared to the value of the Euskaltel shares that it is
secured on, Zegona believes it is probable it will be able to
refinance the facility. However, the assessment also shows that, if
the facility was not refinanced, Zegona would still have sufficient
cash and liquid resources to continue in operation throughout the
assessment period, although this would be after deploying one or
more of a range of the available mitigating actions. These include
reducing discretionary expenditure, selling part of Zegona's
investment in Euskaltel or retaining part of the Euskaltel
dividend.
5. Viability statement
Taking into account Zegona's current position and principal and
emerging risks and uncertainties, the Directors confirm that we
have a reasonable expectation that Zegona will be able to continue
in operation and meet its liabilities as they fall due over the
three years to December 2022.
STRATEGIC REPORT | CORPORATE RESPONSIBILITY
Corporate social responsibility
We recognise our obligations to act responsibly, ethically and
with integrity in its dealings with staff, suppliers and the
environment as a whole. We are committed to being a socially
responsible business.
Our people
We value and respect the unique contributions of each
individual, and we are committed to ensuring that every employee is
treated with dignity and respect, and has a meaningful opportunity
to contribute to Zegona's success.
Zegona's employees are encouraged to actively engage with
charitable activities and are supported in any such efforts.
Zegona recognises that a productive workforce requires a breadth
of experience and perspectives achieved through hiring individuals
with diverse experience. Board Directors and senior managers have
been appointed in order to bring required skills, knowledge and
experience. On 5 February 2020, two female independent
Non-Executive Directors were appointed to the Board, improving
Zegona's diversity. The Nomination and Remuneration Committee will
continue to consider the diversity of the Board for further new
appointments.
The table below shows the breakdown of our workforce at the end
of 2019. As noted above, since then, two female directors have been
appointed to the Board.
Male Female Total
---- ------ -----
Board Directors 6 - 6
Senior management 3 - 3
Other staff - 1 1
==== ====== =====
Total 9 1 10
==== ====== =====
This breakdown excludes directors of companies in liquidation at
31 December 2019. Senior management is per the definition in
section 414C of the UK Companies Act 2006.
Culture
Ethical values and behaviours are embedded in the corporate
culture which the Board upholds. The Directors foster a culture
where transparency, openness, integrity and constructive challenge
are actively encouraged and the Board engages regularly with senior
management to ensure a positive culture.
Human rights
As part of our effort to conduct business in an ethical manner,
Zegona has not engaged in and will not engage in business practices
or activities that compromise fundamental human rights.
Environmental matters
We are committed to minimising Zegona's impact on the
environment and seek to encourage our employees to recycle,
minimise energy wastage, and do their part to ensure that Zegona
acts responsibly.
Since 1 October 2013, the Companies Act 2006 (Strategic Report
and Directors' Report) Regulations 2013 has required all UK quoted
companies to report on their greenhouse gas (GHG) emissions, which
are classified as either direct or indirect and which are divided
further into Scope 1, Scope 2 and Scope 3 emissions. Direct GHG
emissions are emissions from sources that are owned or controlled
by Zegona. Indirect GHG emissions are emissions that are a
consequence of Zegona's activities but that occur at sources owned
or controlled by other entities.
Scope 1 emissions: Direct emissions from sources 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 is required to report Scope 1 and 2 emissions for its
reporting year to 31 December 2019. Scope 3 is not yet mandatory,
however, we have again chosen to report Scope 3 emissions. Zegona
has no Scope 1 emissions.
Global tonnes of CO(2)
-------------------------
2019 2018
------------ -----------
Scope 2 (electricity) 5.7 3.3
Tonnes of CO 2 per EURm operating
expenses 0.95 0.70
Global tonnes of CO 2
e
-------------------------------
2019 2018
--------------- --------------
Scope 3 (water, business travel) 49.7 52.2
Tonnes of CO 2 e per EURm operating
expenses 8.30 10.99
All emission factors have been selected from the emissions
conversion factors published annually by Defra and the
International Energy Agency. Scope 2 emissions have gone up due to
an increase in Zegona's office space.
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 24.
The Strategic Report was approved by the Board on 13 May 2020
and is signed on its behalf by:
Eamonn O'Hare
Chairman and Chief Executive Officer
GOVERNANCE | PROFILES OF THE DIRECTORS
Eamonn O'Hare, Chairman and CEO (appointed 19 January 2015)
Eamonn has spent over two decades as a board member and senior
executive of some of the world's fastest growing consumer and
technology businesses. From 2009 to 2013 he was CFO and main board
director of the UK's leading entertainment and communications
business, Virgin Media. Eamonn helped lead the successful
transformation of this business and its strategic sale to Liberty
Global for US$24 billion, crystallising US$14 billion of
incremental shareholder value. From 2005 to 2009, he served as the
CFO for the UK division of one of the world's largest retailers,
Tesco plc. Before joining Tesco, Eamonn was CFO and main board
director of Energis Communications and helped lead the turnaround
of this high profile UK telecommunications company. Prior to this,
he spent 10 years at PepsiCo Inc. in senior executive roles in
Europe, Asia and the Middle East. Eamonn's early career was spent
in the aerospace industry with companies that included Rolls Royce
and British Aerospace.
Eamonn is a proprietary director of Euskaltel. He also serves as
a non-executive director on the main board of Dialog Semiconductor
Plc, a leading edge consumer technology business that provides
critical components for the world's most successful mobile device
brands. The fees for these appointments are disclosed in the
Directors' Remuneration Report on page 38.
Eamonn has a degree in Aerospace Engineering from the Queen's
University Belfast and an MBA from the London Business School.
Robert Samuelson, Executive Director and COO (appointed 19
January 2015)
Robert was Executive Director Group Strategy of Virgin Media
from 2011 to 2014, during which time he was centrally involved in
the sale of the business to Liberty Global and in the post-merger
integration process. Prior to this, Robert was a managing partner
at Virgin Group with global responsibility for developing and
realising returns from Virgin's telecommunications and media
businesses. Before joining Virgin Group, Robert was a director at
Arthur D Little Ltd, where he co-led the European corporate finance
practice, providing strategic advice to major European
telecommunications operators. His early career was spent with
British Aerospace and Royal Ordnance in engineering and production
management roles.
Robert is a proprietary director of Euskaltel and the fees for
this appointment are disclosed in the Directors' Remuneration
Report on page 38.
Robert studied Natural Sciences at Cambridge University and has
an MBA from Cranfield School of Management.
Mark Brangstrup Watts, Non-Executive Director (appointed 19
January 2015 and resigned 12 May 2020)
Mark co-founded the Marwyn asset management group in 2002 and
has many years of experience deploying private equity investment
strategies in the public markets. The Marwyn funds' highly
acquisitive portfolio companies have delivered approximately 100
bolt-on acquisitions with Mark offering significant mergers and
acquisitions, equity capital markets and corporate finance
experience.
Mark brings his background in strategic consultancy to the
management team having been responsible for strategic development
projects for international clients including Ford Motor Company
(US), Cummins (Japan) and 3M (Europe).
Mark is a managing partner in Marwyn Capital LLP and Marwyn
Investment Management LLP. Mark is currently an executive director
of Le Chameau Group Plc, Safe Harbour Holdings Plc and Wilmcote
Holdings Plc. Mark is also a non-executive director of Marwyn Asset
Management Limited (which, as at the date of approval of the Annual
Report, holds 19.16% of the share capital of Zegona in its capacity
as agent for an on behalf of its discretionary managed clients) and
was previously a non-executive director of BCA Marketplace Plc,
Advanced Computer Software Plc, Entertainment One Ltd, Melorio Plc,
Inspicio Plc and Talarius Plc, amongst others.
Mark was a member of the Nomination and Remuneration Committee
but will not stand for re-election at the 2020 AGM and has stepped
down from the Board with effect from 12 May 2020.
Murray Scott, independent Non-Executive Director (appointed 31
July 2015)
Murray has almost 20 years of experience in the international
telecommunications sector, ranging from the then start-ups Equant
and Interoute to BT plc, where he served as CFO for the UK products
sub-division of BT Global Services which had revenues of GBP1.6
billion. After leaving BT, Murray successfully pursued a career as
an interim director and consultant for a number of years before
being appointed as Finance Director of Premia Solutions Limited, an
insurance intermediary, on 1 January 2020.
Murray studied Natural Sciences at Cambridge University and
qualified as a Chartered Accountant with KPMG LLP in London.
Murray is a member of the Audit and Risk Committee and the
Nomination and Remuneration Committee. Murray is not standing for
re-election to the Board at the 2020 AGM.
Richard Williams, independent Non-Executive Director (appointed
9 November 2015)
Richard has spent most of his career in European
telecommunications, most recently as a Director of Investor
Relations at Altice, and prior to that, Virgin Media. Richard is a
qualified Chartered Accountant and has held financial planning
roles at Walt Disney and ITV Digital. He joined Telewest
Communications in 1999 in an investor relations role. Telewest
later merged with NTL and was rebranded to 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, before eventually leaving
the company.
Richard is Chair of the Nomination and Remuneration Committee
and is a member of the Audit and Risk Committee. Richard will step
down as Chair of the Nomination and Remuneration Committee
following the 2020 AGM but will continue to be a member of the
committee.
Ashley Martin, independent Non-Executive Director (appointed 6
February 2017)
Ashley brings a wealth of complementary experience to the Board.
Ashley was Audit Committee Chair at Rightmove plc from 2009 to 2018
and, in that role, gained valuable insight into an entrepreneurial,
high-growth consumer technology business. On 1 September 2018,
Ashley was appointed as a non-executive director of the
international research data and analytics group YouGov plc. Ashley
has also enjoyed a successful executive career spanning 35 years in
larger listed companies, with a particular focus on mergers and
acquisitions. Ashley was Global Chief Financial Officer of private
equity-backed Engine Holding LLC, and was previously the Group
Finance Director of Rok plc, the building services group, and Group
Finance Director of the media services company, Tempus plc.
Ashley qualified as a Chartered Accountant with Armitage &
Norton (now part of KPMG).
Ashley is Chair of the Audit and Risk Committee and a member of
the Nomination and Remuneration Committee.
Kjersti Wiklund, independent Non-Executive Director (appointed 5
February 2020)
Kjersti brings significant experience from a series of senior
global telecommunications roles, including as director of group
technology operations at Vodafone and chief operating officer of
VimpelCom. Kjersti has also held senior executive positions at
Kyivstar, Digi Telecommunications and Telenor.
Kjersti has also gained valuable insight into an
entrepreneurial, high growth consumer technology company as
Remuneration Committee Chair at Trainline plc. She was previously a
non-executive director of Laird plc in the UK, Cxense ASA and Fast
Search & Transfer ASA in Norway and Telescience Inc in the USA
and is currently a non-executive director of Babcock International
Group PLC and Spectris PLC.
Kjersti is a member of the Audit and Risk Committee.
Suzi Williams, independent Non-Executive Director (appointed 5
February 2020)
Suzi brings skills and experience from over 25 years in
telecommunications, media and consumer businesses in the UK and
internationally. As Chief Brand and Marketing Officer at BT, she
was part of the team who transformed the business. Prior to that,
she was Commercial Development Director at Capital Radio Group and
held senior leadership roles at Orange, the BBC, KPMG Consulting,
and Procter & Gamble Europe.
A board member at The AA since 2015, Suzi was Chairman of its
Remuneration Committee until November 2019. She currently sits on
its Risk & Nomination Committees. In January 2020, she joined
the board of WorkSpace Group and sits on all of its board
committees. Suzi also advises a number of early stage technology
and AI businesses.
Suzi is a member of the Nomination and Remuneration Committee
and, subject to her re-appointment at the 2020 AGM, will become the
Chair of this committee.
GOVERNANCE | CORPORATE GOVERNANCE REPORT
Overview
This report is presented separately for the sake of clarity.
Nevertheless, it forms part of the Directors' Report and has been
approved by the Board and signed on its behalf as though it were a
part of the Directors' Report.
We recognise the importance of sound corporate governance
commensurate with the size of Zegona and the interests of
shareholders, and remain committed to developing the corporate
governance arrangements as the business further evolves.
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") 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 9 to 11. The
Directors' Report on pages 40 to 42 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 five 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 Murray Scott, Richard Williams,
Ashley Martin, Kjersti Wiklund and Suzi Williams. Murray is not
standing for re-election at the 2020 AGM. Mark Brangstrup Watts,
who served as a Director for five years, is also not standing for
re-election at the 2020 AGM and stepped down from the Board with
effect from 12 May 2020.
Biographical details of all Directors and details of their
committee membership at the date of approval of this report appear
on pages 16 to 18. Consideration of the Board size and composition
is kept under regular review by the Nomination and Remuneration
Committee.
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 openly discuss any important issues and frequently engage with
Board members outside of formal meetings. 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.
Board interaction
The Board meets formally at least six times a year but also
frequently meets additionally on an ad hoc basis where necessary.
Meetings are prepared for using a standing agenda which is updated
to incorporate any ad hoc business or matters of interest. The
Board is presented with papers from management to support its
discussions including financial information, information on
investor relations and details of acquisition targets and deal
progress. External advisors are also invited to meetings from time
to time to advise Board members directly where this is felt
necessary.
The Executive Directors actively and constructively encourage
challenge and seek input from the Non-Executive Directors to draw
on their extensive experience and knowledge. They believe that the
role of the Non-Executive Directors in providing independent
challenge is a vital component of an effective Board.
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 16 to 18.
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, Murray Scott, 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.
Similarly, although Mark Brangstrup Watts represents a
significant shareholder, is interested in Core Investor Shares of
Zegona Limited (as detailed in note 21 to the Financial
Statements), and is a beneficial owner of Axio Capital Solutions
Limited ("Axio" or the "Company Secretary"), which provides certain
company secretarial & administration services and financial
& accounting services to Zegona, the Board considers that he
nonetheless, during his term in office, had the characteristics of
an independent Non-Executive Director on the basis that:
-- his extensive experience as a non-executive director means he
was capable of maintaining the independent character and judgement
necessary to fulfil the role; and
-- he was independent of the Executive Directors.
The Board is therefore confident that Mark's ability to fulfil
the role of Non-Executive Director was not fettered.
Board and committee attendance
Attendance at the Board and committee meetings held during 2019
was:
Nomination and
Remuneration Committee Audit and Risk
Board meetings meetings Committee meetings
----------------- -------------------- --------------------------- -----------------------
Held Attended Held Attended Held Attended
----------------- -------- ---------- ---------- --------------- -------- -------------
Eamonn O'Hare 17 16 - - - -
Robert Samuelson 17 16 - - - -
Mark Brangstrup
Watts 17 15 7 5 - -
Murray Scott 17 14 7 6 3 3
Richard Williams 17 17 7 7 3 3
Ashley Martin 17 16 7 7 3 3
The number of Board meetings held reflects the ongoing
assessment of Zegona's options for the investment in Euskaltel over
the year.
Board and Committee changes
During 2019, Korn Ferry, a leading executive search consulting
firm, was engaged to identify a suitable individual to join
Zegona's Board. Other than the engagement to search for an
additional independent non-executive Director, Zegona has no other
connection with Korn Ferry. Following a rigorous series of
interviews with members of the Board and management team, Kjersti
Wiklund and Suzi Williams were identified as outstanding candidates
and, on the recommendation of the Nomination and Remuneration
Committee and taking into account that Murray Scott will not be
standing for re-election at the 2020 AGM, both were appointed with
effect from 5 February 2020. On this date, Kjersti was appointed to
the Audit and Risk Committee and Suzi was appointed to the
Nomination and Remuneration Committee. Biographical details about
Kjersti and Suzi can be found on pages 17 and 18. The Board will
seek to appoint one of the independent non-executive directors to
be the Senior Independent Director ("SID") following the 2020
AGM.
Kjersti and Suzi have been provided with extensive written
information on Zegona on both its:
-- business and financial documents, including analysts'
reports, management accounts, budget, shareholder register and
other key agreements and contracts; and
-- corporate governance documents, including Board Charter,
committee terms of reference, voting reports from the 2019 AGM,
Board effectiveness evaluation and Zegona's policies and
procedures.
They have also spent time with Zegona's Executive Directors and
management team to review and understand all aspects of Zegona's
business. In addition, they have both visited the Euskaltel
headquarters in Spain and met with key members of the Euskaltel
management team, including the Chairman, CEO and CFO.
Mark Brangstrup Watts stepped down from the Board with effect
from 12 May 2020. Following his resignation, the Nomination and
Remuneration Committee is now solely comprised of independent
Non-Executive Directors. In addition, Suzi Williams, if re-elected
at the 2020 AGM, will take over as Chair of the committee. The
Board believes that these changes further strengthen the
independence and capability of the committee and demonstrate
Zegona's intent to continue to challenge and enhance its corporate
governance framework as the business grows and evolves.
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 2020 AGM and, with the exception of
Murray Scott and Mark Brangstrup Watts, seek to be re-elected by
Zegona's shareholders. The Chairman is satisfied that the
performance of all of the Directors continues to be effective and
demonstrates their ongoing commitment to the role and as such
supports their re-election.
The Executive Directors have service contracts which may be
terminated on no less than 12 months' notice by either party. The
Non-Executive Directors each have current service contracts which
can be terminated on 6 months' notice. All Non-Executive Directors'
continued service is dependent on annual re-election by
shareholders and the annual Board effectiveness review. Details of
the unexpired terms of the service contracts are set out in the
Directors' Remuneration Report.
Directors' indemnities
As permitted by the Articles of Association, the Directors have
the benefit of an indemnity which is a qualifying third party
indemnity provision as defined by section 234 of the Companies Act
2006 (the "Act"). The indemnity was in force throughout 2019 and is
currently in force. This confirmation is given and should be
interpreted in accordance with the provisions of section 236 of the
Act.
Zegona also purchased and maintained throughout the year
Directors' and Officers' liability insurance.
Conflicts of interest
Zegona's Articles of Association provide for a procedure for the
disclosure of 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
Axio acts as Zegona's named company secretary and 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 Axio, which is responsible for advising the Board on all
governance matters. Axio is regulated by the Jersey Financial
Services Commission.
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, save as set out below,
the Board has voluntarily (as Zegona has a Standard Listing)
complied with the Code applicable to non-FTSE 350 companies, so far
as practicable. Details and explanations of non-compliance with the
Code are 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 occupied by the same
person and that the Chairman should be independent on appointment;
Zegona does not comply with this requirement. The Board believes
that Eamonn O'Hare's skills, knowledge and leadership enable him to
effectively perform both roles and that, at this time,
distinguishing between these roles would be of no additional
benefit to Zegona.
Separation of the roles was determined to be a low priority in a
corporate governance review completed by an external party (Ernst
& Young LLP, "EY") in 2017. In addition, this matter was
actively re-considered as part of the exercise to develop Zegona's
Board Charter and as part of Zegona's annual assessment of Board
effectiveness. The Board remains aware of this area of
non-compliance and considers the continued appropriateness of these
two roles remaining combined on a regular basis giving due regard
to shareholder concerns and the time commitment required for each
role as the business evolves. Zegona maintains a schedule of
matters reserved for the Board which prevents Eamonn from
authorising certain corporate actions without a formal resolution
of the Board.
Appointment of a Senior Independent Director
Provision 12 of the Code provides that one Non-Executive
Director should be appointed as a SID 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,
including as part of the independent corporate governance review
completed by EY in 2017 and the exercise to develop Zegona's Board
Charter. The Board fully recognises the value that can be provided
by a SID and will seek to appoint one of the independent
Non-Executive Directors to be the SID following the 2020 AGM.
