Zegona Communications plc
Annual Report
For the Year Ended 31 December 2020
CONTENTS
STRATEGIC REPORT |
Chairman’s Statement
Strategy and Business Model
Business and Financial Review
Risks
Corporate Responsibility
GOVERNANCE |
Profiles of the Directors
Corporate Governance Report
Audit and Risk Report
Nomination and Remuneration Report
Directors’ Report
Directors’ Responsibility Statement
Independent Auditor’s Report to the members of Zegona Communications plc
FINANCIAL STATEMENTS |
Consolidated Statement of Comprehensive Income
Consolidated Statement of Other Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the Financial Statements
OTHER INFORMATION |
Notice of Annual General Meeting
Explanatory Notes to the Resolutions
Advisers
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ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | CHAIRMAN'S STATEMENT
I am pleased to present Zegona’s annual report for 2020. During 2020, we worked closely with the board and
management team at Euskaltel and successfully laid the foundations for the recent Tender Offer from MásMóvil
Ibercom, S.A.U. (“MásMóvil”).
The successful completion of Zegona's strategy in Spain
During 2020, we continued to be Euskaltel’s largest shareholder with 21.44% ownership, and Robert Samuelson
and I served as directors of Euskaltel. We have established a strong working relationship with Euskaltel’s board
of directors and José Miguel García, the CEO, and have actively supported the excellent progress being made by
the new management team. They have combined a focus on operating efficiency within the existing business
with driving significant growth through national expansion under the Virgin telco brand.
In March 2020, Euskaltel published its 2020-2025 Business Plan. This sets out its key strategic initiatives and
its ambition to double the size of its customer base and grow revenues by more than 80% to over €1.2 billion
and EBITDA1 by more than 6% CAGR2 to over €470 million by 2025. During 2020, Euskaltel’s focus was on
implementing the key strategic initiatives that will enable it to deliver this ambitious business plan. Significant
progress was made on integrating the three original, separate operating companies into one business with a
number of initiatives targeted at generating €40 million of annual run-rate efficiencies. Most importantly, in
2020 Euskaltel launched services nationally across Spain under the Virgin telco brand with great success.
These changes have allowed Euskaltel to build on the growth it delivered in 2019. Euskaltel’s results for 2020 were
strong in spite of the global Coronavirus pandemic, with financial and customer growth targets achieved, and top
line growth driven in particular by the outstanding success of Virgin telco. During 2020, Euskaltel achieved the
highest annual customer growth since it was listed in 2015, and Virgin telco growth was more than 50% ahead of
plan. Customer growth drove accelerating revenue growth, with fourth quarter revenue up 4.6% to €180 million
and full year 2020 revenue up 1.7% to €697 million. Profitability and cash generation were also strong. 2020
EBITDA of €343 million grew 2.3% and exceeded the business plan target. This growth has put Euskaltel on a clear
deleveraging path, with net debt down to almost 4 times EBITDA.
On 28 March 2021, MásMóvil, the fourth largest telecommunications operator in Spain launched a tender offer
to acquire 100% of Euskaltel for €11.17 per share in cash (the "Offer"). The Offer values Euskaltel’s equity at
€2.0 billion which equates to an Enterprise Value of €3.5 billion and values Euskaltel at 10.1x EBITDA and 21x
Operating Cash Flow, a significant premium to European telecommunications multiples3. Zegona welcomes this
transaction and alongside the two other largest shareholders (Kutxabank and Alba, who together with Zegona
own over 52%) of Euskaltel, have entered into irrevocable undertakings to tender all their shares. This gives a
high level of certainty that the tender condition of over 75% acceptances will be achieved. The tender is expected
to be completed before the end of 2021.
The sale of our Euskaltel investment will represent the successful completion of our “Buy-Fix-Sell” strategy in
Spain. This journey has included four M&A transactions and two operational turnarounds. When we originally
invested in Telecable in 2015, we identified an opportunity for substantial value creation through the combination
of the three independent northern Spanish cable operators. In 2017 we successfully sold Telecable to Euskaltel
and took a 15% shareholding in the leading integrated telecommunications operator in the north of Spain.
1 Operating profit excluding depreciation of property, plant and equipment and amortisation of intangible assets.
2 Compound Annual Growth Rate.
3
Euskaltel multiples based on its Enterprise Value divided by its reported 2020 EBITDA (as defined by Euskaltel) of €342.8 million and
reported 2020 Operating Cash Flow (as defined by Euskaltel as EBITDA-Capex) of €164.5 million. Comparable European Cable company
multiples of 6.7x 2020 EBITDA and 13.3x 2020 Operating Cash Flow (Source: Citigroup).
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ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | CHAIRMAN'S STATEMENT
The enlarged Euskaltel was a strategically attractive business with a strong competitive position in its home
markets and created the opportunity to deliver significant value from expanding nationally. We also identified
considerable further upside potential from industry consolidation. In 2019, we raised more than £100 million in
new equity capital at £1.05 per share to increase our investment and our influence in the business. As Euskaltel’s
largest shareholder, we introduced José Miguel García as CEO and, through our board representation, we
successfully implemented our plan to drive significant change in the business. This included realising synergies
from creating a single operating platform for Euskaltel’s three regional brands, returning the combined business
to growth and expanding nationally by launching the Virgin telco brand.
MásMóvil’s Offer underscores the success of our strategy in Spain and provides significant value creation for
Zegona shareholders. The Offer values Zegona’s shareholding at €428 million and equates to a Zegona Underlying
Asset Value of £1.70 per share4. This represents an 80% premium to Zegona’s share price immediately before the
announcement5 and a return on Zegona’s Net Invested Capital of 87%6 or 11%7 on an annualised basis.
Continuing to execute our buy fix-sell-strategy across European TMT
Once we exit Spain, we will continue to execute our buy-fix-sell strategy across the European TMT sector. We
will focus on businesses that require active change to realise full value, creating long-term returns through
fundamental business improvements.
We see a very healthy environment for investments across the broader European TMT industry. The market is
large and fragmented, with well over 100 operators, of which over half fit our desired investment size. We have
seen increased deal activity and greater availability of assets driven by significant consolidation and convergence.
We believe this will continue over the coming years, creating fertile ground to both buy and sell assets and once
again create significant shareholder value through fundamental improvement.
Eamonn O’Hare
Chairman and Chief Executive Officer
19 April 2021
4
5
6
7
See page 10 for calculation.
Premium to Zegona’s share price at market close on 26 March 2021 of 94.5 pence.
See page 11 for calculation.
10.7%.
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ZEGONA COMMUNICATIONS PLC 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
and reliability. Gigabit broadband is increasingly offered in many markets but network roll-outs and upgrades
need to be efficient.
• Digital convergence: The fixed/mobile divide is increasingly disappearing for users, meaning significant
growth in more valuable quad play8 customers who are combining mobile and fixed services. This has driven
an increase in merger and acquisition (“M&A”) activity and improvements in economics for converged
players since mobile data delivery is heavily dependent on high capacity fixed networks.
•
•
Industry consolidation: The sector has seen heightened M&A activity. Many private equity owners are
looking to sell assets as economies return to growth and industry players are focusing on their core regions,
delivering cost reductions and price repair to rebuild margins. Consolidation has also created opportunity
as businesses are spun out of corporates to meet regulatory requirements and strategic objectives, creating
opportunity for Zegona.
Infrastructure monetisation: The opportunity to enhance value through separating off and monetising
infrastructure assets, which in the telecommunications industry started with mobile towers, has expanded
to other assets including fixed networks. This creates new commercial options, both through providing a
route for incremental value creation and in the remaining ‘servco’ operations which may not have been the
main focus of attention in the initial infrastructure transaction.
• Broad range of attractive assets: Our flexibility in terms of size, geography and category opens a broad
universe of attractive target assets. We have identified many businesses of an appropriate scale across
a number of categories, including mobile-only players, mid-sized cable, fibre operators, smaller fixed
incumbents, B2B9 and network infrastructure.
Advantage
A number of factors make Zegona well positioned to access attractive deals and deliver value:
•
•
Strong, aligned management team: Our management team has a proven track record of delivering superior
business performance and investor returns. During 2017, the team successfully sold Telecable and were
instrumental in ensuring MásMovíl launched its cash tender offer to acquire 100% of Euskaltel in 2021. The
team has extensive real-world experience in senior operational roles in large public telecommunications
companies. The team’s interests are also strongly aligned with shareholders as they participate in a long-
term incentive scheme that links management remuneration directly to growth in shareholder value.
Entrepreneurial focus: We have considerable freedom in the projects we pursue and the ways we create
value. Unlike most private equity businesses, Zegona is free to choose the optimal period to hold assets and
can realise value using a range of approaches, of which a sale of the asset is only one. This also permits a
focus on fundamental business improvements that are value accretive rather than relying on high leverage
and multiple expansion. We are also able to act quickly on acquisition opportunities while still maintaining
financial discipline. This is especially attractive to potential sellers and a key differentiator.
8 Quad play: customers with four services (pay TV, fixed voice, broadband and mobile).
9 Business to Business.
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ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | STRATEGY AND BUSINESS MODEL
• Major global investors: A small number of global public equity asset managers10 with a long-term outlook
own more than 81% of Zegona. The placement of equity in February 2019 with gross proceeds of more than
£100 million which was used to become Euskaltel’s largest shareholder and drive change within the business
underlines investor confidence in our strategy. Our management team has an effective investor relations
programme which maintains regular contact with Zegona’s major shareholders and potential shareholders.
Strategy
We seek to provide shareholders with an attractive total return, primarily through appreciation in the value
of Zegona’s assets. Our strategy focuses on making investments in strategically sound businesses within the
European TMT sector that require active change to realise their full value, thereby creating significant long-term
returns through fundamental business improvements. While the main elements of Zegona’s strategy are set out
below, our overall strategic approach is to deal with each opportunity and situation presented to us individually
as it arises. For example, in the case of Zegona’s current investment in Euskaltel, our strategy has been to
increase our ownership position and seek to work constructively with the Euskaltel Board and management to
improve the performance of the business and make it more attractive to buyers, therefore encouraging industry
consolidation.
We evaluate potential investments using a disciplined set of financial and strategic criteria. We focus on:
•
•
•
Target businesses with an enterprise value range of £2-5 billion, although we may deviate outside of this
range if we believe the returns are sufficiently attractive;
TMT, network-based communications and entertainment businesses, primarily in Europe;
Strategically sound businesses with established market positions and limited expected downside risk, but
which have scope for fundamental improvement that is realistically achievable;
• Moderate leverage (usually 3-4x EBITDA11); and
• Multiple viable exit options pre-identified.
Many businesses across the TMT sector currently deliver sub-optimal returns which could be significantly
improved. We work with management to deliver fundamental business improvements, such as:
• Changing the businesses’ market positions;
• Being actively involved in the management of the businesses to drive operational improvements;
•
•
•
•
Instilling strong discipline around cost efficiency;
Investing in products, services and other value-accretive activities to drive top line growth;
Focusing on operating profitability and cash generation;
Ensuring a balanced and efficient capital structure; and
• Value enhancing bolt-on acquisitions/divestments.
Buyer interest is stimulated as the performance of each investment improves, providing Zegona with a range of
options to crystallise the value it has created:
• We identify the optimal time to crystallise the value we have created, with flexibility to adapt to market
changes and other opportunities;
•
Zegona’s publicly listed structure allows shareholders to realise value at any time and provides multiple
options for value delivery; and
•
Following a successful crystallisation, any surplus value will be reinvested or returned to shareholders.
10 Those with holdings in 3% or more of the issued ordinary shares of the Company are listed on page 49.
11 Operating profit excluding depreciation of property, plant and equipment and amortisation of intangible assets.
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ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Zegona is currently organised into two segments:
(i)
Investment in Euskaltel, which comprises Zegona’s share of the profit of Euskaltel and dividend income (and
the movements in fair value of the investment prior to recognising Euskaltel as an associate); and
(ii) central costs, which comprises costs incurred in supporting Zegona’s corporate activities, including staff and
premises costs related to the management team, ongoing costs of maintaining the corporate structure, the
costs incurred by Zegona in driving strategic initiatives at Euskaltel, evaluating new acquisition opportunities
and executing acquisition and disposal activities.
Review of investment in Euskaltel
Strategic developments
During 2020, the new management team at Euskaltel has continued to make excellent progress, combining
a focus on operating efficiency within the existing business with driving significant growth through national
expansion under the Virgin telco brand. In March 2020, Euskaltel published its 2020-2025 Business Plan setting
out its key strategic initiatives and its ambition to double the size of its customer base and grow revenues from
€700 million to over €1.2 billion and EBITDA from €340 million to over €470 million by 2025. The plan details the
actions being taken to grow in its existing core regions, to expand using the Virgin telco brand to offer high value
services to customers across Spain, and to continue to drive operational efficiencies through a single integrated
organisation. During 2020, Euskaltel has delivered on the key strategic initiatives that enable it to deliver its
ambitious business plan, with highlights including:
•
Integrating three operating companies into one business: A number of initiatives have been focussed on
generated €40 million of annual run-rate efficiencies. These have included putting in place a single efficient
organization, implementing a profit-focused sales structure, establishing a results-oriented customer care
program, rationalising IT and operating systems and cancelling unprofitable football rights agreements.
Further cost savings have been identified and Euskaltel continues to successfully reduce costs.
• Expanding nationally: Euskaltel launched services nationally across Spain under the Virgin telco brand in
May 2020, reaching 85% of the Spanish market where Euskaltel was not present before. This has enabled
Euskaltel to offer a full quad-play range of telecommunications services, including high quality high speed
FTTH broadband, data-rich mobile, landline telephony and 4K premium TV. The Virgin telco proposition
allows customers to select the services they want in order to design their own product bundle, rather than
having to take inflexible packages defined by the operator. The result is much better value for customers as
they only pay for the services they want and has allowed Virgin telco to become the brand in Spain with the
highest Net Promoter Scores12.
• Footprint expansion and 5G: Euskaltel has signed a number of agreements to provide access to nationwide
fibre networks, resulting in the expansion of the footprint of its fibre optic network by over 18 million new
homes nationwide in 2020. Euskaltel now covers more than 23 million homes across Spain through its four
brands. Increased network coverage and enhanced network management are key drivers for significant
continued profitable growth.
In addition to expanding its network footprint, during 2020, Euskaltel also announced an agreement with
Orange that will allow it to offer its 5G mobile technology as a Mobile Virtual Network Operator hosted on
the Orange network from 1 January 2022, although both parties may agree to bring this date forward to
when Orange launches its 5G Service.
• Strengthening leadership: Euskaltel has continued to strengthen the new organisation structure it adopted
in 2019 with key new executive hires including a new CFO appointed in January 2020. At the same time, the
board structure has been simplified, with the number of directors reduced from 13 to 10. This process has
also involved the appointment of two new independent directors with strong relevant experience.
12 Euskaltel Q420 results press release, 25 February 2021.
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ZEGONA COMMUNICATIONS PLC
STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
• Debt refinancing: In July 2020, Euskaltel replaced its €215 million amortising debt with a new €215 million
term loan with no amortisation before December 2023. This initiative has eliminated all term loan repayments
until December 2023 and increased the average maturity of Euskaltel’s corporate debt to over 4 years. The
refinancing provides financial flexibility to increase investments in its Virgin telco national expansion plan
and accelerate the realisation of profitable growth.
Operational and Financial performance
When it delivered its full-year results for 2020 on 25 February 2021, Euskaltel reported an acceleration of the
growth achieved since the new management team took over, with record figures in terms of customer base and
revenues, thus meeting the objectives for the year set out in its ambitious 2020-2025 business plan. This was
despite the challenges faced during 2020 due to the Covid-19 pandemic. These results were primarily delivered
through the successful Virgin telco launch which offset the impact of small declines caused by commercial
pressure in Euskaltel’s traditional markets in The Basque Country, Galicia and Asturias.
Customers
Euskaltel achieved a new customer base record in 2020, with more than 823,000 mass market which was an
increase of 7% on 2019’s base of 771,000. Total customer net additions were 52,000 (2019: 1,000), of which
47,000 were fixed lines customers (2019: 8,800). Of Euskaltel’s total mass market customers, 716,000 are fixed
line (2019: 669,000) and 107,000 are mobile-only (2019: 102,000).
The launch of Virgin telco has been highly successful, adding 71,000 new customers in just 7 months since launch,
which was more than 50% more than the target originally set for the end of 2020. These additions more than
offset a small number of customer losses in Euskaltel’s traditional markets.
The B2B segment also achieved growth of 1.4% in its customer base, with 16,000 corporate customers for the
Group at the end of 2020 (2019: 15,800). This growth was achieved in spite of the impact of the pandemic and
was due to strong demand for B2B telecommunications services, as a result of ongoing remote working practices
and Euskaltel's solid commitment to quality service and attentive customer care for companies.
Revenue
Euskaltel reported that in 2020 it had achieved its largest revenue growth in the last few years. Building on the
foundations of growth in Virgin telco's customer base and the strength of its other brands, revenue grew by
1.7% to a record €697.1 million, compared to €685 million in 2019. The fourth quarter of 2020 was the fifth
consecutive quarter of revenue growth on a year-on-year basis and, at 4.6%, Euskaltel’s highest revenue growth
in recent years.
This increase in revenue has been driven by Virgin telco's strong customer growth which has changed Euskaltel’s
revenue growth profile and offset a small reduction in mass market revenues in its traditional markets. Virgin
telco generated revenue of €7 million in the fourth quarter of the year and in just seven months it has generated
revenue of around €10 million. This is a reflection of the significant rise in customer numbers, which are expected
to continue increasing.
Revenue from Euskaltel’s traditional business also grew by 0.3%, thanks to stable customer revenues and
excellent results in the business services segment. The B2B segment achieved the biggest revenue growth in its
history, with an increase of 3.3% to €114.5 million in 2020 (2019: €110 million).
Profitability and financial position
Thanks to revenue quality and its focus on cost-management, Euskaltel reported a record Net Profit for 2020 of
€79.4 million, (2019: €62 million), which represents growth of 28%. Despite the impact of Covid-19, Euskaltel met
its EBITDA target for the year. Reported EBITDA was €342.8 million and when the expected impact of one-off
costs relating to the launch of Virgin telco are excluded, EBITDA would have been €352.4 million which represents
growth of 2.3% compared to 2019 (€344.5 million). A key reason for this growth in underlying EBITDA was
continued strong control of costs, with SG&A13 expenses reducing by 5.6% to €156.2 million from €165.4 million
in 2019.
13 Selling, General and Admin expenses.
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ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Reported Operating Cash Flow14 was €164.5 million (2019: €190.3 million). This was impacted by the costs of the
Virgin telco launch, particularly higher Capex in the fourth quarter as a result of significantly faster than expected
customer growth. Excluding this, Operating Cash Flow would have been €201.1 million, which represents growth
of 5.7% versus 2019.
Continued cash flow generation has allowed Euskaltel to continue on a clear deleveraging path with net debt
being reduced by €31 million in 2020. At 31 December 2020, Euskaltel’s ratio of net debt to EBITDA was 4.2
(2019: 4.3), its cost of debt was 2.6%, and its average debt maturity was 3.6 years. Euskaltel has achieved these
improvements despite the impact of the Virgin telco launch and dividend distributions of over €55 million in
2020.
Outlook for 2021
Euskaltel has announced that based on its strong performance in 2020 and the success of Virgin telco, it expects
significant further growth in 2021, both in terms of customer numbers and revenue. Euskaltel expects to
more than double the number of customer net adds achieved in 2020, with expected total mass market fixed
customers at end 2021 growing to between 840,000 and 860,000, compared to 716,000 at end 2020 (c.18%
growth). Euskaltel has also announced that it expects revenue growth of more than 6%, with revenue of between
€740 and €750 million by the end of 2021, compared to €697 million in 2020.
Performance of Zegona’s investment in 2020
During 2020, Zegona’s share of Euskaltel’s profit was €16.6 million (2019: € 9.1 million), which reflects Zegona’s
21.44% share of Euskaltel’s adjusted net profit of €77.3 million for the year. The increase is principally because
the investment was not accounted for as an associate until 10 July 2019.
The fair value of Zegona’s investment in Euskaltel was €335.1 million at 31 December 2020 (2019: €341.6 million)
with the decrease principally due to a slightly lower share price on 31 December 2020 of €8.75 compared to
€8.97 on 31 December 2019. As at 19 April 2021, the fair value of Zegona’s investment in Euskaltel has increased
substantially to €423.6 million which reflects an increase in the share price to €11.06. This is within 0.98% of
the price offered in MásMóvil’s Tender Offer for Euskaltel, which values Zegona’s investment at €427.7 million.
Zegona has successfully hedged the future inflow of cash and will receive £370 million if the Tender Offer is
completed successfully with no exposure if it is not.
During 2020, Zegona received €11.8 million in dividends from Euskaltel (2019 €10.2 million)15 which were
promptly passed back to Zegona’s shareholders in full. The increase was due to the increase in Zegona’s holding
in Euskaltel in 2020 compared to 2019.
Crystalising the value of Zegona’s investment in Euskaltel
We are pleased with the progress that has been made at Euskaltel. We have built a strong working relationship
with the board and management that is continuing to drive growth and create value. Since we increased our
investment in 2019, Euskaltel has implemented many of the key strategic initiatives that we identified at the
time and this has resulted in Euskaltel delivering a number of strong sets of results. Despite the impact that
Covid-19 has had on global equity markets, the value of Euskaltel’s market capitalisation has increased by 41%
since Zegona’s plan for the business was initiated in June 2019 and Euskaltel’s share price has significantly
outperformed its competitors in Spain even before the MásMóvil Offer while also paying dividends to Zegona of
€11.8 million.
14 Operating Cash Flow = EBITDA - Capex.
15 In 2020, and from 10 July 2019 to 31 December 2019, dividends received are recorded as a decrease to the carrying value of the
Interest in Associate in Zegona’s Statement of Financial Position. Prior to 10 July 2019, dividends received were recorded as Finance
Income in Zegona’s Statement of Comprehensive Income.
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ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
We believe our involvement with Euskaltel has created significant incremental value for both Zegona and
Euskaltel shareholders. However we have always been clear that we do not intend to hold our investment
indefinitely. When we increased our investment in Euskaltel in 2019, we committed to formally review Euskaltel’s
performance and the role played by us in adding value within two years and at regular intervals thereafter16. If we
had concluded that we could not continue to add significant further value in the foreseeable future, we would
either offer to return our Euskaltel shares to our shareholders, or sell them and promptly return the proceeds to
Zegona shareholders.
Zegona’s Board conducted two such reviews during 2020, both of which included input from external advisers,
and will continue to do them regularly if the MásMovíl’s Offer for Euskaltel does not complete successfully.
In the first half of the year we conducted our first review and concluded that we should continue to hold our
investment and work actively with Euskaltel, and we included a discussion of our reasons in our interim report
for the six months ended 30 June 2020.
During the second half of 2020, we conducted our second review. While the board recognised that the
consideration was more finely balanced, it concluded that it still remained appropriate for Zegona to hold its
investment in Euskaltel and continue in its role to drive further value within the business.
A key consideration in making this decision was the fact that Zegona is the leading shareholder in Euskaltel and
its holding represents a strategic stake, giving its owner significant influence within Euskaltel including two Board
seats. Zegona’s influence could be particularly significant in the event of any further consolidation opportunity
in the Spanish market.
This position was vindicated shortly thereafter when Euskaltel was approached by MásMóvil. Zegona was actively
involved in discussions with MásMóvil and, as lead shareholder, was able to maximise value for both Euskaltel’s
and Zegona’s shareholders.
On 28 March 2021, MásMóvil, launched a tender offer to acquire 100% of Euskaltel for €11.17 per share in cash.
The Offer values Euskaltel’s equity at €2.0 billion which equates to an Enterprise Value of €3.5 billion. Zegona
alongside the two other largest shareholders (Kutxabank and Alba), who together with Zegona own over 52%
of Euskaltel, have entered into irrevocable undertakings to tender all their shares. This gives us a high level of
certainty that the tender condition of over 75% acceptances will be achieved.
Assuming it completes, this transaction will generate very attractive returns for Zegona’s shareholders. The Offer
values Zegona’s shareholding at c.€427.7 million which equates to a Zegona Underlying Asset Value of £1.70 per
share, which represents an 80% premium to Zegona’s share price immediately before the announcement and a
return on Zegona’s Net Invested Capital of 87%, or 10.7% on an annualised basis. Zegona intends to consult with
shareholders to understand their views on allocation of proceeds if and when the Offer is completed successfully.