Publication of internal policy documents
Provision 14 of the Code recommends that the responsibilities of
the chair, chief executive, SID, board and committees be set out in
writing, agreed by the Board and made publicly available.
Zegona has clear terms of reference for each of its committees,
a Board Charter and a set of matters reserved for the Board, each
of which is publicly available on Zegona's website. As Zegona
currently has a combined CEO and Chairman (as described above),
Zegona has not felt the need to delineate these roles in further
detail. Zegona will formalise the responsibilities of the SID as
part of the appointment process.
Independence of Board committees
During 2019, the Nomination and Remuneration Committee was
comprised solely of Non-Executive Directors, however provision 32
of the Code recommends remuneration committees to be comprised of
independent Non-Executive Directors. As noted above, Mark
Brangstrup Watts was not fully independent. Mark resigned from the
committee with effect from 12 May 2020. As a result, the committee
comprises now solely independent Non-Executive Directors. The Audit
and Risk Committee also currently comprises of independent
Non-Executive Directors.
Employee engagement
Provisions 2, 5 and 6 provide guidance for the implementation of
procedures meant to ensure Zegona engages with and monitors its
workforce. Given Zegona currently has only five employees
(excluding directors), the Board believes the implementation of any
formal steps or procedures to engage with the workforce are not
required as informal communications occur regularly between all
employees and the Executive Directors, including weekly team
meetings.
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
objectivity, the questionnaire was designed in consultation with
EY. 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 other factors relevant to its
effectiveness.
The resulting report, analysing responses and drawing anonymous
conclusions, was sent to each Director for consideration and
discussed at a meeting of the whole Board. The Board agreed that
the key findings of this discussion will be used as a basis to
develop a workshop to be facilitated by EY when the Board is able
to meet face-to-face. The objective of this workshop will be for
the Board to discuss the key issues that it feels will enable it to
be more effective in the future and identify tangible actions.
Whistleblowing policy
All employees are encouraged to raise genuine concerns about
possible improprieties in the conduct of Zegona's business, whether
in matters of financial reporting or other malpractices, at the
earliest opportunity and in an appropriate way. Zegona has put in
place a whistleblowing policy to facilitate this.
The aims of this policy are:
-- to encourage employees to report suspected wrongdoing as soon
as possible, in the knowledge that their concerns will be taken
seriously and investigated as appropriate, and that their
confidentiality will be respected;
-- to provide employees with guidance as to how to raise those concerns; and
-- to reassure employees that they should be able to raise
genuine concerns in good faith without fear of reprisals, even if
they turn out to be mistaken.
Share dealing
Zegona has in place systems to ensure compliance by the Board,
Zegona and its applicable employees in relation to dealings in
securities of Zegona and Euskaltel and has adopted a share dealing
code for this purpose. We believe that the share dealing code
adopted by the Board is appropriate for Zegona's size and
complexity and that it complies with the EU Market Abuse Regulation
(2014/596/EU). The Board complies with these provisions and takes
all reasonable steps to ensure compliance by Zegona's 'applicable
employees'.
Relations with Zegona's stakeholders
Zegona does not currently have an operating business and, until
it does so again, has a very limited number of stakeholders given
that Zegona has no customers and its suppliers are primarily
professional advisers. All Directors have frequent interactions
with Zegona's small workforce.
The Board is always available for communication with
shareholders and the Executive Directors frequently engage
constructively with current and potential shareholders, with
feedback regularly discussed in depth at Board meetings. Extensive
discussions were also held with Zegona's major shareholders as part
of the Placing as well as a large number of prospective
shareholders. 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, 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. These views were
actively considered in the Board's decision to undertake the
buyback programme, which was announced in January 2020.
Annual general meeting
The next AGM will be held at 10 Snow Hill, London, EC1A 2AL at
12:00 p.m. on 9 June 2020. 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.
Audit and Risk Committee Report
I am pleased to present the 2019 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 and the
effectiveness of the audit process. The A&RC's role and
responsibilities are set out in its terms of reference, which are
available on Zegona's website and from the Company Secretary.
Committee membership and meetings
The membership of the A&RC during 2019 continued to be
Ashley Martin (Chairman), Murray Scott and Richard Williams, all of
whom are independent Non-Executive Directors as required by
provision 24 of 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. All three
A&RC members 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 Murray Scott. Kjersti Wiklund
was appointed to the A&RC on 5 February 2020 bringing
additional IT and telecommunications experience to the
A&RC.
The A&RC normally meets at least three times a year with
additional meetings arranged if necessary. In 2019, the A&RC
met in March, September and December and has subsequently met in
May 2020. 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;
-- the disclosures in connection with the accounting for Euskaltel as an associate;
-- the completeness of the key risks identified;
-- whether the whole story is presented and whether any sensitive material has been omitted;
-- whether the absence of any non-GAAP key performance indicators is appropriate; and
-- whether there is a clear and cohesive framework for the annual report.
-- Reviewed the going concern assumption and the assessment
forming the basis of the longer term viability statement. The
A&RC reviewed the work undertaken by management to assess
Zegona's resilience to the principal risks under various stress
test scenarios and confirmed that a 3-year assessment period
remained appropriate.
-- Considered the key judgements and estimates made by
management in preparing the Financial Statements, as follows:
- Date of accounting for Euskaltel as an associate - the
A&RC reviewed and challenged the evidence to support the
effective date of gaining significant influence over Euskaltel as
being 10 July 2019 and was satisfied with the conclusion
reached;
- Valuation of the contingent consideration - the A&RC
reviewed the detailed local tax and legal advice and related
probabilities associated with the gaining of merger approval from
the Spanish Tax Authorities in order to facilitate settlement of
the contingent consideration from the sale of Telecable SA in 2017.
The A&RC was satisfied with the conclusion reached and
resulting valuation; and
- Accounting for Euskaltel as an associate and the related
purchase price adjustments to determine the level of goodwill and
intangible assets to be recorded in the Statement of Financial
Position - the A&RC reviewed the comprehensive valuation work
undertaken by management for both intangible assets and the fair
value of tangible and other assets. We concluded that the
accounting and related disclosures in relation to Euskaltel were
appropriate. KPMG also audited the application of IAS 28 and the
principles of IFRS 3, and the related disclosures.
In all of the above judgements, the A&RC also considered the
work undertaken by KPMG and reports to the A&RC in support of
the position adopted by management.
Other considerations:
-- Reviewed the effectiveness of Zegona's risk management and
internal controls and disclosures made in the annual report on this
matter, including the review of an annual assurance statement
provided by management assessing the effectiveness of Zegona's risk
management and internal control systems;
-- Reviewed and agreed the scope of the audit work to be
undertaken by the external auditor and assessed the audit and
non-audit fees to be paid, as well as the independence and
objectivity of the auditor;
-- Considered the effectiveness of the external audit process,
following the receipt of feedback from the management team,
Executive Directors, Non-Executive Directors and other service
providers involved in the audit process by way of a
questionnaire;
-- Reviewed and made a recommendation to the Board with regard
to the re-appointment of the external auditor, taking into account
auditor effectiveness and independence, partner rotation and other
factors which may impact the external auditor's re-appointment;
-- Reviewed the interim Financial Statements, including the
critical accounting judgements and estimates used in preparing
them;
-- Reviewed management's updates to Zegona's main control
document, the Financial Position and Prospects memorandum. The
A&RC also reviewed the updates made to Zegona's risk register;
and
-- Reviewed Zegona's whistleblowing policy and anti-bribery and anti-corruption policy.
Independence of the external auditor
KPMG was appointed as Zegona's external auditor on 15 December
2016, with no changes to the key audit partner since
appointment.
During 2019, non-audit fees were pre-approved in relation to
KPMG's agreed upon procedures on the interim financial statements
for the six months ended 30 June 2019. The fees for these
procedures totalled EUR11,000, which is significantly lower than
the audit fees for the Financial Statements for the year ended 31
December 2019 and therefore auditor objectivity and independence is
not deemed to be compromised by the level of non-audit fees.
The A&RC has set a threshold of EUR11,000 (GBP10,000) for
pre-approving non-audit fees. All of KPMG's services have been
pre-approved and reported to the A&RC.
Risk management and internal control systems
The Board is responsible for establishing and maintaining
Zegona's system of internal control and reviewing its
effectiveness. The Board has delegated the duty to keep under
review 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 particular
needs of Zegona and the particular risks to which it is exposed.
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.
A risk assessment that identifies the strategic, operational and
financial risks facing the business and considers the appropriate
mitigating controls has been prepared as a means of identifying and
monitoring risks. This assessment is continually monitored by the
management team and reviewed and discussed by the A&RC at least
twice per year. The assessment has continued to be updated to best
reflect the risks arising from Zegona's increasing ownership
interest in Euskaltel and those applicable to its ongoing
strategy.
Zegona has in place numerous internal controls in relation to
financial reporting including:
-- principal strategic, commercial, competitive, financial and
regulatory risks are assessed and quantified by executive
management following which they are considered by the Board;
-- a team of professional advisors 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 key decisions of the business;
-- regular updates directly from the CEO of Euskaltel on the
competitive landscape and on the prospects for the business;
-- a comprehensive risk register which is reviewed at least
bi-annually and updated to take account of developments within the
Group;
-- a comprehensive system of budgeting, forecasting and monthly
reporting including analysis of variances
-- segregation of responsibilities for those responsible for
preparing information from those reviewing information to reduce
risk of error; and
-- an in-house treasury function responsible for managing cash,
foreign exchange risk and ensuring compliance with banking and loan
agreements.
Through the above procedures the Board with advice from the
A&RC has considered all significant aspects of internal control
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
Nomination and Remuneration Committee Report
The roles and responsibilities of the Nomination and
Remuneration Committee (the "N&RC") are set out in its terms of
reference, which are available on Zegona's website and from the
Company Secretary.
The membership of the N&RC during 2019 continued to be
Richard Williams (Chairman), Mark Brangstrup Watts, Murray Scott
and Ashley Martin, all of whom were Non-Executive Directors, and
all of whom were independent except Mark. Mark Brangstrup Watts
resigned from the N&RC with effect from 12 May 2020. Suzi
Williams was appointed to the N&RC on 5 February 2020 and,
subject to her re-appointment at the 2020 AGM, will become the
chair of the N&RC. The members of the N&RC are now fully
independent.
Suzi has considerable experience in the field having been the
chair of the Remuneration Committee at AA plc from August 2017 to
October 2019. She is also a member of the Nomination and
Remuneration Committees at Workspace Group plc.
The N&RC normally meets twice a year with additional
meetings arranged if necessary. In 2019 the N&RC met seven
times. The scheduling of the formal N&RC meetings is designed
to be aligned with the N&RC's recurring annual activities,
including setting of bonus metrics and evaluation of performance
against them, and review of the annual remuneration report
contained within the annual report.
Since the last Nomination and Remuneration Committee Report, the
N&RC has undertaken the following activities:
-- Reviewed the bonuses for the Executive Directors and management team for 2019;
-- Reviewed the remuneration package for the Executive Directors
and management team for 2020, including bonus metrics;
-- Assessed the potential value of the Management Shares;
-- Reviewed the Articles of Association of Zegona Limited, which
contain the terms of the management incentive scheme;
-- Reviewed the Directors' remuneration policy and the
nomination and remuneration disclosures in the annual report;
-- Evaluated the performance of the Board, its committees and its individual Directors; and
-- Conducted and finalised the recruitment process for the two
new independent Non-Executive Directors and reported its
recommendations to the Board.
Richard Williams
Chairman of the Nomination and Remuneration Committee
GOVERNANCE | DIRECTORS' REMUNERATION REPORT
Directors' Remuneration Report
The information included in this report is not subject to audit
other than where specifically indicated. The activities and
composition of the Nomination and Remuneration Committee (the
"Committee") are set out above on page 28.
Annual Statement - overview from the Chairman of the Nomination
and Remuneration Committee
I am pleased to introduce the Directors' Remuneration Report for
the year ended 31 December 2019, which includes my statement and
the annual report on remuneration for the year.
The Directors' remuneration policy was approved at the AGM of
the Company held on 10 June 2019. The substance of the policy has
not changed since the 2019 AGM. Full details of the existing
remuneration policy are set out of pages 29 to 34 of Zegona's 2018
Annual Report which is available on Zegona's website at
www.zegona.com.
The annual report on remuneration gives details on the amounts
earned in the year ended 31 December 2019 and how the Directors'
remuneration policy will be applied in 2020 and will be subject to
an advisory vote at the 2020 AGM.
Our remuneration philosophy is that executive remuneration
should be simple and transparent, support the delivery of the
business strategy and pay for performance.
In determining the level of pay and bonuses for the Executive
Directors, the Committee recognised that management had achieved
substantial progress in improving operational and strategic
performance at Euskaltel, that Eamonn O'Hare has not received a pay
rise since 2015, and that both Eamonn and Robert Samuelson waived
their 2018 bonus entitlement to help achieve a critical and
successful equity raise in January 2019. The Committee also noted
that a key element of their long-term incentive, the exercise of
their management shares, would not deliver value if exercised
today, nearly five years since they were first issued.
The Executive Directors met the majority of their indicators of
achievement in relation to the 2019 bonus objectives and Eamonn
O'Hare was rewarded with 94% and Robert Samuelson with 100% of
their maximum bonus opportunity of 100% of salary.
Although the Committee feels it is important to remunerate and
incentivise the Executive Directors through their basic pay,
benefits and annual bonus, the Committee 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 framework for the Executive
Directors and senior management is their Management Shares, which
were designed to provide ongoing remuneration in complete alignment
with shareholders and have been in place since before Zegona's IPO.
It is anticipated that the exercise of Management Shares could
result in management receiving ordinary shares, which could
potentially be a substantial amount.
The Management Shares are entitled to a return of 15% of the
growth in value(14) of Zegona since the date the ordinary shares
were first admitted to trading on the AIM Market of the London
Stock Exchange, subject to shareholders achieving a 5% preferred
return per annum on a compounded basis on their net invested
capital (the "Preferred Return"). The holders of Management Shares
may initially exercise their shares three to five years post the
acquisition of Telecable (the initial exercise period) and, even
though Zegona entered this initial exercise period on 14 August
2018, the Preferred Return was not achieved between this date and
31 December 2019 and therefore the Management Shares would have
delivered no value if they had been exercised in 2019 nor would
they have if they were exercised today.
The effects of Covid-19 on the global economy and stock market
were not fully apparent at the time that the Committee approved
basic salary increases and bonus payouts. The longer-term impact of
Covid-19 on Zegona and Euskaltel's likely performance remains
unknown. However, the Committee is taking steps to ensure that
payouts under the 2020 bonus scheme would not artificially benefit
from the fact that share prices are generally currently depressed
by the Covid-19 outbreak.
On behalf of the Nomination and Remuneration Committee
Richard Williams
Chairman of the Nomination and Remuneration Committee
13 May 2020
(14) Growth in value is calculated by deducting the aggregate
invested capital from the sum of Zegona's market capitalisation and
the aggregate of all dividends and capital returns made to Zegona's
shareholders.
Annual Report on Remuneration
In recognition of the fact that Robert Samuelson had received no
increase in base salary since 2015, the Committee awarded a 7%
increase to his base salary, effective from 1 January 2019. No
other changes have been made to Directors' base remuneration
throughout 2019.
It is not expected that there will be any significant change in
the way that the remuneration policy will be implemented in 2020 as
compared to how it has been implemented previously.
Effective from 1 January 2020, the Committee awarded an increase
of 12.6% to Eamonn O'Hare's base salary partly in recognition of
the fact that he had received no increase in base salary since
2015. The Committee also awarded an 11.7% increase to Robert
Samuelson's base salary which recognises his role in supporting
Euskaltel's partnership with Virgin and his ongoing contribution to
this aspect of Zegona's plan to create value from its investment in
Euskaltel. Both of these increases were effective from 1 January
2020.
The Committee believes the most effective approach is to award
bonuses at its discretion based on the Executive Directors'
performance in achieving objectives agreed with the Committee. The
overall framework for the Executive Directors' annual bonus
arrangements for 2020 will remain the same as in 2019, with a
maximum bonus opportunity of 100% of salary. The Committee has put
in place specific objectives to measure management's performance
against, which have been clearly communicated to the management
team. The Committee considers that the strategic performance
indicators they include are commercially sensitive so will disclose
the nature of those indicators on a retrospective basis.
If there are significant changes to the business during 2020,
for example due to a fundamental change in nature of the investment
in Euskaltel, the Committee will re-evaluate this methodology for
awarding bonuses. This will include, where appropriate, designing
different qualitative or quantitative criteria for the awarding of
bonuses (or a portion thereof) that properly reflect those changes
to the business. At all times, the Committee will seek to align
management remuneration to Zegona's strategy.
The following information provided in this part of the
Directors' Remuneration Report is subject to audit.
Total remuneration
All Directors have entered into service agreements with Zegona.
Remuneration of the Directors during the year under the terms of
their service agreements are detailed below.
Executive Directors
In the interests of clarity, since the Executive Directors'
salaries are set and paid in Sterling, the table has been presented
in both Sterling and euros (Zegona's presentational currency).
These tables only include remuneration received by the Executive
Directors in respect of their employment by Zegona. The fees
received from their appointments as proprietary directors of
Euskaltel are disclosed on page 38.
Executive Directors (Sterling)
------------------------------------------
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
---------------------- ------------------
2019 2018 2019 2018
GBP GBP GBP GBP
------------ -------- -------- --------
Fees/basic salary 500,000 500,000 375,000 350,000
Taxable benefits 22,024 21,321 21,321 21,321
Annual cash bonus 470,000 - 375,000 -
Pension contributions 100,000 100,000 75,000 70,000
Company health insurance
scheme 5,866 5,189 5,659 5,005
============ ======== ======== ========
Total 1,097,890 626,510 851,980 446,326
============ ======== ======== ========
Executive Directors (euros)
-----------------------------------------
Eamonn O'Hare Robert Samuelson
(Chairman & CEO) (COO)
--------------------- ------------------
2019 2018 2019 2018
EUR EUR EUR EUR
----------- -------- -------- --------
Fees/basic salary 570,174 565,015 427,631 395,511
Taxable benefits 25,115 24,093 24,313 24,093
Annual cash bonus 535,964 - 427,631 -
Pension contributions 114,035 113,003 85,526 79,102
Company health insurance
scheme 6,690 5,864 6,453 5,656
=========== ======== ======== ========
Total 1,251,978 707,975 971,554 504,362
=========== ======== ======== ========
Taxable benefits include car allowance and personal tax advice.
Pension contributions are made to the individual's private pension
arrangements or paid in lieu of such arrangements.
None of the Executive Directors' remuneration in 2019 was
attributable to share price growth. No discretion has been
exercised to determine remuneration as a result of either share
price appreciation or deprecation. Details on Zegona's management
incentive scheme (the value of which is based on share price but
would have delivered no value had it been exercised in 2019) are
provided on pages 82 and 83.
The Executive Directors met the majority of their indicators of
achievement in relation to the 2019 bonus objectives and Eamonn
O'Hare was rewarded with 94% and Robert Samuelson with 100% of
their maximum bonus opportunity of 100% of salary. This was
evaluated as follows:
Objective Weighting Result Award
---------------------- ----------- -------------------------------------------------------------- ------
Raise capital * Successfully completed an equity placing with gross
to increase proceeds in excess of GBP100 million and secured
Zegona's investment flexible financing facilities of a further GBP30
in Euskaltel 33% million. 100%
---------------------- ----------- -------------------------------------------------------------- ------
Increase Zegona's 33% 100%
influence in * Zegona successfully increased its investment in
Euskaltel Euskaltel, becoming the largest shareholder of
Euskaltel.
* Euskaltel Board now effectively driving a strategic
agenda consistent with Zegona's key strategic
initiatives.
* One additional Zegona proprietary director secured on
10 July 2019.
* José Miguel García appointed as CEO
ratified by Euskaltel's shareholders on 10 July 2019.
* Executive chairman replaced with a new Non-Executive
Chairman.
---------------------- ----------- -------------------------------------------------------------- ------
Evidence of 33% 82%
progress being * Euskaltel share price increased 32% in 2019,
made within considerably outperforming peers.
the Euskaltel
business
* Euskaltel published ambitious business plan for
2020-2025 containing all of Zegona's key strategic
initiatives and considerable progress made prior to
this, including reorganising the business to be more
effective and efficient.
* Improved operating and financial performance
delivered in the period following José Miguel's
appointment.
---------------------- ----------- -------------------------------------------------------------- ------
Bonus awarded (% of base salary) 94%
The Committee used its discretion to increase Robert Samuelson's
percentage award from 94% to 100% to reflect his strong personal
performance.
As context, the Executive Directors did meet several indicators
of achievement in relation to the 2018 bonus objectives, however
they waived their 2018 bonuses in order to maximise the cash raised
from the Placing.
The Committee believes the Directors' remuneration policy in
respect of Executive Directors operated as intended in terms of
Zegona's performance and quantum.
Non-Executive Directors
There is no element of the Non-Executive Directors' remuneration
that is linked to the performance of the business, with the
exception of Mark Brangstrup Watts (who resigned with effect from
12 May 2020) who holds a beneficial interest in the Core Investor
Shares as explained further in this report.
The remuneration of the Non-Executive Directors during the year
is detailed below. In the interests of clarity, since the
Non-Executive Directors' salaries are set and paid in Sterling, the
table has been presented in both Sterling and euros (Zegona's
presentational currency).
Non-Executive Directors fees(15)
---------------------------------------
2019 2018 2019 2018
GBP GBP EUR EUR
--------- -------- -------- --------
Mark Brangstrup
Watts 50,000 50,000 57,017 56,502
Murray Scott 50,000 50,000 57,017 56,502
Richard Williams 60,000 60,000 68,421 67,802
As hley Martin 60,000 60,000 68,421 67,802
========= ======== ======== ========
Total 220,000 220,000 250,876 248,608
========= ======== ======== ========
Incentive schemes
Through Zegona's incentive arrangements, the following shares
(collectively, the "Incentive Shares") have been issued in Zegona
Limited (a subsidiary of Zegona Communications plc):
-- A ordinary shares to management ("Management Shares"); and
-- B ordinary shares to the core investor ("Core Investor Shares").
On exercise, the value of the Managements Shares and Core
Investor Shares may be delivered either through the issue of
ordinary shares in Zegona Communications plc or in cash.
The incentive schemes entered their initial exercise period on
14 August 2018. As the Preferred Return was not achieved between
this date and 31 December 2019, the incentive schemes have not been
exercised and would have delivered no value if they had been
exercised in 2019.
Once the Preferred Return has been met, the participants in the
Management Shares are entitled to 15% of the growth in value of
Zegona and the participants in the Core Investor Shares are
entitled to 5% of the growth in value of Zegona, provided that
Zegona's ordinary shareholders have achieved a 5% Preferred Return
per annum on a compounded basis on their net invested capital.
To explain how the Incentive Shares operate, an illustration is
provided below of how much would be earned by the holders of the
Incentive Shares if they had exercised them on 31 December 2019.
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 GBP222.0 million was
less than the Preferred Return target of GBP271.3 million, the
holders of the Incentive Shares would not have received any
payment. At the same time, Zegona's Main Assets 16 were worth
GBP303.7 million but holders of the Incentive Shares cannot receive
any payments for this value until it is crystallised.
Net invested capital (17) 216,512,782
----------------------------------- ------------ ------------
Number of shares 221,935,177
Average share price18 1.0003
Deemed market capitalisation 221,999,446
----------------------------------- ------------ ------------
Growth in value per the incentive
scheme 5,486,664
Split between:
----------------------------------- ------------ ------------
Management Shares 15% -
----------------------------------- ------------ ------------
Core Investor Shares 5% -
----------------------------------- ------------ ------------
Ordinary Shares 80% 5,486,664
=================================== ============ ============
Net invested Preferred Return hurdle
capital 5% pa Preferred Return at 31 December 2019
(unadjusted) at 31 December 2019 GBP
GBP GBP
------------------------- ------------- ---------------------- -----------------------
Share issue - March
2015 30,000,000 37,885,824 7,885,824
Share issue - August
2015 256,567,440 317,703,823 61,136,383
Dividend - October
2016 (4,411,012) (5,174,570) (763,558)
Dividend - March 2017 (4,411,012) (5,069,750) (658,738)
Share buy-back - October
2017 (139,651,022) (155,538,230) (15,887,208)
Dividend - November
2017 (4,922,558) (5,479,595) (557,037)
Dividend - April 2018 (4,922,558) (5,359,872) (437,314)
Dividend - December
2018 (3,534,145) (3,722,942) (188,797)
Dividend - February
2019 (3,155,486) (3,296,688) (141,202)
Share issue - February
2019 100,501,514 104,956,065 4,454,551
Dividend - August 2019 (5,548,379) (5,650,829) (102,450)
============= ====================== =======================
216,512,782 271,253,236 54,740,454
Directors' interests in the incentive schemes
Eamonn O'Hare and Robert Samuelson hold 3,050 million and 1,525
million Management Shares. No Management Shares were awarded during
the year (2018: nil). The total Management Shares held by Directors
as at 31 December 2019 were as follows:
Participation
in growth Number of
in Management
value Shares Date of issue
-------------- --------------- --------------
23 January
Eamonn O'Hare 8.88% 3,050,000,000 2015
23 January
Robert Samuelson 4.44% 1,525,000,000 2015
Under the arrangements pursuant to which the Management Shares
were issued to Executive Directors, the Executive Directors are
entitled to keep their Management Shares for a period of time if
they are terminated, save if they are terminated for cause. The
time period is two exercise periods, save in the case of death or
permanent disability when it is until the end of the current
exercise period.
Mark Brangstrup Watts holds a beneficial interest in the Core
Investors Shares issued to Marwyn Long Term Incentive GP Limited as
General Partner to Marwyn Long Term Incentive LP on 23 January
2015. The award value of the Core Investors Shares at the time of
issue was GBP26,500.
Directors' interests in ordinary shares
The Committee intends to keep under consideration the need to
adopt formal guidelines in connection with the building of
shareholdings in Zegona by Executive Directors. During the year, no
such formal requirements or guidelines were adopted and the
Committee remains of the view that no such requirements or
guidelines are currently needed given that the Executive Directors
acquired ordinary shares in the Placing and their interests are
significantly aligned with shareholders through their participation
in the incentive scheme.
The Directors had the following beneficial interests in the
ordinary shares:
At 31 December 2019 At 31 December 2018
------------------ --------------------------- ---------------------------
Director Number of % of issued Number of % of issued
shares share capital shares share capital
------------------ ---------- --------------- ---------- ---------------
Eamonn O'Hare 2,032,185 0.92 1,365,519 1.08
Robert Samuelson 657,853 0.30 514,996 0.41
Murray Scott 66,147 0.03 32,147 0.03
Richard Williams 62,570 0.03 25,287 0.02
Ashley Martin 10,479 0.00 10,479 0.01
The following information provided in this part of the
Directors' Remuneration Report is not subject to audit.
Performance graph
The total shareholder return graph below shows the value as at
31 December 2019 of GBP100 invested on IPO on 19 March 2015,
compared with GBP100 invested in the OMSCI Europe/Communication
Telecom Services Index. The Committee considers this index to be
appropriate for the purposes of this comparison because it includes
mostly European telecommunications companies. The data shown below
assumes that all cash returns to shareholders made by Zegona
(including the share buyback following acceptance of the tender
offer during 2017) are immediately reinvested in ordinary
shares.
As discussed on page 8, since Zegona acquired its investment in
Euskaltel, the market value of Zegona's shares has typically been
less than the value per share of Zegona's Main Assets(19) . At 31
December 2019, the value of Zegona's Main Assets was worth the
equivalent of GBP1.37 per Zegona share (2018: GBP1.36). This value
was 26% higher than Zegona's share price on 31 December 2019 of
GBP1.09 (2018: 14% higher than Zegona's share price of
GBP1.19).
Chief Executive Officer (CEO) remuneration and relative
importance of spend on pay
The table below shows the total remuneration for the CEO (Eamonn
O'Hare) and his annual bonus as a percentage of the maximum that
could have been paid in respect of each financial year:
2019 2018 2017 2016 2015(20)
--------------------- ----------- --------- ----------- --------- ----------
Total remuneration
EUR 1,251,978 707,975 1,285,183 765,677 665,261
Annual bonus as
a percentage of
maximum opportunity 94% 0% 21 100% 0% 0%
The table below shows the salary, benefits and annual bonus for
the CEO and average of all of Zegona's employees (excluding
Non-Executive Directors):
2019 2018 Percentage
EUR000 EUR000 change
---------------------------------------- -------- -------- ------------
Chief Executive Officer
Salary 570 565 1%
Taxable benefits 25 24 4%
Annual bonus 536 - N/A
---------------------------------------- -------- -------- ------------
Average of all head office employees,
including Executive Directors
Salary 283 263 8%
Taxable benefits 13 13 0%
Annual bonus 258 30 760%
The table below shows the total pay for all of Zegona's head
office employees (as per the table above) compared to distributions
paid to shareholders:
2019 2018
EUR000 EUR000
--------------- -------- --------
Employee costs 3,610 2,116
Dividends paid 9,860 9,535
Service contract duration
Director Contract duration Notice period
---------------- ----------------- -------------
Eamonn O'Hare Unlimited 12 months
Robert Samuelson Unlimited 12 months
Murray Scott Unlimited* 6 months
Richard Williams Unlimited* 6 months
Ashley Martin Unlimited* 6 months
Kjersti Wiklund Unlimited* 6 months
Suzi Williams Unlimited* 6 months
* Under the terms of the service agreements, these appointments
are contingent on annual re-election by shareholders and completion
of the annual Board effectiveness review.
Other than payments for notice periods, the service agreements
contain no entitlements to termination payments. There are no malus
or clawback provisions in respect of base salary, pension
contributions or benefits, however, the Committee retains
discretion to apply such provisions in the case of any bonus award
paid to an Executive Director whose appointment is subsequently
terminated.
External appointments
Executive Directors are allowed to accept external appointments
with the consent of the Board as long as these are not likely to
lead to conflicts of interests or significant time commitments.
Executive Directors are allowed to retain the fees paid.
During 2019, Eamonn O'Hare earned and retained Non-Executive
Director fees in relation to his external appointments of
EUR193,767 and EUR40,000 in relation to his appointment as a
propriety director of Euskaltel.
During 2019, Robert Samuelson earned and retained EUR68,000 in
relation to his appointment as a proprietary director of
Euskaltel.
Reappointment
Under the terms of Zegona's Articles of Association, all
Directors will be proposed for re-election at the 2020 AGM except
Murray Scott and Mark Brangstrup Watts who will not be standing for
re-election. 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 following a change of
control
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 or Core Investor Shares pursuant to
the long-term incentive plan in force in respect of Zegona.
Statement of voting at general meeting
The following table sets out the voting in respect of the
resolutions to approve the Directors' Remuneration Report and the
Directors' Remuneration Policy at the 2019 AGM:
Votes cast Votes cast
Date of for the against
AGM resolution the resolution Votes withheld
--------------------------------- --------- ------------ ---------------- ---------------
Resolution to approve the
Directors' Remuneration Report
for the year ended 31 December 10 June
2018 2019 100.00% 0.00% -
Resolution to approve the 10 June
Directors' Remuneration Policy 2019 86.41% 13.59% 42,325,186
Richard Williams
Chairman of the Nomination and Remuneration Committee
13 May 2020
(15) The Non-Executive Directors have not received any other
form of remuneration during the current or prior year.
(16) The value of Zegona's main assets is the Sterling
equivalent of the fair value of Zegona's investment in Euskaltel
and its net cash position on 31 December 2019 as discussed on page
8.
(17) Calculated in accordance with Zegona Limited's Articles of
Association as the sum of Zegona Communications plc's subscription
proceeds minus dividends and capital returns.
(18) Calculated in accordance with Zegona Limited's Articles of
Association as the volume weighted average mid-market price of
Zegona Communications plc's ordinary shares for the previous 30
trading days to 31 December 2019.
(19) The v alue of Zegona's main assets is the Sterling
equivalent of the fair value of Zegona's investment in Euskaltel
and its net cash position as discussed on page 8.
(20) Period from incorporation on 19 January 2015 to 31 December
2015.
(21) Eamonn did meet several indicators of achievement in
relation to his 2018 bonus objectives, however Eamonn waived his
2018 bonus in order to maximise the cash raised from the
Placing.
GOVERNANCE | DIRECTORS' REPORT
Result
For the year ended 31 December 2019, Zegona's profit before tax
was EUR42.1 million (2018: EUR9.9 million). Other comprehensive
gain was EUR15.2 million (2018: loss of EUR2.5 million). Therefore,
the total comprehensive income for 2019 was EUR57.3 million (2018:
EUR7.4 million). Reviews of performance, likely future developments
and corporate responsibility are set out in the Strategic Report on
pages 1 to 15.
Dividends
Zegona declared an interim dividend, in lieu of a final dividend
for 2018, on 31 January 2019 at a rate of 2.5 pence per share,
totalling GBP3.2 million. The dividend was paid on 1 March
2019.
Zegona declared an interim dividend on 2 August 2019 at a rate
of 2.5 pence per share, totalling GBP5.5 million. The dividend was
paid on 6 September 2019.
Zegona declared a second interim dividend, in lieu of a final
dividend for 2019, on 6 February 2020 at a rate of 2.0p per share,
totaling GBP4.4 million. The dividend was paid on 6 March 2020.
Dividend resolution
A resolution to confirm, approve and ratify the second interim
dividend, in lieu of a final dividend for 2019, is proposed for the
2020 AGM. Future dividends will be considered by the Board on an
ongoing basis in accordance with Zegona's dividend policy.
Authority to make distributions in specie
At the general meeting on 22 September 2017, the shareholders
approved a resolution to permit the Board to satisfy the payment of
any dividends declared by Zegona wholly or partly by the
distribution of shares in Euskaltel or any successor entity of
Euskaltel, from time to time.
Events since the end of the financial year
On 7 January 2020, Zegona announced the commencement of a
buyback programme of its ordinary shares for an aggregate purchase
price of up to GBP10 million to run until the end of March 2020
(the "Buyback Programme"). Zegona's Board set a buyback policy that
allowed shares to be acquired at prices up to the Underlying Asset
Value Per Share (defined for any day as the value in Sterling on
the previous trading day of Zegona's investment in Euskaltel (using
the EUR/GBP FX rate on that day) and net cash balance divided by
the number of Zegona ordinary shares in issue). During the Buyback
Programme, which ended on 31 March 2020, Zegona purchased and
cancelled an aggregate of 2,442,447 shares for a total of
GBP2,461,592.
The rapid spread of Covid-19 has had an unprecedented global
impact on people's day-to-day lives, the economy in which they live
and has resulted in volatility on equity markets, with significant
declines seen globally. Zegona has reviewed its cash flow forecasts
and concluded that the going concern basis remains an appropriate
basis of preparation for these Financial Statements given the
likely cash flow impact on operations within the 12 months from the
date of signing this report.
Powers for the Company buying back its own shares
The shareholders have passed a resolution to authorise Zegona to
make market purchases of up to 10% of its current issued ordinary
share capital (within specified price parameters). A resolution to
renew this authority is proposed for the 2020 AGM. It is intended
that we will exercise this authority only if the Board considers
that it is in the best interests of Zegona at the time. Any shares
repurchased by Zegona may be held in treasury and subsequently
resold for cash, cancelled or used for employee share scheme
purposes.
Capital structure
At 31 December 2019, Zegona's capital structure was comprised of
221,935,177 ordinary shares. As a result of the Buyback Programme,
this was reduced to 219,492,730 ordinary shares at the date of
approval of this report. The holders of ordinary shares have the
right to receive notice of, attend and vote at all general
meetings. 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 Zegona Communications
plc entails or is concurrent with the winding up of its 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
and Core Investor Shares in Zegona Limited (as detailed in note 21
to the Financial Statements).
Significant agreements subject to change of control
provisions
Zegona Limited has issued Management Shares and Core Investor
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 and Core
Investor Shares can be exercised with their value being delivered
either through the issue of ordinary shares or in cash.
Substantial shareholders
At 31 December 2019 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 % of ordinary Shareholding % of ordinary
at 13 May share capital at 31 December share capital
2020 as at 13 2019 as at 31
May 2020 December
2019
------------------------------ ------------ -------------- --------------- --------------
Marwyn Asset Management
2 (2) 42,062,035 19.16 42,062,035 18.95
Artemis Investment Management 30,045,950 13.69 36,190,476 16.31
Fidelity Management &
Research 21,897,793 9.88 21,823,491 9.83
Canaccord Genuity Group
Inc 21,288,363 9.70 21,161,233 9.53
Fidelity Investments
Limited 20,212,172 9.21 19,671,737 8.86
Capital Research & Management
Company 17,749,724 8.09 17,695,044 7.97
Aberforth Partners LLP 13,616,013 6.20 N/A N/A
Chelverton Asset Management 11,250,000 5.13 N/A N/A
Invesco Asset Management N/A N/A 16,338,351 7.36
Legal & General Investment
Management N/A N/A 8,194,139 3.69
AXA Investment Managers N/A N/A 8,122,449 3.66
178,122,050 81.06 191,258,955 86.16
============ ============== =============== ==============
The percentage holdings at 13 May 2020 reflect the reduction in
shares in issue following the completion of the Buyback Programme
on 31 March 2020. During 2020, Invesco, Legal & General and
AXA's shareholdings fell below 3%.
Contracts of significance
Mark Brangstrup Watts is an ultimate beneficial owner of Axio.
Zegona entered into an agreement with Axio dated 19 December 2016
pursuant to which Axio provides certain company secretarial &
administration services and financial & accounting services.
Either party may terminate the agreement upon the giving of three
months' written notice. During 2019, services totalling EUR354,182
were received from Axio (2018: EUR598,027).
Mark Brangstrup Watts is a designated member of Marwyn Capital
LLP ("Marwyn"). Zegona entered into an agreement with Marwyn dated
14 March 2016 pursuant to which Marwyn provides office
accommodation, services and supplies. Either party may terminate
the agreement upon the giving of one month's written notice. During
2019, services totaling EUR68,717 were received from Marwyn (2018:
EUR68,095).
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 2020 AGM. KPMG has confirmed that it remains independent of
Zegona.