16 Zegona’s commitment in its January 2019 Prospectus was as follows:
Within 2 years of the placing, and at regular intervals thereafter, Zegona’s Board will formally review the Euskaltel business
performance and the role Zegona has played in adding value. If Zegona shares are trading at a material discount to the value implied
by the market value of its equity interest in Euskaltel at this time, Zegona expects to continue to hold its stake in Euskaltel only if:
a.
It is clear that during the period from the placing to the time of the review, Zegona has contributed significant value to the
Euskaltel business through its involvement; and
b.
Zegona is confident that it can continue to add significant further value in the foreseeable future.
If Zegona’s Board concludes that these conditions have not been met, Zegona would expect to return its Euskaltel shares to Zegona
shareholders via a dividend in specie or sell its stake in Euskaltel and promptly return the proceeds to Zegona shareholders, depending on
which approach is expected to maximise value.
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ZEGONA COMMUNICATIONS PLC
STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Review of Zegona’s corporate and other activities
Comprehensive Income
Zegona’s corporate and other activities resulted in an operating loss of €6.8 million (2019: €6.0 million) plus
net finance income of €3.2 million (2019: €37.5 million) and a foreign exchange gain of €1.3 million (2019:
€1.4 million), contributing a total loss for the year of €2.3 million (2019: €5.0 million).
Operating loss
Operating costs totalled €6.8 million (2019: €6.0 million) and included:
• €5.6 million (2019: €5.6 million) for Zegona’s ongoing corporate operations, with a reduction in staff bonuses
offset by a combination of non-recurring transitional costs incurred in restructuring Zegona’s accounting and
finance functions (that have already captured significant run-rate saving) and higher audit fees.
• €0.9 million (2019: nil) of costs related to Zegona’s incentive scheme. This consists mainly of a €0.8 million
non-cash charge calculated under IFRS 2, which requires the fair value the award deemed to have been
granted at the beginning of the new Calculation Period to be estimated at each balance sheet date, and an
expense recognised from 25 June 2020. This estimate will be recalculated and adjusted at each balance sheet
date prior to Zegona’s 2021 AGM (see note 18 to the financial statements).
• €0.3 million (2019: €0.3 million) for significant project costs, which in 2020 were principally advisory and
other professional fees incurred on a variety of projects related to potential acquisitions.
Net finance income
Net finance income totalled €3.2 million (2019: €37.5 million) and included:
•
Finance Income of €3.8 million (2019: €38.2 million) which principally comprises a gain on the fair value
of the contingent consideration from the sale of Telecable that reflects the reassessment of the value of
the underlying credits by Euskaltel (see note 15 to the financial statements). The principal reason for the
movement compared to 2019 was that 2019 included a €28 million gain on the investment in Euskaltel and
€10 million dividend from Euskaltel before it was accounted for as an associate.
•
Finance Costs of €0.6 million (2019: €0.7 million), being interest on bank borrowings.
Net foreign exchange
Net foreign exchange gain of €1.3 million (2019: €1.4 million), relates to gains on the revaluation of euro
denominated cash balances. In 2019 the gain also included the revaluation of the investment in Euskaltel
(prior to classification as an associate), whose shares are quoted in euros, within Zegona Limited and Zegona
Communications plc, who both have a functional currency of British pounds sterling (“Sterling”).
Other Comprehensive Income
Exchange differences on translation resulted in a loss of €18,703 (2019: gain €15,195). The variance year on year
arises as a result of movements in the closing €:£ exchange rates (from 1.18 at 31 December 2019 to 1.11 at
31 December 2020) as the Consolidated Financial Statements functional currency of Sterling (“£”) is translated
into presentational currency euro (“€”).
Shareholder remuneration
Zegona remains committed to paying dividends to shareholders and intends, while it continues to own its
investment in Euskaltel, to promptly return all dividends received from Euskaltel to its shareholders. During
2020, Zegona paid €11.3 million in dividends, representing a total of 4.6p per share. Zegona has also received
Euskaltel’s final dividend for 2020 of €5.4 million which was passed to shareholders via a 2.2p per share dividend
on 9 March 2021. Zegona will provide an update to our dividend policy in due course after the completion of the
Offer for Euskaltel.
During 2020, Zegona launched two share buy-back programmes. As a result of these, it bought back over
£3.0 million worth of Zegona shares at an average price of £1.03 per share, which were then cancelled. These
programmes successfully increased the Underlying Asset Value per share for remaining shareholders.
9
ZEGONA COMMUNICATIONS PLC
STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Key performance indicators and non-GAAP measures
As Zegona does not currently have an operating business, there are limited material key performance indicators
that provide a useful measure of Zegona’s business performance and position other than financial measures
defined by generally accepted accounting principles (“GAAP”) such as IFRS with the exception of:
Underlying Asset Value and Underlying Asset Value per share
Zegona’s principal asset is its 21.44% ownership of Euskaltel, where it is the largest shareholder. Zegona believes
it is helpful for its shareholders to be aware of the development in the value of Euskaltel, and to understand
what this represents in terms of the value of the Euskaltel investment and Zegona’s other main assets per Zegona
share, especially since Zegona no longer accounts for its investment in Euskaltel at fair value, and how this
compares to the market value of Zegona’s shares, and also how this value compares to the Net Invested Capital
and Preferred Return threshold under Zegona’s incentive scheme17.
The Underlying Asset Value per share is a computation of the Sterling equivalent of the fair value of Zegona’s
investment in Euskaltel, its cash and cash equivalents, bank borrowings and expected receipts under the
contingent consideration, divided by the total number of shares outstanding. Other assets and liabilities are
not included in the calculation but historically have not been material. The calculation also includes no value
(liability) for Zegona’s management incentive scheme. The calculation is as follows:
Investment in Euskaltel (€000)
Cash and cash equivalents (€000)
Bank borrowings (€000)
Contingent consideration (€000)4
Underlying Asset Value (€000)
Foreign exchange rate (€ / £)
Underlying Asset Value (£000)
Shares outstanding
28 March
20211
31 December
2020
31 December
2019
427,7852
335,1053
341,5843
8,815
(11,559)
8,650
433,691
1.16866
371,101
15,244
(11,128)
–
339,221
1.11278
304,841
27,035
(11,578)
–
357,041
1.17547
303,743
218,970,076
218,970,076
221,935,177
Underlying Asset Value per share (£)
1.70
1.39
1.37
1. Date of announcement of offer for Euskaltel by MásMóvil.
2. 38.3 million shares at the offer price of €11.17 per share.
3. At Fair Value, see note 12 to the financial statements.
4. Expected by Zegona to be paid after the settlement of the Offer at the value of €8.654 million, which is the liability to Zegona recorded in
Euskaltel’s Financial Statements for the year ended 31 December 2020 (see note 15 to the financial statements). Not included in periods
prior to 28 March 2021 due to the level of uncertainty over amount.
17 As defined on page 42.
10
ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | BUSINESS AND FINANCIAL REVIEW
Return on Zegona’s Net Invested Capital
Zegona uses Return on Net Invested Capital as a measure to demonstrate the value generated for investors
by significant transactions, compared to the amount originally invested. Zegona believes it is both useful and
necessary to report these amounts because they quantify Zegona’s success in executing its buy-fix-sell strategy
in the same terms that investors use as a key metric when allocating capital. This is especially necessary as there
are no GAAP measures that articulate this performance in terms that are consistent with those used by the
investment community.
Return on Zegona’s Net Invested Capital is calculated as the percentage by which Zegona’s Underlying Asset
Value exceeds Zegona’s Net Invested Capital. Zegona’s Net Invested Capital represents the net amount of all
shareholder subscriptions less all returns to shareholders, including dividends, capital returns and share buy-
backs since Zegona’s initial quotation on the AIM Market in March 2015 and is the same term as is used in
calculating amounts due on the Management Shares that form a part of Zegona’s management incentive scheme.
Return on Net Invested Capital as at 28 March 2021 was calculated as follows:
Underlying Asset Value
Net Invested Capital at 31 December 20201
Dividend Paid2
Net Invested Capital at 28 March 2021
Return on Net Invested Capital3
1. See page 42.
2. See note 27 to the financial statements.
3. Calculated as the percentage by which Zegona’s Underlying Asset Value exceeds Zegona’s Net Invested Capital.
28 March
2021
371,101,068
203,330,255
(4,817,342)
198,512,913
87%
11
ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | RISKS
Principal and emerging risks
We have carried out robust assessments of the principal and emerging risks facing Zegona including those that
would threaten our business model, future performance, solvency or liquidity. Detailed consideration is given to
all of these risk factors by the Audit and Risk Committee and the board of Directors (the “Board”).
Principal and emerging risks
Risk title
Risks related to the investment in Euskaltel
Acquisition of targets
Key management
Disposal of investments
Brexit
Foreign exchange
Risk rating
Moderate
Moderate
Moderate
Low
Low
Moderate
Change in risk assessment
since the last Annual Report
↓ Decreased
↔ No change
↔ No change
↓ Decreased
↓ Decreased
↑
Increased
The description, impact and mitigation of these risks are set out below:
Risks related to the investment in Euskaltel
On 29 March 2021, Zegona announced that a subsidiary of MásMóvil Ibercom, S.A.U (“MásMóvil”), the Spanish
fourth national operator, has launched a tender offer for Euskaltel. Zegona expects this Offer will be successful,
but if it is not, it will continue to hold its 21.44% holding of Euskaltel, which was its sole operating asset at 31
December 2020 and continue to be exposed to the risks of this investment. The value of this investment is
dependent on Euskaltel’s performance, which could, in turn, be adversely impacted by risks that Euskaltel is
exposed to. Some of these risks are common to telecommunications operators in Spain and others that are
specific to Euskaltel itself. Whilst not exhaustive, Zegona believes the most significant of these risks are:
• Spanish economy and Covid-19: The resurgence in infections since the autumn of 2020, together with the
appearance of new, more contagious variants of the coronavirus, have forced many countries to reintroduce
or tighten containment measures, including Spain. Mobility and social interaction activities declined, thus
weakening economic activity in the final months of the year. Nonetheless, GDP growth in the fourth quarter
remained in positive territory, at 0.4%, even though domestic demand components strongly reduced their
pace of growth. As a result, GDP decreased by 11% in 2020 as a whole. The near-term outlook for 2021
is clouded by the rise in infection rates early in the year and the more restrictive measures put in place
by most Spanish regions. As a result, private consumption and investment are expected to fall in the first
quarter before recovering slightly in the second. As the vaccination process advances and restrictions are
progressively lifted, economic activity is expected to pick-up strongly over the second half of 2021. Overall,
GDP is forecast to grow by 5.6% in 2021. While Euskaltel has not been significantly impacted so far by the
Covid-19 pandemic, some uncertainty still remains over the Spanish economy in general and its impact on
the telecommunications sector which could negatively impact Euskaltel’s performance and its equity value.
• Competitive environment: The Spanish telecom market continues to remain one of the most competitive
in Europe, with six operators with multiple brands competing for customers on a national level. The value
segment market remains crowded with operators aiming to win share and with consumers opting for ‘value’
bundles at the expense of the premium segment. This competition includes offers with aggressive discounts
and could negatively impact Euskaltel’s business. To compete effectively, Euskaltel will need to continue to
successfully design and market its services and anticipate and respond to competitive factors. If it is unable
to do this, results could fall short of current expectations.
• Delivery of change programme: José Miguel García has instituted a comprehensive and wide-ranging
organisational and operational change programme across all aspects of Euskaltel’s business, which Zegona
fully supports. While this programme has already delivered significant benefits, it remains ongoing. There is a
risk that, if these improvements are not delivered, there could be an adverse impact on Euskaltel’s business.
12
ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | RISKS
• Success of national expansion: A key part of Euskaltel’s growth strategy is to expand nationally using
the Virgin brand to offer high value services to customers across Spain. While this provides a significant
opportunity and the early growth of Virgin telco has been well ahead of plan, it is a logistically complex
project that requires acquiring customers in a competitive market. There is a risk that, if the project is not
as successful as hoped, this could have a negative impact on Euskaltel’s performance and on the value of
Zegona’s investment.
We regularly review the risk-adjusted returns of the Euskaltel investment and, if the Tender Offer is unsuccessful,
we will consider whether it is appropriate to retain ownership or to realise the value of our shareholding in
Euskaltel.
In addition, Zegona’s Chief Executive Officer Eamonn O’Hare and Chief Operating Officer Robert Samuelson
are both proprietary directors18 on Euskaltel’s Board enables them to take a hands-on role ensuring Euskaltel
appropriately manages these risks while at the same time delivering tangible improvement actions.
Acquisition of targets
The success of Zegona’s future investment strategy depends on our ability to identify and successfully acquire
available and suitable targets. There is a risk that we will not be able to:
•
•
identify available targets based on competition in the marketplace;
identify suitable targets at a price that allows for acceptable returns;
• obtain any consents or authorisations required to carry out an acquisition;
• procure the necessary financing, be this from equity, debt or a combination; or
• be successful in the acquisition of an identified target under all or any market conditions.
In making acquisitions, there is also a risk of unforeseen liabilities being later discovered which were not
uncovered or known at the time of the due diligence process. In pursuit of new acquisition targets, significant
abort costs may be incurred if we are not able to complete the proposed acquisition (for example, because
Zegona has been outbid by a competitor), which may deplete Zegona’s cash and available liquidity.
We have a disciplined approach to valuation and, ultimately, we are only prepared to make investments at
the right price and after undertaking a very structured and thorough due diligence process. When evaluating
potential investments, we focus on targets that have strong fundamentals, high-quality offerings and leading
market positions but which are underperforming their potential and have scope to generate sustainable
performance and cash flow improvements.
The success of Zegona’s acquisitions depend on our ability to implement the necessary strategic, operational
and financial change programmes in order to refocus the acquired business and improve its performance.
Implementing these change programmes may require significant modifications, including changes to business
assets, operating and financial processes, business systems, management techniques and personnel, including
senior management. There is a risk that we will not be able to successfully implement such change programmes
within a reasonable timescale and cost.
As Covid-19 waves continue across Europe, it is possible that access to significant debt and equity financing may
become more difficult, thus temporarily impacting Zegona’s ability to complete new acquisitions in a reasonable
timeframe. Zegona believes that, as countries begin to ease restrictions in the coming months and economic
activity begins to recover, the difficulties in accessing debt and equity financing will reduce.
18
Proprietary director means a director of a company who is the beneficial owner of or is able, either directly, either directly or
indirectly, to control more than 15% of the ordinary share capital of the company.
13
ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | RISKS
Key management
Zegona’s operations are currently managed by the Chief Executive Officer, supported by the Chief Operating
Officer, the Investment Director and the Chief Financial Officer. The absence or loss of key management could
significantly impede our financial plans and the execution of our planned strategy with respect to the Euskaltel
business, as well as other plans, though there has been no such absence or loss since Zegona was founded.
We aim to retain our key staff by offering remuneration packages at market rates, as well as long term incentives
through the issue of Management Shares and other management incentive plans. The management team is
small which places a natural limit on the volume of deal flow that can be addressed. The management team
itself along with the Non-Executive Directors continually challenge the focus of the business and the allocation
of resources amongst projects.
Disposal of investments
Our ability to dispose of Zegona’s investment at the optimum time, and the availability of a suitable buyer who
is willing and able to acquire the investment at an acceptable price or in a deal with an acceptable structure, is
key to the success of our strategy. There is a risk that such suitable buyers cannot be identified, thus reducing
the returns on investments.
We have proven our ability to execute our strategy since the formation of Zegona and due consideration is given
to an exit strategy as part of the acquisition process.
Brexit
The UK ceased to be a member state of the European Union on 31 January 2020. In December 2020, the UK and
EU signed the UK-EU Trade and Cooperation Agreement (the "TCA"). This agreement governs the relationship
between the EU and the UK following the end of the transition period agreed after the UK officially left the EU.
The agreement provides for free trade in goods and limited mutual market access in services, as well as for
cooperation mechanisms in a range of policy areas, transitional provisions about EU access to UK fisheries, and
UK participation in some EU programs. On 31 December 2020, the UK ceased to be a member of the EU Single
Market and Customs Union.
While the TCA does clarify a number of matters concerning the UK’s ongoing legal, political and economic
relationship with the EU, there are number of areas that are not covered. Due to this and the size and importance
of the UK economy, it is possible that the UK’s exit from the EU may continue to be a source of instability in
the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading
agreements or similar cross-border co-operation arrangements (whether economic, tax (including the tax
treatment of cross border payments), fiscal, legal, regulatory or otherwise) for the foreseeable future. Such
continued uncertainty could have an adverse impact on the number or attractiveness of acquisition opportunities
available to Zegona.
The long-term effects of Brexit will depend on any agreements (or lack thereof) between the UK and the EU
and, in particular, any arrangements for the UK to retain access to EU markets. Additionally, the exchange rate
of Sterling vis-a-vis other currencies may continue to be relatively volatile, which could result in increasing
costs of non-sterling denominated expenses and other obligations and in changes in the value of non-sterling
denominated assets. Furthermore, UK regulatory requirements could be subject to significant change and could
place an additional burden on Zegona.
Foreign exchange
Transactional foreign currency risk is the risk of loss that Zegona bears when entering monetary transactions
denominated in currencies other than Sterling, the currency in which Zegona main entities operate.
Zegona is also exposed to economic foreign currency risk, which is the risk that fluctuations in the Sterling/ euro
rate will impact the Sterling value of proceeds from the sale of the investment in Euskaltel, an investment that is
accounted for as an associated and therefore carried at historic cost. There is a risk that unfavourable Sterling/
euro fluctuations from the time of the offer announcement of MásMóvil’s Offer to the completion of the deal
will result in a lower gain than expected and lower returns to shareholders.
14
ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | RISKS
The Board and the Chief Financial Officer control and monitor financial risk management, including foreign
currency risk, in accordance with the internal policy and the strategic plan defined by the Board.
Longer term viability statement
1. Zegona’s prospects
In accordance with provision 31 of the 2018 UK Corporate Governance Code, we have assessed Zegona’s
prospects over a longer period than the twelve months required by the going concern provision. This assessment
has taken into account Zegona’s current position, its strategy, the risk appetite of the Board and the principal
risks and uncertainties which are described in detail in this Strategic Report.
Zegona does not control any operating businesses and, currently, the most significant factor affecting Zegona’s
prospects is the Offer from MásMóvil. If the Offer is completed successfully, Zegona will receive €427.7 million
in cash for its stake in Euskaltel. This cash will be used to repay its loan, and Zegona will have sufficient cash and
liquid resources to continue in operation throughout the assessment period. On choosing to return a portion of
the proceeds to its Shareholders, it will have discretion to retain sufficient cash to ensure it remains viable.
In this context, Zegona has also assessed the impact if the Offer was not successful on its viability assessment, as
explained further below.
2. The assessment period
We continue to believe that three years – in this case the three years to December 2023 – is the appropriate
period over which Zegona should assess its viability for the following reasons:
•
Three years allows us to assess a full range of possibilities and covers Zegona’s investment cycle; and
• A three-year period enables us to make an appropriate assessment of Zegona’s principal risks.
3. The assessment process and key assumptions
The Directors approve a forecast on an annual basis which is sufficiently detailed to explain all cash inflows and
outflows and includes a description of all reasonably possible risks and opportunities. Each month, the Board
is provided with an analysis of actual performance against the forecast. Given the straightforward nature of
Zegona’s financial operations at this point, this forecast is considered appropriate to form the base model for the
viability assessment.
Under our base model, MásMóvil’s Offer is successful and, Zegona will receive €427.7 million in cash for its shares
in Euskaltel. The cash will be used to repay its £10 million loan from Barclays and to continue its operations
throughout the assessment period. On choosing to return a portion of the proceeds to its Shareholders, it has
been assumed it will retain sufficient cash to ensure it remains viable.
In addition to the base model, we also considered whether the principal and emerging risks (as discussed in the
Principal and Emerging Risks section above) and the unlikely failure of the Offer would have further impact in our
assessed viability as shown below under the downside scenario. Each of these principal risks take account of the
on-going impact of Covid-19:
Principal and
emerging risks
Base model
Downside
scenario
Comment
Investment in Euskaltel
✔
✘
The base case model assumes that the Offer will go
ahead. Under the downside scenario, the Offer does
not progress and Zegona continues to hold 21.44% of
Euskaltel and continues to pass through any dividends
received during the period to Zegona’s shareholders.
Since dividends are passed through, the impact of
declining performance on cash flows, for example
as a result of Covid-19, are limited, and therefore no
further downside impacts need to be modelled.
15
ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | RISKS
Acquisition of targets
Key management
✔
✔
Disposal of investments
✔
Brexit
✔
✔
✘
✘
✘
Foreign exchange
✔
✔
The most significant risk to viability. The base model
assumes no acquisitions but includes substantial abort
costs. In the downside scenario, additional abort
costs and other operating costs are considered.
The most significant consequence of the loss or absence
of key management would likely be on our ability to
execute another acquisition. This is already included in
the base case, therefore no further downside impacts
need to be modelled.
The base case model assumes that the Offer will go
ahead. Under the downside scenario, the Offer does
not progress and Zegona continues to hold 21.44% of
Euskaltel
The most significant consequence of Brexit would
likely be on our ability to execute another acquisition
or exit Euskaltel at the desired time, if the Offer does
not progress, which is already considered as part of the
‘Acquisition of targets’ and ‘Disposal of investments’ risk.
Addressed in the base model through the assumptions
about Sterling/euro rates for the proceeds from the
MásMóvil’s tender offer. In the event that the Offer does
not go ahead, the downside scenario assumes dividends
received from Euskaltel during the assessment period
are passed in full to Zegona’s shareholders, therefore
currency fluctuations do impact the level of dividends
passed to shareholders but not the net cashflow position.
Based on the evaluation of the principal risks above, combined with a consideration of other factors (including
the impact of the on-going Covid-19 pandemic) the Directors identified a severe but plausible downside scenario
which was further used to stress test the base numbers.
The downside scenario includes principally the event that MásMóvil’s Offer does not complete successfully
(which is considered by Zegona to be unlikely) and Zegona refinances its credit facilities in a similar amount and
on similar terms as the current facility.
4. Results of the assessment
The assessment showed that in both the base case and the downside scenario, Zegona would have sufficient cash
and liquid resources to continue in operation throughout the assessment period without taking any mitigating
actions available to it.
In the event that the Offer from MásMóvil does not complete successfully, given the small size of Zegona’s
existing facility compared to the value of the Euskaltel shares that it is secured on, Zegona believes it is highly
probable it will be able to refinance the facility. However, if the facility were not refinanced, the current pledge
to Barclays on Euskaltel shares will cease and therefore Zegona could, when additional liquidity was needed,
sell part of its shareholding in Euskaltel or deploy one or more liquidity enhancing actions, including reducing
discretionary expenditure or retaining part of the Euskaltel dividend.
5. Viability statement
Taking into account Zegona’s current position and principal and emerging risks and uncertainties, the Directors
confirm that we have a reasonable expectation that Zegona will be able to continue in operation and meet its
liabilities as they fall due over the three years to December 2023.
16
ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | CORPORATE RESPONSIBILITY
Corporate social responsibility
We recognise our obligations to act responsibly, ethically and with integrity in our dealings with staff, suppliers
and the environment as a whole. We are committed to being a socially responsible business.
Our people
We value and respect the unique contributions of each individual, and we are committed to ensuring that every
employee is treated with dignity and respect and has a meaningful opportunity to contribute to Zegona’s success.
Zegona’s employees are encouraged to actively engage with charitable activities.
Zegona recognises that a productive workforce requires a breadth of experience and perspectives achieved
through hiring individuals with diverse experience. Board Directors and senior managers have been appointed
to bring required skills, knowledge and experience. During the year two female independent Non-Executive
Directors were appointed to the Board, improving Zegona’s diversity. The Nomination and Remuneration
Committee will continue to consider the diversity of the Board for further new appointments.
The table below shows the breakdown of our workforce at the end of 2020.
Board Directors
Senior management
Other staff
Total
Male
Female
Total
4
3
–
7
2
–
3
5
6
3
3
12
This breakdown excludes directors of companies in liquidation at 31 December 2020. Senior management is per
the definition in section 414C of the UK Companies Act 2006.
Culture
Ethical values and behaviours are embedded in the corporate culture which the Board upholds. The Directors
foster a culture where transparency, openness, integrity and constructive challenge are actively encouraged, and
the Board works closely with senior management to ensure a positive culture.
Human rights
As part of our effort to conduct business in an ethical manner, Zegona has not engaged in and will not engage in
business practices or activities that compromise fundamental human rights.
Environmental matters
We are committed to minimising Zegona’s impact on the environment and seek to encourage our employees to
recycle, minimise energy wastage, and do their part to ensure that Zegona acts responsibly.