Disclosure of information to the auditor
Each of the persons who is a Director at the date of approval of
this report confirms that, so far as the Director is aware: there
is no relevant audit information of which Zegona's auditor is
unaware; and each Director has taken all the steps that he ought to
have taken as a Director in order to make himself aware of any
relevant audit information and to establish that Zegona's auditor
is aware of that information.
Statement of going concern
The Directors have considered all available information,
including specific consideration of forecast financial information,
about the possible future outcomes of events and changes of
conditions, and the realistically possible responses to such events
and conditions that are available to the Directors. The Board
considers that there are no material uncertainties affecting
Zegona's ability to continue in business or meet its liabilities as
they fall due for the next 12 months and therefore believes it is
appropriate to prepare the Financial Statements on the going
concern basis.
By order of the Board
Eamonn O'Hare
Chairman and Chief Executive Officer
13 May 2020
(22) Mark Brangstrup Watts is a Non-Executive Director of Marwyn
Asset Management Limited and was a Non-Executive Director of the
Company until 12 May 2020.
GOVERNANCE | DIRECTORS' RESPONSIBILITY STATEMENT
Statement of Directors' responsibilities
The Directors are responsible for preparing the Strategic
Report, Directors' Report, Directors' Remuneration Report,
Corporate Governance Report and the Zegona group and parent company
Financial Statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare group and parent
company financial statements for each financial year. Under that
law, they are required to prepare the Zegona group Financial
Statements in accordance with International Financial Reporting
Standards as adopted by the European Union ("EU IFRS") and
applicable law, and have elected to prepare the parent company
Financial Statements on the same basis.
Under company law, the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and parent company and of
their profit or loss for that period. In preparing each of the
group and parent company financial statements, the directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether they have been prepared in accordance with EU IFRS;
-- assess the group and parent company's ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern; and
-- use the going concern basis of accounting unless they either
intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company's transactions and disclose with reasonable accuracy at any
time the financial position of the parent company and enable them
to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
group and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- the Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the parent company and the undertakings included in the
consolidation taken as a whole;
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the Annual Report as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess Zegona's position and performance, business
model and strategy.
By order of the Board
Eamonn O'Hare
Chairman and Chief Executive Officer
13 May 2020
Robert Samuelson
Chief Operating Officer
13 May 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2019 2018
Notes EUR000 EUR000
Administrative and other operating expenses:
Corporate costs 5 (5,639) (3,922)
Significant project costs 6 (342) (822)
======= =======
Operating loss (5,981) (4,744)
Finance income 7 38,190 12,555
Finance costs 7 (674) (234)
Share of profit of associate 12 9,094 -
Net foreign exchange gains 1,427 2,371
======= =======
Profit for the year before income tax 42,056 9,948
Income tax expense 8 - (34)
======= =======
Profit for the year attributable to equity
holders of
the parent 42,056 9,914
EUR EUR
Earnings per share
Basic and diluted earnings per share
attributable to equity holders of the
parent 20 0.20 0.08
The notes on pages 59 to 85 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
2019 2018
EUR000 EUR000
Profit for the year 42,056 9,914
Other comprehensive income/(loss) - items that
will or may be reclassified subsequently to profit
or loss
Exchange differences on translation of foreign
operations 15,195 (2,485)
Total other comprehensive income/(loss) 15,195 (2,485)
Total comprehensive income for the year, net
of tax,
attributable to equity holders of the parent 57,251 7,429
====== =======
The notes on pages 59 to 85 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 As at 31
December December
2019 2018
Notes EUR000 EUR000
Assets
Non-current assets
Property, plant and equipment 2 2
Intangible assets - 1
Financial assets measured at fair value
through profit or loss 11 - 187,332
Interest in associate 12 334,343 -
========= =========
334,345 187,335
Current assets
Trade and other receivables 13 92 2,128
Financial assets measured at fair value
through profit or loss 14 3,997 4,826
Cash and cash equivalents 27,035 3,138
========= =========
31,124 10,092
========= =========
Total assets 365,469 197,427
========= =========
Equity and liabilities
Equity
Share capital 17 2,855 1,763
Other reserves 18 304,556 205,623
Share based payment reserve 18 105 105
Foreign currency translation reserve 18 11,819 (3,376)
Retained earnings/(deficit) 18 32,000 (10,056)
========= =========
Total equity attributable to equity
holders of the parent 351,335 194,059
Non-current liabilities
Bank borrowings 16 11,578 -
Current liabilities
Trade and other payables 15 2,556 3,368
Total liabilities 14,134 3,368
========= =========
Total equity and liabilities 365,469 197,427
========= =========
The notes on pages 59 to 85 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 13 May 2020 and were signed on its behalf by:
Eamonn O'Hare
Director
Robert Samuelson
Director
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 As at
December 31 December
2019 2018
Notes EUR000 EUR000
Assets
Non-current assets
Property, plant and equipment 2 2
Investment in subsidiaries 9 265,711 190,964
Interest in associate 31,736 -
========= =======================
297,449 190,966
Current assets
Trade and other receivables 13 110 2,144
Cash and cash equivalents 26,023 420
========= =======================
26,133 2,564
========= =======================
Total assets 323,582 193,530
========= =======================
Equity and liabilities
Equity
Share capital 17 2,855 1,763
Other reserves 18 304,556 205,623
Foreign currency translation reserve 18 (63,686) (77,020)
Retained earnings 18 52,186 55,159
========= =======================
Total equity attributable to equity
holders of the parent 295,911 185,525
Non-current liabilities
Bank borrowings 16 11,578 -
Current liabilities
Trade and other payables 15 16,093 8,005
Total liabilities 27,671 8,005
========= =======================
Total equity and liabilities 323,582 193,530
========= =======================
The notes on pages 59 to 85 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 13 May 2020 and were signed on its behalf by:
Eamonn O'Hare Robert Samuelson
Director Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Foreign
based currency Retained
Share Other payment translation (deficit)/ Total
capital reserves reserve reserve earnings equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1 January
2019 1,763 205,623 105 (3,376) (10,056) 194,059
Profit for the year - - - - 42,056 42,056
Other comprehensive
income - - - 15,195 - 15,195
Issue of shares,
net of directly
attributable costs 1,092 108,793 - - - 109,885
Dividends paid 18 - (9,860) - - - (9,860)
========= ========== ======== ============ ============ =======
Balance at 31 December
2019 2,855 304,556 105 11,819 32,000 351,335
========= ========== ======== ============ ============ =======
Share Foreign
based currency Retained
Share Other payment translation (deficit)/ Total
capital reserves reserve reserve earnings equity
Note EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1 January
2018 1,763 215,158 105 (891) (19,970) 196,165
Profit for the year - - - - 9,914 9,914
Other comprehensive
loss - - - (2,485) - (2,485)
Dividends paid 18 - (9,535) - - - (9,535)
========= ========== ======== ============ ============ =======
Balance at 31 December
2018 1,763 205,623 105 (3,376) (10,056) 194,059
========= ========== ======== ============ ============ =======
The notes on pages 59 to 85 form an integral part of these
Consolidated Financial Statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
Foreign
currency
Share Other translation Retained Total
capital reserves reserve earnings equity
Note EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1 January
2019 1,763 205,623 (77,020) 55,159 185,525
Loss for the year - - - (2,973) (2,973)
Other comprehensive
income - - 13,334 - 13,334
Issue of shares, net
of directly attributable
costs 1,092 108,793 - - 109,885
Dividends paid 18 - (9,860) - - (9,860)
======== ========= ============ ========= =======
Balance at 31 December
2019 2,855 304,556 (63,686) 52,186 295,911
======== ========= ============ ========= =======
Foreign
currency
Share Other translation Retained Total
capital reserves reserve earnings equity
Note EUR000 EUR000 EUR000 EUR000 EUR000
Balance at 1 January
2018 1,763 215,158 (74,732) 44,567 186,756
Profit for the year - - - 10,592 10,592
Other comprehensive
loss - - (2,288) - (2,288)
Dividends paid 18 - (9,535) - - (9,535)
======== ========= ============ ========= =======
Balance at 31 December
2018 1,763 205,623 (77,020) 55,159 185,525
======== ========= ============ ========= =======
The notes on pages 59 to 85 form an integral part of these
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
2019 2018
Note EUR000 EUR000
Operating activities
Profit before income tax 42,056 9,948
Adjustments to reconcile profit before
income tax to operating cash flows:
Depreciation of property, plant and equipment 1 2
Share of profit in associate (9,094) -
Net foreign exchange gains (1,427) (2,371)
Finance income 7 (38,190) (12,555)
Finance costs 7 674 234
Working capital adjustments:
Decrease/(increase) in trade and other
receivables 2,036 (1,671)
(Decrease)/increase in trade and other
payables (887) 897
Interest received 45 13
Interest paid (427) -
Net cash flows used in operating activities (5,213) (5,503)
========== ========
Investing activities
Purchase of property, plant and equipment (1) -
Repayment of loans receivable 12 - 616
Dividends received 7 10,236 7,450
Purchases of non-current financial assets
measured at fair value through profit (92,798) -
or loss and of interest in associate
Proceeds from current financial assets
measured at fair value through profit
or loss 981 -
========== ========
Net cash flows (used in)/from investing
activities (81,582) 8,066
========== ========
Financing activities
Dividends paid to shareholders 18 (9,860) (9,535)
Net proceeds from loans and borrowings 16 10,980 -
Proceeds from issue of shares, net of
directly attributable costs 109,885 -
Net cash flows from/(used in) financing
activities 111,005 (9,535)
========== ========
Net increase/(decrease) in cash and cash
equivalents 24,210 (6,972)
Net foreign exchange difference (313) (114)
Cash and cash equivalents at the beginning
of the year 3,138 10,224
========== ========
Cash and cash equivalents at the end
of the year 27,035 3,138
========== ========
The notes on pages 59 to 85 form an integral part of these
Consolidated Financial Statements.
COMPANY STATEMENT OF CASH FLOWS
2019 2018
Note EUR000 EUR000
Operating activities
(Loss)/ profit before income tax (2,973) 10,592
Adjustments to reconcile profit before
income tax to operating cash flows:
Depreciation of property, plant & equipment 1 2
Share of profit in associate (793) -
Net foreign exchange gains/(losses) 1,520 (6)
Finance income (346) (9)
Finance costs 674 -
Working capital adjustments:
Decrease/(increase) in trade and other
receivables 2,034 (1,711)
Increase in trade and other payables 8,013 609
Interest received 45 9
Interest paid (427) -
========== =======
Net cash flows from operating activities 7,748 9,486
========== =======
Investing activities
Purchase of property, plant and equipment (1) -
Dividends received 492 -
Purchases of non-current financial assets
measured at fair value through profit (92,798) -
or loss and of interest in associate
Net cash flows used in investing activities (92,307) -
========== =======
Financing activities
Dividends paid to shareholders 18 (9,860) (9,535)
Net proceeds from loans and borrowings 10,980 -
Proceeds from issue of shares, net of
directly attributable costs 109,885 -
Net cash flows from/(used in) financing
activities 111,005 (9,535)
========== =======
Net increase/(decrease) in cash and cash
equivalents 26,446 (49)
Net foreign exchange difference (843) 47
Cash and cash equivalents at the beginning
of the year 420 422
========== =======
Cash and cash equivalents at the end of
the year 26,023 420
========== =======
The notes on pages 59 to 85 form an integral part of these
Consolidated Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
The consolidated financial statements of Zegona Communications
plc (the "Company") and its subsidiaries (collectively, "Zegona")
for the year ended 31 December 2019 (the "Consolidated Financial
Statements") were authorised for issue in accordance with a
resolution of the Directors on 13 May 2020. The Company was
incorporated and is domiciled in England and Wales and has its
registered office at 20 Buckingham Street, London, WC2N 6EF.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
Zegona's Annual Report will be posted to shareholders on 14 May
2020. The financial information set out in this document does not
constitute Zegona's statutory accounts for the years ended 31
December 2019 or 2018 but is derived from those accounts. Statutory
accounts for 2018 have been delivered to the registrar of
companies, and those for 2019 will be delivered in due course,
following the Company's Annual General Meeting, which will be held
at 12:00 p.m. on 9 June 2020. The auditor has reported on those
accounts; its reports were: (i) unqualified; (ii) did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report; and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
The Company and Consolidated Financial Statements for the year
ended 31 December 2019 have been prepared in accordance with
International Financial Reporting Standards and IFRS
Interpretations Committee interpretations as adopted by the
European Union (collectively, "IFRS"), and with those parts of the
Companies Act 2006 as applicable to companies reporting under
IFRS.
The Company Financial Statements present information about the
Company as a separate entity and not about its group. The Company
is taking advantage of the exemption in section 408 of the
Companies Act 2006 not to present its individual statement of
comprehensive income and related notes that form a part of the
Company Financial Statements.
The Consolidated Financial Statements include the results of all
subsidiaries wholly owned by the Company as listed in note 9.
Certain of these subsidiaries, which are listed below, have taken
the exemption from preparing individual accounts for the year ended
31 December 2019 by virtue of section 394A of Companies Act 2006.
In order to allow these subsidiaries to take the exemption, the
Company has given a statutory guarantee of all these companies'
outstanding liabilities as at 31 December 2019:
-- Zegona Spanish Holdco Limited (Registered Number: 10159232)
-- Zegona Borrower Limited (Registered Number: 10159347)
-- Zegona Holdco Limited (Registered Number: 10159604).
The Consolidated Financial Statements and the Company Financial
Statements have been prepared under the historical cost convention
except for certain financial assets that have been measured at fair
value, as disclosed in note 11. The functional currency of the
Company is British pounds sterling ("Sterling" or GBP). The
Directors have chosen to present the Consolidated Financial
Statements and the Company Financial Statements in euros (EUR). All
values are rounded to the nearest thousand (EUR000) except where
otherwise indicated.
The principal accounting policies adopted in the preparation of
the Consolidated Financial Statements are set out below. The
policies have been consistently applied throughout the years
presented.
(b) Going concern
The Consolidated Financial Statements have been prepared on the
going concern basis, which the directors consider to be appropriate
for the following reasons.
Zegona meets its day to day working capital requirements from
cash balances and bank facilities (see note 16. While the Directors
are yet to enter into negotiations to replace or renew certain of
those facilities that mature in January 2021, the Directors are
confident that replacement facilities will continue to be available
or that any amounts drawn on those facilities could be repaid if
needed.
The Directors have prepared cash flow forecasts for a period of
12 months from the date of approval of these Financial Statements
which indicate that, taking account of reasonably possible
downsides, including possible impacts of the Covid-19 outbreak,
Zegona will have sufficient funds to meet its liabilities as they
fall due for that period .
In addition , Euskaltel, Zegona's associate, has indicated that
the impact of Covid-19 on its operations and financial performance
has been relatively limited, and the Zegona is not dependent on
receiving cash inflows from Euskaltel to meet its liabilities.
As at 13 May 2020, the date that these Consolidated Financial
Statements were authorised for issue, Zegona has in excess of
EUR20.8 million of cash, greater than its total liabilities at that
date.
Key factors that have been taken into account in making the
going concern determination are provided in the longer term
viability statement on pages 11 to 13.
(c) New standards and amendments to IFRS
Standards, amendments and interpretations effective and adopted
by Zegona:
The accounting policies adopted in the presentation of the
Consolidated Financial Statements reflect the adoption of the
following amendments for annual periods beginning on or after 1
January 2019, none of which had a material effect on Zegona.
Standard Effective date
IFRS 16 Leases 1 January 2019
IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019
Amendments to IAS 28: Long-term Interests in 1 January 2019
Associates and Joint Ventures
Following adoption of IFRS 16 Leases, Zegona has taken the
exemption contained under IFRS 16 to not apply IFRS 16 requirements
to any of its leases as these leases are short-term in nature (less
than 12 months) or low in value.
Standards, amendments and interpretations not yet adopted:
Zegona intends to adopt the following standards, amendments and
interpretations, if applicable, when they become effective.
Adopting these standards will not have a material impact on
Zegona.
Standard Effective date
Amendments to References to the Conceptual 1 January 2020
Framework in IFRS Standards
Amendments to IAS 1 and IAS 8: Definition of 1 January 2020
Material
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest 1 January 2020
Rate Benchmark Reform
Amendments to IFRS 3 Business Combinations 1 January 2020*
Amendments to IAS 1 Presentation of Financial 1 January 2022*
Statements: Classification of Liabilities as
Current or Non-current
* subject to EU endorsement
(d) Basis of consolidation
Subsidiaries are entities controlled by the Company, either
directly or indirectly. Control exists when the Company is exposed
to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its
power over the entity. The financial information of subsidiaries is
included in the Consolidated Financial Statements from the date
that control commences until the date that control ceases.
Intragroup balances, any gains and losses or income and expenses
arising from intragroup transactions, and intragroup cash flows are
eliminated on consolidation.
(e) Interests in associates
An associate is an entity over which Zegona has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee, but is
not control or joint control over those policies. Zegona evaluates
the extent to which it has significant influence in investees on a
case-by-case basis, considering all relevant facts and
circumstances. Evaluations are updated when there any changes in
those facts and circumstances. These evaluations are often subject
to significant judgement and the key judgements and considerations
underlying material evaluations are more fully discussed in note
3.
Zegona classifies investments in entities over which it has
significant influence as associates and accounts for them using the
equity method. Under the equity method, the investment in an
associate is initially recognised at cost. The carrying amount of
the investment is increased or decreased to recognise changes in
Zegona's share of the profit or loss of the investee after the date
of acquisition. Goodwill relating to the associate is included in
the carrying amount of the investment and is not tested for
impairment separately.
The Consolidated Statement of Comprehensive Income reflects
Zegona's share of the results of operations of the associate. Any
change in other comprehensive income ("OCI") of those investees is
presented as part of Zegona's OCI.
Investments in associates are assessed at each reporting period
date and tested for impairment when there is an indication that the
recoverable amount has fallen below the carrying value of the
investment; i.e. that the investment may be impaired. Impairment
losses are recognised within 'Share of profit of associate' in the
consolidated statement of comprehensive income.
(f) Foreign currencies
Foreign currency transactions
Sterling is the functional currency of the Company. Transactions
in foreign currencies are recorded at the rates of exchange ruling
at the transaction dates.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates of
exchange at the reporting date. Differences arising on settlement
or translation of monetary items are recognised in the Statement of
Comprehensive Income.
Non-monetary items denominated in foreign currencies at the
functional currency spot rates of exchange at each reporting
date.
Foreign operations
The euro is the presentation currency of the Consolidated
Financial Statements. For the purpose of presenting the
Consolidated Financial Statements, the assets and liabilities of
Zegona's non euro-denominated functional entities are translated at
exchange rates prevailing on the balance sheet date. Income and
expense items are translated at the average exchange rates for the
period.
Currency translation adjustments arising on the restatement of
opening net assets of Zegona's non-euro denominated functional
entities, together with differences between the entities' results
translated at average rates versus closing rates, are recognised in
the Statement of Other Comprehensive income and transferred to the
foreign currency translation reserve. All resulting exchange
differences are classified as equity until disposal of the
subsidiary. On disposal, the cumulative amounts of the exchange
differences are recognised as income or expense.
(g) Revenue and expenses
Finance income
Interest income from financial assets is recognised using the
effective interest method as finance income in the consolidated
statement of comprehensive income.
Dividend income from financial assets is recognised as finance
income in the Consolidated Statement of Comprehensive Income when
Zegona's right to receive the payment is established, which for
listed securities is when the shares are quoted ex-dividend, and
are presented gross of any non-recoverable withholding taxes.
Gains or losses on financial instruments measured at fair value
through profit or loss comprise the net change in fair value,
excluding interest or dividend income.
(h) Administrative and other operating expenses
Administrative and other operating expenses are recognised on an
accruals basis, i.e. when the actual flow of the services they
represent occurs, regardless of when the resulting monetary or
financial flow arises.
Significant project costs are those incurred on projects that
are considered to be one-off or non-recurring in nature, where the
costs are so material individually or collectively that the
Directors believe that they require separate presentation and
disclosure to avoid distortion of the comparability of corporate
costs between periods. These are recognised on an accruals basis
and expensed in the statement of comprehensive income unless they
are directly related to the issuance of equity instruments in which
case they are recognised as a deduction from equity. If qualifying
transaction costs are incurred in anticipation of, and directly
related to, the issuance of equity instruments and span more than
one reporting period, they are deferred until equity instruments
are recognised. If the equity instruments are not subsequently
issued, the costs are expensed.
(i) Fair value measurement
Zegona measures certain financial instruments at fair value at
each balance sheet date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place
either:
-- In the principal market for the asset or liability; or
-- In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible
by Zegona.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest. Zegona uses valuation techniques that are
appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximising the use of relevant
observable inputs and minimising the use of unobservable
inputs.
All assets and liabilities for which fair value is measured or
disclosed in the Financial Statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a
whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the Financial
Statements at fair value on a recurring basis, Zegona determines
whether transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
(j) Financial instruments - initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at fair value through profit or loss
("FVPL"), amortised cost, or fair value through other comprehensive
income ("FVOCI").
The classification of a financial asset at initial recognition
depends on the financial asset's contractual cash flow
characteristics and Zegona's business model for managing it. In
order for a financial asset to be classified and measured at
amortised cost or FVOCI, it needs to give rise to cash flows that
are 'solely payments of principal and interest' on the principal
amount outstanding (the "SPPI Criterion").
Financial assets are initially recognised at their fair value
plus, for those financial assets not at fair value through profit
or loss, transaction costs.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the market place (regular way trades) are recognised on the
settlement date, being the date that an asset is delivered to or by
Zegona.
Subsequent measurement
Zegona's financial assets are classified into categories:
-- Financial assets at amortised cost comprise assets that are
held within a business model with the objective to hold the
financial assets in order to collect contractual cash flows that
meet the SPPI Criterion. These assets are subsequently measured at
amortised cost using the effective interest method. The amortised
cost is reduced by impairment losses. Interest income, foreign
exchange gains and losses and impairment losses are recognised in
the statement of comprehensive income. Any gain or loss on
derecognition is recognised in the statement of comprehensive
income.
-- Financial assets at FVPL comprise quoted equity instruments
which Zegona had not irrevocably elected, upon initial recognition,
to classify at FVOCI and debt instruments whose cash flow
characteristics fail the SPPI Criterion. These assets are carried
in the Statement of Financial Position at fair value with net
changes in fair value recognised as either finance income or
finance costs in the statement of comprehensive income.
Derecognition
A financial asset is primarily derecognised and removed from the
Statement of Financial Position when:
-- the rights to receive cash flows from the asset have expired; or
-- Zegona has transferred its rights to receive cash flows from
the asset or has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a
'pass-through' arrangement; and either (a) Zegona has transferred
substantially all the risks and rewards of the asset, or (b) Zegona
has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the
asset.
When Zegona has transferred its rights to receive cash flows
from an asset or has entered into a pass-through arrangement, it
evaluates if, and to what extent, it has retained the risks and
rewards of ownership. When it has neither transferred nor retained
substantially all of the risks and rewards of the asset, nor
transferred control of the asset, Zegona continues to recognise the
transferred asset to the extent of its continuing involvement and
also recognises an associated liability. The transferred asset and
the associated liability are measured on a basis that reflects the
rights and obligations that Zegona has retained.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
Subsequent measurement
Financial liabilities are subsequently measured at amortised
cost and in the case of interest-bearing financial liabilities at
amortised cost using the effective interest rate method. Gains and
losses are recognised in the Statement of Comprehensive Income when
the liabilities are derecognised.
Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference is
the respective carrying amounts is recognised in the consolidated
statement of comprehensive income.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount is reported in the Statement of Financial Position if
there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis to realise the assets and settle the liabilities
simultaneously.
(k) Impairment of financial assets
For trade receivables, Zegona applies a simplified approach in
calculating expected credit losses ("ECLs") and recognises a loss
allowance based on lifetime ECLs at each reporting date using
Zegona's historical credit loss experience, adjusted for
forward-looking factors specific to the debtors and the economic
environment.
A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows.
(l) Property, plant and equipment
Property, plant and equipment is measured initially at
acquisition cost and subsequently carried net of any accumulated
depreciation and any impairment losses.
The costs of upkeep and maintenance of property, plant and
equipment are charged to the administrative and other operating
expenses in the statement of comprehensive income in the year in
which they are incurred.
Replacements or renewals are recorded as an addition to
property, plant and equipment and the units replaced or renewed are
derecognised.
Property, plant and equipment in operation is depreciated
systematically on the basis of the estimated useful life of the
items, and the cost of the assets is distributed on a straight-line
basis over the estimated useful lives, which for fixtures and
fittings, which comprises computer hardware, is 3 years.
Derecognition of property, plant and equipment
Items of property, plant and equipment are derecognised when
they are sold or when no future economic benefit is expected to be
obtained from their continuing use. The gain or loss arising on the
disposal or derecognition of an item of property, plant and
equipment is determined as the difference between the proceeds from
the sale and the carrying amount of the asset, and is recognised in
the consolidated statement of comprehensive income.
(m) Leases
Zegona assesses at contract inception whether a contract is, or
contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
Zegona only has short-term leases (i.e., those leases that have
a lease term of 12 months or less from the commencement date and do
not contain a purchase option) or leases of office equipment that
are considered to be low value. Lease payments on short-term leases
and leases of low-value assets are recognised as expense on a
straight-line basis over the lease term.
(n) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with an original maturity of three months or less.
(o) Investments in subsidiaries
Investments in subsidiaries within the Company's separate
Statement of Financial Position are stated at cost.
At the end of each reporting year, or whenever there are
indications of impairment, the Company tests its investments in
subsidiaries for impairment to determine whether their recoverable
amount has fallen below their carrying amount. The recoverable
amount is the greater of fair value less costs to sell and value in
use. An impairment loss is recognised when the carrying amount
exceeds the recoverable amount.
Value in use is the present value of expected future cash flows,
calculated using a risk-free market rate of interest, adjusted for
the risks specific to the asset.
Where an impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate of its
recoverable amount; however, the increased carrying amount may not
exceed the carrying amount that would have been determined had no
impairment loss been recognised in previous years. This reversal of
an impairment loss is recognised as income.
The Company makes appropriate provision when the recoverable
value is less than the carrying amount, provided the latter cannot
be recovered by generating sufficient income to cover all the costs
and expenses incurred by usage of the asset.
(p) Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares are shown in other
reserves as a deduction from the initial measurement of the equity
instrument.
(q) Dividends payable
The Company recognises a liability to pay a dividend when the
distribution is authorised and the distribution is no longer at the
discretion of the Company. A corresponding amount is recognised
directly in equity.
(r) Corporation tax
Corporation tax represents the sum of current and deferred tax
for the year.
Current tax is the expected tax payable on the taxable income
for the year. Taxable profit differs from profit reported in the
consolidated statement of comprehensive income because some items
of income and expense are taxable or deductible in different years,
or may never be taxable or deductible. Zegona's current tax is
calculated using tax rates enacted or substantially enacted at the
balance sheet date, and any adjustment to taxes payable in respect
of previous periods.
Deferred tax is the tax expected to be payable or recoverable in
the future arising from temporary differences between the carrying
amounts of assets and liabilities in the Financial Statements and
the corresponding tax bases used in the computation of taxable
profit. It is accounted for using the balance sheet liability
method.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax
benefit will be realised.
Deferred tax is calculated on the tax rates that are expected to
apply in the year when the liability is settled or the asset
realised, based on tax rates that have been enacted or
substantively enacted by the year end date, and is not
discounted.
(s) Pension benefits
Zegona pays contributions to externally administered pension
plans on behalf of employees, or the equivalent contribution is
paid in cash to the employee. Zegona has no further payment
obligations once the contributions have been paid. The
contributions are recognised as an expense on the accruals
basis.
(t) Profit per ordinary share
Basic earnings per share ("EPS") is calculated by dividing the
profit or loss attributable to ordinary shareholders of the Company
by the weighted average number of ordinary shares outstanding
during the year.
Diluted EPS is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all
potentially dilutive ordinary shares.
(u) Share based transactions
Equity-settled share based payments are measured at the fair
value of the equity instruments at the grant date. The fair value
is expensed through administrative and other operating expenses,
with a corresponding increase in equity through the share based
payment reserve, on a straight-line basis over the period that the
employees or others providing similar services become
unconditionally entitled to the awards.
The dilutive effect of outstanding share based payments is
reflected as share dilution in the computation of diluted EPS.
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the Consolidated Financial Statements under
IFRS requires the Directors to use estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors including expectations
of future events that are believed to be reasonable under the
circumstances. In view of the inherent uncertainties and the high
level of subjectivity involved in the recognition or measurement of
items outlined below, it is possible that the outcomes in the next
financial year could differ from those on which management's
estimates are based. This could result in materially different
estimates and judgement from those reached by management for the
purpose of these Consolidated Financial Statements.
The main accounting estimates and judgements used by the
Directors in applying the accounting policies of Zegona that had
the greatest impact on the Consolidated Financial Statements in the
current year are:
Accounting estimates
-- The fair value remeasurement of the contingent consideration
receivable . As there is no observable market data for the
valuation of the contingent consideration receivable, the
measurement methodology of the fair value is highly judgemental.
The main estimates and assumptions used in determining the EUR4.0
million fair value of the contingent consideration on the basis of
significant unobservable inputs are detailed in note 14.
-- The fair value measurement of Euskaltel's identifiable asset
and liabilities at 10 July 2019. On classification as an associate,
and when making subsequent purchases of Euskaltel shares, Zegona
has measured Euskaltel's identifiable assets and liabilities at
fair value, with the amortisation and depreciation of these fair
valued assets and liabilities being included in Zegona's share of
Euskaltel's profit. The key assumptions used in the calculations
and the sensitivity analysis that shows the changes in key
assumptions that would impact Zegona's Statement of Financial
Position and Statement of Comprehensive Income as at 31 December
2019 and for the period ended 31 December 2019 are described in
note 12.
Accounting judgements
-- The classification of the investment of Euskaltel . IAS 28
Investments in Associates and Joint Ventures ("IAS 28") requires
that entities should apply the equity method of accounting for
investments where they have significant influence in the investee.
IAS 28 defines significant influence as "the power to participate
in an entity's financial and operating policy decisions". Further,
IAS 28 includes a rebuttable presumption that if an entity holds,
directly or indirectly, 20% or more of the voting power then the
entity has significant influence unless it can be clearly
demonstrated that this is not the case.
In prior years, it was determined that, for a number of reasons,
Zegona's ability to contribute to Euskaltel's Board and committees
did not confer the power to participate in Euskaltel's financial
and operating policy decisions and therefore the criteria for
equity accounting within IAS 28 were not met. Zegona therefore
accounted for its investment in Euskaltel as a financial asset.
During 2019, however, there were a number of developments that
required Zegona to reassess this conclusion and make significant
judgements about whether it had gained significant influence and,
if so, when.
Firstly, in accordance with the Spanish disclosure framework for
significant investments, Zegona together with Talomon, with which
Zegona was acting in concert, announced that it had increased its
investment in Euskaltel to more than 20% on 3 April 2019. On 6 May
2019, Zegona held more than 20% of Euskaltel by itself. Zegona
considered the presumption in IAS 28 that a 20% investment
automatically gives significant influence. Zegona concluded that it
could be clearly demonstrated that the larger shareholding did not
give it significant influence, primarily since the additional
shareholding gave Zegona no additional rights or entitlements and
did not resolve any of the underlying issues that had previously
led it to conclude that its ability to contribute to Euskaltel's
Board and committees did not confer the power to participate in
Euskaltel's financial and operating policy decisions. Zegona
therefore concluded that the presumption in IAS 28 should be
rebutted and the investment in Euskaltel should continue to be
accounted for as a financial asset until there were any
developments that would require the assessment to be revisited.
Subsequently, during the second half of 2019, Zegona re-assessed
whether it had significant influence over Euskaltel in response to
a number of developments at Euskaltel over a period of several
months. These developments included the appointment and
ratification by shareholders on 10 July 2019 of two Zegona
executives to Euskaltel's Board, Zegona's CEO Eamonn O'Hare and
Zegona's COO Robert Samuelson, the ratification of José Miguel
García as Euskaltel's CEO and the appointment of Xabier Iturbe as
Euskaltel's non-executive Chairman, as well as developments in the
Euskaltel business and management's engagement with the Board.
Zegona concluded that one, or a combination, of these developments
had finally resolved the underlying issues that had previously led
it to determine that that the ability to contribute to Euskaltel's
Board and Committees did not confer the power to participate in
Euskaltel's financial and operating policy decisions. As a result,
Zegona concluded that it gained significant influence in Euskaltel
during this period, with the key event that enabled this being the
formal ratification by shareholders of two Zegona executives to
Euskaltel's Board and José Miguel García as CEO on 10 July 2019.
Accordingly, Zegona has recognised the investment in Euskaltel as
an associate using the equity method from this date.
The impact on Zegona's Financial Statements, had Euskaltel been
classified as an associate on 3 April 2019 or 6 May 2019 rather
than 10 July 2019, would not have been materially different.
-- Impairment considerations at the end of each reporting period
. Reviews of indicators of impairment and impairment assessments of
our investments in associates and subsidiaries are judgmental, in
particular for assets where a readily available market does not
exist. In the case of Zegona's associate, Zegona has used a range
of external sources of information to conclude that no indicators
of impairment exist at 31 December 2019. The most important source
was Euskaltel's quoted share price and market capitalisation at 31
December 2019, but other sources included analysts' reports on
Euskaltel and the telecommunications market in Spain and other
public information on Euskaltel such as its business plans, results
and other public announcements.
4. SEGMENTAL ANALYSIS
For management purposes, Zegona is currently organised into two
segments:
(i) investment in Euskaltel, which comprises Zegona's share of
the profit of Euskaltel (and dividend income and the movements in
fair value of the investment prior to recognising Euskaltel as an
associate); and
(ii) central costs, which comprises costs incurred in supporting Zegona's corporate activities.
The results of each segment are reported to the Board which is
considered to be the chief operating decision maker. The
information presented to the Board does not include a detailed
analysis of the assets and liabilities of each segment and as such
this information has not been included in the information on
reportable segments set out below.
For the year ended 31 December 2019
Investment Central
in Euskaltel costs Consolidated
2019 2019 2019
EUR000 EUR000 EUR000
Depreciation and amortisation - (1) (1)
Other operating expenses - (5,980) (5,980)
=============== ======= ============
Operating loss - (5,981) (5,981)
Finance income 37,993 197 38,190
Finance costs - (674) (674)
Share of profit of associate 9,094 - 9,094
Net foreign exchange gains - 1,427 1,427
=============== ======= ============
Profit/(loss) before tax 47,087 (5,031) 42,056
Income tax - - -
=============== ======= ============
Profit/(loss) for the year 47,087 (5,031) 42,056
=============== ======= ============
Cash flows
Net cash used in operating activities - (5,213) (5,213)
Net cash (used in)/from investing
activities (82,562) 980 (81,582)
Net cash from financing activities - 111,005 111,005
=============== ======= ============
Net cash flow (82,562) 106,772 24,210
=============== ======= ============
For the year ended 31 December 2018
Investment Central
in Euskaltel costs Consolidated
2018 2018 2018
EUR000 EUR000 EUR000
Depreciation and amortisation - (2) (2)
Other operating expenses - (4,742) (4,742)
=============== ======== ============
Operating loss - (4,744) (4,744)
Finance income 12,542 13 12,555
Finance costs - (234) (234)
Net foreign exchange gains - 2,371 2,371
=============== ======== ============
Profit/(loss) before tax 12,542 (2,594) 9,948
Income tax - (34) (34)
=============== ======== ============
Profit/(loss) for the year 12,542 (2,628) 9,914
=============== ======== ============
Cash flows
Net cash used in operating activities - (5,503) (5,503)
Net cash from investing activities 7,450 616 8,066
Net cash used in financing activities - (9,535) (9,535)
=============== ======== ============
Net cash flow 7,450 (14,422) (6,972)
=============== ======== ============
5. ADMINISTRATIVE AND OTHER OPERATING EXPENSES - CORPORATE COSTS
Consolidated Consolidated
2019 2018
EUR000 EUR000
Salaries, bonuses and staff benefits 3,610 2,138
Employment related taxes 504 297
Pension costs 268 252
Other operating expenses 1,257 1,235
Corporate costs 5,639 3,922
============ ============
Staff numbers
The average number of employees (including Executive Directors
but excluding Non-Executive Directors) during the year by activity
was as follows:
Consolidated Consolidated
2019 2018
Operations 5 9
Administration 1 1
============ ============
6 10
============ ============
6. ADMINISTRATIVE AND OTHER OPERATING EXPENSES - SIGNIFICANT PROJECT COSTS
Significant project costs are those incurred on projects that
are considered to be one-off or non-recurring in nature, where the
costs are so material individually or collectively that the
Directors believe that they require separate presentation and
disclosure to avoid distortion of the comparability of corporate
costs between periods. The classification of projects as
significant is subjective in nature and therefore judgement is
required in its determination and is a matter of qualitative
assessment. Significant projects are usually related to
acquisition, disposal or joint venture transactions where
incremental and identifiable external costs are incurred by Zegona
in order to make or evaluate the potential transaction, even if it
is not consummated.
In 2019, EUR0.3 million (2018: EUR0.8 million) of significant
project costs were principally professional fees related to
projects related to increasing Zegona's investment in
Euskaltel.
7. FINANCE INCOME AND COSTS
Note Consolidated Consolidated
2019 2018
EUR000 EUR000
Dividend income 10,236 7,450
Gain on fair value of investment in Euskaltel 11 27,756 5,092
Gain on fair value of contingent consideration 13 152 -
Interest on loans and receivables - 10
Bank interest 46 3
Finance income 38,190 12,555
============ ============
Loss on fair value of contingent consideration 13 - (234)
Interest on bank borrowings (674) -
============ ============
Finance costs (674) (234)
============ ============
Dividend income
Dividend income relates to dividends received from the
investment in Euskaltel prior to 10 July 2019, when it was
recognised as an associate.
8. TAXATION
Consolidated Consolidated
2019 2018
EUR000 EUR000
Current tax expense
Current year - 34
============ ============
Income tax expense for the year - 34
============ ============
Zegona believes that its accruals for tax liabilities are
adequate for all open tax years based on its assessments of many
factors, including interpretations of tax law and prior experience.
The normal UK statute of limitations is four years from the end of
the accounting period.