We have compiled our greenhouse gas (“GHG”) emissions in accordance with the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013. Calculations follow the GHG Protocol Corporate Accounting
and Reporting Standard (revised edition). The GHG reporting period aligns with the financial statements and
boundaries are defined using the financial control approach. GHG emissions are broken down into three
categories; reporting is required only on scope 1 and 2:
Scope 1 emissions: Direct emissions from sources owned or controlled by Zegona.
Scope 2 emissions: Indirect emissions attributable to Zegona due to its consumption of purchased electricity.
Scope 3 emissions: Other indirect emissions associated with activities that support or supply Zegona’s operations.
17
ZEGONA COMMUNICATIONS PLC STRATEGIC REPORT | CORPORATE RESPONSIBILITY
Zegona has no Scope 1 emissions. Zegona Scope 2 and Scope 3 emissions for the year to 31 December 2020 and
comparative period are shown below:
Scope 2 (electricity)
Per €m operating expenses
Scope 3 (water consumption, business travel)
Per €m operating expenses
Global tonnes of CO2e
2020
1.7
0.24
4.9
0.7
2019
5.7
0.95
49.7
8.3
All emission factors have been selected from the emissions conversion factors published annually by the
Department for Environment, Food and Rural Affairs and the International Energy Agency. Scope 2 and Scope 3
emissions have decreased in 2020 due to homeworking arrangements and restrictions on travel imposed in
response to the COVID-19 pandemic.
No further energy and carbon information is disclosed as Zegona is exempt on the grounds of being a low energy
user.
Board engagement with our key stakeholders
Section 172 of the Companies Act 2006 requires a Director of a company to act in the way he or she considers, in
good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
In doing this, section 172 requires a Director to have regard, among other matters, to: the likely consequences
of any decision in the long term; the interests of the company’s employees; the need to foster the company’s
business relationships with suppliers, and others; the impact of the company’s operations on the community
and the environment; the desirability of the company maintaining a reputation for high standards of business
conduct; and the need to act fairly with members of the company.
The Directors give careful consideration to the factors set out above in discharging their duties under section 172.
More information about who our key stakeholders are and how we engage with them is provided on page 25.
The Strategic Report was approved by the Board on 19 April 2021 and is signed on its behalf by:
Eamonn O’Hare
Chairman and Chief Executive Officer
18
ZEGONA COMMUNICATIONS PLC PROFILES OF THE DIRECTORS
GOVERNANCE | PROFILES OF THE DIRECTORS
Eamonn O’Hare, Chairman and CEO (appointed 19 January 2015)
Eamonn has spent over two decades as a board member and senior executive of some of the world’s fastest
growing consumer and technology businesses. From 2009 to 2013 he was CFO and main board director of the
UK’s leading entertainment and communications business, Virgin Media. Eamonn helped lead the successful
transformation of this business and its strategic sale to Liberty Global for US$24 billion, crystallising US$14 billion
of incremental shareholder value. From 2005 to 2009, he served as the CFO for the UK division of one of the
world’s largest retailers, Tesco plc. Before joining Tesco, Eamonn was CFO and main board director of Energis
Communications and helped lead the turnaround of this high profile UK telecommunications company. Prior to
this, he spent 10 years at PepsiCo Inc. in senior executive roles in Europe, Asia and the Middle East. Eamonn’s
early career was spent in the aerospace industry with companies that included Rolls Royce and British Aerospace.
Eamonn is a proprietary director of Euskaltel. He also serves as a non-executive director on the main board of
Dialog Semiconductor Plc, a leading edge consumer technology business that provides critical components for
the world’s most successful mobile device brands. The fees for these appointments are disclosed in the Directors’
Remuneration Report on page 46.
Eamonn has a degree in Aerospace Engineering from the Queen’s University Belfast and an MBA from the London
Business School.
Robert Samuelson, Executive Director and COO (appointed 19 January 2015)
Robert was Executive Director Group Strategy of Virgin Media from 2011 to 2014, during which time he was
centrally involved in the sale of the business to Liberty Global and in the post-merger integration process. Prior to
this, Robert was a managing partner at Virgin Group with global responsibility for developing and realising returns
from Virgin’s telecommunications and media businesses. Before joining Virgin Group, Robert was a director at
Arthur D Little Ltd, where he co-led the European corporate finance practice, providing strategic advice to major
European telecommunications operators. His early career was spent with British Aerospace and Royal Ordnance
in engineering and production management roles.
Robert is a proprietary director of Euskaltel and the fees for this appointment are disclosed in the Directors’
Remuneration Report on page 46.
Robert studied Natural Sciences at Cambridge University and has an MBA from Cranfield School of Management.
Richard Williams, independent Non-Executive Director (appointed 9 November 2015)
Richard is an experienced Non-Executive Director with significant board level experience in both public and
private companies and currently holds a number of Non-Executive Director roles. Richard spent most of his
executive career in European telecommunications, most recently as a Director of Investor Relations at Altice,
and prior to that, Virgin Media. Richard led Virgin Media’s investor relations activity through to the acquisition of
the company by Liberty Global in 2013. Richard then joined Altice, where he supported the company’s IPO and
Altice’s acquisition of SFR and Portugal Telecom.
Richard is a member of both the Nomination and Remuneration Committee and the Audit and Risk Committee.
Richard is a qualified Chartered Accountant.
19
ZEGONA COMMUNICATIONS PLC PROFILES OF THE DIRECTORS
GOVERNANCE | PROFILES OF THE DIRECTORS
Ashley Martin, independent Non-Executive Director (appointed 6 February 2017)
Ashley brings a wealth of complementary experience to the Board. Ashley was Audit Committee Chair at
Rightmove plc from 2009 to 2018 and, in that role, gained valuable insight into an entrepreneurial, high-growth
consumer technology business. On 1 September 2018, Ashley was appointed as a non-executive director of the
international research data and analytics group YouGov plc. Ashley has also enjoyed a successful executive career
spanning 35 years in larger listed companies, with a particular focus on mergers and acquisitions. Ashley was
Global Chief Financial Officer of private equity-backed Engine Holding LLC, and was previously the Group Finance
Director of Rok plc, the building services group, and Group Finance Director of the media services company,
Tempus plc.
Ashley qualified as a Chartered Accountant with Armitage & Norton (now part of KPMG LLP).
Ashley is Chair of the Audit and Risk Committee and a member of the Nomination and Remuneration Committee.
Kjersti Wiklund, independent Non-Executive Director (appointed 5 February 2020)
Kjersti brings significant experience from a series of senior global telecommunications roles, including as director
of group technology operations at Vodafone and chief operating officer of VimpelCom. Kjersti has also held
senior executive positions at Kyivstar, Digi Telecommunications and Telenor.
Kjersti has also gained valuable insight into an entrepreneurial, high growth consumer technology company as
Remuneration Committee Chair at Trainline plc. She was previously a non-executive director of Laird plc in the
UK, Cxense ASA and Fast Search & Transfer ASA in Norway and Telescience Inc in the USA and is currently a non-
executive director of Babcock International Group PLC and Spectris PLC.
Kjersti is a member of the Audit and Risk Committee.
Suzi Williams, independent Non-Executive Director (appointed 5 February 2020)
Suzi brings skills and experience from over 25 years in telecommunications, media and consumer businesses in
the UK and internationally. As Chief Brand and Marketing Officer at BT, she was part of the team who transformed
the business. Prior to that, she was Commercial Development Director at Capital Radio Group and held senior
leadership roles at Orange, the BBC, KPMG Consulting, and Procter & Gamble Europe.
Suzi was a board member at The AA plc from 2015 until March 2021, when the business was acquired by a private
equity consortium of Towerbrook and Warburg Pincus. In 2020 she joined the Boards of Workspace Group Plc
(where she is Chair of Remuneration) and of the multi-utility business, Telecom Plus plc. She also advises a
number of early stage technology and AI businesses.
Suzi is the Chair of the Nomination and Remuneration Committee.
20
ZEGONA COMMUNICATIONS PLC CORPORATE GOVERNANCE REPORT
GOVERNANCE | CORPORATE GOVERNANCE REPORT
Overview
The corporate governance report, presented here, forms part of the Directors’ Report and as such it has been
approved by the Board and signed on its behalf by the Chairman.
We recognise the importance of sound corporate governance commensurate with the size of Zegona. Corporate
governance provides the framework within which we form our decisions and build our business. The Board is
focused on creating long-term sustainable growth for our shareholders and value for all our stakeholders, and
we strongly believe our corporate governance framework helps us achieve this goal. It is our commitment to
continue to seek opportunities to improve our corporate governance arrangements.
The following sections of this report show how Zegona applies the main provisions set out in the 2018 UK Corporate
Governance Code (the “Code”), issued by the Financial Reporting Council (“FRC”), as would be required by the
Listing Rules of the Financial Conduct Authority (“FCA”) as applicable to non-FTSE 350 companies if Zegona were
admitted to the Premium segment of the Official List, and how Zegona meets the relevant information provisions
of the Disclosure and Transparency Rules of the FCA (the “DTR”).
Zegona’s principal risks are described on pages 12 to 16. The Directors’ Report on pages 48 to 50 also contains
information required to be included in this statement of corporate governance.
The Board of Directors
Zegona is led and controlled by an effective Board. The Board at the date of approval of this report comprises
two Executive Directors and four independent Non-Executive Directors. The two Executive Directors are Eamonn
O’Hare (Chairman and Chief Executive Officer (“CEO”)) and Robert Samuelson (Chief Operating Officer (“COO”)).
The Non-Executive Directors are Richard Williams, Ashley Martin, Kjersti Wiklund and Suzi Williams.
Biographical details of all Directors and details of their committee membership at the date of approval of this
report appear on pages 19 to 20. Consideration of the Board size and composition is kept under regular review
by the Nomination and Remuneration Committee.
Powers and operation of the Board
In exercising its duty to promote the success of Zegona, the Board is responsible for overseeing the management
of Zegona and, in doing so, may exercise its powers, subject to any relevant laws, regulations and Zegona’s
Articles of Association. The Board is presented with papers from management concerning financial information,
information on investor relations and details of acquisition targets and deal progress, which it takes into account
in discussions and in the decision-making process under section 172 of the Companies Act 2006.
Eamonn O’Hare, as the Chairman and CEO, is primarily responsible for the running of the Board and for the
day-to-day running of Zegona. All Board members have full access to Zegona’s advisers for seeking professional
advice at Zegona’s expense and our culture is to discuss openly any important issues and frequently engage
with Board members outside of formal meetings. The operating and financial responsibility for all subsidiary
companies is the responsibility of the Board.
The Board has adopted a Board Charter, available on Zegona’s website, which sets out:
•
•
the Board’s collective vision on Zegona’s strategy and objectives;
the Board’s approach to the conduct of its business and the parameters within which it will operate, including
the management of any Board or investor disagreements; and
•
the Board’s agreed focus areas for further action.
The Board meets formally at least six times a year but also frequently meets additionally on an ad hoc basis
where necessary. The Directors are encouraged to have free and open contact with management at all levels and
full access to all relevant available information. The Executive Directors actively and constructively encourage
challenge and seek input from the Non-Executive Directors to draw on their extensive experience and knowledge.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | CORPORATE GOVERNANCE REPORT
The Board believes that the role of the Non-Executive Directors in providing independent challenge is a vital
component of an effective Board.
The Board delegates the day to day responsibility for running Zegona to the executive management, however
there are a number of matters which are required to be or should only be decided by the Board of directors as a
whole in accordance with the UK Corporate Governance Code. An updated schedule of Matters reserved for the
Board, approved by the Board on 9 June 2020, can be found on Zegona’s website19.
Board committees
The Board has established two principal committees, the Audit and Risk Committee and the Nomination and
Remuneration Committee, to assist it in the execution of its duties. If the need should arise, the Board may set
up additional committees as appropriate. The committees’ terms of reference are available on Zegona’s website,
www.zegona.com, or by request from the Company Secretary. Each of the committees is authorised, at Zegona’s
expense, to obtain legal or other professional advice to assist in carrying out its duties. No person other than a
committee member is entitled to attend the meetings of these committees, except by invitation of the chairman
of that committee.
Current membership of the committees is shown on pages 19 to 20. The composition of these committees
is reviewed regularly, taking into consideration the recommendations of the Nomination and Remuneration
Committee.
Independence of the Board
The Code specifies that the Board should identify in the annual report each Non-Executive Director it considers to
be independent. The Board considers that Ashley Martin, Richard Williams, Kjersti Wiklund and Suzi Williams are
independent Non-Executive Directors for the purposes of the Code and have no relationships or circumstances
which are likely to affect, or could appear to affect, their judgement as Directors.
Board and committee attendance
Attendance at the Board and committee meetings held during 2020 was:
Eamonn O’Hare
Robert Samuelson
Mark Brangstrup Watts20
Murray Scott21
Richard Williams
Ashley Martin
Suzi Williams22
Kjersti Wiklund23
Nomination and
Remuneration
Committee
Audit and Risk
Committee
–
–
2/2
1/1
4/4
4/4
4/4
–
–
–
–
1/1
3/3
3/3
–
3/3
Board
15/15
15/15
7/7
7/8
15/15
15/15
13/13
13/13
19 https://www.zegona.com/investor-relations/shareholder-information.aspx.
20 Mark Brangstrup Watts resigned on 12 May 2020.
21 Murray Scott did not stand for re-election and ceased to be a Director on 9 June 2020.
22 Suzi Williams was appointed Non-Executive Director on 5 February 2020.
23 Kjersti Wiklund was appointed Non-Executive Director on 5 February 2020.
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ZEGONA COMMUNICATIONS PLC
GOVERNANCE | CORPORATE GOVERNANCE REPORT
Directors’ terms of service
Zegona’s Articles of Association require each Director to retire from office and offer themself for re-election or
election, as the case may be, at each AGM. Accordingly, each of the Directors will retire from office at the 2021
AGM and seek to be re-elected by Zegona’s shareholders. The Chairman is satisfied that the performance of the
Directors continues to be effective and demonstrates their ongoing commitment to the role and as such supports
their re-election.
The Executive Directors have service contracts which may be terminated on no less than 12 months’ notice
by either party. The Non-Executive Directors each have current service contracts which can be terminated
on 6 months’ notice. All Non-Executive Directors’ continued service is dependent on annual re-election by
shareholders and the annual Board effectiveness review. Details of the unexpired terms of the service contracts
are set out in the Directors’ Remuneration Report.
Directors’ indemnities
As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifying
third party indemnity provision as defined by section 234 of the Companies Act 2006 (the “Act”). The indemnity
was in force throughout 2020 and is currently in force. This confirmation is given and should be interpreted in
accordance with the provisions of section 236 of the Act.
Zegona also purchased and maintained throughout the year Directors’ and Officers’ liability insurance.
Conflicts of interest
Zegona’s Articles of Association provide for a procedure for the disclosure and management of risks associated
with Directors’ conflicts of interest. Zegona’s Board Charter sets out the process for managing significant Board
or investor disagreements and/or conflicts. Notwithstanding that no material conflict of interest has arisen in the
year, the Board considers these procedures to have operated effectively.
Company secretary
Crestbridge Corporate Services Limited was appointed Zegona’s Company Secretary on 24 February 2021,
replacing Mark Millar of Foot Anstey LLP, who replaced Axio Capital Solutions Limited (“Axio”) as Zegona’s
Company Secretary on 15 July 2020. The Company Secretary assists the directors in ensuring Zegona is managed,
controlled and administered within the parameters of its governing and constitutional documents. All Directors
have access to the advice of the Company Secretary, which is responsible for guiding the Board on all governance
matters.
Compliance with the UK Corporate Governance Code
The Code sets out a number of principles in relation to: board leadership and company purpose; division of
responsibilities; composition, succession and evaluation; audit, risk and internal control; and remuneration. A
copy of the Code is available on the FRC’s website at www.frc.org.uk.
Following admission to the Main Market the Board has voluntarily (as Zegona has a Standard Listing) complied
with the UK Corporate Governance Code except in the instances set out below:
Combined Chairman and CEO
Provision 9 of the Code recommends that the roles of Chairman and the Chief Executive Officer should not be
exercised by the same person and that the Chairman should be independent on appointment. Zegona does
not comply with this requirement. The Board presently believes that Eamonn O’Hare’s skills, knowledge and
leadership have enabled him to effectively perform both roles. Zegona also maintains a schedule of Matters
reserved for the Board which prevents Eamonn from authorising certain corporate actions without a formal
resolution of the Board which is re-enforced by the Board’s culture of detailed review and robust challenge on
significant matters. As discussed below, the board consider that it is important that this should continue to be
kept under active review.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | CORPORATE GOVERNANCE REPORT
Zegona has paid close attention to this matter since its incorporation and has formally reconsidered it on a
number of occasions. Separation of the roles was determined to be a low priority in the corporate governance
review completed by Ernst & Young LLP, “EY” in 2017. This matter has also been actively reconsidered both
as part of the EY-facilitated exercise to develop Zegona’s Board Charter in 2018/19 and as part of each of
Zegona’s annual assessments of Board effectiveness. The Board remains aware of this area of non-compliance
and following discussion at its recent annual assessment of Board effectiveness, it will ensure that this matter
continues to be kept under active review.
Appointment of a Senior Independent Director (“SID”)
Provision 12 of the Code recommends that one Non-Executive Director should be appointed as a senior
independent director to provide a sounding board for the chair and serve as an intermediary for the other
Directors and shareholders. Zegona does not currently have a SID and this has been the subject of active
consideration since Zegona’s formation. The Board fully recognises the value that can be provided by a SID and
was intending to appoint one following its 2020 AGM, however the difficulties of remote working during the
Covid-19 pandemic and the ongoing shareholder engagement exercise being led by the Chairs of the two Board
committees meant that Zegona concluded it was not appropriate to make an appointment. The Board intends
to reconsider whether it should appoint a SID in conjunction with its ongoing active consideration of whether it
remains appropriate for the Chairman and CEO roles to be combined.
Employee engagement
Provisions 2, 5 and 6 provide guidance for the implementation of procedures meant to ensure Zegona engages
with and monitors its workforce. Given Zegona currently has only six employees (excluding Directors), the Board
believes the implementation of any formal steps or procedures to engage with the workforce are not required as
informal communications occur regularly between all employees and the Executive Directors, including weekly
team meetings.
Evaluation of the Board, committees and individual Directors
The Board has conducted an annual evaluation of its own performance and that of its committees by means of
a questionnaire requiring written responses from the Directors. To ensure independence and objectivity, the
questionnaire was designed, administered and reviewed on a confidential basis. The questionnaire was drafted
having regard to the balance of skills, experience, independence and knowledge contributed by its members,
as well as the successful operation of the Board as a unit, its diversity and the other key factors relevant to its
effectiveness.
The anonymous responses was sent to each Non-Executive Director for consideration and discussion at a meeting
of the full Board.
The findings of the review were generally positive. The Board noted that 2020 has been a unique and challenging
year which coincided with a significant change in the composition of the Board. The Board recognised that
Zegona is unusually agile and entrepreneurial and that has meant the Board has needed to meet the considerable
challenge of being flexible, fast-moving and decisive while still upholding the highest governance standards. The
Board considered that this had been achieved and the robust challenge provided by the Non-Executive Directors
had been valuable. The board also highlighted a number of matters for the Board to focus on in the coming year,
including: ensuring that the questions of whether the Chairman and CEO roles should continue to be combined
and/or a SID should be appointed are kept under active reconsideration, continuing to focus on strengthening
governance and continuing to build on the improvements made in risk assessing key decisions.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | CORPORATE GOVERNANCE REPORT
Whistleblowing policy
All employees are encouraged to raise genuine concerns about possible improprieties in the conduct of Zegona’s
business, whether in matters of financial reporting or other malpractices, at the earliest opportunity and in an
appropriate way. Zegona has put in place a whistleblowing policy to facilitate this.
The aims of this policy are:
•
•
•
to encourage employees to report suspected wrongdoing as soon as possible, in the knowledge that their
concerns will be taken seriously and investigated as appropriate, and that their confidentiality will be
respected;
to provide employees with guidance as to how to raise those concerns; and
to reassure employees that they should be able to raise genuine concerns in good faith without fear of
reprisals, even if they turn out to be mistaken.
Share dealing
Zegona has in place systems to ensure compliance by the Board and its applicable employees in relation to
dealings in securities of Zegona and Euskaltel. We believe that the share dealing code adopted by the Board
is appropriate for Zegona’s size and complexity and that it complies with the EU Market Abuse Regulation
(2014/596/EU). The Board complies with these provisions and takes all reasonable steps to ensure compliance
by Zegona’s ‘applicable employees’.
Relations with Zegona’s stakeholders
Zegona does not currently have an operating business and, until it does so again, has a limited number of
stakeholders outside of its shareholders given that Zegona has no customers and its suppliers are primarily
professional advisers. All Directors have frequent interactions with Zegona’s small workforce.
The Board is always available for communication with shareholders and the Executive Directors frequently engage
constructively with current and potential shareholders, with feedback regularly discussed in depth at Board
meetings. This has been supplemented this year with the consultations with major shareholders undertaken
by the Committee Chairs. All shareholders have the opportunity, and are encouraged, to attend and vote at the
general meetings during which the Board is available to discuss issues affecting Zegona. Barclays Bank plc and
Canaccord Genuity Limited, as Zegona’s joint corporate broker, provides reports and attend Board meetings, as
appropriate, to provide feedback to the Non-Executive Directors on shareholders’ views.
Annual general meeting
The next AGM will be held at 10 Snow Hill, London, EC1A 2AL at 12.00 p.m. on 30 June 2021. The AGM is an
opportunity for shareholders to vote on certain aspects of Zegona’s business. The Directors will also be available
to answer any shareholder questions prior to and after the meeting.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | AUDIT AND RISK REPORT
Audit and Risk Committee Report
I am pleased to present the 2020 report of the Audit and Risk Committee (the “A&RC”). The A&RC is an essential
part of Zegona’s governance framework, to which the Board has delegated oversight of Zegona’s financial
reporting, internal controls, risk management and the relationship with the external auditor.
In discharging its duties, the A&RC embraces its role of protecting the interests of shareholders with respect to
the integrity of financial information published by Zegona, control effectiveness and the effectiveness of the
audit process24.
Committee membership and meetings
The members of the A&RC during 2020 were Ashley Martin (Chairman), Richard Williams, Murray Scott and
Kjersti Wiklund, all of whom are independent Non-Executive Directors as required by provision 24 of the Code.
Kjersti Wiklund was appointed to the A&RC on 5 February 2020, bringing additional IT and telecommunications
experience to the A&RC and Murray Scott stepped down on 9 June 2020. The Board has determined that Ashley
Martin has recent and relevant financial experience due to his previous CFO roles at listed and private equity
backed businesses. Both Ashley and Richard qualified as Chartered Accountants. In line with the Code, the A&RC
as a whole possesses competence relevant to the sector in which Zegona operates through the digital media and
consumer experience of Ashley Martin and the telecommunications experience of Richard Williams and Kjersti
Wiklund.
The A&RC normally meets at least three times a year with additional meetings arranged if necessary. In 2020,
the A&RC met in May, August and December and has subsequently met in April 2021. The scheduling of these
meetings is designed to be aligned with the financial reporting timetable, thereby enabling the A&RC to review
the interim financial report, the audit plan ahead of the year end audit and the annual report, as well as to
maintain a view of the internal controls and risk management processes throughout the year.
The Company Secretary acts as secretary to the A&RC. The A&RC invites the Chief Financial Officer to all meetings
and other members of the finance and management team as may be appropriate for the business of the meeting,
as well as senior representatives of the external auditor. The A&RC meets separately with the external auditors
to seek their views without management present, and the A&RC Chair keeps in touch with the Chief Financial
Officer as well as other members of the management team and the lead audit partner periodically outside of
formal meetings. The A&RC has the right to invite any other Directors and/or employees to attend meetings
where this is considered appropriate.
The A&RC Chair reports formally to the Board on the key matters considered at each A&RC and minutes of those
meetings are circulated to the Board.
Committee effectiveness
The effectiveness of the A&RC was considered by the Board as part of the annual Board effectiveness evaluation.
The feedback was positive and confirmed that the A&RC remains effective and provides robust challenge.
Activities during the year
Since the last Audit and Risk Committee Report, the A&RC has undertaken the following activities:
Financial reporting:
• Confirmed that the Financial Statements were fair balanced and understandable. In this respect, the A&RC
considered, inter alia:
–
the key messages in the annual report and their consistent application in the front and back end of the
report;
– whether the whole story is presented and whether any sensitive material has been omitted; and
– whether there is a clear and cohesive framework for the annual report.