Reconciliation of effective tax rate
Consolidated Consolidated
2019 2018
EUR000 EUR000
Profit before tax from continuing operations 42,056 9,948
============ ============
At UK statutory income tax rate (19% (2018:
19%)) 7,991 1,890
Effect of tax rate used in other jurisdictions (20) 48
Income not taxable (9,771) (2,822)
Expenses not deductible for tax purposes 155 166
Unrecognised tax losses 1,645 752
============ ============
Income tax expense - 34
============ ============
Income relating to the investment in Euskaltel, including
dividends and gains in fair value and foreign exchange, is not
taxable as the dividends are in respect of non-redeemable ordinary
shares and the investment is expected to meet the substantial
shareholdings exemption which provides an exemption from
corporation tax for capital gains. The majority of significant
project costs is not deductible for tax purposes as the projects
relate to acquisitions or disposals and are therefore capital in
nature.
Unrecognised deferred tax assets
Deferred tax assets of the UK tax-resident companies of EUR3.0
million (2018: EUR2.6 million) have not been recognised in respect
of tax losses, because it is not probable that future taxable
profit will be available against which the companies can maximise
the benefits therefrom. Under UK law there is no expiry for the use
of tax losses.
Contingent tax liability
The European Commission (EU) issued a press release on 2 April
2019 announcing that the UK Controlled Foreign Company Financing
Exemptions unduly exempted certain multinational groups from these
UK rules. The UK Government has challenged the basis for the
decision in the General Court by filing a claim on 12 June 2019. In
addition, numerous taxpayers have also appealed against the
decision before the European General Court. In November 2019, the
EU issued a rebuttal to all the arguments raised by the taxpayers
by simply restating the arguments put forward in the original State
Aid provision.
There is still considerable uncertainty on the final outcome and
therefore no provision has been made as it is not currently deemed
probable that Zegona will be required to settle its possible
obligation in relation to this matter. The estimated potential
liability could range from nil to EUR5m. At 13 May 2020, the date
that these Consolidated Financial Statements were authorised for
issue, Zegona had not received any demand in respect of State Aid
refund from the UK authorities.
9. INVESTMENT IN SUBSIDIARIES
The Consolidated Financial Statements in the current year
include the following subsidiaries (excluding those that entered
liquidation in December 2018):
Shares held Shares held
Country of directly indirectly
Subsidiary Nature of business incorporation by the Company by the Company
Zegona Limited Incentive company Jersey (1) 100% -
Zegona Spanish Holdco
Limited Dormant UK (2) - 100%
Zegona Borrower Limited Dormant UK (2) - 100%
Zegona Holdco Limited Dormant UK (2) - 100%
The registered office addresses of the subsidiaries are:
1. One Waverley Place, Union Street, St Helier, Jersey, JE1 1AX
2. 20 Buckingham Street, London, WC2N 6EF
There are no restrictions on the Company's ability to access or
use the assets and settle the liabilities of the Company's
subsidiaries, other than immaterial assets controlled by
liquidators.
Carrying value of the Company's direct investment in
subsidiary
The movement in value of the Company's direct investment in
subsidiary during 2019 was due to the purchase of an ordinary share
of the subsidiary in exchange for 7 million Euskaltel shares and
foreign exchange translation as the investment is carried in
Sterling.
10. FINANCIAL RISK MANAGEMENT
Zegona's activities expose it to market risk, principally
interest rate risk and currency risk.
Interest rate risk
Interest rate risk is the risk that the fair value of future
cash flows of a financial instrument will fluctuate because of
changes in market interest rate. On 14 January 2019, Zegona entered
into facility agreements totalling GBP30 million which bear
interest at a spread over the 3-month LIBOR. GBP10 million has been
drawn on these facilities. Zegona also has a small overdraft
facility, which bears interest at 1.5% per annum over the Bank of
England base rate but is currently undrawn.
In the opinion of the Directors, a significant movement in LIBOR
would be required to have a material impact on the cash flow of
Zegona. The Executive Directors and the Chief Financial Officer
regularly review the placing of cash balances and Zegona's
leverage.
Foreign currency risk
The Board and the Chief Financial Officer control and monitor
financial risk management, including foreign currency risk, in
accordance with internal policy and the strategic plan defined by
the Board. Zegona is exposed to three types of exchange risk:
transaction, translation and economic risk.
Transaction risk is the risk of loss that Zegona bears when it
enters monetary transactions denominated in other than Sterling,
the currency in which Zegona operates. A loss (or gain) may occur
due to the change in relative value of currencies from the date on
which the transaction is entered to the date the settlement takes
place.
As at 31 December 2019, Zegona had euro monetary net assets of
EUR25.4 million (2018: EUR3.1 million). The table below shows the
transactional impact of a 10% change in euro against Sterling at 31
December 2019:
+/- 10% movement
Currency impact EUR000
Profit before tax gain/loss -/+ 2,538
Equity gain/loss -/+ 2,538
Zegona is also exposed to foreign exchange translation risk
which is accounting in nature. It is the risk that the value of net
assets and net profit will change as a result of translation of the
Financial Statements of companies within the group with a different
functional currency to the presentational currency from one period
to the next. In the case of Zegona, this is the conversion of
Sterling into euro.
The table below show the translation impact of 10% movement in
Sterling against the euro at 31 December 2019:
+/- 10% movement
Currency impact EUR000
Profit before tax gain/loss -/+ 4,052
Equity gain/loss -/+ 35,012
Lastly, Zegona is exposed to economic risk due to its interest
in associate operating in euros. Dividends from Zegona's investment
in Euskaltel will be received in euro and therefore an exchange
rate risk may arise on conversion of those dividends into Sterling.
In addition, the Sterling value of the proceeds from any future
sale of Euskaltel shares will impact the amount in Sterling that
Zegona will distribute to its shareholders.
Credit risk
Credit risk arises from cash and cash equivalents, trade and
other receivables and contingent consideration. Zegona uses the
ratings awarded by independent agencies, where available, otherwise
Zegona assesses the counterparty's credit rating taking into
account its financial situation, past experience and other
factors.
There are no material financial assets that are written down,
past due or impaired as at 31 December 2019, and there is no
collateral or other credit enhancement feature on Zegona's
financial assets.
Zegona assesses the only material exposure to credit risk at 31
December 2019 to be with counterparties with the following credit
ratings:
Cash and Contingent
Credit cash equivalents consideration Total
rating EUR000 EUR000 EUR000
A-1+ 126 - 126
A-1 26,909 - 26,909
BB- - 3,997 3,997
27,035 3,997 31,032
================== =============== ========
The Directors consider that the carrying amounts best represent
the maximum exposure to credit risk.
Liquidity risk
Prudent liquidity risk management implies holding sufficient
cash and marketable securities and the availability of financing
through a sufficient level of available credit lines. Management
assesses regularly Zegona's liquidity forecasts which consider
cashflow projections and existing facilities.
At 31 December 2019, Zegona had cash balances held with banks
amounting to EUR27.0 million (2018: EUR3.1 million), compared to
Zegona's total liabilities amounting to EUR14.1 million (2018:
EUR3.4 million). In addition, Zegona has unsecured undrawn
facilities of GBP21.5 million, equivalent to EUR25.3 million (2018:
GBP1.5 million, equivalent to EUR1.7 million).
11. FINANCIAL INSTRUMENTS
Financial instrument categories - Consolidated
The classification by category of the financial instruments held
by Zegona as at 31 December is as follows:
Fair Amortised Fair Amortised
value cost value cost
2019 2019 2018 2018
EUR000 EUR000 EUR000 EUR000
Financial assets designated
at fair value (level 1) - - 187,332 -
------ --------- ------- ---------
Total non-current financial
assets - - 187,332 -
====== ========= ======= =========
Trade and other receivables - 92 - 137
Financial assets designated
at fair value (level 3) 3,997 - 4,826 -
Cash and cash equivalents - 27,034 - 3,138
------ --------- ------- ---------
Total current financial
assets 3,997 27,126 4,826 3,275
====== ========= ======= =========
Fair Amortised Fair Amortised
value cost value cost
2019 2019 2018 2018
EUR000 EUR000 EUR000 EUR000
Bank borrowings - 11,578 - -
------ --------- ------ ---------
Total non-current financial
liabilities - 11,578 - -
====== ========= ====== =========
Trade and other payables 2,556 - 3,245
Total current financial
liabilities - 2,556 - 3,245
====== ========= ====== =========
As disclosed in note 3, Zegona gained significant influence over
Euskaltel on 10 July 2019 and from that date Zegona's interest in
Euskaltel has been accounted for as an associate.
The Directors consider that the carrying amounts of the
financial assets and liabilities measured at amortised cost equate
to their fair values.
Financial instrument categories - Company
The classification by category of the financial instruments held
by Zegona as at 31 December is as follows:
Fair Amortised Fair Amortised
value cost value cost
2019 2019 2018 2018
EUR000 EUR000 EUR000 EUR000
Trade and other receivables - 22 - 157
Cash and cash equivalents - 26,023 - 420
------ --------- ------ ---------
Total current financial
assets - 26,045 - 577
====== ========= ====== =========
Fair Amortised Fair Amortised
value cost value cost
2019 2019 2018 2018
EUR000 EUR000 EUR000 EUR000
Bank borrowings - 11,578 - -
------ --------- ------ ---------
Total non-current financial
liabilities - 11,578 - -
====== ========= ====== =========
Trade and other payables - 16,093 - 8,005
Total current financial
liabilities - 16,093 - 8,005
====== ========= ====== =========
The Directors consider that the carrying amounts of the
financial assets and liabilities measured at amortised cost equate
to their fair values.
12. INTEREST IN ASSOCIATE
At 31 December 2019, Zegona owned 38.1 million shares (2018:
26.8 million) in Euskaltel, a Spanish telecommunications company
incorporated in Spain and operating in the Basque Country, Asturias
and Galicia, which represents approximately 21.3% (2018: 15%) of
the ordinary shares and voting rights of Euskaltel.
As disclosed in note 3, Zegona concluded that it gained
significant influence over Euskaltel on 10 July 2019 and from that
date Zegona's interest in Euskaltel has been accounted for using
the equity method. On 10 July 2019, Zegona held 37.2 million
shares, which represented approximately 20.85% of the ordinary
shares and voting rights of Euskaltel.
The fair value of Euskaltel's identifiable assets and
liabilities on 10 July 2019 were:
Fair value
10 July 2019
EUR000
Intangible assets 582,375
Property, plant and equipment 1,361,713
Other assets 201,719
Cash and cash equivalents 80,613
-------------
Total assets 2,226,420
Non-current payables 1,388,495
Other non-current liabilities 235,869
Other current liabilities 392,005
-------------
Total liabilities 2,016,369
-------------
Total identifiable net assets 210,051
-------------
On classification as an associate, and when making subsequent
purchases of Euskaltel shares, Zegona has recognised the difference
between the deemed consideration and Zegona's share of the net fair
value of Euskaltel's identifiable assets and liabilities as
goodwill, calculated as shown below:
EUR000
Total identifiable net assets of Euskaltel 210,051
Zegona's share of net assets on 10 July
2019 43,796
Zegona's additional share of net assets 945
--------
Zegona's share of net assets 44,741
Fair value of investment on 10 July 2019 301,352
Cost of additional share purchases 6,543
--------
Deemed consideration 307,895
Goodwill 263,154
The fair value of the investment in Euskaltel on 10 July 2019 is
based on the number of shares held and Euskaltel's quoted share
price at close on 9 July 2019.
Valuation techniques
The valuation techniques used for measuring the fair value of
material assets acquired were as follows:
Assets acquired Valuation technique
----------------------- -----------------------------------
Property, Plant Property, plant and equipment have been
and Equipment valued using the indirect cost approach.
The indirect costs approach indexes the
historical acquisition costs to reflect
the price developments in the relevant
asset sub-categories since the year of
purchase in order to calculate a revised
acquisition cost. The fair value is the
revised acquisition cost adjusted for accumulated
depreciation, which reflects the already
consumed or expired service potential of
the asset.
Brand Brands have been valued using the relief
from royalty method (RFRM). The RFRM is
based on discounting the present value
of the net cost savings ('net profit')
that the company is estimated to achieve
by owning a brand instead of licensing
it over its useful life.
Customer relationships Customer relationships have been valued
using the multi-period excess earnings
method (MEEM). Under the MEEM model, the
value of an intangible asset is estimated
as the discounted value of the cash flow
streams generated by the intangible asset.
As the asset generally generates cash flow
streams in conjunction with other tangible
and intangible assets such as property,
plant and equipment, working capital and
workforce in place, the cost of using the
assets (contributory assets) is subtracted
from the cash flows generated by the intangible
asset being valued.
Key assumptions and sensitivity analysis
The main assumptions used in the calculation of the fair value
of assets and liabilities at 10 July 2019 were as follows:
-- Trademarks : The fair value of this intangible asset was
calculated by applying the RFRM, the most significant parameters of
which were a royalty rate of 1.25%, a growth rate of 1.5% and a
discount rate of 6.8%. Changes in one of the assumptions, namely
+/-10% in the royalty rate or +/- 10% discount rate or +/-1% to the
growth rate had no material impact in the fair value of the
brand.
-- Customer relationships : The fair value of this intangible
asset was calculated using the MEEM, the key assumptions used in
the measurement were the weighted average churn rate of 12.5%, the
EBITDA margin of 52%, ARPU inflation of 1.5% and discount rate of
6.8%. Changes in one of the assumptions, holding the other
parameters constant, by +/-10% would have an immaterial impact in
the fair value of the intangible asset and Zegona's share of net
profit.
Summarised financial information for associate
The following tables summarise the financial position and
statement of comprehensive income of Euskaltel as disclosed in its
own audited financial statements prepared in accordance with IFRS
as adopted by the EU, adjusted to recognise certain assets and
liabilities in line with their fair value at 10 July 2019. There
are no material adjustments required to align accounting policies
between Zegona and Euskaltel.
Statement of Comprehensive Income
From 10 July 2019 to 31 December 2019 EUR000
Revenue 331,972
Profit for the period (continuing operations) 42,914
Total comprehensive income for the period 42,914
Zegona's share of profit for the period
(21.1 % weighted average) 9,094
Statement of Financial Position
As at 31 December 2019 EUR000
Non-current assets 2,047,323
Current assets 168,246
Non-current liabilities (1,602,540)
Current liabilities (403,662)
------------
Net assets 209,367
Reconciliation to Zegona's carrying value of investment in
associate:
31 December
2019
EUR000
Euskaltel's net assets 209,367
------------
Zegona's share of Euskaltel's net assets
(21.3%) 44,595
Goodwill recognised 263,154
Zegona's share of profit for the period 9,094
Foreign exchange differences 17,500
------------
Interest in associate 334,343
============
Fair value of interest in associate 341,584
The fair value of the interest in associate is based on its
quoted market price. Euskaltel had no contingent liabilities as at
31 December 2019.
13. TRADE AND OTHER RECEIVABLES
Consolidated Consolidated
31 December 31 December
2019 2018
EUR000 EUR000
Deferred costs - 1,939
Prepayments 70 35
VAT recoverable 21 17
Other receivables 1 137
============ ============
Total 92 2,128
============ ============
Company Company
31 December 31 December
2019 2018
EUR000 EUR000
Amounts due from subsidiary undertakings 21 20
Deferred costs - 1,939
Prepayments 67 31
VAT recoverable 21 17
Other receivables 1 137
=========== ============
Total 110 2,144
=========== ============
14. CURRENT FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
The current financial assets balance of EUR4.0 million (2018:
EUR4.8 million) comprises solely the contingent consideration
receivable from the sale of Telecable. This compares to a base case
model present value of EUR5.9 million (2018: EUR6.7 million) and
Zegona's best estimate of the undiscounted cash flow that it will
receive of EUR6.1 million (2018: EUR7.1 million). The contingent
consideration is payable by Euskaltel in cash up to a maximum
amount of EUR15.0 million upon confirmation that a range of net tax
assets are available to Euskaltel and may be used to offset its
future tax payments.
Note EUR000
Balance at 31 December 2018 4,826
Consideration received to date (981)
Change in unrealised fair value recognised
in profit or loss 7 152
Balance at 31 December 2019 3,997
=======
The eventual amount to be received depends on several factors
that are entirely specific to Telecable. These factors include the
availability of tax assets in accordance with Spanish tax rules and
regulations, the extent to which there will be sufficient taxable
profits to utilise these assets, and assumptions around the outcome
of certain open interactions with the Spanish tax authorities.
There have been no material updates to these significant
unobservable inputs during 2019.
The change in fair value reflects a revision to the timing of
when the contingent consideration will be received. It is
recognised within finance costs in the consolidated statement of
comprehensive income.
The fair value of the contingent consideration has been
calculated using a probability-weighted discounted cash flow model
that calculates the present value of the expected cash flows for 12
different plausible combinations of outcomes. The fair value was
determined by calculating a weighted average of those cash flows
according to the probability of each scenario occurring. As a
result of this analysis, a fair value of EUR4.0 million (2018:
EUR4.8 million) was assigned to the contingent consideration. This
value recognises the possibility of certain material downside cases
that Zegona currently considers to be unlikely to occur
(particularly in relation to the merger approval discussed below
not being granted) and therefore the eventual amount received could
be greater than this fair value.
The significant unobservable inputs used in the base case (which
had a present value of EUR5.9 million (2018: EUR6.7 million), being
management's assessment of the present value of the most likely
outcome) and the impact of each input on the value of the base case
at the reporting date, holding the other inputs constant, are shown
below:
Merger approval:
--------------------------------------------------------------------
The likelihood of receiving a binding ruling by the Spanish
General Directorate of Taxation confirming certain tax assets
are eligible for use upon a qualifying merger of the Telecable
entities.
Input used in the base case model: Sensitivity of the base case:
Successful If the merger is unsuccessful,
the revised base case present
value would be EURnil
Usability of available assets:
---------------------------------------------------------------------
The proportion of the available net tax assets that are deemed
to be usable by the Telecable entities in future periods to
offset future taxable profits according to the terms of the
SPA.
Input used in the base case model: Sensitivity of the base case:
82% usable Usability scenarios ranged
from 41% to 100%, causing the
present value of the base case
to range from EUR3.0 million
to EUR7.2 million
Timing of merger approval:
---------------------------------------------------------------------
The time it will take to receive a positive tax ruling on the
merger described above (which is not relevant for scenarios
where the merger is not approved).
Input used in the base case model: Sensitivity of the base case:
6 months If the timing is increased
to 18 months, the revised base
case present value would be
EUR5.5 million
15. TRADE AND OTHER PAYABLES
Consolidated Consolidated
31 December 31 December
2019 2018
EUR000 EUR000
Trade payables 103 180
Other payables 267 285
Accruals 2,186 2,780
Income taxes - 123
============ ============
2,556 3,368
============ ============
Company Company
31 December 31 December
2019 2018
EUR000 EUR000
Payable to direct subsidiary 15,527 5,227
Trade payables 106 171
Other payables 74 28
Accruals 386 2,579
----------- -----------
16,093 8,005
=========== ===========
16. BANK BORROWINGS
The Company has been provided with facilities of up to GBP30
million by Barclays Bank plc and Virgin Holdings Limited.
During the year, the Company has drawn down GBP10 million under
the Barclays facility. Interest is payable quarterly in arrears on
the drawn amount at a rate of 2.6% per annum above the 3-month
LIBOR interest rate. A commitment fee of 0.6% per annum is payable
on the undrawn amount of GBP20 million. The Company has the right
to prepay the loan at any time, but if it does so before the first
anniversary of the date of the draw down, it must pay a make whole
amount calculated at 2.6% per annum multiplied by the prepaid
amount for the period between the date of prepayment and that first
anniversary.
The Barclays facility matures on 14 January 2021, and any
amounts owed will become immediately repayable on the occurrence of
certain events of default including a drop in the value of
Euskaltel shares to EUR3.42 or below, a change of control of
Euskaltel or Zegona and other customary events of default. The
Barclays facility is secured by a charge over Euskaltel shares.
The Company has not drawn down any amounts under the Virgin
facility. From the date on which funds are drawn down, interest
will accrue daily at an annual interest rate of LIBOR plus 5%,
payable quarterly in arrears. The Virgin facility matured on 30
April 2020.
17. CALLED UP SHARE CAPITAL
Allotted, called up and fully paid Number EUR000
At 1 January 2019 126,219,449 1,763
Shares issued 95,715,728 1,092
At 31 December 2019 221,935,177 2,855
=========== ======
The nominal value of the total ordinary shares is GBP0.01 and
the total allotted, called up and fully paid equates to
GBP2,219,352 (2018: GBP1,262,194).
Net invested
Net invested capital capital
Number of shares (GBP) per share
Share issues - January
2015 21,675 26,010 GBP1.20
Share issue - March
2015 24,978,325 29,973,990 GBP1.20
Share issue - August
2015 171,044,960 256,567,440 GBP1.50
Share issue - February
2019 95,715,728 100,501,514 GBP1.05
================= ===================== =============
Total shares issued 291,760,688 387,068,954 GBP1.33
Share buy-back - October
2017 (69,825,511) (139,651,022) GBP2.00
================= ===================== =============
Total shares in issue 221,935,177 247,417,932 GBP1.11
On 11 February 2019, a total of 95,715,728 additional ordinary
shares of GBP0.01 each were admitted to trading. These shares had
been placed at a price of GBP1.05 per share, raising gross proceeds
of approximately GBP100.5 million (equivalent to EUR109.9
million).
All ordinary shares confer identical rights including in respect
of capital, dividends and voting. There are no restrictions on the
distributions of dividends or the repayment of capital.
18. RESERVES
The nature and purpose of each reserve within shareholders'
equity are explained below.
Other reserves
Other reserves comprise the amounts subscribed for share capital
in excess of nominal value less any costs directly attributable to
the issue of new shares. Other reserves form part of distributable
reserves of the Company.
EUR000
Balance as at 1 January 2018 215,158
Dividend paid in April 2018 (representing 3.9p
per share) (5,622)
Dividend paid in December 2018 (representing
2.8p per share) (3,913)
Balance as at 31 December 2018 205,623
Issue of shares, net of directly attributable
costs (see note 17) 108,793
Dividend paid in March 2019 (representing 2.5p
per share) (3,673)
Dividend paid in September 2019 (representing
2.5p per share) (6,187)
=======
Balance as at 31 December 2019 304,556
=======
Share based payment reserve
The share based payment reserve is the cumulative amount
recognised in relation to the equity settled share based payment
scheme as further described in note 21.
Foreign currency translation reserve
The foreign currency translation reserve includes the foreign
exchange differences arising from the translation from Consolidated
Financial Statements functional currency to presentational
currency.
Retained earnings
Cumulative net gains and losses recognised in the Consolidated
Statement of Comprehensive Income.
19. CAPITAL MANAGEMENT
For the purpose of Zegona's capital management, capital includes
issued capital and all other equity reserves attributable to the
equity holders of the Company. The primary objective of Zegona's
capital management is to maximise shareholder value.
Zegona manages its capital structure and makes adjustments in
light of changes in economic conditions and the requirements of any
covenants. To maintain or adjust the capital structure, Zegona may
adjust the dividend payment to shareholders, return capital to
shareholders, make distributions of non-cash assets to shareholders
or issue new shares.
The Company has gained authorisation to make market purchases of
up to 10% of its current issued ordinary share capital (within
specified price parameters). Any shares repurchased by the Company
pursuant to this authority may be held in treasury and subsequently
resold for cash, cancelled or used for employee share scheme
purposes.
The Company has also gained authorisation to give the Board of
Directors the power to make distributions in specie of Euskaltel
shares without the need for shareholder approval.
Throughout 2019, Zegona met the financial covenants associated
to the facilities described in note 16.
20. EARNINGS PER ORDINARY SHARE
Basic EPS is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of
ordinary shares in issue during the year.
Diluted EPS is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all
potentially dilutive ordinary shares. As more fully detailed in
note 21, Management Shares and Core Investor Shares in the share
capital of Zegona Limited have been issued. On exercise, the value
of these shares is expected to be delivered by the Company issuing
new ordinary shares, and hence the Management Shares and Core
Investor Shares could have a dilutive effect, although the Company
has the right at all times to settle such value in cash. As the
Preferred Return has not currently been met, the Management Shares
and Core Investor Shares have not been included in the calculation
of diluted EPS.
2019 2018
Profit for the year attributable to equity
holders of the parent (EUR000) 42,056 9,914
Weighted average number of ordinary shares 211,183,547 126,219,449
Basic and diluted EPS (EUR) 0.20 0.08
In the first quarter of 2020, Zegona purchased and cancelled
2,442,447 ordinary shares as part of the Buyback Programme
described in note 24.
21. SHARE BASED PAYMENTS
Arrangements were put in place shortly after Zegona's inception
to create incentives for those who are expected to make key
contributions to the success of Zegona. Zegona's success depends
upon the sourcing of attractive investment opportunities, the
improvement of the target businesses, and their subsequent sale to
realise attractive returns for shareholders. At the year end, a
total of EUR105,418 (2018: EUR105,418) was recognised in the
consolidated share based payment reserve in respect of this equity
settled plan.
Management Shares
Eamonn O'Hare, Robert Samuelson and other members of Zegona's
management team have been issued Management Shares (A ordinary
shares) in Zegona Limited pursuant to their employee arrangements
with Zegona.
Exercise
The holders of Management Shares may exercise their rights at
certain dates as described below. On exercise, Management
Shareholders are entitled to a return of 15% of the growth in value
of the Company since the date the Company's shares were first
admitted to trading on the AIM Market of the London Stock Exchange
(or from either the previous exercise date or the end of the
previous measurement period, as applicable), subject to ordinary
shareholders achieving a 5% preferred return per annum on a
compounded basis on their net invested capital (the "Preferred
Return").
There are up to five measurement periods during which the above
noted performance condition may be met and an exercise may occur;
the first being from three to five years post the acquisition of
Telecable, the second and subsequent measurement periods, which are
subject to shareholder approval, are three to five years from the
earlier of the date of the shares becoming exercisable and the end
of the previous measurement period if the shares did not become
exercisable in that measurement period. The rights of the
Management Shares may be exercised at other specific times
including winding up or takeover, or a change of control of the
Company.
Even though Zegona entered the initial measurement period on 14
August 2018, the Preferred Return was not achieved between this
date and 31 December 2019 and the Management Shares would have
delivered no value if they had been exercised at 31 December 2019.
If the Preferred Return is met at any time during the current
measurement period (expiring 14 August 2020), the shares will
deliver value to the holders of the Management Shares.
In line with the ability of Zegona Limited to settle the value
of the Management Shares in equity, it is expected to deliver new
ordinary shares in Zegona Communications plc of equivalent value,
although Zegona Communications plc has the right at all times to
settle such value in cash.
Holding of Management Shares
5,154,639,176 Management Shares in Zegona Limited have been
allotted, issued and fully paid as shown in the table below.
Participation Number of Nominal value
in Award Management of Management
growth in Value Shares Shares
value
Eamonn O'Hare 8.88% GBP16,165 3,050,000,000 GBP305
Robert Samuelson 4.44% GBP8,083 1,525,000,000 GBP153
Zegona senior management 1.68% GBP3,072 579,639,176 GBP58
============== ==============
5,154,639,176 GBP516
============== ==============
When the Management Shares were first issued by Zegona Limited,
the Company was an unlisted shell company and had not entered into
any transactions up to that date other than the issue of 21,675
ordinary shares for GBP26,010. The fair value estimation placed on
the Management Shares took into account the lack of trading history
of the Company, and the absence of any deals or transactions at
that date.
At the year end, a total of EUR68,402 (2018: EUR68,402) was
recorded in the consolidated share based payment reserve in
relation to Management Shares.
Core Investor Shares
Marwyn Long Term Incentive LP ("MLTI") has been issued Core
Investor Shares (5 B ordinary shares) in Zegona Limited. The B
shares carry no voting rights.
The rights attached to the Core Investor Shares may be exercised
by MLTI in the period from three to five years after the
acquisition of Telecable or upon an earlier takeover, Board change
of control (where the employment contracts with both Founder
Directors have also terminated) or winding up of the Company. Core
Investor Shares
are entitled to a return of 5% per annum of the growth in value
of the Company subject to shareholders achieving the Preferred
Return.
Even though Zegona entered the measurement period on 14 August
2018, the Preferred Return was not achieved between this date and
31 December 2019 and the Core Investor Shares would have delivered
no value if they had been exercised at 31 December 2018. If the
Preferred Return is met at any time during the current measurement
period (expiring 14 August 2020), the shares will deliver value to
the holder of the Core Investor Shares.
In line with the ability of Zegona Limited to settle the value
of the Core Investor Shares in equity, the value is expected to be
delivered by the Company issuing new ordinary shares of equivalent
value although the Company has the right at all times to settle
such value in cash.
If on the date that MLTI exercises its Core Investor Shares, the
Core Investor holds an equity interest in which it has invested in
aggregate an amount less than five times the investment cost of the
equity interest it held at 19 March 2015, MLTI will only be
entitled to exercise its Core Investor Shares for an aggregate
value equivalent to up to a maximum of 3% of the growth in value of
the Company.
At the year end, a total of EUR37,016 (2018: EUR37,016) was
recognised in the consolidated share based payment reserve in
relation to Core Investor Shares.
22. RELATED PARTY TRANSACTIONS
In the opinion of the Directors, there is no one single
controlling party.
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party, or the parties are under common
control or influence, in making financial or operational
decisions.
Related party transactions of the Company
Mark Brangstrup Watts, a Non-executive Director of Zegona up
until 12 May 2020, is a designated member of Marwyn Capital LLP
("Marwyn"), which provides various office services to the Company.
During the year, services totaling EUR69k were received from Marwyn
(2018: EUR68k). Marwyn was owed an amount of EUR7k at the balance
sheet date (2018: EUR6k) in respect of these services, which was
unsecured. In addition, Mark's Non-Executive Director fees were
paid to Marwyn.
Mark Brangstrup Watts is an ultimate beneficial owner of Axio
Capital Solutions Limited ("Axio"), which provides company
secretarial, administrative and accounting services to Zegona.
During the year, services totalling EUR354k were received from Axio
(2018: EUR598k). Axio was owed an amount of EUR22k at the balance
sheet date (2018: EUR117k), which was unsecured.
Mark Brangstrup Watts has a beneficial interest in the Core
Investor Shares as described in note 21.
Transactions with key management personnel
The Board considers the Executive Directors and Non-Executive
Directors of the Company to be the key management personnel of
Zegona. Details of the amounts paid to key management personnel are
detailed in the Directors' Remuneration Report on pages 29 to 39.
Holdings of Management Shares are detailed in note 21.
23. AUDITOR'S REMUNERATION
2019 2018
EUR000 EUR000
Fees for the audit of the Company's annual
accounts 270 74
Total audit fees 270 74
====== ======
Fees for procedures on the interim financial
statements 11 40
Fees for reporting in relation to the
prospectus for the Placing - 79
====== ======
Total non-audit fees 11 119
====== ======
24. POST BALANCE SHEET EVENTS
Buybacks Programme
On 7 January 2020, Zegona announced the commencement of a
buyback programme of its ordinary shares for an aggregate purchase
price of up to GBP10 million (the "Buyback Programme"). Zegona's
Board set a buyback policy that allowed shares to be acquired at
prices up to the Underlying Asset Value Per Share (defined for any
day as the value in Sterling on the previous trading day of
Zegona's investment in Euskaltel (using the EUR/GBP FX rate on that
day) and net cash balance divided by the number of Zegona ordinary
shares in issue). During the Buyback Programme, which ended on 31
March 2020, Zegona purchased and cancelled an aggregate of
2,442,447 shares for a total of GBP2,461,592.
Interim dividends
Zegona received a dividend on 5 February 2020 from Euskaltel at
a rate of EUR0.14 per share, totaling EUR5.3 million.
Zegona declared a second interim dividend, in lieu of a final
dividend for 2019, on 6 February 2020 at a rate of 2.0p per share,
totaling GBP4.4 million, equivalent to EUR5.2 million on the date
of announcement. The dividend was paid on 6 March 2020.
Covid-19
The outbreak of Covid-19 and the related government responses
have caused disruption to businesses around the world, with global
equity markets also experiencing significant volatility and
weakness. As at 13 May 2020, the date that these Consolidated
Financial Statements were authorised for issue, Euskaltel's share
price and market capitalisation have declined significantly since
31 December 2019 but remain above its book value. Zegona will
continue to monitor the impact of the Covid-19 outbreak on its
business in general and its investment in Euskaltel in particular,
however the duration and extent of the pandemic, as well as the
effectiveness of government and central bank responses, remain
unclear at this time.
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the Annual General Meeting (the
"AGM") of Zegona Communications plc (the "Company") will be held at
the offices of Travers Smith LLP, 10 Snow Hill, London, EC1A 2AL on
9 June 2020 at 12:00 p.m. for the transaction of the following
business:
To consider and, if thought fit, to pass the following
resolutions, numbers 1 to 12 of which will be proposed as ordinary
resolutions and numbers 13 to 16 of which will be proposed as
special resolutions:
1. THAT the Company's financial statements for the year ended 31
December 2019, together with the Directors' report and the
auditor's report on those financial statements and on the auditable
part of the Directors' remuneration report, be received.
2. THAT the Directors' remuneration report, which is set out in
the annual report of the Company for the year ended 31 December
2019, be approved.
3. THAT Eamonn O'Hare be re-elected as a Director.
4. THAT Robert Samuelson be re-elected as a Director.
5. THAT Richard Williams be re-elected as a Director.
6. THAT Ashley Martin be re-elected as a Director.
7. THAT Kjersti Wiklund be re-elected as a Director.
8. THAT Suzi Williams be re-elected as a Director.
9. THAT KPMG LLP be re-appointed as auditor to the Company until
the conclusion of the next annual general meeting of the
Company.
10. THAT the Directors be authorised to fix the auditor's remuneration.
11. THAT the payment of the interim dividend, in lieu of a final
dividend, of 2.0p per ordinary share to the Company's shareholders
on 6 March 2020 be and is confirmed, approved and ratified for all
purposes.
12. THAT for the purposes of section 551 Companies Act 2006 (the
"Act") (and so that expressions used in this resolution shall bear
the same meanings as in the said section 551), the Directors be and
are generally and unconditionally authorised to exercise all powers
of the Company to allot:
12.1 shares and to grant such subscription and conversion rights
as are contemplated by sections 551(1)(a) and (b) of the Act
respectively up to a maximum nominal amount of GBP731,642.43 to
such persons and at such times and on such terms as they think
proper; and further
12.2 equity securities (as defined in section 560 of the Act) in
connection with a rights issue in favour of the holders of equity
securities and any other persons entitled to participate in such
issue where the equity securities respectively attributable to the
interests of such holders and persons are proportionate (as nearly
as maybe) to the respective number of equity securities held by
them up to a maximum nominal amount of GBP731,642.43,
subject only to such exclusions or other arrangements as the
Directors may consider necessary or expedient to deal with treasury
shares, fractional entitlements or legal or practical problems
under the laws of any territory or requirements of any recognised
regulatory body or stock exchange in any territory, provided that
such authority shall expire at the conclusion of the next annual
general meeting of the Company or the date which is 18 months after
the date on which this resolution is passed, whichever is the
earlier, save that the Company be and is hereby authorised to make,
prior to the expiry of such periods, any offer or agreement which
would or might require such shares or rights to be allotted or
granted after the expiry of the said periods and the Directors may
allot such shares or grant such rights under any such offer or
agreement as if the authority had not expired.
13. THAT if resolution 12 set out in the Notice convening this
Meeting is passed, the Directors be and are hereby authorised to
allot equity securities (as defined in section 560 of the Act) for
cash under the authority given by that resolution and/or to sell
ordinary shares held by the Company as treasury shares for cash as
if section 561 of the Act did not apply to any such allotment or
sale, such authority to be limited to:
13.1 the allotment of equity securities in connection with an
issue or offering in favour of holders of equity securities (but in
the case of an allotment pursuant to the authority granted under
resolution 12.2, such power shall be limited to the allotment of
equity securities by way of a rights issue only) and any other
persons entitled to participate in such issue or offering where the
equity securities respectively attributable to the interests of
such holders and persons are proportionate (as nearly as may be) to
the respective number of equity securities held by or deemed to be
held by them on the record date of such allotment, subject only to
such exclusions or other arrangements as the Directors may consider
necessary or expedient to deal with treasury shares, fractional
entitlements or legal or practical problems under the laws of any
territory or requirements of any recognised regulatory body or
stock exchange in any territory; and
13.2 the allotment (otherwise than pursuant to paragraph 13.1
above) of equity securities up to a nominal amount of
GBP109,746.36,
such authority, unless renewed, to expire at the conclusion of
the next annual general meeting of the Company or the date which is
18 months after the date on which this resolution is passed,
whichever is the earlier, but in each case, prior to its expiry the
Company may make offers, and enter into agreements, which would, or
might, require equity securities to be allotted (and treasury
shares to be sold) after the authority expires and the Directors
may allot equity securities (and sell treasury shares) under any
such offer or agreement as if the authority had not expired.
14. THAT if resolution 12 set out in the Notice convening this
Meeting is passed, the Directors be and are hereby authorised in
addition to any authority granted under resolution 13 to allot
equity securities (as defined in section 560 of the Act) for cash
under the authority given by that resolution and/or to sell
ordinary shares held by the Company as treasury shares for cash as
if section 561 of the Companies Act 2006 did not apply to any such
allotment or sale, such authority to be:
14.1 limited to the allotment of equity securities or sale of
treasury shares up to a nominal amount of GBP109,746.37; and
14.2 used only for the purposes of financing (or refinancing, if
the authority is to be used within six months after the original
transaction) a transaction which the Board of the Company
determines to be an acquisition or other capital investment of a
kind contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights most recently published by the Pre-Emption Group
prior to the date of this notice;
such authority, unless renewed, to expire at the conclusion of
the next annual general meeting of the Company or the date which is
18 months after the date on which this resolution is passed,
whichever is the earlier, but in each case, prior to its expiry the
Company may make offers, and enter into agreements, which would, or
might, require equity securities to be allotted (and treasury
shares to be sold) after the authority expires and the Directors
may allot equity securities (and sell treasury shares) under any
such offer or agreement as if the authority had not expired.