24
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.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | AUDIT AND RISK REPORT
• Reviewed the going concern assumption and the assessment forming the basis of the longer term viability
statement. The A&RC reviewed the work undertaken by management to assess Zegona’s resilience to the
principal risks under various stress test scenarios and confirmed that a 3-year assessment period remained
appropriate.
• Considered the key judgements and estimates made by management in preparing the Financial Statements,
as follows:
– Valuation of the contingent consideration – the A&RC reviewed the model and the conclusions related
to the valuation of the contingent consideration and the related disclosure. Euskaltel has now provided
for the full amount of €8.7million, therefore, Zegona is confident that it will receive this amount shortly
after the Euskaltel board is released of its duty of passivity following the completion of the Offer for
Euskaltel. This formed the basis of the inputs to the probability weighted discounted cashflow valuation
model that calculated the fair value of the contingent consideration of €7.5 million at 31 December
2020. The A&RC reviewed this model and was satisfied with the valuation.
– Treatment of the Contingent tax liability – the A&RC reviewed the conclusions related to the ongoing
activity around the EU Commission decision that the Group Financing Exemption contained within the
UK’s Controlled Foreign Company (‘‘CFC’’) legislation constituted State Aid. The Committee noted that
while the UK Government has lodged an appeal for annulment of the decision, HMRC had issued Zegona
with a charging notice in February 2021 in the amount of £4.1 million (€4.9 million). The issuance of
charging notices is a collection mechanism only and not an arbitration on the merits of the on-going
litigation. Consequently, this does not change Zegona’s view that while it is finely balanced, it remains
more likely than not that the appeals made by other UK taxpayers and the UK Government will be
successful and ultimately Zegona will not incur any liability and therefore no provision is required
in respect of this matter. The A&RC reviewed the third party advice and agreed with management’s
conclusion.
–
Impairment considerations at the end of each reporting period. Reviews of indicators of impairment
and impairment assessments of our investments in associates and subsidiaries are judgmental, in
particular for assets where a readily available market does not exist. In the case of Zegona’s associate,
Euskaltel, Zegona has used a range of external sources of information to conclude that no indicators
of impairment exist at 31 December 2020. The most important source was Euskaltel’s quoted share
price and market capitalisation at 31 December 2020, but other sources included analysts’ reports on
Euskaltel and the telecommunications market in Spain and other public information on Euskaltel such
as its business plans, results and other public announcements. The A&RC reviewed the indicators of
impairment assessments for our investment in associates and subsidiaries and was satisfied with the
conclusions made and the related disclosures.
– Accounting treatment and valuation of the incentive arrangements – the A&RC reviewed and agreed
with management’s interpretation of IFRS 2 when concluding that the renewal of the incentive scheme
constitutes a new incentive scheme, whose grant date cannot be until Zegona’s shareholders vote to
ratify the renewal at the 2021 AGM. In these circumstances, IFRS 2 requires the fair value of the award
to be estimated at each balance sheet date and an expense recognised in the Income Statement from
the date the holders of the shares begin to render services.
In all of the above judgements, the A&RC also considered the work undertaken by KPMG and reports to the
A&RC in support of the position adopted by Management.
Other considerations:
• Reviewed the effectiveness of Zegona’s risk management and internal controls and disclosures made
in the annual report on this matter, including the review of an annual assurance statement provided by
management assessing the effectiveness of Zegona’s risk management and internal control systems;
• Reviewed and agreed the scope of the audit work to be undertaken by the external auditor and assessed the
audit and non-audit fees to be paid, as well as the independence and objectivity of the auditor;
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | AUDIT AND RISK REPORT
• Considered the effectiveness of the external audit process, following the receipt of feedback from the
management team, Executive Directors, Non-Executive Directors and other service providers involved in the
audit process by way of a questionnaire;
• Reviewed and made a recommendation to the Board with regard to the re-appointment of the external
auditor, taking into account auditor effectiveness and independence, partner rotation and other factors
which may impact the external auditor’s re-appointment;
• Assess any potential threats to independence that were reported by KPMG. The A&RC considered KPMG
to be independent and KPMG, in accordance with professional ethical standards, provided the A&RC with
written confirmation of its independence for the duration of 2020;
• Reviewed the need for an internal audit function and made a recommendation to the Board;
• Reviewed the interim Financial Statements, including the critical accounting judgements and estimates used
in preparing them;
• Reviewed management’s updates to Zegona’s main control document, the Financial Position and Prospects
memorandum. The A&RC also reviewed the updates made to Zegona’s risk register; and
• Reviewed Zegona’s whistleblowing policy and anti-bribery and anti-corruption policy.
External auditor
Our external auditor, KPMG LLP (“KPMG”), has now completed its fifth audit and the A&RC is involved in the
audit partner rotation process. Zegona will not be required to tender for the audit until the 2026 financial year
end. KPMG continues to provide robust challenge to management and independent advice to the Committee on
specific financial reporting and judgements.
KPMG was appointed as Zegona’s external auditor on 15 December 2016, with no changes to the key audit
partner since appointment.
During 2020, non-audit fees were pre-approved in relation to KPMG’s agreed upon procedures on the interim
financial statements for the six months ended 30 June 2020. The fees for these procedures totalled €29,000,
which is significantly lower than the audit fees for the Financial Statements for the year ended 31 December 2020
and therefore auditor objectivity and independence is not deemed to be compromised by the level of non-audit
fees.
The A&RC has set a threshold of €11,000 (£10,000) for pre-approving non-audit fees. All of KPMG’s services have
been pre-approved and reported to the A&RC.
Risk management and internal control systems
The Board is responsible for establishing and maintaining Zegona’s system of internal control and reviewing its
effectiveness. The Board has delegated the annual review of the adequacy and effectiveness of Zegona’s internal
financial controls and internal control and risk management systems to the A&RC.
Internal control systems are designed to meet the needs of Zegona and the risks to which it is exposed to
ensure the integrity of the financial and accounting information, promote accountability and prevent fraud. The
procedures are designed to manage rather than eliminate risk and, by their nature, can only provide reasonable
but not absolute assurance against material misstatement or loss.
Zegona does not have a separate internal audit function as the Board does not feel this is currently necessary due
to the size of the business and the simplicity and low volume of transactions, coupled with the nature and the
extent of internal controls and Board oversight and involvement. The A&RC will continue to regularly review the
need for an internal audit function as the business evolves and develops.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | AUDIT AND RISK REPORT
Zegona’s risk management framework incorporates a risk assessment that identifies and assesses the strategic,
operational and financial risks facing the business, mitigating controls, and appropriate corrective actions, if and
when needed. This assessment is continually updated by management and reviewed and discussed by the A&RC
at least twice per year.
Zegona has in place a robust internal controls system over financial reporting, which encompasses a mixture of
detective, preventative and corrective controls, including:
•
•
Entity level controls which encompass guidelines for Zegona’s governance, financial analysis and integrity,
and its adherence to applicable laws and professional standards;
Systems and procedures in place to identify, assess, control and monitor principal and emerging strategic,
commercial, financial and regulatory risks are considered by the Board regularly;
• A team of professional advisers including legal, capital markets, M&A, accounting, regulatory, and PR
providing advice to management and the Board;
• A schedule of Matters reserved for the Board to ensure that the Board is involved in all critical decisions of
Zegona which is reviewed regularly;
• Regular updates directly from the CEO of Euskaltel on the competitive landscape and on the prospects for
the business;
• A comprehensive system of budgeting, forecasting and monthly reporting and rigorous analytical review
procedures;
• A comprehensive risk register which is reviewed at least bi-annually and updated to take account of
development within Zegona;
•
Segregation of duties for all financial reporting and accounts payable critical tasks; and
• An in-house treasury function responsible for managing cash, foreign exchange risk and ensuring compliance
with banking and loan agreements.
Through the above procedures the Board with advice from the A&RC has reviewed the effectiveness of the
internal control system throughout the year and up to the day of this report. No significant control findings or
weaknesses have been identified from this review.
Ashley Martin
Chairman of the Audit and Risk Committee
29
ZEGONA COMMUNICATIONS PLC NOMINATION AND REMUNERATION REPORT
GOVERNANCE | NOMINATION AND REMUNERATION REPORT
Nomination and Remuneration Committee Report
Dear Shareholder,
On behalf of the Board, I am pleased to present the Nomination and Remuneration Committee (“the Committee”)
Report for the year ended 31 December 2020, this being my first report having taken over as Chair of the
Committee from Richard Williams on 9 June 2020. I want to take this opportunity to thank Richard for his tenure
and for his ongoing contribution as a member of the Committee.
The following pages set out the Committee’s operations and activities in the year and how we have addressed
a number of important matters. Zegona is committed to transparency, equivalence and engagement with
shareholders. And in these matters we have made progress this year. The fundamental principles underpinning
our policy remain:
• Alignment between management and shareholders over the long term;
•
•
Focus on performance - with a high percentage of variable pay;
Transparency and simplicity for the benefit of all stakeholders.
The Committee met four times during 2020, supported by a number of full board discussions. The matters we
discussed are set out on page 34. In addition to this, as 2020 was the final year of a five year management
incentive scheme and in order to specifically consider the long-term incentive arrangements, we formed
a separate independent committee made up of the full group of Independent Non-Executive directors. This
Committee held a significant number of discussions in relation to the outcomes to the Management Incentive
Plan and I include further details on this later in this letter.
Zegona’s approach to remuneration - ensuring management interests are fully aligned with shareholders
over the long term
Zegona seeks to ensure that Executive directors and senior management are remunerated fairly and transparently
for creating a high-performance culture that delivers Zegona’s strategy, while ensuring their interests are fully
aligned with shareholders over the long term.
Accordingly, Zegona has designed a Remuneration Policy to meet these objectives. Under this Policy Executives
and senior management receive a mix of remuneration which is geared towards a higher percentage of variable
pay and includes an incentive arrangement which rewards shareholder value creation over the long term.
This approach to remuneration received strong support when it was last presented to shareholders for approval
at the 2019 AGM with more than 86% of the votes cast in favour of the Remuneration Policy. I have set out below
how our implementation of that policy fits with Zegona’s strategy and the desired outcomes for our shareholders.
Company performance and context – strong performance in a challenging environment
In an unprecedented year, Zegona and Euskaltel performed well. Zegona continued to be Euskaltel’s largest
shareholder, actively supporting the management team in delivering operating efficiency and expanding
nationally. Zegona’s leadership successfully drove a number of key initiatives that contributed to Euskaltel
delivering strong results for 2020 in spite of the global Coronavirus pandemic. These included:
•
Integrating three operating companies into one business to generate €40 million of annual EBITDA run-rate
efficiencies within the existing business;
• Driving significant growth by launching services nationally across Spain under the Virgin telco brand in May
2020.
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GOVERNANCE | NOMINATION AND REMUNERATION REPORT
Euskaltel achieved the key financial and customer growth targets it set itself in its business plan and saw
accelerating growth, driven in particular by the success of Virgin telco. During 2020, Euskaltel achieved the
highest annual customer growth since it was listed in 2015, and Virgin telco growth was more than 50% ahead of
plan. This drove accelerating revenue growth, with fourth quarter revenue up 4.6% to €179.5 million and full year
2020 revenue up 1.7% to €697.1 million. Profitability and cash generation were strong, with the 2020 EBITDA
target met and EBITDA growth in 2020 of 2.3%. This encouraging progress at Euskaltel forms the backdrop of the
key remuneration matters that we have dealt with in the year, which have included:
Shareholder engagement – addressing last year’s AGM results
An important Nomination and Remuneration Committee activity this year was to engage with shareholders
following the results of the 2020 Annual General Meeting (“AGM”).
At the AGM on 9th June 2020, all resolutions were approved with at least 60% of votes in favour. However,
shareholders owning 32% of Zegona’s shares voted against the resolution approving the Company’s Remuneration
Report while shareholders owning 20% voted against the resolution re-appointing Richard Williams, the then
chair of the Nomination and Remuneration Committee to the Board. Nearly all of these votes against these two
resolutions were cast by two shareholders, who together own 28.4% of Zegona. Both shareholders voted against
the Remuneration Report and one of them also voted against the reappointment of Richard Williams. No other
shareholder owning more than 2.1% of Zegona voted against either resolution.
Richard Williams had already announced his intention to step down as Chair of the Committee and on 9th June
2020, I was appointed as the new Chair of the Committee. Together with Ashley Martin (Chair of the Audit
& Risk Committee), we took the opportunity across the summer to hold a fully independent remuneration
consultation with seven major shareholders representing over 65% of the ownership of Zegona and nearly 90%
of the shareholders who had voted against or abstained on remuneration-related resolutions at the 2020 AGM.
The consultation was conducted with a view specifically to understand any shareholder concerns in relation to
the vote at the 2020 AGM and also, more generally, to ensure shareholder engagement and transparency on
remuneration matters.
Two specific areas directly related to remuneration were highlighted by some of the shareholders involved in
this consultation:
1) A small number of shareholders raised the question of holding periods. One significant shareholder wished
to see changes to the holding requirements upon the exercise of incentive rights. This shareholder voted
against the Remuneration Report as this shareholder has a policy that recipients of share incentive awards
should be exposed to equity risk for at least five years. While Zegona’s scheme is designed to last for up to
five years, management can exercise the incentive between three and five years without any post-vesting
holding requirement. Following further discussions between the Committee, this shareholder and the Board,
holders of the Management Shares have agreed - in line with best practice governance – that if the share
incentive is exercised in advance of the full five-year period, any shares received will be held by management
until at least five years have elapsed from the start of that period. This holding requirement will not apply in
certain situations, such as on a takeover of Zegona or a sale of the main assets of the business. This additional
commitment has been agreed with the shareholder who raised the issue and is being implemented through
holders of the Management Shares entering into irrevocable deeds25.
25
The holders of Management Shares may exercise their rights during Measurement Periods, which are three to five years after the
previous Calculation Date. Shares received upon the exercise of performance rights, net of tax obligations, must generally be retained
until a period of at least five years has elapsed since the previous Calculation Date. This additional post-exercise holding period will
be waived in the event that substantially all of the company’s main assets are sold, or there is a Takeover, Board Change of Control,
liquidation or Winding Up of the company, if the Parent ceases to be the Holder of 50% or more in nominal value of the issued ordinary
Shares in the capital of the Company, or if a Drag Along Notice has been issued.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
2) Certain shareholders asked about the timing of the redemption of the Management Shares in June 2020
and the calculation of the resulting baseline share price for the next Calculation Period. A core principle of
the scheme is that management can exercise between three and five years and the redemption occurred
four years and ten months into this maximum five-year Calculation Period. The redemption resulted in the
start of a new Calculation Period with a baseline share price of £0.955 as discussed below. The Committee
has confirmed that both the redemption timing and baseline share price for the new Calculation Period
were in line with the rules of the scheme and communicated this to the shareholders who had requested
clarification.
In considering all shareholder feedback received on the management incentive arrangements, and whether any
changes are called for, the Committee has taken into account the Offer from MásMovíl to acquire 100% of
Euskaltel. It is important to note that if, as is expected, Zegona’s stake in Euskaltel is sold at the Offer price of
€11.17, Zegona will have generated an Annualized Return since IPO of nearly 11%, significantly in excess of the
Management Incentive Scheme Preferred Return target of 5%.
Outside of remuneration matters, some shareholders also asked questions and expressed views about
the potential distribution by Zegona of Euskaltel shares directly to its shareholders. As this is not strictly a
remuneration issue, this is discussed in the Business and Financial Review on page 5, and has in any case been
superseded as an issue by the Offer from Masmovil for Zegona’s 21.44% stake in Euskaltel.
This engagement from shareholders was much appreciated by the Nomination and Remuneration Committee
and led to a number of further discussions between the Nomination and Remuneration Committee, the Board
and certain shareholders.
We will continue to engage with shareholders on remuneration and will take into account the feedback received
in the development and implementation of remuneration policy. That policy will be put forward to a formal vote
at The AGM in 2022.
Remuneration decision for 2020 – reviewing outcomes against company performance
Redemption of the management incentive scheme
Given that the first 5-year Calculation Period of the management incentive scheme was due to end in August
2020, as I mentioned above, an independent committee of the Board comprising all the NEDs was formed in April
2020 to review a number of matters relating to the incentive arrangements. It was determined by the Committee
that while the value of Zegona’s underlying assets was considerably above the preferred return, Zegona’s Market
Capitalisation was not. This meant that under the terms of the Zegona Limited Articles of Association ("Articles")
which govern the incentive scheme, no payment was made or due to management for this initial five year period.
Following this decision, and in accordance with the Articles, on 25 June 2020, Zegona management redeemed
99% of A Ordinary shares (“Management Shares”) in accordance with the terms of the Articles. The redemption
was shortly in advance of the end of the first Calculation Period on 14 August 2020 and outside any anticipated
closed periods. Management received no payment from this redemption.
As a result of this redemption, a new Calculation Period for the unredeemed Management Shares commenced
on 25 June 2020. These unredeemed shares have rights to 15% of the growth in value of Zegona on similar terms
to the shares previously redeemed unless 75% of shareholders do not approve a resolution to renew the scheme
that will be presented to the 2021 AGM. The Baseline value for the new Calculation Period was set at £0.955
being the higher of Zegona's Market Capitalisation and its Net Shareholder Invested Capital on this date as laid
out in the Articles.
At the start of the first Calculation Period, Zegona’s largest and founding shareholder, Marwyn Long Term
Incentive LP (“Marwyn”), was also issued Core Investor Shares in Zegona Limited. This entitled them to 5% of the
growth in value of Zegona, provided that ordinary shareholders achieve a 5% Preferred Return on a similar basis
to the Management Shares. This first Calculation Period started on the 14 August 2015 and expired unexercised
on 14 August 2020. As the Preferred Return was not met, no payment was due or made to Marwyn and in
accordance with the Articles, the Core Investor incentive arrangements ceased to exist after 14 August 2020.
32
ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
2020 Bonus
The Committee carefully reviewed performance against the targets set for the 2020 bonus scheme and
determined an overall outcome of 75% was appropriate. Importantly this reflects targets being largely met
against the commercial aspects of the scorecard despite a particularly challenging Spanish telecoms market.
The commercial outcomes relate to performance of Euskaltel, which was broadly in line with targets and to the
share price performance of Euskaltel which outperformed the relevant indices across an extremely tough period.
Targets were met to a reasonable for the strategic elements of the scorecard. See page 37 for more detail.
Application of remuneration policy for 2021 – no salary increases and no changes to the bonus framework
Following a review of the executive remuneration arrangements, the Committee agreed that there would be no
increase in base salary for either of the Executive Directors and as such their salaries will remain unchanged for
the year ahead.
The Remuneration Committee will apply the same bonus approach as for 2020 where Zegona Directors have
an opportunity to earn 100% of their salary as a bonus. Importantly no less than 85% of bonus metrics will be
commercial, with the remainder strategic and personal. The detail of these metrics continues to be commercially
sensitive throughout the year. For this reason, the precise targets will be shared retrospectively in the next
annual report.
I would like to take the opportunity again to thank shareholders for their engagement and feedback over the past
year and look forward to your support at the upcoming AGM in June.
Suzi Williams
Chair of the Nomination and Remuneration Committee
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
The role of the Nomination and Remuneration Committee
The Committee is responsible for nomination and remuneration matters, from the recruitment and retention of
high calibre individuals to the design of appropriate incentivisation mechanisms (and the ongoing monitoring of
performance against these) while delivering value creation for shareholders and other key stakeholders.
The role of the Committee continues to be ensuring that the Directors are appropriately rewarded, through
making recommendations regarding remuneration policy and framework. The Committee monitors and reviews
the effectiveness of the Remuneration Policy and considers its impact and compatibility with remuneration
policies across the wider workforce. To facilitate this remit, the Committee is provided with information and
context on pay, benefits and incentive structures in place across Zegona to support its decision making.
Membership, attendance and other activities
The members of the Committee are Suzi Williams (Chairman), Richard Williams, and Ashley Martin. During 2020
Mark Brangstrup Watts and Murray Scott served as members until their resignations on 12 May 2020 and 9 June
2020 respectively. All members of the Committee are now independent.
In 2020 the Committee met 4 times and has subsequently met in April 2021. The Company Secretary attends
these meetings and Executive Directors are invited at the Chairman’s discretion. The scheduling of the formal
Committee meetings is designed to be aligned with the Committee’s recurring annual activities, including: setting
of bonus metrics and evaluation of performance against them; overseeing the performance evaluation of the
Board, its principal Committees and individual directors; overseeing succession planning for the Board and key
members of the senior management team, taking into account expertise and diversity; and reviewing the annual
nominations and remuneration report contained within the annual report.
In addition to the matters discussed above, since the last Nomination and Remuneration Committee Report, the
Committee has also:
• Reviewed the remuneration package for the Executive Directors and management team for 2021, including
bonus metrics;
• Reviewed the Articles of Association of Zegona Limited, which contain the terms of the management
incentive scheme;
• Reviewed the Directors’ remuneration policy and the nomination and remuneration disclosures in the
annual report;
• Reviewed the recommendations arising from the 2020 Board effectiveness review, its committees and its
individual Directors and, where appropriate, proposed actions to address those recommendations; and
• Reviewed workforce remuneration and its alignment to Zegona’s purpose, values and strategy.
Advisers
The Committee received input and advice from external advisers on specific topics during 2020. The Committee
formally engaged PwC LLP’s (“PwC”) as an adviser in 2021. The Committee’s decision reflected the quality and
objectivity of the independent advice that PwC had provided to the Committee on remuneration matters during
2020.
For 2020, total fees of €11,285 were incurred in relation to remuneration advice provided by PwC.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
Base salary
Purpose
Current policy
2020 Implementation
2021 Implementation
Executive pay at a glance
To reflect market value of
the role and individual’s
performance and contribution
and enable Zegona to
recruit and retain Executive
Directors of sufficient calibre
to drive Zegona’s ambitions.
Reviewed every twelve months.
Base salary increases are applied in
line with the outcome of the review.
In respect of existing Executive
Directors, it is anticipated that
salary increases will generally be
in line with inflation or those of
salaried employees as a whole.
Pension contributions
Effective from
1 January 2020:
CEO: £563,000
COO: £419,000
Effective from
1 January 2021:
CEO: no increase
COO: no increase
Purpose
Current policy
2020 Implementation
2021 Implementation
To provide a market
competitive pension
Other benefits
Purpose
To provide market
competitive benefits
Annual cash bonus
No change
No change
Pension contributions are made
to the individual’s private pension
arrangements or paid to them in
cash in lieu of such arrangements.
Executive Directors receive
a pension contribution of up
to 20% of base salary
Current policy
2020 Implementation
2021 Implementation
No change
No change
Benefits may include car allowances,
personal tax advice, private
medical insurance, critical life
and death in service cover.
Benefits may vary by role and
individual circumstances and
will be reviewed periodically.
Purpose
Current policy
2020 Implementation
2021 Implementation
To incentivise delivery of
Zegona’s annual financial
and strategic goals
Performance is measured
on an annual basis for each
Executive Director in respect
of each financial period.
The maximum annual bonus available
is 100% of base salary per annum.
The Committee retains discretion to
apply malus or clawback provisions
Maximum: no change
Maximum: no change
Award: 75% of salary
Management incentive scheme
Purpose
Current policy
2020 Implementation
2021 Implementation
To drive performance,
aid retention and
align the interests of
Executive Directors and
senior management
with shareholders
over the long term
The Committee may allocate
Management Shares in Zegona
Limited to Executive Directors
or senior management.
Zegona’s management incentive
arrangements entitle participants in
aggregate to receive up to 15% of the
growth in value of Zegona subject to
shareholders’ 5% preferred return.
Incentive may be exercised between
3 and 5 years after each renewal.
35
No payment on
redemption on
25 June 2020
No change
Next exercise period
starts 25 June 2023
For additional
commitments made
by management
refer to page 31.
ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
All disclosures in the Directors’ remuneration report are unaudited unless otherwise stated. The annual report on
remuneration gives details on the amounts earned in the year ended 31 December 2020 and how the Directors’
remuneration policy will be applied in 2021. The remuneration report will be subject to an advisory vote at the
2021 AGM.
2020 Executive Directors remuneration summary (Audited)
In the interests of clarity, since the Executive Directors’ salaries are set and paid in Sterling, the table has been
presented in both Sterling and euros (Zegona’s presentational currency). These tables only include remuneration
received by the Executive Directors in respect of their employment by Zegona. The fees received from their
appointments as proprietary Directors of Euskaltel are disclosed on page 46.