15. THAT the Company be and is hereby generally and
unconditionally authorised for the purpose of section 701 Companies
Act 2006 to make market purchases (as defined in section 693 of the
said Act) of ordinary shares of GBP0.01 each in the capital of the
Company ("ordinary shares") provided that:
15.1 the maximum number of ordinary shares hereby authorised to
be purchased is 21,949,273, being equal to 10 per cent. of the
issued ordinary shares;
15.2 the minimum price (exclusive of expenses) which may be paid
for such ordinary shares is GBP0.01 per share, being the nominal
amount thereof;
15.3 the maximum price (exclusive of expenses) which may be paid
for such ordinary shares shall be an amount equal to the higher of
(i) 5% above the average of the middle market quotations for such
shares taken from The London Stock Exchange Daily Official List for
the five business days immediately preceding the day on which the
purchase is made and (ii) the higher of the price of the last
independent trade of an ordinary share and the highest current
independent bid for an ordinary share as derived from the London
Stock Exchange Trading System (SETS);
15.4 the authority hereby conferred shall (unless previously
renewed or revoked) expire on the earlier of the end of the next
annual general meeting of the Company and the date which is 18
months after the date on which this resolution is passed; and
15.5 the Company may make a contract to purchase its own
ordinary shares under the authority conferred by this resolution
prior to the expiry of such authority, and such contract will or
may be executed wholly or partly after the expiry of such
authority, and the Company may make a purchase of its own ordinary
shares in pursuance of any such contract.
16. THAT the Company be and is hereby authorised to provide
notice to shareholders of general meetings of the Company of at
least 14 clear days' notice.
BY ORDER OF THE BOARD
Secretary: Axio Capital Solutions Limited
Date 13 May 2020
Registered Office: 20 Buckingham Street, London WC2N 6EF
Notes:
Proposed AGM arrangements
(i) As you may know, we are required by law to hold an AGM
within six months of our financial year end. However, given the
unprecedented circumstances, the Board has decided to put in place
contingency arrangements that mean the AGM will not follow its
usual format. Only the statutory, formal business (consisting of
voting on the resolutions proposed in the Notice of AGM) to meet
the minimum legal requirements will be conducted and the AGM will
proceed as set out below:
(a) the AGM will be at 10 Snow Hill, London, EC1A 2AL or, if
those offices are closed, immediately outside the offices;
(b) the Chairman of the Board and another member of the
executive management team who holds shares in the Company will
attend the AGM to ensure that the AGM is quorate;
(c) no other directors will be present in person;
(d) there will be no presentation at the AGM, nor will there be
any opportunity to ask questions of the Board;
(e) as would normally be the case, the votes on the resolutions
to be proposed at the AGM will be conducted on a show of hands and
the chairman of the meeting will vote on a show of hands in
accordance with the proxies held; and
(f) the results of the proxy votes will be published immediately
following the conclusion of the AGM by way of a stock exchange
announcement and on the Company's website.
(ii) Although this is a very unusual approach, the Board
considers that in light of the "lockdown" legislation currently in
force, proceeding with a "technical" AGM is in the best interests
not only of the Company, but also of each of its individual
shareholders. By allowing the voting to proceed in accordance with
instructions received by proxy, our share allotment and buyback
resolutions can be put to shareholders for renewal before they
expire and we can comply with our legal requirements, while
ensuring that no one will have to travel unnecessarily to attend
the AGM.
(iii) Of course, if circumstances change and the restrictions
are lifted or relaxed before the AGM, the Company will notify
shareholders of any changes to the proposed format for the AGM as
soon as possible via its website.
(iv) A member entitled to attend and vote at the Meeting
convened by the above Notice is entitled to appoint a proxy to
exercise all or any of the rights of the member to attend and speak
and vote on his behalf. A proxy need not be a member of the
Company. A member may appoint more than one proxy in relation to
the Meeting, provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by that member.
The right to appoint a proxy does not apply to any person to whom
this notice is sent who is a person nominated under section 146 of
the Companies Act 2006 (the "Act") to enjoy information rights (a
"Nominated Person").
(v) To appoint a proxy you may:
(a) use the Form of Proxy enclosed with this Notice of Annual
General Meeting. To be valid, the Form of Proxy, together with the
power of attorney or other authority (if any) under which it is
signed or a notarially certified or office copy of the same, must
be received by post or (during normal business hours only) by hand
to Link Asset Services at The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU or at the electronic address provided in
the proxy form, in each case no later than 12:00 p.m. on 5 June
2020; or
(b)
(c) if you hold your shares in uncertificated form, use the
CREST electronic proxy appointment service as described in the
CREST manual or in the Explanatory Notes to the resolutions set out
below.
Alternatively, you may submit your proxy electronically using
the share portal service at www.signalshares.com. If not already
registered for the share portal, you will need your investor code
which is located on your share certificate.
Further details on how to direct your proxy to vote on
resolutions or withhold their vote are set out in the notes to the
Form of Proxy.
(vi) Completion of the Form of Proxy or appointment of a proxy
through CREST will not prevent a member from attending and voting
in person if he/she wishes to do so.
(vii) Any corporation which is a shareholder in the Company may
appoint one or more corporate representatives who may exercise on
its behalf all of that corporation's powers as a shareholder of the
Company provided that, where there is more than one corporate
representative appointed, they do not attempt to exercise the
corporations rights in respect of the same shares.
(viii) Any member or his corporate representative or proxy
attending the Meeting has the right to ask any question at the
Meeting relating to the business of the Meeting.
(ix) Pursuant to section 360B of the Act and Regulation 41 of
the Uncertificated Securities Regulations 2001 (as amended), only
shareholders registered in the register of members of the Company
as at close of business on 5 June 2020 shall be entitled to attend
and vote at the AGM in respect of the number of shares registered
in their name at such time. If the Meeting is adjourned, the time
by which a person must be entered on the register of members of the
Company in order to have the right to attend and vote at the
adjourned Meeting is close of business, 48 hours before the time
fixed for the adjourned Meeting. Changes to the register of members
after the relevant times shall be disregarded in determining the
rights of any person to attend and vote at the Meeting.
(x) In the case of joint holders, the vote of the senior holder
who tenders a vote whether in person or by proxy shall be accepted
to the exclusion of the votes of the other joint holders and, for
this purpose, seniority shall be determined by the order in which
the names stand in the register of members of the Company in
respect of the relevant joint holding.
(xi) From the date of this notice, copies of the terms and conditions of appointment of the Non-Executive Directors and the service contracts of the Zegona Chairman and Executive Directors are available for inspection at the registered office of the Company, 20 Buckingham Street, London, England, WC2N 6EF, during usual business hours on any weekday (Saturdays, Sundays and public holidays excluded) until the conclusion of the AGM and will be available for inspection at the place of the AGM for at least 15 minutes prior to and during the Meeting.
(xii) Save as set out in these notes, members who have general
queries relating to the AGM should contact Link Asset Services on
0371 664 0300. Calls are charged at the standard geographic rate
and will vary by provider. Calls outside the United Kingdom will be
charged at the applicable international rate. Lines are open
between 09:00 - 17:30, Monday to Friday excluding public holidays
in England and Wales. . Please note that you may not use any
electronic address or other contact details provided in this notice
of AGM, or any related documents (including the Chairman's letter
and Form of Proxy), for any purpose other than those expressly
stated.
(xiii) As at 13 May 2020 (being the last business day prior to
the publication of this notice) the Company's issued share capital
consists of 219,492,730 ordinary shares, carrying one vote each.
Therefore, the total voting rights in the Company as at 13 May 2020
are 219,492,730 .
(xiv) The information required to be published by section 311A
of the Act (information about the contents of this notice and
numbers of shares in the Company and voting rights exercisable at
the AGM and details of any members' statements, members'
resolutions and members' items of business received after the date
of this notice) may be found at www.zegona.com . Sub ject to the
limitations of the resolution approved at the AGM of the Company on
15 April 2016, the Company does not intend to post or email hard
copies of shareholder related documents, such as this Report and
Notice of Annual General Meeting, to shareholders. All documents
will be made available on the Company's website, www.zegona.com
.
(xv) A Nominated Person may under an agreement between him/her
and the member who nominated him/ her, have a right to be appointed
(or to have someone else appointed) as a proxy entitled to attend
and speak and vote at the Meeting. Nominated Persons are advised to
contact the member who nominated them for further information on
this and the procedure for appointing any such proxy.
EXPLANATORY NOTES TO THE RESOLUTIONS
The purpose of these notes is to explain the resolutions and
business to be conducted at the Company's AGM. Resolutions 1 to 12
set out in the Notice detail the ordinary resolutions and
resolutions 13 to 16 detail the special resolutions. Further
explanation in relation to the resolutions is set out below.
Resolution 1 - To approve the Annual Report and Financial
Statements
Resolution 1 proposes the receipt and adoption of the Annual
Report, which includes the Financial Statements of the Company for
the year ended 31 December 2019, together with the directors'
report and auditor's report on those Financial Statements.
The Company's Annual Report, including the Financial Statements
for the year ended 31 December 2019, is available on the Company's
website, www.zegona.com . The Annual Report was prepared in
compliance with the requirements of the Act and the requirements of
the Listing Rules of the Financial Conduct Authority that would
apply if the Company was listed on the Premium segment of the
Official List as at the date of their approval by the Board.
Resolutions 2 - Directors' remuneration report
In accordance with the requirements under the Act, shareholders
are being asked to approve the Directors' remuneration report set
out on pages 29 to 39 of the Annual Report. The actual remuneration
paid to Directors in 2019 was made within the boundaries of the
Directors' remuneration policy approved by shareholders at the 2019
Annual General Meeting.
Resolutions 3 to 8 - Election of Directors
Resolutions 3 to 8 deal with the re-election of each Director of
the Company that, subject to the articles of association of the
Company (the "Articles"), is required to retire at every annual
general meeting of the Company. All Directors on the Board will
retire at the AGM for this reason. Each of such Directors, except
Murray Scott and Mark Brangstrup Watts who resigned with effect
from 12 May 2020, is offering himself for re-election and
resolutions 3 to 8 propose the re-election of such Directors.
Biographies of each of the Directors retiring in accordance with
the Articles are set out on pages 16 to 18 of the Annual Report.
Richard Williams is the chair of the Nomination and Remuneration
Committee but Suzi Williams, if re-elected, will become the chair
of the committee. Ashley Martin is the chair of the Audit and Risk
Committee and, if re-elected, will continue in this role.
The Chairman has confirmed that, following a performance review
in line with the UK Corporate Governance Code, all of the Directors
continue to perform effectively and contributed positively to the
Board meetings that they attended during 2019 as set out on page 20
of the Annual Report and subsequently to the date of this
notice.
Resolutions 9 and 10 - Re-appointment and remuneration of
auditor
The appointment of KPMG LLP as auditor of the Company, which
started on 18 November 2016, terminates at the conclusion of the
AGM. KPMG LLP has indicated its willingness to stand for
re-appointment as auditor of the Company until the conclusion of
the annual general meeting to be held in 2021. The Directors, as
well as the Audit and Risk Committee, recommend that KPMG LLP be
re-appointed and that its remuneration be fixed.
Resolution 11 - Dividend payment
This resolution seeks to ratify the payment by the Company of a
second interim dividend, in lieu of a final dividend, of 2.0p per
ordinary share to shareholders of the Company on 6 March 2020. The
dividend payment followed the Company's interim dividend payment of
2.5p per ordinary share in September 2019, thus bringing the total
shareholder dividend payments for 2019 to 4.5p per share.
Resolution 12 - Directors' authority to allot shares
The existing power granted to the Directors to allot ordinary
shares expires at the conclusion of the AGM. Accordingly,
resolution 12 is proposed to renew the Directors' authority to
allot ordinary shares of up to a maximum nominal amount of (i)
GBP731,642.43 (being one-third of the Company's issued ordinary
share capital as at 13 May 2020) to such persons and upon such
conditions as the Directors may determine; and (ii) a further
maximum aggregate nominal amount of GBP731,642.43 (being one-third
of the Company's issued ordinary share capital as at 13 May 2020)
in connection with a rights issue (as defined in resolution 12 of
the Notice), 13 May 2020 being the latest practicable date before
the publication of this notice.
This request for authority to allot shares up to a maximum of
two-thirds of the Company's issued ordinary share capital is in
line with the guidelines published by the Investment
Association.
The authorities sought under resolution 12 will expire on the
earlier of (i) the end of the next annual general meeting of the
Company and (ii) the date which is eighteen months after the date
on which this resolution is passed. The resolution replaces a
similar resolution passed at the Annual General Meeting of the
Company held on 10 June 2019. The Directors have no present
intention of exercising such authority. However, the Directors
consider it important to have the maximum ability and flexibility
commensurate with good corporate governance guidelines to raise
finance to enable the Company to respond to market developments and
conditions. No shares are currently held by the Company in
treasury.
Resolutions 13 and 14 - Disapplication of pre-emption rights
The Act requires that shares or other equity securities allotted
for cash are offered first to existing shareholders in proportion
to their existing holdings. The passing of resolutions 13 and 14
would allow the Directors to allot shares (or sell any shares which
the Company may hold in treasury following a purchase of its own
shares) without first offering the securities to existing
shareholders.
Accordingly, resolution 13 allows the Directors to allot shares
and sell treasury shares for cash (i) in connection with a
pre-emptive offer or pre-emptive rights issue and/or (ii) otherwise
up to a nominal value of GBP109,746.37, equivalent to 5 per cent.
of the total issued ordinary share capital of the Company
(excluding treasury shares) as at 13 May 2020, being the latest
practicable date prior to the date of publication of this notice,
without first having to offer them to existing shareholders in
proportion to their holdings.
The Pre-Emption Group's Statement of Principles also supports
the annual disapplication of pre-emption rights in respect of
allotments of shares and sales of treasury shares for cash
representing no more than an additional 5 per cent. of issued
ordinary share capital (exclusive of treasury shares), to be used
only in connection with an acquisition or specified capital
investment. The Pre-Emption Group's Statement of Principles defines
"specified capital investment" as meaning one or more specific
capital investment related uses for the proceeds of an issue of
equity securities, in respect of which sufficient information
regarding the effect of the transaction on the Company, the assets
the subject of the transaction and (where appropriate) the profits
attributable to them is made available to shareholders to enable
them to reach an assessment of the potential return.
Accordingly, resolution 14 authorises the Directors to allot new
shares pursuant to the allotment authority given by resolution 12,
or sell treasury shares, for cash up to a further nominal amount of
GBP109,746.37, being an additional 5 per cent. of the entire issued
share capital of the Company as at 13 May 2020, only in connection
with an acquisition or specified capital investment which is
announced contemporaneously with the allotment, or which has taken
place in the preceding six month period and is disclosed in the
announcement of the allotment. If the authority given in resolution
14 is used, the Company will publish details of the allotment in
its next annual report.
The authorities will expire on the earlier of: (i) the end of
the next annual general meeting of the Company; and (ii) the date
which is 18 months after the date on which this resolution is
passed. This resolution replaces a similar resolution passed at the
Annual General Meeting of the Company held on 10 June 2019.
Resolution 15 - Purchases of own shares by the Company
This resolution seeks authority from shareholders for the
Company to make market purchases of its own ordinary shares,
limited to the purchase of 10 per cent. of the ordinary shares in
issue as at 13 May 2020.
The maximum and minimum prices payable are also limited in the
resolution. The authority will only be exercised if the Directors
consider that there is likely to be a beneficial impact on earnings
per ordinary share and that it is in the best interests of the
Company at the time. The Company will be able to hold the ordinary
shares which have been repurchased as treasury shares and re-sell
them for cash, cancel them or use them for the purposes of any
employee share schemes. No options to subscribe for ordinary shares
have been granted and are outstanding as at 13 May 2020, although
shares issued in the Company's incentive schemes may be exchanged
for ordinary shares in certain circumstances.
Resolution 16 - Reduction of notice period for general meetings
of the Company
This resolution seeks authority from shareholders for the
Company to call general meetings at 14 clear days' notice, as
opposed to 21 clear days' notice. While the Company's Articles
already provide that the Company can call any general meeting
(other than an annual general meeting) at 14 clear days' notice,
the Act requires that, in order to do so, the reduction from 21
days to 14 days must be approved by way of a special resolution of
the Company's shareholders. It is the Company's intention to
continue to call annual general meetings at 21 clear days'
notice.
Action to be taken
You are asked to either:
1. complete the Form of Proxy enclosed with this Notice of
Annual General Meeting and return it, together with any power of
attorney or other authority under which it is signed or a
notarially certified or office copy thereof, to Link Asset
Services, the Registry, 34 Beckenham Road, Beckenham, Kent, BR3
4TU, so as to arrive no later than 12 :00 p.m. on 5 June 2020 ;
or
2. if you hold your shares in uncertificated form, use the CREST
electronic proxy appointment service as described below.
Completion of the Form of Proxy or appointment of a proxy
through CREST does not prevent a member from attending and voting
in person.
Shares held in uncertificated form - electronic proxy
appointment through CREST
CREST members who wish to appoint a proxy or proxies by
utilising the CREST electronic proxy appointment service may do so
for the AGM and any adjournment(s) thereof by utilising the
procedures described in the CREST Manual. CREST personal members or
other CREST sponsored members, and those CREST members who have
appointed (a) voting service provider(s), should refer to their
CREST sponsor or voting service provider(s), who will be able to
take the appropriate action on their behalf.
In order for a proxy appointment made by means of CREST to be
valid, the appropriate CREST message (a "CREST Proxy Instruction")
must be properly authenticated in accordance with Euroclear UK
& Ireland's specifications and must contain the information
required for such instructions, as described in the CREST Manual
(www. euroclear.com/CREST). The message must be transmitted so as
to be received by the issuer's agent, Link Asset Services (ID
RA10), by 12:00 p.m. on 5 June 2020. For this purpose, the time of
receipt will be taken to be the time (as determined by the
timestamp applied to the message by the CREST Applications Host)
from which the issuer's agent is able to retrieve the message by
enquiry to CREST in the manner prescribed by CREST.
CREST members and, where applicable, their CREST sponsors or
voting service providers should note that Euroclear UK &
Ireland does not make available special procedures in CREST for any
particular messages. Normal system timings and limitations will
therefore apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal
member or sponsored member or has appointed (a) voting service
provider(s), to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members and, where
applicable, their CREST sponsors or voting service providers are
referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and
timings.
The Company may treat as invalid a CREST Proxy Instruction in
the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001 (as amended).
Recommendation
The Board considers that the resolutions to be put to the AGM
are in the best interests of the shareholders as a whole and,
accordingly, unanimously recommends that the shareholders vote in
favour of the resolutions, as the Directors intend to do in respect
of their beneficial shareholdings in the Company.
ADVISERS
Joint Corporate Brokers
J.P. Morgan Cazenove
25 Bank Street
London
E14 5JP
Telephone: +44 (0)20 7134 4000
Barclays Bank plc
5 The North Colonnade
Canary Wharf
London
E14 4BB
Telephone: +44 (0)20 3134 9801
Public Relations Adviser
Tavistock Communications Limited
1 Cornhill
London
EC3V 3ND
Telephone: +44 (0)20 7920 3150
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Telephone: +44 (0)20 7311 1000
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Telephone: +44 (0)20 8639 3399
Company Secretary
Axio Capital Solutions Limited
One Waverley Place
Union Street
St Helier
Jersey
JE1 1AX
Telephone: +44 (0)1534 761 240
Solicitors to the Company
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Telephone: +44 (0)20 7295 3000
Milbank, Tweed, Hadley & McCloy LLP
10 Gresham Street
London
EC2V 7JD
Telephone: +44 (0)20 7615 3000
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FIFLEEIISLII
(END) Dow Jones Newswires
May 14, 2020 02:00 ET (06:00 GMT)
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