Executive Directors (Sterling)
Eamonn O’Hare
(Chairman & CEO)
Robert Samuelson
(COO)
Base salary
Pension contributions
Taxable benefits
Company health insurance scheme
Total fixed pay
Annual cash bonus
Incentive scheme redemptions
2020
£
563,000
112,600
21,321
6,548
703,469
422,250
–
2019
£
500,000
100,000
22,024
5,866
627,890
470,000
–
Total variable pay
422,250
470,000
Total fixed and variable pay
1,125,719
1,097,890
2020
£
2019
£
419,000
375,000
83,800
21,321
6,304
530,425
314,250
–
314,250
844,675
75,000
21,321
5,659
476,980
375,000
–
375,000
851,980
Executive Directors (euros)
Eamonn O’Hare
(Chairman & CEO)
Robert Samuelson
(COO)
Base salary
Pension contributions
Taxable benefits
Company health insurance scheme
Total fixed pay
Annual cash bonus
Incentive scheme redemptions
2020
€
635,320
127,064
24,060
7,389
793,833
476,490
–
2019
€
570,174
114,035
25,115
6,690
716,014
535,964
–
Total variable pay
476,490
535,964
Total fixed and variable pay
1,270,323
1,251,978
2020
€
2019
€
472,822
427,631
94,564
24,060
7,114
598,560
354,617
–
354,617
953,177
85,526
24,313
6,453
543,923
427,631
–
427,631
971,554
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
None of the Executive Directors’ remuneration in 2020 was attributable to Zegona’s share price growth. No
discretion has been exercised to determine remuneration as a result of either Zegona’s share price appreciation
or depreciation.
Components of remuneration: Base salary
Implementation in 2020
As advised in last year’s Directors’ Remuneration Report, effective from 1 January 2020, the Committee awarded
an increase of 12.6% to Eamonn O’Hare’s base salary partly in recognition of the fact that he had received no
increase in base salary since 2015. Also effective from 1 January 2020, the Committee also awarded an 11.7%
increase to Robert Samuelson’s base salary, which recognises his role in supporting Euskaltel’s partnership with
Virgin and his ongoing contribution to this aspect of Zegona’s plan to create value from its investment in Euskaltel.
Implementation in 2021
Following a review of the executive remuneration arrangements, the Committee agreed that there would be no
increase in base salary for either of the Executive Directors and as such their salaries will remain unchanged for
the year ahead.
Components of remuneration: Pension contributions
In 2020 both Executive Directors received a pension contribution of 20% of their base salary, which will continue
in 2021. This level of pension contribution has remained the same since Zegona was first listed.
Components of remuneration: Taxable benefits and Company Health Insurance Scheme
In 2020 both Executive Directors received car allowances, personal tax advice, private medical insurance, and
death in service cover, which will continue in 2021.
Components of remuneration: Annual cash bonus
Implementation in 2020
The Committee carefully reviewed performance against the key bonus objectives during the year and concluded
that the Executive Directors met a significant majority of their indicators of achievement in relation to the 2020
bonus scheme and Eamonn O’Hare was rewarded with 75% and Robert Samuelson with 75% of their maximum
bonus opportunity of 100% of salary. The performance against key objectives was as follows:
Objective
Weighting Result
Award
Achieve key
operational and
governance milestones
within Euskaltel
•
Euskaltel successfully launched national expansion
with Virgin telco launching in May 2020.
• Refinancing of €215 million amortising debt to
December 2023 bullet repayment ensured appropriate
debt structure. Leverage reduced from 4.3x to 4.2x.
31%
35%
•
Euskaltel Board restructured: size reduced to 10
members.
• 2020 budget delivered broadly in line with targets.
Drive Euskaltel
equity value
•
Euskaltel share price, considerably outperformed
peers during a difficult period for telcos.
31%
35%
• December 2020 VWAP between €9-€10 per share.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
Identify or execute a
new acquisition/ sale
15%
Excellence in leadership
and governance
•
•
•
Incredibly challenging year for M&A activity across
the sector in light of impact of Covid-19 pandemic on
macro-economic environment.
Significant work carried out to explore the market
and prepare groundwork for M&A.
Increased board diversity and independence, including
the appointment of two new independent NEDs as
well as a company secretary and an independent
adviser to the Nomination and Remuneration
Committee.
15%
•
Extensive engagement with investors and opportunity
to continue to enhance this, including more regular
and proactive dialogue, in order to achieve “best-in-
class” approach.
• Use of a fully Independent Committee approach to
look at key issues during the year.
Bonus awarded (% of base salary)
3%
10%
75%
The Committee believes the Directors’ remuneration policy in respect of Executive Directors operated as
intended in terms of Zegona’s performance and quantum.
Implementation in 2021
The Remuneration Committee will apply the same bonus approach as for 2020 where Zegona Directors have
an opportunity to earn 100% of their salary as a bonus. Importantly no less than 85% of bonus metrics will be
commercial, with the remainder strategic and personal. The detail of these metrics continues to be commercially
sensitive throughout the year. For this reason, the precise targets will be shared retrospectively in the next
annual report.
Components of remuneration: management incentive scheme
Although the Committee feels it is important to remunerate and incentivise the Executive Directors through their
basic pay, benefits and annual bonus, it also feels very strongly that Executive Directors’ long-term incentives
should be linked to the creation and delivery of real returns to shareholders. A key element of Zegona’s
remuneration policy for the Executive Directors and senior management is Management Shares in Zegona
Limited, which were put in place when Zegona was founded and were designed to provide ongoing remuneration
aligned with shareholders.
Overview of the scheme
The holders of the Management Shares are entitled to 15% of the growth in value of Zegona during a series of
up to five separate Calculation Periods, provided that ordinary shareholders achieve a 5% Preferred Return26 in
each Calculation Period. The first Calculation Period began on 14 August 2015 and, as discussed below, ended on
25 June 2020, at which point the Second Period began.
Holders of the Management Shares may exercise them at any point between the third and fifth anniversary of
the start of each Calculation Period by redeeming substantially all of them. There are also provisions for exercise
by management if there is a takeover or acquisition of Zegona (including by a scheme of arrangement), or Zegona
sells all or substantially all of its assets and distributes the net proceeds to shareholders.
26 Return (a 5% per annum return on a compounded basis on shareholders’ net investment).
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
Upon exercise, if the Preferred Return has been met, holders of the Management Shares receive 15% of the
increase in value of Zegona in either Zegona ordinary shares or cash at the discretion of Zegona’s Board at the
time of the exercise on advice from the Committee in accordance with the Articles. If the Preferred Return has
not been achieved, no payment is made. It is currently anticipated that the exercise of Management Shares
could result in management receiving ordinary shares, which, depending on the amount of value created, could
potentially lead to management becoming a significant shareholder.
Upon exercise of the Management Shares, a new Calculation Period automatically begins for the 1% of unredeemed
shares with management still entitled to 15% of the growth in value of Zegona over the new Calculation Period,
provided the Preferred Return is achieved over this period. The starting value against which the growth in value
and the Preferred Return are calculated (the “Baseline”) at the beginning of the new Calculation Period is set at
the higher of the Market Capitalisation of Zegona, defined as 30-day VWAP, and the Net Shareholder Invested
Capital on that date.
Each time a new Calculation Period begins, the renewal of the Management Shares’ rights is subject to a vote
by Zegona’s shareholders at the next Annual General Meeting and so there will be such a vote at the upcoming
AGM. If shareholders representing 75 per cent or more of the shares vote against the renewal at the AGM,
Management Shares are redeemed for no value. Management could receive value prior to the AGM vote if there
is a takeover or acquisition of Zegona (including by a scheme of arrangement), or Zegona sells all or substantially
all of its assets and distributes the net proceeds to shareholders.
Scheme developments in 2020
Exercise of shares and start of the Second Calculation Period
The first Calculation Period began on 14 August 2015. In recognition that the first 5-year Calculation Period was
due to end in August 2020, an independent committee of the Board was formed in April 2020 to review a number
of matters relating to the incentive arrangements.
In accordance with the scheme rules, Zegona management redeemed its Management Shares on 25th June 2020
which was in advance of the end of the first Calculation Period on 14 August 2020 and outside of anticipated
closed periods. At this date, the value of Zegona’s investment in Euskaltel and its cash and cash equivalents net
of bank borrowings27 on this date was worth £1.28 per Zegona share.
27
Defined by Zegona at 31 December 2020 as “Underlying Asset Value per Share” – excludes the value of contingent consideration
receivable and any value for Zegona Management Shares.
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ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
However, the value of Zegona shares (based on the 30-day volume weighted average price, ”VWAP”) which
was below the £1.234 level required for the Preferred Return to be met. Consequently, management received
no value from the redemption and the Baseline for the new Calculation Period was equal to shareholders net
invested capital of £0.955 per share as shown in the table below.
Share issue – March 2015
Share issue – August 2015
Dividend – October 2016
Dividend – March 2017
Net invested capital
(unadjusted)
£
5% pa
Preferred Return
at 25 June 2020
£
Preferred
Return hurdle
at 25 June 2020
£
30,000,000
256,567,440
(4,411,012)
(4,411,012)
38,789,862
325,284,925
(5,298,047)
(5,190,725)
8,789,862
68,717,485
(887,035)
(779,713)
Share buy-back – October 2017
(139,651,022)
(159,249,709)
(19,598,687)
Dividend – November 2017
Dividend – April 2018
Dividend – December 2018
Dividend – February 2019
(4,922,558)
(4,922,558)
(3,534,145)
(3,155,486)
(5,610,350)
(5,472,174)
(3,800,946)
(3,364,849)
Share issue – February 2019
100,501,514
107,460,544
Dividend – August 2019
Dividend – March 2020
Share buy-backs – 202028
(5,548,379)
(4,410,465)
(2,461,592)
(5,785,669)
(4,476,103)
(2,506,488)
(687,792)
(549,616)
(266,801)
(209,363)
6,959,030
(237,290)
(65,638)
(44,896)
209,640,725
270,780,271
61,139,546
Shares outstanding
Per share (£)
219,492,730
219,492,730
219,492,730
0.955
1.234
0.279
28
Includes cost of all shares purchased back under the first programme (7 January – 31 March) and calculation of the preferred returns
using the underlying purchase dates.
40
ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
Following the redemption, 51,546,370 Management Shares in Zegona Limited remained allotted, issued and fully
paid. No Management Shares were awarded during the year (2019: nil). At the time of signing this report and
as at 31 December 2020, the total Management Shares held by the Directors were as shown in the table below:
Eamonn O’Hare
Robert Samuelson
Other Zegona senior managers
Participation in
growth in
value
Number of
Management
Shares
Nominal value
of Management
Shares
8.88%
4.44%
1.68%
30,500,000
15,250,000
5,796,370
51,546,370
£3.05
£1.53
£0.58
£5.16
The Executive Directors are entitled to keep their Management Shares for a period of time if they are terminated,
save if they are terminated for cause. The time period is two exercise periods, save in the case of death or
permanent disability when it is until the end of the current exercise period.
Expiry of Core Investor Shares
During the first Calculation Period, Marwyn Long Term Incentive LP (“Marwyn”), Zegona’s largest and founding
shareholder, had been issued Core Investor Shares in Zegona Limited. The Core Investor Shares carried no voting
rights. Marwyn, as holder of the Core Investor Shares, was entitled to 5% of the growth in value of Zegona,
provided that ordinary shareholders achieve a 5% Preferred Return on a similar basis to the Management Shares.
This first Calculation Period started on the 14 August 2015 and ended on 14 August 2020. As the Preferred
Return was not met, no payment was due or made to Marwyn and the Core Investor incentive arrangements
ceased to exist after 14 August 2020. Therefore, the aggregate entitlement of the growth in value Zegona’s value
accruing to incentive schemes has reduced from 20% to 15%, which leaves a higher proportion of value growth
for Ordinary shareholders.
Illustration of scheme value
To explain how Zegona’s incentive scheme operates, we have set out here an illustration of how much value
would be earned by the management team assuming a hypothetical exercise date of 31 December 2020, even
though the Management Shares were not exercisable at that date29.
29
The scheme will actually become exercisable either on 25 June 2023 or at the date that certain specific conditions such as a takeover
or a Board change of control occur as explained in note 18 to the Consolidated Financial Statements. At the date of this report, none of
these conditions have occurred and the rights under the incentive schemes are not exercisable.
41
ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
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 £233.8 million was higher than the
Preferred Return target, the holders of the Incentive Shares would have received a payment to reflect this excess.
At the same time, Zegona’s Underlying Asset Value30 was £339.2 million and it is likely that had an exercise
occurred under certain specific conditions such as takeover or a Board change of control, the holders of the
Management Shares would have received a payment that reflected some or all of this higher value.
Since 25 June 2020 (£)
At 31 December 2020 (£)
Net invested capital31
Number of shares
Average share price32
Deemed market capitalisation
Growth in value per the incentive scheme
Split between:
Management Shares
Ordinary Shares
218,970,076
1.0677
15%
85%
203,330,256
233,788,779
30,458,523
4,568,779
25,889,744
At 25 June 202033
Share buy-backs34
Dividend- July 2020
Net invested capital
(unadjusted)
£
5% pa
Preferred Return
at 31 December 2020
£
Preferred Return
hurdle
at 31 December 2020
£
209,640,725
214,992,573
(604,456)
(5,706,014)
(617,968)
(5,823,200)
203,330,255
208,551,405
5,351,848
(13,512)
(117,186)
5,221,150
Shares outstanding
Per share (£)
218,970,076
218,970,076
218,970,076
0.929
0.952
0.023
31
30
The value of Zegona’s main assets is the Sterling equivalent of the fair value of Zegona’s investment in Euskaltel and its net cash
position on 31 December 2019 as discussed on page 10.
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.
Calculated in accordance with Zegona Limited’s Articles of Association as the volume weighted average mid-market price of Zegona
Communications plc’s ordinary shares for the previous 30 trading days to 31 December 2020.
33 Net invested capital on 25 June 2020, the date of commencement of the second Calculation Period.
34
Includes cost of all shares purchased back under the second programme (24 June- 15 September) and calculation of the preferred
returns using the underlying purchase dates.
32
42
ZEGONA COMMUNICATIONS PLC
GOVERNANCE | NOMINATION AND REMUNERATION REPORT
2020 Non-Executive Directors remuneration summary (Audited)
The remuneration of the Non-Executive Directors during the year is detailed below. Non-Executive Directors fee
is a basic fixed salary of £50,000 with a fixed incremental of £10,000 if the Non-Executive Director is Chairman of
a Committee. In the interest of clarity, since the Non-Executive Directors’ salaries are set and paid in Sterling, the
table has been presented in both Sterling and euros (Zegona’s presentational currency).
Richard Williams36
Ashley Martin
Kjersti Wiklund37
Suzi Williams38
Mark Brangstrup Watts39
Murray Scott40
Total
Non-Executive Directors fees35
2020
£
54,462
60,000
45,128
50,808
18,174
21,987
2019
£
60,000
60,000
–
–
50,000
50,000
2020
€
61,457
67,707
50,925
57,334
20,508
24,812
2019
€
68,421
68,421
–
–
57,017
57,017
250,559
220,000
282,743
250,876
There is no element of the Non-Executive Directors’ remuneration that is linked to the performance of the
business.
35 The Non-Executive Directors have not received any other form of remuneration during the current or prior year.
36 Richard Williams stepped down as Chairman of the Nominations and Remuneration Committee on 9 June 2020.
37 Kjersti Wiklund was appointed Non-Executive Director on 5 February 2020.
38
Suzi Williams was appointed Non-Executive Director on 5 February 2020 and Chairman of the Nominations and Remuneration
Committee on 9 June 2020.
39 Mark Bangstrup-Watts resigned on 12 May 2020.
40
I Murray Scott did not stand for re-election and ceased to be a Director on 9 June 2020.
43
ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
Summary of total shareholder return and Chief Executive remuneration (Audited)
The total shareholder return graph below shows the value as at 31 December 2020 of £100 invested on IPO on
19 March 2015, compared with £100 invested in the OMSCI Europe/Communication Telecom Services Index. The
Committee considers this index to be appropriate for the purposes of this comparison because it includes mostly
European telecommunications companies. The data shown below assumes that all cash returns to shareholders
made by Zegona (including the share buyback) are immediately reinvested in ordinary shares. The single figure
remuneration for the Chief Executive over the same period, together with the outcomes of the respective annual
incentive awards, is presented in the following table.
Total remuneration €m
Annual bonus (%
of maximum)
201541
0.67
2016
0.77
2017
1.29
2018
0.71
2019
1.25
2020
1.27
0%
0%
100%
0%42
94%
75%
As discussed on page 10, since Zegona acquired its investment in Euskaltel, the market value of Zegona’s shares
has typically been less than the Underlying Asset Value per share43. At 31 December 2020, the Underlying Asset
Value per share was £1.39 per Zegona share (2019: £1.37). This value was 34% higher than Zegona’s share price
on 31 December 2020 of £1.04 (2019: 26% higher than Zegona’s share price of £1.09).
41 Period from incorporation on 19 January 2015 to 31 December 2015.
42
Eamonn did meet several indicators of achievement in relation to his 2018 bonus objectives, however Eamonn waived his 2018 bonus
in order to maximise the cash raised from the equity placing in February 2019.
The Underlying Asset Value is the Sterling equivalent of the fair value of Zegona’s investment in Euskaltel and its net cash position and
other assets as discussed on page 10.
43
44
ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
Comparison of Directors’ and employees’ pay and relative importance of spend on pay (Audited)
The following table compares the changes in each Director’s pay with changes in employee pay between 2019
and 2020:
Executive Directors
Eamonn O’Hare
Robert Samuelson
Non-executive Directors
Mark Brangstrup Watts44
Murray Scott45
Richard Williams
Ashley Martin
Kjersti Wiklund46
Suzi Williams47
Employees
Base salary
change %
Taxable benefits
change %
Annual cash
bonus
change %
13%
12%
n/a
n/a
–9%
0%
n/a
n/a
0%
3%
2%
n/a
n/a
n/a
n/a
n/a
n/a
12%
5%
n/a
n/a
n/a
n/a
n/a
n/a
87%
–21%
The table below shows the relative importance of the spend on remuneration paid to or receivable by all
employees in Zegona when compared to distributions to shareholders by way of dividend or share buyback:
Employee pay
Returns to shareholders
Of which:
Dividends
Share buyback
2020
€000
4,024
14,886
11,348
3,538
2019
€000
3,610
9,860
9,860
–
44 Mark Brangstrup Watts resigned on 12 May 2020.
45
46
47
Murray Scott did not stand for re-election and ceased to be a director on 9 June 2020.
Kjersti Wiklund was appointed Non-Executive Director on 5 February 2020.
Suzi Williams was appointed Non-Executive Director on 5 February 2020 and Chairman of the Remuneration and Nominations
Committee on 9 June 2020.
45
ZEGONA COMMUNICATIONS PLC GOVERNANCE | NOMINATION AND REMUNERATION REPORT
Directors’ terms and conditions
Service contract duration
Director
Eamonn O’Hare
Robert Samuelson
Richard Williams
Ashley Martin
Kjersti Wiklund
Suzi Williams
Contract
duration
Notice period
Unlimited
12 months
Unlimited
12 months
Unlimited*
Unlimited*
Unlimited*
Unlimited*
6 months
6 months
6 months
6 months
*
Under the terms of the service agreements, these appointments are contingent on annual re-election by shareholders and completion
of the annual Board effectiveness review.
Other than payments for notice periods, the service agreements contain no entitlements to termination
payments. There are no malus or clawback provisions in respect of base salary, pension contributions or benefits,
however, the Committee retains discretion to apply such provisions in the case of any bonus award paid to an
Executive Director whose appointment is subsequently terminated.
External appointments
Executive Directors are allowed to accept external appointments with the consent of the Board as long as these
are not likely to lead to conflicts of interests or significant time commitments. Executive Directors are allowed to
retain the fees paid.
During 2020, Eamonn O’Hare earned and retained Non-Executive Director fees in relation to his external
appointments of €200,916 and €80,000 in relation to his appointment as a propriety director of Euskaltel.
During 2020, Robert Samuelson earned and retained €71,000 in relation to his appointment as a proprietary
director of Euskaltel.
Reappointment
Under the terms of Zegona’s Articles of Association, all Directors will be proposed for re-election at the 2021
AGM. All Board members have service contracts and details of the unexpired terms of these service contracts
are set out above.
Compensation for loss of office
No payment was due, and Zegona made no payment during the year to Murray Scott or Mark Brangstrup Watts
as compensation for loss of office.
The Directors are not entitled to any special compensation for loss of office pursuant to their directorship
or employment contracts following a change of control. However, certain changes of control will entitle the
Directors to exercise rights held by them as holders of Management pursuant to the long-term incentive plan in
force in respect of Zegona.
Directors’ interests in ordinary shares (Audited)
The Committee intends to keep under consideration the need to adopt formal guidelines in connection with
the building of shareholdings in Zegona by Executive Directors. During the year, no such formal requirements or
guidelines were adopted and the Committee remains of the view that no such requirements or guidelines are
currently needed given that the Executive Directors acquired ordinary shares in the Placing and their interests
are significantly aligned with shareholders through their participation in the incentive scheme.
46
ZEGONA COMMUNICATIONS PLC
GOVERNANCE | NOMINATION AND REMUNERATION REPORT
The shareholdings of the Directors at 31 December 2020 are set out below. There have been no changes in the
shareholdings of the Directors from 31 December 2020 to the date of this report.
Director
Eamonn O’Hare
Robert Samuelson
Richard Williams
Ashley Martin
Kjersti Wiklund
Suzi Williams
Number of
shares
% of issued
share capital
2,032,185
657,902
62,570
10,479
–
–
0.93
0.30
0.03
0.00
–
–
The following information provided in this part of the Directors’ Remuneration Report is not subject to audit.
Review of workforce remuneration matters
Whilst there is only a small number of employees in Zegona, in line with the provisions of the UK Corporate
Governance Code, the Committee continues to review the effectiveness of the remuneration framework for
Zegona’s workforce. This involves being kept up to date with changes in workforce remuneration, and ensuring
that workforce remuneration continues to remain aligned to Zegona’s purpose, values and strategy.
Statement of voting at General Meetings
The following table sets out the voting results in respect of the resolutions to approve the Directors’ Remuneration
Report and the Directors’ Remuneration Policy:
Date of AGM
For the
resolution
Against the
resolution Votes withheld
Directors’ Remuneration Report
for the year ended 31 December 2019
9 June 2020
60.15%
39.85%
–
(votes cast)
106,148,644
70,314,928
30,045,950
Directors’ Remuneration Policy
10 June 2019
86.41%
13.59%
–
(votes cast)
137,477,802
21,628,261
42,325,186
Suzi Williams
Chairman of the Nomination and Remuneration Committee
19 April 2021
47
ZEGONA COMMUNICATIONS PLC GOVERNANCE | DIRECTORS' REPORT
Result
For the year ended 31 December 2020, Zegona’s profit before tax was €14.0 million (2019: €42.1 million). Other
comprehensive loss was €18.7 million (2019: gain of €15.2 million). Therefore, the total comprehensive loss for
2020 was €4.7 million (2019: income of €57.2 million). Reviews of performance, likely future developments and
corporate responsibility are set out in the Strategic Report on pages 1 to 16.
Dividends
Zegona declared an interim dividend on 10 June 2020 at a rate of 2.6 pence per share, totalling £5.7 million
(€6.3 million). The dividend was paid on 31 July 2020.
Zegona declared a further interim dividend, in lieu of a final dividend for 2020, on 21 December 2020 at a rate of
2.2 pence per share, totalling £4.8 million (€5.6 million). The dividend was paid on 9 March 2021.
Authority to make distributions in specie
At the general meeting on 22 September 2017, the shareholders approved a resolution to permit the Board to
satisfy the payment of any dividends declared by Zegona wholly or partly by the distribution of shares in Euskaltel
or any successor entity of Euskaltel, from time to time.
Contracts of significance
Mark Brangstrup Watts, a Non-Executive director until his resignation on 12 May 2020, is an ultimate beneficial
owner of Axio. Zegona entered into an agreement with Axio dated 19 December 2016 pursuant to which Axio
provided certain company secretarial and administration services and financial & accounting services. For the
period to 12 May 2020, services totalling €172,661 were received from Axio (2019: €354,182). Axio no longer
provides services to Zegona.
Mark Brangstrup Watts is a designated member of Marwyn Capital LLP (“Marwyn”). Zegona entered into an
agreement with Marwyn dated 14 March 2016 pursuant to which Marwyn provided office accommodation,
services and supplies. For the period to 12 May 2020, services totalling €25,372 were received from Marwyn
(2019: €68,717). This agreement was terminated on 13 November 2020.
Events since the end of the financial year
Zegona received a dividend on 12 February 2021 from Euskaltel at a rate of €0.14 per share, totalling €5.4 million.
In accordance with Zegona’s dividend policy, this was passed through to Zegona’s shareholders by payment of
a dividend at a rate of 2.2p per share, totalling £4.8 million (€5.6 million). The Zegona dividend was declared on
21 December 2020 and paid on 9 March 2021.
On 2 March 2021, as part of an internal reorganisation designed to simplify the structure of its holdings in
Euskaltel, Zegona Communications PLC contributed 3,878,965 shares in Euskaltel S.A. with a value as at the
closing mid-price on 2 March 2021 of €31,807,513 to its subsidiary, Zegona Limited, in exchange for one Ordinary
Share of Zegona Limited.
On 28 March 2021, a wholly-owned subsidiary of MásMóvil Ibercom, S.A.U., a Spanish telecommunications
operator and portfolio company of the private equity funds KKR, Providence and Cinven, announced that it had
launched a tender offer to acquire 100% of Euskaltel for €11.17 per share in cash (the "Offer"). The Offer values
Zegona’s 21.44% shareholding at c.€427.7 million
On 8 April 2021, Zegona Limited entered into a Deal Contingent Forward Purchase Agreement with Barclays
Bank PLC to hedge the full amount of proceeds it expects to receive on the successful completion of the Offer.
Under the terms of the contract, Zegona has sold €430 million and will receive between £371.9 million and
£372.1 million (depending on the actual date of settlement) only if the Offer is successfully completed.
48
ZEGONA COMMUNICATIONS PLC GOVERNANCE | DIRECTORS' REPORT
Share buy-back programme
The shareholders passed a resolution to authorise Zegona to make market purchases of up to 10% of its current
issued ordinary share capital (within specified price parameters) in the 2020 AGM, which expires on the earlier
of the end of 2021 AGM or 18 months after the date of 2020 AGM. A resolution to renew this authority is
proposed for the 2021 AGM. It is intended that we will exercise this authority only if the Board considers that
it is in the best interests of Zegona at the time. Any shares repurchased by Zegona may be held in treasury and
subsequently resold for cash, cancelled or used for employee share scheme purposes.
During 2020 Zegona announced two buyback programmes of its ordinary shares for an aggregate purchase price
of up to £10 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 €/£ FX rate on that day) and net cash balance
divided by the number of Zegona ordinary shares in issue). Zegona purchased and cancelled a total of 2,965,101
ordinary shares for a total of £3,066,047, representing 1.35% of the total shares in issue. Further information can
be found in Note 21 to the Consolidated Financial Statements.
Significant agreements subject to change of control provisions
Zegona Limited has issued Management Shares as part of Zegona’s incentive arrangements. On a change of
control of Zegona, subject to the requirements of the Articles of Association of Zegona Limited, the Management
Shares can be exercised with their value being delivered either through the issue of ordinary shares or in cash.
Substantial shareholders
At 31 December 2020 and up to the date of approval of this report, Zegona had been notified under DTR 5 of the
following holdings in 3% or more of the issued ordinary shares, which are all held indirectly by asset managers:
Asset manager
Marwyn Asset Management48
Artemis Investment Management
Fidelity Management & Research
Canaccord Genuity Group Inc
Fidelity Investments Limited
Capital Research &
Management Company
Aberforth Partners LLP
Chelverton Asset Management
Shareholding at
19 April
2021
% of ordinary
share capital
as at 19 April
2021
Shareholding at
31 December
2020
% of ordinary
share capital
as at
31 December
2020
42,062,035
30,045,950
21,896,999
21,368,375
20,328,930
17,921,987
13,650,347
11,750,000
19.21
13.72
10.00
9.76
9.28
8.18
6.23
5.37
42,062,035
30,045,950
21,898,999
21,557,601
20,328,930
17,921,987
13,404,347
11,140,000
179,024,623
81.76
178,359,849
19.21
13.72
10.00
9.85
9.28
8.18
6.12
5.09
81.45
Independent auditor
KPMG has expressed its willingness to continue to act as auditor to Zegona and a resolution for its re-appointment
will be proposed at the 2021 AGM. KPMG has confirmed that it remains independent of Zegona.
48
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.
49
ZEGONA COMMUNICATIONS PLC GOVERNANCE | DIRECTORS' REPORT
Political donations
Zegona does not make any political donation and has no intention of altering this policy.
Disclosure of information to the auditor
Each of the persons who is a Director at the date of approval of this report confirms that, so far as the Director
is aware, there is no relevant audit information of which Zegona’s auditor is unaware; and each Director has
taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit
information and to establish that Zegona’s auditor is aware of that information.
Statement of going concern
The Directors have considered all available information, including specific consideration of forecast financial
information, about the possible future outcomes of events and changes of conditions, and the realistically
possible responses to such events and conditions that are available to the Directors. The Board considers that
there are no material uncertainties affecting Zegona’s ability to continue in business or meet its liabilities as they
fall due for the next 12 months and therefore believes it is appropriate to prepare the Financial Statements on
the going concern basis.
By order of the Board
Eamonn O’Hare
Chairman and Chief Executive Officer
19 April 2021
50
ZEGONA COMMUNICATIONS PLC GOVERNANCE | DIRECTORS' RESPONSIBILITY STATEMENT
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Strategic Report, Directors’ Report, Directors’ Remuneration
Report, Corporate Governance Report and the Zegona group and parent company Financial Statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare group and parent company Financial Statements for each financial
year. Under that law, they are required to prepare the Zegona group Financial Statements in accordance with
international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union (“IFRSs as adopted by the EU") and applicable law, and have elected to prepare the parent
company Financial statements on the same basis.
Under company law, the Directors must not approve the Financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that
period. In preparing each of the group and parent company Financial Statements, the Directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
•
•
state whether they have been prepared in accordance with IFRSs as adopted by the EU;
assess the group and parent company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the group or the parent
company or to cease operations or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of
the parent company and enable them to ensure that its Financial Statements comply with the Companies Act
2006. They are responsible for such internal control as they determine is necessary to enable the preparation of
Financial Statements that are free from material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to
prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information
included on the company’s website. Legislation in the UK governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the Annual Financial Report
We confirm that to the best of our knowledge:
•
•
•
the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a
true and fair view of the assets, liabilities, financial position and profit or loss of the parent company and the
undertakings included in the consolidation taken as a whole;
the Strategic Report includes a fair review of the development and performance of the business and the
position of the issuer and the undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
the Annual Report as a whole is fair, balanced and understandable and provides the information necessary
for shareholders to assess Zegona’s position and performance, business model and strategy.
By order of the Board
Eamonn O’Hare
Chairman and Chief Executive Officer
19 April 2021
Robert Samuelson
Chief Operating Officer
19 April 2021
51
ZEGONA COMMUNICATIONS PLC Independent
auditor’s report
to the members of Zegona Communications plc
1. Our opinion is unmodified
We have audited the financial statements of
Zegona Communications plc (“the Company” or
“Zegona”) for the year ended 31 December 2020
which comprise the Consolidated Statement of
Comprehensive Income, Consolidated Statement of
Other Comprehensive Income, Consolidated
Statement of Financial Position, Company
Statement of Financial Position, Consolidated
Statement of Changes in Equity, Company
Statement of Changes in Equity, Consolidated
Statement of Cash Flows, Company Statement of
Cash Flows, and the related notes, including the
accounting policies in note 2.
In our opinion:
— the financial statements give a true and fair
view of the state of the Group’s and of the
parent Company’s affairs as at 31 December
2020 and of the Group’s profit for the year then
ended;
— the Group financial statements have been
properly prepared in accordance with
international accounting standards in conformity
with the requirements of the Companies Act
2006;
— the parent Company financial statements have
been properly prepared in accordance with
international accounting standards in conformity
with the requirements of and as applied in
accordance with the provisions of the
Companies Act 2006; and
— the financial statements have been prepared in
accordance with the requirements of the
Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the
IAS Regulation to the extent applicable.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit
evidence we have obtained is a sufficient and
52
appropriate basis for our opinion. Our audit
opinion is consistent with our report to the
audit committee.
We were first appointed as auditor by the directors
on 21 November 2016. The period of total
uninterrupted engagement is for the five financial
years ended 31 December 2020. We have fulfilled
our ethical responsibilities under, and we remain
independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities.
No non-audit services prohibited by that standard
were provided.
Overview
Materiality:
group financial
statements as a
whole
Coverage
€3,100,000 (2019:
€3,200,000)
0.9% of total assets (2019:
0.9% of total assets)
100% of total assets (2019:
100% of total assets)
Key audit matters
vs 2019
Risk removed
Recurring risks
Classification and
accuracy of the
Euskaltel investment
Accuracy of Zegona’s
share of profit in
associate
Recoverability of Parent
Company’s investment
in subsidiary
◄►
▼
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. We summarise below the key audit matters, in decreasing order of audit
significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as
required for public interest entities, our results from those procedures. These matters were addressed, and our results are
based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a
whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate
opinion on these matters.
The risk
Our response
Accuracy of Zegona’s share of
profit in associate
(€6.3 million; 2019: €9.1 million)
Refer to page 70 (accounting
policy) and page 85 (financial
disclosures)
From 10 July 2019, the investment was
equity accounted for as an associate and
there is a risk over the accuracy of the
share of profits in associate included in
the Consolidated Statement of
Comprehensive Income.
We performed the tests below rather than
seeking to rely on any of the group's controls
because the nature of the balance is such that
we would expect to obtain audit evidence
primarily through the detailed procedures
described.
The share of profit from Euskaltel is
material to the Zegona financial
statements. The industry in which
Euskaltel operates has a number of
complexities such as high volume low
value transactions, complex systems
and multiple revenue streams.
Our procedures included:
— Component scope: engaged Euskaltel’s
auditor as a component auditor and
reviewed their audit files. This included
discussions with the component auditor,
issuing group instructions, reading the
component financial statements and
receiving component reporting;
— Accounting analysis: compared the
accounting policies of Euskaltel to those of
Zegona and assessed whether any
adjustments were required to be made;
— Re-performance: re-performed
management’s calculation of the
amortisation for the fair value adjustments;
— Assessing transparency: assessed the
completeness and appropriateness of
disclosures.
Our results
We found the amount recognised of the share
of profit in associate to be acceptable (2019:
acceptable).
53
2. Key audit matters: our assessment of risks of material misstatement (continued)
The risk
Our response
Recoverability of the Parent
Company’s investment in
Subsidiary
(€252.3 million; 2019: €265.7
million)
Refer to page 74 (accounting
policy) and page 81 (financial
disclosures).
Low risk, high value:
The carrying amount of the parent
company’s investment in subsidiary is
the most significant item on the parent
company balance sheet. The estimated
recoverable amount of this balance is
determined based on the fair value of the
subsidiary’s net assets and is subjective
due to the inherent uncertainty in
judgements and estimates used in the
impairment test. The risk was reduced
compared to 2019 as there was
increased headroom due to a higher
share price of Euskaltel at year end.
We performed the tests below rather than
seeking to rely on any of the Parent company's
controls because the nature of the balance is
such that we would expect to obtain audit
evidence primarily through the detailed
procedures described.
Our procedures included:
— Test of detail: compared the carrying value
of the investment to its recoverable amount
to assess for impairment;
— Test of detail: included agreeing inputs used
in the valuation of the interest in associate,
such as share price and number of shares
held by the subsidiary, to supporting
documentation;
— Assessing transparency: assessed the
adequacy of the parent company’s
disclosures in respect of the investment in
subsidiary.
Our results
— We have found the group’s assessment of
the recoverability of the investment in
subsidiary and no impairment charge to be
acceptable (2019: acceptable).
We continue to perform procedures over the Interest in associate, however, we have not assessed the classification and
accuracy of the Euskaltel investment as one of the most significant risks in our current year audit and, therefore, it is not
separately identified in our report this year. The Group concluded that from 10 July 2019 significant influence existed and
subsequently commenced equity accounting from that date, and the judgement over the date of significant influence is not
applicable in the current year.
54
3. Our application of Group materiality and
an overview of the scope of our audit
Total assets
€344m (2019: €364m)
Group Materiality
€3,100,000 (2019: €3,200,000)
Materiality for the group financial statements as a whole
was set at €3,100,000 (2019: €3,200,000), determined with
reference to a benchmark of group total assets, of which it
represents 0.9% (2019: 0.9% of total assets).
Materiality for the parent company as a whole was set at
€1,800,000 (2019: €2,000,000) determined with reference
to a benchmark of company total assets, of which it
represents 0.6% (2019: 0.6%).
In line with our audit methodology, our procedures on
individual account balances and disclosures were
performed to a lower threshold, performance materiality, so
as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances
add up to a material amount across the financial statements
as a whole.
Performance materiality was set at 75% (2019: 75%) of
materiality for the financial statements as a whole, which
equates to €2,300,000 (2019: €2,400,000). We applied this
percentage in our determination of performance materiality
because we did not identify any factors indicating an
elevated level of risk.
Performance materiality for the parent company was also
set at 75% (2019: 75%) of materiality which equates to
€1,350,000 (2019: €1,500,000).
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding
€155,000 (2019: €160,000), in addition to other identified
misstatements that warranted reporting on qualitative
grounds.
Of the group's 9 (2019: 9) reporting components, including
the parent company and the associate, we subjected 3
(2019: 3) to full scope audits for group purposes.
The components within the scope of our work accounted
for the percentages illustrated opposite.
The Group team instructed component auditors as to the
significant areas to be covered, including the relevant risks
detailed above and the information to be reported back.
The Group team approved component materiality of
€1,800,000 to €2,635,000 (2019: €2,000,000 to
€2,975,000), having regard to the mix of size and risk profile
of the Group across the components. The work on 1 of the
3 components was performed by a component auditor and
the rest by the Group team (2019: same as 2020). The
parent company audit was performed by the Group team.
The Group team was unable to visit any component team’s
location in 2020 due to Covid-19 restrictions (2019: one
component team visited) to assess the audit risk and
strategy. Telephone conference meetings were held with
the component auditor. At these meetings, the findings
reported to the Group team were discussed in more detail,
and any further work required by the Group team was then
performed by the component auditor.
€3,100,000
Whole financial
statements materiality
(2019: €3,200,000)
€2,635,000
Range of materiality at 3
components (€1,800,000 -
€2,635,000)
(2019: €2,000,000 -€2,975,000)
Total assets
Group materiality
€155,000
Misstatements reported to the
audit committee (2019:
€160,000)
Group profit before tax
0
99%
(2019: 99%)
99
99
Group total assets
0
0
100%
(2019: 100%)
100
100
Key:
Full scope for group audit purposes 2020
Full scope for group audit purposes 2019
Residual components
55
4. Going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Group or the Company or to cease their operations, and as
they have concluded that the Group’s and the Company’s
financial position means that this is realistic. They have also
concluded that there are no material uncertainties that
could have cast significant doubt over their ability to
continue as a going concern for at least a year from the
date of approval of the financial statements (“the going
concern period”).
We used our knowledge of the Group, its industry, and the
general economic environment to identify the inherent risks
to its business model and analysed how those risks might
affect the Group’s financial resources or ability to continue
operations over the going concern period. The risk that we
considered most likely to adversely affect the Group’s
available financial resources over this period is the sourcing
of alternative investments impacting the business strategy.
We evaluated this risk and concluded that it did not result in
any risk to going concern. We considered whether these
risks could plausibly affect the liquidity and covenant
compliance in the going concern period by assessing the
Directors’ sensitivities over the level of available financial
resources and covenant thresholds indicated by the
Group’s/ Company’s financial forecasts taking account of
severe, but plausible adverse effects that could arise from
these risks individually and collectively. Our evaluation of
the directors’ assessment of the Group’s and the
Company’s ability to continue to adopt the going concern
basis of accounting included:
— agreeing the underlying cash flow projections to
management approved forecasts, assessing how these
forecasts are compiled, and assessing the accuracy of
management’s forecasts;
— comparing past projections to actual results to assess
directors’ track record of forecasting accurately;
— evaluating the key assumptions within management’s
forecasts;
— considering liquidity and available financial resources;
— assessing whether the stress testing performed by
management appropriately considered the principal risks
facing the business.
We considered whether the going concern disclosure in
note 2 to the financial statements gives a full and accurate
description of the Directors’ assessment of going concern,
including the identified risks and dependencies.
Our conclusions based on this work:
— we consider that the Directors’ use of the going
concern basis of accounting in the preparation of the
financial statements is appropriate;
— we have not identified, and concur with the Directors’
assessment that there is not, a material uncertainty
related to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s
or Company's ability to continue as a going concern for
the going concern period;
— we have nothing material to add or draw attention to in
relation to the Directors’ statement in note 2 to the
financial statements on the use of the going concern
basis of accounting with no material uncertainties that
may cast significant doubt over the Group’s and
Company’s use of that basis for the going concern
period, and we found the going concern disclosure in
note 2 to be acceptable; and
— the related statement under the Listing Rules set out on
page 50 is materially consistent with the financial
statements and our audit knowledge.
However, as we cannot predict all future events or
conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the above
conclusions are not a guarantee that the Group or the
Company will continue in operation.
5. Fraud and breaches of laws and regulations – ability to
detect
Identifying and responding to risks of material
misstatement due to fraud
To identify risks of material misstatement due to fraud
(“fraud risks”) we assessed events or conditions that could
indicate an incentive or pressure to commit fraud or provide
an opportunity to commit fraud. Our risk assessment
procedures included:
— Enquiring of directors, the audit and risk committee and
management and inspection of policy documentation as to
the Group’s high-level policies and procedures to prevent
and detect fraud , including the Group’s channel for
“whistleblowing”, as well as whether they have knowledge
of any actual, suspected or alleged fraud.
— Reading Board/ audit and risk committee/ nomination
and remuneration committee minutes.
— Considering remuneration incentive schemes and
performance targets for directors/ senior management.
— Using analytical procedures to identify any unusual or
unexpected relationships.
We communicated identified fraud risks throughout the
audit team and remained alert to any indications of fraud
throughout the audit. This included request to full scope
component audit team to report to the Group audit team
any instances of fraud that could give rise to a material
misstatement at group.
As required by auditing standards, we perform procedures
to address the risk of management override of controls, in
particular the risk that Group and component management
may be in a position to make inappropriate accounting
entries and the risk of bias in accounting estimates such as
contingent consideration. On this audit we do not believe
there is a fraud risk related to revenue recognition because
the company does not have any trading operations.
We did not identify any additional fraud risks.
We performed procedures including identifying journal
entries and other adjustments to test for all full scope
components based on risk criteria and comparing the
identified entries to supporting documentation. These
included unusual debits and credits to cash and borrowing
accounts.
56
Identifying and responding to risks of material
limited procedures required by auditing standards would
misstatement due to non-compliance with laws and
identify it.
regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our general commercial and
sector experience and through discussion with the directors
and other management (as required by auditing standards),
and from inspection of the Group’s regulatory and legal
correspondence and discussed with the directors and other
management the policies and procedures regarding
compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved
gaining an understanding of the control environment
including the entity’s procedures for complying with
regulatory requirements.
We communicated identified laws and regulations
throughout our team and remained alert to any indications
of non-compliance throughout the audit. This included
communication from the group to full-scope component
audit teams of relevant laws and regulations identified at
the Group level, and a request for full scope component
auditors to report to the group team any instances of non-
compliance with laws and regulations that could give rise to
a material misstatement at group.
The potential effect of these laws and regulations on the
financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies
legislation), distributable profits legislation and taxation
legislation and we assessed the extent of compliance with
these laws and regulations as part of our procedures on the
related financial statement items.
Secondly, the Group is subject to many other laws and
regulations where the consequences of non-compliance
could have a material effect on amounts or disclosures in
the financial statements, for instance through the
and safety, anti-bribery, employment law and certain
aspects of company legislation recognising the nature of
the Group’s activities and its legal form. Auditing standards
limit the required audit procedures to identify non-
compliance with these laws and regulations to enquiry of
the directors and other management and inspection of
regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or
evident from relevant correspondence, an audit will not
detect that breach.
Context of the ability of the audit to detect fraud or
breaches of law or regulation
In addition, as with any audit, there remained a higher risk
of non-detection of fraud, as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls. Our audit procedures are
designed to detect material misstatement. We are not
responsible for preventing non-compliance or fraud and
cannot be expected to detect non-compliance with all laws
and regulations.
the Annual Report
6. We have nothing to report on the other information in
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have
not identified material misstatements in the other
information.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the
strategic report and the directors’ report;
— in our opinion the information given in those reports for
the financial year is consistent with the financial
statements; and
— in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
We are required to perform procedures to identify whether
there is a material inconsistency between the directors’
disclosures in respect of emerging and principal risks and
the viability statement, and the financial statements and our
audit knowledge.
Based on those procedures, we have nothing material to
add or draw attention to in relation to:
— the directors’ confirmation within the longer term
viability statement on page 15 that they have carried out
a robust assessment of the emerging and principal risks
facing the Group, including those that would threaten its
business model, future performance, solvency and
imposition of fines or litigation. We identified the following
Disclosures of emerging and principal risks and longer-term
areas as those most likely to have such an effect: health
viability
Owing to the inherent limitations of an audit, there is an
liquidity;
unavoidable risk that we may not have detected some
— the longer term viability statement disclosures
material misstatements in the financial statements, even
describing these risks and how emerging risks are
though we have properly planned and performed our audit
identified, and explaining how they are being managed
in accordance with auditing standards. For example, the
and mitigated; and
further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial
statements, the less likely the inherently
Identifying and responding to risks of material
misstatement due to non-compliance with laws and
regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our general commercial and
sector experience and through discussion with the directors
and other management (as required by auditing standards),
and from inspection of the Group’s regulatory and legal
correspondence and discussed with the directors and other
management the policies and procedures regarding
compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved
gaining an understanding of the control environment
including the entity’s procedures for complying with
regulatory requirements.
We communicated identified laws and regulations
throughout our team and remained alert to any indications
of non-compliance throughout the audit. This included
communication from the group to full-scope component
audit teams of relevant laws and regulations identified at
the Group level, and a request for full scope component
auditors to report to the group team any instances of non-
compliance with laws and regulations that could give rise to
a material misstatement at group.
The potential effect of these laws and regulations on the
financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that
directly affect the financial statements including financial
reporting legislation (including related companies
legislation), distributable profits legislation and taxation
legislation and we assessed the extent of compliance with
these laws and regulations as part of our procedures on the
related financial statement items.
Secondly, the Group is subject to many other laws and
regulations where the consequences of non-compliance
could have a material effect on amounts or disclosures in
the financial statements, for instance through the
imposition of fines or litigation. We identified the following
areas as those most likely to have such an effect: health
and safety, anti-bribery, employment law and certain
aspects of company legislation recognising the nature of
the Group’s activities and its legal form. Auditing standards
limit the required audit procedures to identify non-
compliance with these laws and regulations to enquiry of
the directors and other management and inspection of
regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or
evident from relevant correspondence, an audit will not
detect that breach.
Context of the ability of the audit to detect fraud or
breaches of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some
material misstatements in the financial statements, even
though we have properly planned and performed our audit
in accordance with auditing standards. For example, the
further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial
statements, the less likely the inherently
57
limited procedures required by auditing standards would
identify it.
In addition, as with any audit, there remained a higher risk
of non-detection of fraud, as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls. Our audit procedures are
designed to detect material misstatement. We are not
responsible for preventing non-compliance or fraud and
cannot be expected to detect non-compliance with all laws
and regulations.
6. We have nothing to report on the other information in
the Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have
not identified material misstatements in the other
information.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the
strategic report and the directors’ report;
— in our opinion the information given in those reports for
the financial year is consistent with the financial
statements; and
— in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Disclosures of emerging and principal risks and longer-term
viability
We are required to perform procedures to identify whether
there is a material inconsistency between the directors’
disclosures in respect of emerging and principal risks and
the viability statement, and the financial statements and our
audit knowledge.
Based on those procedures, we have nothing material to
add or draw attention to in relation to:
— the directors’ confirmation within the longer term
viability statement on page 15 that they have carried out
a robust assessment of the emerging and principal risks
facing the Group, including those that would threaten its
business model, future performance, solvency and
liquidity;
— the longer term viability statement disclosures
describing these risks and how emerging risks are
identified, and explaining how they are being managed
and mitigated; and
— the directors’ explanation in the longer term viability
statement of how they have assessed the prospects of
the Group, over what period they have done so and why
they considered that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the
period of their assessment, including any related
disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to review the longer term viability
statement, set out on page 15 under the Listing Rules.
Based on the above procedures, we have concluded that
the above disclosures are materially consistent with the
financial statements and our audit knowledge.
Our work is limited to assessing these matters in the
context of only the knowledge acquired during our financial
statements audit. As we cannot predict all future events or
conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the absence of
anything to report on these statements is not a guarantee
as to the Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether
there is a material inconsistency between the directors’
corporate governance disclosures and the financial
statements and our audit knowledge.
Based on those procedures, we have concluded that each
of the following is materially consistent with the financial
statements and our audit knowledge:
— the directors’ statement that they consider that the
annual report and financial statements taken as a whole is
fair, balanced and understandable, and provides the
information necessary for shareholders to assess the
Group’s position and performance, business model and
strategy;
— the section of the annual report describing the work of
the Audit Committee, including the significant issues that
the audit committee considered in relation to the financial
statements, and how these issues were addressed; and
— the section of the annual report that describes the
review of the effectiveness of the Group’s risk
management and internal control systems.
We are required to review the part of the Corporate
Governance Report relating to the Group’s compliance with
the provisions of the UK Corporate Governance Code
specified by the Listing Rules for our review, and to report
to you if a corporate governance statement has not been
prepared by the company. We have nothing to report in
these respects.
Based solely on our work on the other information
described above:
— with respect to the Corporate Governance Report
disclosures about internal control and risk management
systems in relation to financial reporting processes and
about share capital structures:
— we have not identified material misstatements therein;
and
58
— the information therein is consistent with the financial
statements; and
— in our opinion, the Corporate Governance Statement has
been prepared in accordance with relevant rules of the
Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority.
7. We have nothing to report on the other matters on
which we are required to report by exception
Under the Companies Act 2006, we are required to report
to you if, in our opinion:
— adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
— the parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are
not in agreement with the accounting records and
returns; or
— certain disclosures of directors’ remuneration specified
by law are not made; or
— we have not received all the information and
explanations we require for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page
51, the Directors are responsible for: the preparation of the
financial statements including being satisfied that they give
a true and fair view; 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; assessing the Group and
parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and using 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.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or other
irregularities (see below), or error, and to issue our opinion
in an auditor’s report. Reasonable assurance is a high level
of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can
arise from fraud, other irregularities or error and are
considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
9. The purpose of our audit work and to whom we owe
9. The purpose of our audit work and to whom we owe
our responsibilities
our responsibilities
9. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members, as a
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the
body, in accordance with Chapter 3 of Part 16 of the
This report is made solely to the Company’s members, as a
Companies Act 2006. Our audit work has been undertaken
Companies Act 2006. Our audit work has been undertaken
body, in accordance with Chapter 3 of Part 16 of the
so that we might state to the Company’s members those
so that we might state to the Company’s members those
Companies Act 2006. Our audit work has been undertaken
matters we are required to state to them in an auditor’s
matters we are required to state to them in an auditor’s
so that we might state to the Company’s members those
report and for no other purpose. To the fullest extent
report and for no other purpose. To the fullest extent
matters we are required to state to them in an auditor’s
permitted by law, we do not accept or assume
permitted by law, we do not accept or assume
report and for no other purpose. To the fullest extent
responsibility to anyone other than the Company and the
responsibility to anyone other than the Company and the
permitted by law, we do not accept or assume
Company’s members, as a body, for our audit work, for this
Company’s members, as a body, for our audit work, for this
responsibility to anyone other than the Company and the
report, or for the opinions we have formed.
report, or for the opinions we have formed.
Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
David Neale (Senior Statutory Auditor)
David Neale (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
for and on behalf of KPMG LLP, Statutory Auditor
David Neale (Senior Statutory Auditor)
Chartered Accountants
Chartered Accountants
for and on behalf of KPMG LLP, Statutory Auditor
15 Canada Square
15 Canada Square
Chartered Accountants
London
London
15 Canada Square
E14 5GL
E14 5GL
London
20 April 2021
20 April 2021
E14 5GL
20 April 2021
59
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Administrative and other operating expenses:
Corporate costs
Incentive scheme costs
Significant project costs
Operating loss
Finance income
Finance costs
Share of profit of associate
Net foreign exchange gains
Profit for the year before income tax
Income tax expense
Profit for the year attributable to equity
holders of the parent
Notes
5
18
6
7
7
12
8
2020
€000
(5,631)
(914)
(292)
(6,837)
3,775
(554)
16,309
1,273
13,966
2019
€000
(5,639)
–
(342)
(5,981)
38,190
(674)
9,094
1,427
42,056
–
–
13,966
42,056
€
€
Earnings per share
Basic and diluted earnings per share attributable to equity
holders of the parent
23
0.06
0.20
The notes on pages 68 to 95 form an integral part of these Consolidated Financial Statements.
60
ZEGONA COMMUNICATIONS PLC
CONSOLIDATED STATEMENT OF OTHER
COMPREHENSIVE INCOME
Profit for the year
Other comprehensive (loss)/ income – items that will or may be
reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Total other comprehensive (loss)/ income
Total comprehensive (loss)/ income for the year, net of tax,
attributable to equity holders of the parent
2020
€000
2019
€000
13,966
42,056
(18,703)
(18,703)
15,195
15,195
(4,737)
57,251
The notes on pages 68 to 95 form an integral part of these Consolidated Financial Statements.
61
ZEGONA COMMUNICATIONS PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Assets
Non-current assets
Property, plant and equipment
Interest in associate
Current assets
Derivatives
Prepayments and other receivables
Financial assets measured at fair value through profit or
loss
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Share capital
Other reserves
Share-based payment reserve
Foreign currency translation reserve
Retained earnings
Total equity attributable to equity holders of the Parent
Non-current liabilities
Bank borrowings
Current liabilities
Accruals and other payables
Bank borrowings
Total liabilities
Total equity and liabilities
As at 31
December
2020
€000
As at 31
December
2019
€000
Notes
12
14
13
15
19
20
20
20
20
17
16
17
12
322,737
322,749
39
170
7,499
15,244
22,952
2
334,343
334,345
–
92
3,997
27,035
31,124
345,701
365,469
2,821
289,643
799
(6,884)
46,072
332,451
2,855
304,556
105
11,819
32,000
351,335
–
11,578
2,279
10,971
13,250
13,250
345,701
2,556
–
2,556
14,134
365,469
The notes on pages 68 to 95 form an integral part of these Consolidated Financial Statements.
The Financial Statements of Zegona Communications plc (registered number 09395163) were approved by the
Board of Directors on 19 April 2021 and were signed on its behalf by:
Eamonn O’Hare
Director
Robert Samuelson
Director
62
ZEGONA COMMUNICATIONS PLC
COMPANY STATEMENT OF FINANCIAL POSITION
Assets
Non-current assets
Property, plant and equipment
Investment in subsidiaries
Interest in associate
Current assets
Derivatives
Prepayments and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Share capital
Other reserves
Share based payment reserve
Foreign currency translation reserve
Retained earnings
Total equity attributable to the shareholders of the Company
Non-current liabilities
Bank borrowings
Current liabilities
Accruals and other payables
Bank borrowings
Total liabilities
Total equity and liabilities
As at 31
December
2020
€000
As at
31 December
2019
€000
Notes
9
14
13
19
17
16
17
12
252,322
32,194
284,528
39
183
15,149
15,371
2
265,711
31,736
297,449
–
110
26,023
26,133
299,899
323,582
2,821
289,643
694
(79,268)
52,510
266,400
2,855
304,556
–
(63,686)
52,186
295,911
–
11,578
22,528
10,971
33,499
33,499
16,093
–
16,093
27,671
299,899
323,582
The notes on pages 68 to 95 form an integral part of these Consolidated Financial Statements.
The Financial Statements of Zegona Communications plc (registered number 09395163) were approved by the
Board of Directors on 19 April 2021 and were signed on its behalf by:
Eamonn O’Hare
Director
Robert Samuelson
Director
63
ZEGONA COMMUNICATIONS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital
€000
Other
reserves
€000
Note
Share-
based
payment
reserve
€000
Foreign
currency
translation
reserve
€000
Retained
earnings
€000
Total
equity
€000
Balance at 1 January 2020
Profit for the year
Other comprehensive loss
Cancellation of shares purchased
Net cost of incentive
arrangements
Dividends paid
21
18
24
2,855
–
–
(34)
304,556
–
–
(3,565)
–
–
–
(11,348)
Balance at 31 December 2020
2,821
289,643
105
–
–
–
694
–
799
11,819
–
(18,703)
–
32,000
13,966
–
–
351,335
13,966
(18,703)
(3,599)
–
–
106
–
800
(11,348)
(6,884)
46,072
332,451
Share
capital
€000
Other
reserves
€000
Note
Share-
based
payment
reserve
€000
Foreign
currency
translation
reserve
€000
Retained
(deficit)/
earnings
€000
Total
equity
€000
Balance at 1 January 2019
Profit for the year
Other comprehensive loss
Issue of shares, net of directly
attributable costs
Dividends paid
19,20
24
1,763
–
–
1,092
–
205,623
–
–
108,793
(9,860)
105
–
–
–
–
(3,376)
–
15,195
(10,056)
42,056
–
194,059
42,056
15,195
–
–
–
–
109,885
(9,860)
Balance at 31 December 2019
2,855
304,556
105
11,819
32,000
351,335
The notes on pages 68 to 95 form an integral part of these Consolidated Financial Statements.
64
ZEGONA COMMUNICATIONS PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
Share
capital
€000
Other
reserves
€000
Note
Share-
based
payment
reserve
€000
Foreign
currency
translation
reserve
€000
Retained
earnings
€000
Total
equity
€000
Balance at 1 January 2020
Profit for the year
Other comprehensive loss
Cancellation of shares purchased
Net cost of incentive
arrangements
Dividends paid
21
18
24
2,855
–
–
(34)
304,556
–
–
(3,565)
–
–
–
(11,348)
Balance at 31 December 2020
2,821
289,643
–
–
–
–
694
–
694
(63,686)
–
(15,582)
–
52,186
219
–
–
295,911
219
(15,582)
(3,599)
–
–
105
–
799
(11,348)
(79,268)
52,510
266,400
Share
capital
€000
Other
reserves
€000
Note
Foreign
currency
translation
reserve
€000
Retained
earnings
€000
Total
equity
€000
Balance at 1 January 2019
Loss for the year
Other comprehensive income
Issue of shares, net of directly attributable
costs
Dividends paid
19,20
24
1,763
–
–
1,092
–
205,623
–
–
(77,020)
–
13,334
55,159
(2,973)
–
185,525
(2,973)
13,334
108,793
(9,860)
–
–
–
–
109,885
(9,860)
Balance at 31 December 2019
2,855
304,556
(63,686)
52,186
295,911
The notes on pages 68 to 95 form an integral part of these Consolidated Financial Statements.
65
ZEGONA COMMUNICATIONS PLC
Note
2020
€000
2019
€000
13,966
42,056
3
(16,309)
793
(1,273)
(3,775)
554
(78)
(435)
13
(518)
1
(9,094)
–
(1,427)
(38,190)
674
2,036
(887)
45
(427)
(7,059)
(5,213)
(13)
11,842
(1)
10,236
(1,690)
(92,798)
–
981
10,139
(81,582)
(11,348)
(3,599)
–
–
(14,947)
(11,867)
76
27,035
15,244
(9,860)
–
10,980
109,885
111,005
24,210
(313)
3,138
27,035
CONSOLIDATED STATEMENT OF CASH FLOWS
Operating activities
Profit before income tax
Adjustments to reconcile profit before income tax to operating
cash flows:
Depreciation of property, plant and equipment
Share of profit in associate
Incentive scheme costs
Net foreign exchange gains
Finance income
Finance costs
Working capital adjustments:
(Increase)/decrease in prepayments and other receivables
(Decrease) in accruals and other payables
Interest received
Interest paid
Net cash flows used in operating activities
Investing activities
Purchase of property, plant and equipment
Dividends received
Purchases of non-current financial assets measured at fair value
through profit or loss and of interest in associate
Proceeds from current financial assets measured at fair value
through profit or loss
Net cash flows from/(used in) investing activities
18
7
7
7
12
15
Financing activities
Dividends paid to shareholders
Shares purchased and cancelled
Net proceeds from loans and borrowings
Proceeds from issue of shares, net of directly attributable costs
24
19,21
17
19,20
Net cash flows (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 68 to 95 form an integral part of these Consolidated Financial Statements.
66
ZEGONA COMMUNICATIONS PLC
COMPANY STATEMENT OF CASH FLOWS
Operating activities
Profit/(loss) before income tax
Adjustments to reconcile profit before income tax to
operating cash flows:
Depreciation of property, plant & equipment
Share of profit in associate
Net foreign exchange gains/(losses)
Finance income
Finance costs
Working capital adjustments:
(Increase)/decrease in prepayments and other receivables
Increase in accruals and other payables
Interest received
Interest paid
Net cash flows from operating activities
Investing activities
Purchase of property, plant and equipment
Dividends received
Purchases of non-current financial assets measured at fair value
through profit or loss and of interest in associate
Net cash flows used in investing activities
Financing activities
Dividends paid to shareholders
Shares purchased and cancelled
Net proceeds from loans and borrowings
Proceeds from issue of shares, net of directly attributable costs
Net cash flows (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents
Net foreign exchange differences
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Year ended 31
December
2020
€000
Year ended 31
December
2019
€000
Note
219
(2,973)
7
7
12
24
17
19,20
3
(1,617)
(1,193)
(29)
554
(73)
6,277
13
(518)
3,636
(13)
1,172
(1,690)
(531)
(11,348)
(3,599)
–
–
(14,947)
(11,842)
968
26,023
15,149
1
(793)
1,520
(346)
674
2,034
8,013
45
(427)
7,748
(1)
492
(92,798)
(92,307)
(9,860)
–
10,980
109,885
111,005
26,446
(843)
420
26,023
The notes on pages 68 to 95 form an integral part of these Consolidated Financial Statements.
67
ZEGONA COMMUNICATIONS PLC
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 2020 (the “Consolidated Financial Statements”)
were authorised for issue in accordance with a resolution of the Directors on 19 April 2021. The Company was
incorporated and is domiciled in England and Wales and has its registered office at 8 Sackville St, Mayfair, London
W1S 3DG.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The Company and Consolidated Financial Statements for the year ended 31 December 2020 have been prepared
in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002
as it applies in the European Union (“IFRSs as adopted by the EU”) , and with those parts of the Companies Act
2006 as applicable to companies reporting under international accounting standards.
The Company Financial Statements present information about the Company as a separate entity and not about
its group. The Company is taking advantage of the exemption in section 408 of the Companies Act 2006 not to
present its individual Statement of Comprehensive Income and related notes that form a part of the Company
Financial Statements.
The Consolidated Financial Statements include the results of all subsidiaries wholly owned by the Company as
listed in note 9. Certain of these subsidiaries, which are listed below, have taken the exemption from preparing
individual accounts for the year ended 31 December 2020 by virtue of section 394A of Companies Act 2006. In
order to allow these subsidiaries to take the exemption, the Company has given a statutory guarantee of all these
companies’ outstanding liabilities as at 31 December 2020:
•
•
•
Zegona Spanish Holdco Limited (Registered Number: 10159232)
Zegona Borrower Limited (Registered Number: 10159347)
Zegona Holdco Limited (Registered Number: 10159604) .
The Consolidated Financial Statements and the Company Financial Statements have been prepared under the
historical cost convention except for certain financial assets that have been measured at fair value, as disclosed
in note 11. The functional currency of the Company is British pounds sterling (“Sterling” or £) . The Directors have
chosen to present the Consolidated Financial Statements and the Company Financial Statements in euros (€) . All
values are rounded to the nearest thousand (€000) except where otherwise indicated.
The principal accounting policies adopted in the preparation of the Consolidated Financial Statements are set out
below. The policies have been consistently applied throughout the years presented.
(b) Going concern
Zegona’s Directors have assessed the going concern assumptions during the preparation of the Consolidated
Financial Statements. There are no events or conditions that give rise to doubt the ability of Zegona to continue
as a going concern for a period of twelve months after the preparation of the Consolidated Financial Statements.
The assessment includes the review of Zegona cashflow forecast and budget, which included considerations on
expected developments in liquidity, debt and capital as well as the potential impact of the on-going COVID-19
pandemic. The Directors have also considered sensitivities in respect of potential downside scenarios in
concluding that Zegona is able to continue in operation for a period of at least twelve months from the date of
approving the Consolidated Financial Statements.
68
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
Zegona meets its day to day working capital requirements from cash balances and bank facilities (see Note
17) . On 29 March 2021, Zegona announced that a subsidiary of MásMóvil Ibercom, S.A.U, the Spanish fourth
national operator, has launched a Tender Offer for Euskaltel. Zegona expects this offer will be successful. If the
offer is completed, Zegona’s will receive c. €427.7 million in cash for its entire stake in Euskaltel. This cash will be
used to repay its loan in full, and Zegona will have sufficient cash and liquid resources to continue in operation
for the foreseeable future. On choosing to return a portion of the proceeds to its shareholders, Zegona will
have discretion to retain sufficient cash to ensure it remains viable. Once Zegona exits Spain, it will continue to
execute its buy-fix-sell strategy across the European TMT sector.
In the highly unlikely event that the Tender Offer is not successful, Zegona will continue to hold its 21.44% holding
of Euskaltel. Euskaltel, Zegona’s associate, has indicated that the impact of the on-going Covid-19 pandemic
on its operations and financial performance has been limited. Zegona is not dependent on receiving any cash
inflows from Euskaltel to meet its liabilities.
In the unlikely scenario that the Tender Offer does not progress, the Directors have prepared cash flow forecasts
for a period of 12 months from the date of approval of these Financial Statements, which indicate that, taking
account of reasonably possible downsides, including possible impacts of the Covid-19 outbreak, Zegona will have
sufficient funds to meet its liabilities as they fall due for that period. In addition, the Directors are confident that
they will be able to replace or renew the current facilities that mature in October 2021 in similar amounts and
on similar terms.
In reaching its conclusion on the going concern assessment, the Directors considered the findings of the work
performed to support the statement on the long-term viability of Zegona. As noted on pages 12 to 16, this
included key changes to principal risks, including the impact of COVID-19, scenario analysis and mitigating actions
to downside scenarios.
In conclusion, based on their review the Directors have a reasonable expectation that the Company and Zegona
group have adequate resources to continue in operational existence for the foreseeable future, Accordingly, the
Directors continue to adopt the going concern basis in preparing the Consolidated Financial Statements.
(c) New standards and amendments to IFRS
Standards, amendments and interpretations effective and adopted by Zegona:
The accounting policies adopted in the presentation of the Consolidated Financial Statements reflect the
adoption of the following amendments for annual periods beginning on or after 1 January 2020, none of which
had a material effect on Zegona.
Standard
Amendments to References to the Conceptual Framework in IFRS Standards
Amendments to IAS 1 and IAS 8: Definition of Material
Amendments to IFR3: Definition of a Business
Effective date
1 January 2020
1 January 2020
1 January 2020
Standards, amendments and interpretations not yet adopted:
Zegona intends to adopt the following standards, amendments and interpretations, if applicable, when they
become effective. Adopting these standards will not have a material impact on Zegona.
Standard
Amendments to IFRS3: Reference to the conceptual framework
Annual improvements to IFRS Standards 2018-2020
Amendments to IFRS 16: Property, Plant and Equipment
Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as
Current or Non-current
Effective date
1 January 2022*
1 January 2022*
1 January 2022*
1 January 2023*
* subject to UK endorsement
69
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
(d) Basis of consolidation
Subsidiaries are entities controlled by the Company, either directly or indirectly. Control exists when the
Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. The financial information of subsidiaries is included in
the Consolidated Financial Statements from the date that control commences until the date that control ceases.
Intragroup balances, any gains and losses or income and expenses arising from intragroup transactions, and
intragroup cash flows are eliminated on consolidation.
(e) Interests in associates
An associate is an entity over which Zegona has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but is not control or joint control over
those policies. Zegona evaluates the extent to which it has significant influence in investees on a case-by-case
basis, considering all relevant facts and circumstances. Evaluations are updated when there any changes in those
facts and circumstances. These evaluations are often subject to significant judgement and the key judgements
and considerations underlying material evaluations are more fully discussed in note 3.
Zegona classifies investments in entities over which it has significant influence as associates and accounts for
them using the equity method. Under the equity method, the investment in an associate is initially recognised at
cost. The carrying amount of the investment is increased or decreased to recognise changes in Zegona’s share of
the profit or loss of the investee after the date of acquisition. Goodwill relating to the associate is included in the
carrying amount of the investment and is not tested for impairment separately.
The Consolidated Statement of Comprehensive Income reflects Zegona’s share of the results of operations of
the associate. Any change in Other Comprehensive Income (“OCI”) of those investees is presented as part of
Zegona’s OCI.
Investments in associates are assessed at each reporting period date and tested for impairment when there
is an indication that the recoverable amount has fallen below the carrying value of the investment; i.e. that
the investment may be impaired. The recoverable amount of an asset is the higher of its fair value less costs
of disposal and its value in use. Impairment losses are recognised within ‘Share of profit of associate’ in the
Consolidated Statement of Comprehensive Income.
(f) Foreign currencies
Foreign currency transactions
Sterling is the functional currency of the Company. Transactions in foreign currencies are recorded at the rates
of exchange ruling at the transaction dates.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot
rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are
recognised in the Statement of Comprehensive Income.
Non-monetary items denominated in foreign currencies are translated at the functional currency spot rates of
exchange at each reporting date.
Foreign operations
The euro is the presentation currency of the Consolidated Financial Statements. For the purpose of presenting
the Consolidated Financial Statements, the assets and liabilities of Zegona’s non euro-denominated functional
entities are translated at exchange rates prevailing on the balance sheet date. Income and expense items are
translated at the average exchange rates for the period.
70
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
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.
71
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
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.
72
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
Derecognition
A financial asset is primarily derecognised and removed from the Statement of Financial Position when:
•
•
the rights to receive cash flows from the asset have expired; or
Zegona has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay
the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement;
and either (a) Zegona has transferred substantially all the risks and rewards of the asset, or (b) Zegona has
neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred
control of the asset.
When Zegona has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has
neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of
the asset, Zegona continues to recognise the transferred asset to the extent of its continuing involvement and
also recognises an associated liability. The transferred asset and the associated liability are measured on a basis
that reflects the rights and obligations that Zegona has retained.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss,
loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as
appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables,
net of directly attributable transaction costs.
Subsequent measurement
Financial liabilities are subsequently measured at amortised cost and in the case of interest-bearing financial
liabilities at amortised cost using the effective interest rate method. Gains and losses are recognised in the
Statement of Comprehensive Income when the liabilities are derecognised.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms,
or the terms of an existing liability are substantially modified, such an exchange or modification is treated as
the derecognition of the original liability and the recognition of a new liability, the difference of the respective
carrying amounts is recognised in the Consolidated Statement of Comprehensive Income.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the Statement of Financial
Position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention
to settle on a net basis to realise the assets and settle the liabilities simultaneously.
(k) Impairment of financial assets
For trade receivables, Zegona applies a simplified approach in calculating expected credit losses (“ECLs”) and
recognises a loss allowance based on lifetime ECLs at each reporting date using Zegona’s historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
73
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
(l) Property, plant and equipment
Property, plant and equipment is measured initially at acquisition cost and subsequently carried net of any
accumulated depreciation and any impairment losses.
The costs of upkeep and maintenance of property, plant and equipment are charged to the administrative and
other operating expenses in the Statement of Comprehensive Income in the year in which they are incurred.
Replacements or renewals are recorded as an addition to property, plant and equipment and the units replaced
or renewed are derecognised.
Property, plant and equipment in operation is depreciated systematically on the basis of the estimated useful
economic life of the items, and the cost of the assets is distributed on a straight-line basis over the estimated
useful economic lives. For fixtures and fittings, which comprises primarily computer hardware, the estimated
useful economic live is 3 years.
Derecognition of property, plant and equipment
Items of property, plant and equipment are derecognised when they are sold or when no future economic benefit
is expected to be obtained from their continuing use. The gain or loss arising on the disposal or derecognition
of an item of property, plant and equipment is determined as the difference between the proceeds from the
sale and the carrying amount of the asset, and is recognised in the Consolidated Statement of Comprehensive
Income.
(m) Leases
Zegona assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys
the right to control the use of an identified asset for a period of time in exchange for consideration.
Following adoption of IFRS 16 Leases, Zegona has taken the exemption contained under IFRS 16 to not apply
IFRS 16 requirements to any of its leases as these leases are short-term in nature (less than 12 months) or low
in value.
(n) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months
or less.
(o) Investments in subsidiaries
Investments in subsidiaries within the Company’s separate Statement of Financial Position are stated at cost.
At the end of each reporting year, or whenever there are indications of impairment, the Company tests its
investments in subsidiaries for impairment to determine whether their recoverable amount has fallen below
their carrying amount. The recoverable amount is the greater of fair value less costs to sell and value in use. An
impairment loss is recognised when the carrying amount exceeds the recoverable amount.
Value in use is the present value of expected future cash flows, calculated using a risk-free market rate of interest,
adjusted for the risks specific to the asset.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised
estimate of its recoverable amount; however, the increased carrying amount may not exceed the carrying amount
that would have been determined had no impairment loss been recognised in previous years. This reversal of an
impairment loss is recognised as income.
The Company makes appropriate provision when the recoverable value is less than the carrying amount, provided
the latter cannot be recovered by generating sufficient income to cover all the costs and expenses incurred by
usage of the asset.
74
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
(p) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are
shown in other reserves as a deduction from the initial measurement of the equity instrument.
(q) Dividends payable
The Company recognises a liability to pay a dividend when the distribution is authorised and the distribution is no
longer at the discretion of the Company. A corresponding amount is recognised directly in equity.
(r) Corporation tax
Corporation tax represents the sum of current and deferred tax for the year.
Current tax is the expected tax payable on the taxable income for the year. Taxable profit differs from profit
reported in the Consolidated Statement of Comprehensive Income because some items of income and expense
are taxable or deductible in different years or may never be taxable or deductible. Zegona’s current tax is
calculated using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to
taxes payable in respect of previous periods.
Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences
between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax
bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
Deferred tax is calculated on the tax rates that are expected to apply in the year when the liability is settled or
the asset realised, based on tax rates that have been enacted or substantively enacted by the year end date, and
is not discounted.
(s) Pension benefits
Zegona pays contributions to externally administered pension plans on behalf of employees, or the equivalent
contribution is paid in cash to the employee. Zegona has no further payment obligations once the contributions
have been paid. The contributions are recognised as an expense on the accrual basis.
(t) Earnings per ordinary share
Basic earnings per share (“EPS”) is calculated by dividing the profit or loss attributable to ordinary shareholders
of the Company by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume
conversion of all potentially dilutive ordinary shares.
(u) Share-based transactions
Equity-settled share-based payments are measured at the fair value of the equity instruments at the grant date.
The grant date is the date on which an employer and an employee agree upon the most essential terms and
conditions associated with the award. If shareholder approval is needed, then the grant date is delayed until
that approval has been obtained, unless shareholder approval is considered to be perfunctory.
The fair value is expensed through administrative and other operating expenses, with a corresponding increase
in equity through the share-based payment reserve, on a straight-line basis over the period that the employees
or others providing similar services become unconditionally entitled to the awards or vesting period.
75
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
The vesting period for these schemes may commence before the legal grant date if the employees have started
to render services in respect of the award before the legal grant date, where there is a shared understanding
of the terms and conditions of the arrangement. Expenses are recognised when the employee starts to render
service to which the award relates. The fair value of the awards is calculated at each accounting reporting period
until the final fair value is measured at the legal grant date.
The dilutive effect of outstanding share-based payments is reflected as share dilution in the computation of
diluted EPS.
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Consolidated Financial Statements reflect management’s choice of accounting policies, assumptions and
estimates.
Estimates and judgements are continually evaluated and are based on historical experience and other factors
including expectations of future events that are believed to be reasonable under the circumstances. In view
of the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of
items outlined below, it is possible that the outcomes in the next financial year could differ from those on which
management’s estimates are based. This could result in materially different estimates and judgement from those
reached by management for the purpose of these Consolidated Financial Statements.
The main accounting estimates and judgements used by the Directors in applying the accounting policies of
Zegona that had the greatest impact on the Consolidated Financial Statements in the current year are:
Accounting estimates
• Measurement of share-based payments transactions. Valuation techniques are used in determining the fair
value of the management incentive award, which feature significant unobservable inputs and are subject to
substantial uncertainty. The main estimates and assumptions used in determining the £0.0786 per share fair
value of the management incentive are detailed in note 18.
• The fair value remeasurement of the contingent consideration receivable. As there is no observable market
data for the valuation of the contingent consideration receivable, the measurement methodology of the fair
value is highly judgemental. The main estimates and assumptions used in determining the €7.5 million fair
value of the contingent consideration on the basis of significant unobservable inputs are detailed in note 15.
Accounting judgements
•
Impairment considerations at the end of each reporting period. Reviews of indicators of impairment and
impairment assessments of our investments in associates and subsidiaries are judgmental, in particular
for assets where a readily available market does not exist. In the case of Zegona’s associate, Zegona has
used a range of external sources of information to conclude that no indicators of impairment exist at 31
December 2020. The most important source was Euskaltel’s quoted share price and market capitalisation at
31 December 2020, but other sources included analysts’ reports on Euskaltel and the telecommunications
market in Spain and other public information on Euskaltel such as its business plans, results and other public
announcements.
• The treatment of the contingent tax liability. IFRIC 23 Uncertainty over Income Tax Treatments (“IFRIC 23”)
requires a provision to be made if it is considered that it is more likely than not (i.e. it is probable) that there
will be an outflow of resources required to settle an obligation related to an uncertain tax position in the
event of an inquiry into the relevant items. The determination of whether an outflow is more likely than not
requires significant judgement. An explanation of the key judgements made in determining that a provision
was not required under IFRIC 23 in respect of decision that the Group Financing Exemption contained within
the UK’s Controlled Foreign Company legislation constituted State Aid are detailed in note 8.
76
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
4. SEGMENTAL ANALYSIS
For management purposes, Zegona is currently organised into two segments:
(i)
investment in Euskaltel, which comprises Zegona’s share of the profit of Euskaltel (and dividend income and
the movements in fair value of the investment prior to recognising Euskaltel as an associate) ; and
(ii) central costs, which comprises costs incurred in supporting Zegona’s corporate activities.
The information presented to the Board does not include a detailed analysis of the assets and liabilities of each
segment and as such this information has not been included in the information on reportable segments set out
below.
For the year ended 31 December 2020
Incentive scheme costs
Depreciation and amortisation
Other operating expenses
Operating loss
Finance income
Finance costs
Share of profit of associate
Net foreign exchange gains
(Loss) /profit before tax
Income tax
(Loss) /profit for the year
Cash flows
Net cash used in operating activities
Net cash (used in) /from investing activities
Net cash used in financing activities
Net cash flows
Investment in
Euskaltel
2020
€000
Central costs
2020
€000
Consolidated
2020
€000
–
–
–
–
–
–
16,309
–
16,309
–
(914)
(3)
(5,920)
(6,837)
3,775
(554)
–
1,273
(2,343)
–
(914)
(3)
(5,920)
(6,837)
3,775
(554)
16,309
1,273
13,966
–
16,309
(2,343)
13,966
–
11,842
–
11,842
(7,059)
(1,703)
(14,947)
(7,059)
10,139
(14,947)
(23,709)
(11,867)
77
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2019
Depreciation and amortisation
Other operating expenses
Operating loss
Finance income
Finance costs
Share of profit of associate
Net foreign exchange gains
Profit/(loss) before tax
Income tax
Profit/(loss) for the year
Cash flows
Net cash used in operating activities
Net cash (used in) /from investing activities
Net cash from financing activities
Net cash flows
Investment in
Euskaltel
2019
€000
Central costs
2019
€000
Consolidated
2019
€000
–
–
–
37,993
–
9,094
–
47,087
–
(1)
(5,980)
(5,981)
197
(674)
–
1,427
(5,031)
–
(1)
(5,980)
(5,981)
38,190
(674)
9,094
1,427
42,056
–
47,087
(5,031)
42,056
–
(82,562)
–
(5,213)
980
111,005
(5,213)
(81,582)
111,005
(82,562)
106,772
24,210
5. ADMINISTRATIVE AND OTHER OPERATING EXPENSES – CORPORATE COSTS
Salaries, bonuses and staff benefits
Employment related taxes
Pension costs
Other operating expenses
Corporate costs
Consolidated
2020
€000
Consolidated
2019
€000
3,694
530
304
1,103
5,631
3,610
504
268
1,257
5,639
Staff numbers
The average number of employees (including Executive Directors but excluding Non-Executive Directors) during
the year by activity was as follows:
Operations
Administration
Consolidated
2020
Consolidated
2019
7
1
8
5
1
6
78
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
6. ADMINISTRATIVE AND OTHER OPERATING EXPENSES – SIGNIFICANT PROJECT COSTS
Significant project costs are those incurred on projects that are considered to be one-off or non-recurring in
nature, where the costs are so material individually or collectively that the Directors believe that they require
separate presentation and disclosure to avoid distortion of the comparability of corporate costs between
periods. The classification of projects as significant is subjective in nature and therefore judgement is required in
its determination and is a matter of qualitative assessment. Significant projects are usually related to acquisition,
disposal or joint venture transactions where incremental and identifiable external costs are incurred by Zegona
in order to make or evaluate the potential transaction, even if it is not consummated.
In 2020, €54,000 (2019: €0.3 million) of significant project costs were principally professional fees related to
projects related to increasing Zegona’s investment in Euskaltel.
7. FINANCE INCOME AND COSTS
Dividend income
Net gain on currency forward instruments
Gain on fair value changes of investment in Euskaltel
Gain on fair value changes of contingent consideration
Bank interest
Finance income
Interest on bank borrowings
Finance costs
Note
15
Consolidated
2020
€000
Consolidated
2019
€000
–
16
–
3,746
13
3,775
(554)
(554)
10,236
–
27,756
152
46
38,190
(674)
(674)
Dividend income
Dividend income relates to dividends received from the investment in Euskaltel when it was recognised as an
investment prior to 10 July 2019.
Gain on fair value of investment in Euskaltel
Gain on fair value of investment in Euskaltel relates to fair value movements on the interest in Euskaltel
recognised as a financial instrument at fair value through profit and loss prior to 10 July 2019, when Euskaltel
become an associate.
79
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
8. TAXATION
Current tax expense
Current year
Income tax expense for the year
Consolidated
2020
€000
Consolidated
2019
€000
–
–
–
–
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
Profit before tax from continuing operations
At UK statutory income tax rate (19% (2019: 19%) )
Effect of tax rate used in other jurisdictions
Income not taxable
Expenses not deductible for tax purposes
Unrecognised tax losses
Income tax expense
Consolidated
2020
€000
Consolidated
2019
€000
13,966
2,653
–
(3,810)
232
925
–
42,056
7,991
(20)
(9,771)
155
1,645
–
In the UK 2019 Budget it was announced that the UK corporation tax rate would not reduce to 17% but would
remain at 19% from 1 April 2020. Consequently, Zegona has remeasured its UK deferred tax assets at the end of
the reporting period at the rate of 19%. In the UK 2021 Budget it was announced that the UK corporation rate
will increase to 25% from 1 April 2023.
Income relating to the investment in Euskaltel, including dividends and gains in fair value and foreign exchange,
is not taxable as the dividends are in respect of non-redeemable ordinary shares and the investment is expected
to meet the substantial shareholdings exemption which provides an exemption from corporation tax for capital
gains. The majority of significant project costs is not deductible for tax purposes as the projects relate to
acquisitions or disposals and are therefore capital in nature.
Unrecognised deferred tax assets
Deferred tax assets of the UK tax-resident companies of €5.0 million (2019: €3.0 million) have not been recognised
in respect of tax losses, because it is not probable that future taxable profit will be available against which the
companies can maximise the benefits therefrom. Under UK law there is no expiry for the use of tax losses.
Contingent tax liability
In October 2017, the European Commission (the ‘‘EC’’) announced it was conducting a state aid investigation
into the Group Financing Exemption contained within the UK’s Controlled Foreign Company (‘‘CFC’’) legislation.
On 20 August 2019, the EC published its final. The EC concluded that the Group Financing Exemption was an aid
scheme and amounted to illegal state aid to the extent that there were UK Significant People or Function (“SPF”)
activities involved in generating non-trading finance profits.
Both the UK Government and a number of other impacted taxpayers have submitted appeals to the EU General
Court to annul the EU Commission’s findings. No date has yet been set for a General Court Hearing in respect
of these appeals and any Decision of the General Court may be subject to further appeals which could take
considerable additional time.
80
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
While these appeals are ongoing, the UK Government is required to recover the State Aid and a new law was
enacted in December 2020 which empowers HMRC to issue a charging notice to cover all periods for which
they consider additional tax is due. These charging notices must be paid within 30 days and while they may be
appealed, there is no right to postpone payment. However, this new law is a charging mechanism only and not
an arbitration on the merits of the on-going litigation. If the state aid decision is annulled by the EU General Court
(or on appeal) , then any amounts paid will be returned to Zegona following this final determination.
Following the issuance of the European Commission judgement, Zegona engaged an independent tax adviser to
undertake a review of its historic financing structures, to establish the extent to which the relevant SPFs were
carried out in the UK. This review identified a small proportion of activities performed by UK personnel. On this
basis, Zegona estimated that if the Commission judgement is upheld, a potential tax liability of between €1m and
€1.8m may exist, which reflects the relatively modest proportion of SPFs undertaken in the UK.
HMRC have taken the view that SPF allocations should in almost all cases be either 100% or 0% and consistent
with this interpretation, HMRC issued Zegona with a charging notice in February 2021 in the amount of £4.1
million, (€4.9 million) which represents 100% of the CFC tax relief received. Zegona strongly disagrees with
HMRCs interpretation, however as required by the new legislation, Zegona paid the notice in full on 4 March
2021 (within 30 days of receipt) . At the same time, Zegona submitted an appeal against the determination and
the notice which was accepted by HMRC on 8 March 2021. This appeal is likely to be stayed until the final
outcome of all appeals to the EU Courts in respect of the EU Commission’s original decision are known, which
may take several years.
As mentioned above, the issuance of charging notices is a collection mechanism only and not an arbitration on
the merits of the on-going litigation. Consequently, the issuance and the settlement of the charging notice does
not change Zegona’s view that while it is finely balanced, it remains more likely than not that the appeals made
by other UK taxpayers and the UK Government will be successful and ultimately Zegona will not incur any liability
and therefore no provision is required in respect of this matter.
In accordance with the provisions of IFRIC 23, Zegona intends to recognise a receivable against both HMRC
charging notice paid in March 2021 and further notice of approximately £250,000 that it expects to receive
and pay in respect of interest. Zegona will continue to evaluate the recoverability of this receivable until a final
resolution is reached.
INVESTMENT IN SUBSIDIARIES
9.
The Consolidated Financial Statements in the current year include the following subsidiaries:
Country of
incorporation
Jersey (1)
UK (2)
UK (2)
UK (2)
Shares held
directly by the
Company
Shares held
indirectly by the
Company
100%
–
–
–
–
100%
100%
100%
Subsidiary
Zegona Limited
Zegona Spanish Holdco Limited
Zegona Borrower Limited
Zegona Holdco Limited
Nature of business
Incentive company
Dormant
Dormant
Dormant
The registered office addresses of the subsidiaries are:
1. 47 Esplanade, St Helier, Jersey, JE1 0BD
2. 8 Sackville St, Mayfair, London, W1S 3DG
There are no restrictions on the Company’s ability to access or use the assets and settle the liabilities of the
Company’s subsidiaries, other than immaterial assets controlled by liquidators.
81
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
Carrying value of the Company’s direct investment in subsidiary
The movement in value of the Company’s direct investment in subsidiary during 2020 have decreased due to
the foreign exchange translation of the Company’s Sterling denominated Financial Statements, the functional
currency of the Company, into euro, the presentational currency of Zegona.
10. FINANCIAL RISK MANAGEMENT
Zegona’s activities expose it to market risk, principally interest rate risk and currency risk.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because
of changes in market interest rate. On 18 December 2020, Zegona extended its facility agreements for a total £15
million which bear interest at a spread over the 3-month LIBOR. £10 million has been drawn on these facilities
with an additional £5m available until 14 September 2021. Zegona also has a small overdraft facility, which bears
interest at 1.5% per annum over the Bank of England base rate but is currently undrawn.
In the opinion of the Directors, a significant movement in LIBOR would be required to have a material impact on
the cash flow of Zegona. The Executive Directors and the Chief Financial Officer regularly review the placing of
cash balances and Zegona’s leverage.
Foreign currency risk
The Board and the Chief Financial Officer control and monitor financial risk management, including foreign
currency risk, in accordance with internal policy and the strategic plan defined by the Board. Zegona is exposed
to three types of exchange risk: transaction, translation and economic risk.
Transaction risk is the risk of loss that Zegona bears when it enters into monetary transactions denominated
in currencies other than Sterling, the currency in which Zegona operates. A loss (or gain) may occur due to
the change in relative value of currencies from the date on which the transaction is entered to the date the
settlement takes place.
As at 31 December 2020, Zegona had euro monetary net assets of €7.7 million (2019: €25.4 million) . The table
below shows the transactional impact of a 10% change in euro against Sterling at 31 December 2020:
Currency impact
Profit before tax gain/loss
Equity gain/loss
+/- 10%
movement
€000
-/+ 631
-/+ 631
Zegona is also exposed to foreign exchange translation risk which is accounting in nature. It is the risk that the
value of net assets and net profit will change as a result of translation of the Financial Statements of companies
within the group with a different functional currency to the presentational currency from one period to the next.
In the case of Zegona, this is the conversion of Sterling into euro.
The table below show the translation impact of 10% movement in Sterling against the euro at 31 December 2020:
Currency impact
Profit before tax gain/loss
Equity gain/loss
+/- 10%
movement
€000
-/+ 1,399
-/+ 33,246
Lastly, Zegona is exposed to economic risk due to its interest in associate operating in euros. Dividends from
Zegona’s investment in Euskaltel will be received in euro and therefore an exchange rate risk may arise on
conversion of those dividends into Sterling. In addition, the Sterling value of the proceeds from any future sale of
Euskaltel shares will impact the amount in Sterling that Zegona will distribute to its shareholders unless Zegona
chooses to hedge the foreign exchange exposure.
82
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
Credit risk
Credit risk arises from cash and cash equivalents, prepayments and other receivables and contingent
consideration. Zegona uses the ratings awarded by independent agencies, where available, otherwise Zegona
assesses the counterparty’s credit rating taking into account its financial situation, past experience and other
factors.
There are no material financial assets that are written down, past due or impaired as at 31 December 2020, and
there is no collateral or other credit enhancement feature on Zegona’s financial assets.
The material exposures to credit risk by credit quality classification and external rating at 31 December 2020 are
shown in the table below:
Quality classification
Strong
Satisfactory
External credit
rating
A- and above
BB + to B
Cash and cash
equivalents
€000
Contingent
consideration
€000
15,244
–
15,244
–
7,499
7,499
Total
€000
15,244
7,499
22,743
Credit quality classification definitions:
•
•
Strong exposures demonstrate a strong capacity to meet financial commitments, with negligible or low
probability of default and/or low levels of expected loss.
Satisfactory exposures require closer monitoring and demonstrate and average-to-fair capacity to meet
financial commitments, with moderate default risk.
The Directors consider that the carrying amounts best represent the maximum exposure to credit risk.
Liquidity risk
Prudent liquidity risk management implies holding sufficient cash and marketable securities and the availability
of financing through a sufficient level of available credit lines. Management assesses regularly Zegona’s liquidity
forecasts which consider cashflow projections and existing facilities.
At 31 December 2020, Zegona had cash balances held with banks amounting to €15.2 million (2019: €27.0 million) ,
compared to Zegona’s total liabilities amounting to €13.8 million (2019: €14.1 million) . In addition, Zegona has
unsecured undrawn facilities of £6.5 million, equivalent to €7.2 million (2019: £21.5 million, equivalent to €25.3
million) .
83
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS
The following tables shows the carrying amounts and the fair values of financial assets and financial liabilities,
including their levels in the fair value hierarchy. It does not include fair value information for financial assets and
financial liabilities measured at amortised costs as their carrying amount is a reasonable approximation of fair
value.
Financial instrument classification and fair values – Consolidated
Prepayments and other receivables
Derivatives (Level 2)
Financial assets designated at fair value
(Level 3)
Cash and cash equivalents
Total current financial assets
Bank borrowings
Total non-current financial liabilities
Accruals and other payables
Bank borrowing
Total current financial liabilities
Fair
Value
2020
€000
–
39
7,499
–
7,538
Fair
Value
2020
€000
–
–
–
–
–
Amortised
cost
2020
€000
170
–
–
15,244
15,414
Amortised
cost
2020
€000
–
–
2,279
10,971
13,250
Fair
value
2019
€000
–
–
3,997
–
3,997
Fair
value
2019
€000
–
–
–
–
–
Amortised
cost
2019
€000
92
–
–
27,035
27,127
Amortised
cost
2019
€000
11,578
11,578
2,556
–
2,556
Further detail on the valuation technique used when measuring the Level 3 Financial assets designated at fair
value, the reconciliation of movements during the year and the significant unobservable inputs used can be
found on Note 15. There have been no transfers fair value hierarchy levels during the year (2019: Nil) .
Financial instrument classification and fair values – Company
Prepayments and other receivables
Derivatives (Level 2)
Cash and cash equivalents
Total current financial assets
Amortised
cost
2020
€000
183
–
15,149
15,332
Fair
value
2019
€000
Amortised
cost
2019
€000
–
–
–
–
22
–
26,023
26,045
Fair
Value
2020
€000
–
39
–
39
84
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
Bank borrowings
Total non-current financial liabilities
Accruals and other payables
Bank borrowings
Total current financial liabilities
Fair
Value
2020
€000
Amortised
cost
2020
€000
Fair
value
2019
€000
Amortised
cost
2019
€000
–
–
–
–
–
–
–
22,528
10,971
33,499
–
–
–
–
–
11,578
11,578
16,093
–
16,093
12. INTEREST IN ASSOCIATE
At 31 December 2020, Zegona owned 38.3 million shares (2019: 38.1 million) in Euskaltel, a Spanish
telecommunications company incorporated in Spain and operating in the Basque Country, Asturias and Galicia
under regional brands and nationally under the Virgin telco brand, which represents approximately 21.44%
(2019: 21.3%) of the ordinary shares and voting rights of Euskaltel.
Summarised financial information for associate
The following tables summarise the Statement of Financial Position and Statement of Comprehensive Income
of Euskaltel as disclosed in its own audited financial statements prepared in accordance with IFRS as adopted
by the EU, adjusted to recognise certain assets and liabilities in line with their fair value at acquisition date and
differences in accounting policies. The preparation of Euskaltel’s financial statements for the year ended 31
December 2020 required certain estimates and judgements concerning the future. There is a risk that different
judgements would have led to materially different accounting treatments or that the final outcome of those
estimates may differ from the amounts initially recognised. The estimates and judgements that present a
significant risk of material adjustment to Euskaltel’s carrying amounts of assets and liabilities in subsequent
reporting periods, and therefore to Zegona’s carrying value of investment in associate, are: capitalisation of tax
credits, volume discounts from suppliers, share-based payments and the useful life of cable network assets.
Statement of Comprehensive Income
For the period to 31 December 2020
Revenue
Profit for the period (continuing operations)
Total comprehensive income for the period
Zegona’s share of profit for the period (21.37% weighted average)
Statement of Financial Position
As at 31 December 2020
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
85
€000
677,785
77,306
77,306
16,560
€000
2,039,629
233,779
(1,613,053)
(381,957)
278,398
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
Reconciliation to Zegona’s carrying value of investment in associate:
Euskaltel’s net assets
Zegona’s share of Euskaltel’s net assets (21.44%)
Goodwill recognised*
Foreign exchange and other movements
Interest in associate
Fair value of interest in associate
31 December
2020
€000
278,398
59,688
264,556
(1,507)
322,737
335,105
*Includes €1.4 million of additional goodwill49 recognised on purchases, with a cost of €1.7 million, made in 2020.
The fair value of the interest in associate is based on its quoted market price. Euskaltel had no contingent
liabilities as at 31 December 2020.
Zegona has granted security to Euskaltel by a share pledge over 1,663,158 of its shares in Euskaltel with respect
to certain tax assets generated in favour of Telecable. At 31 December 2020, 4,478,965 shares are unpledged,
with the remainder granted as security to Barclays as described in Note 17.
13. PREPAYMENTS AND OTHER RECEIVABLES
Prepayments
VAT recoverable
Other receivables
Total
Prepayments
Amounts due from subsidiary undertakings
VAT recoverable
Other receivables
Total
Consolidated
31 December
2020
€000
Consolidated
31 December
2019
€000
42
24
104
170
70
21
1
92
Company
31 December
2020
€000
Company
31 December
2019
€000
35
20
24
104
183
67
21
21
1
110
49 Zegona has applied an allocation approach similar to that applied on the date Euskaltel become an associate, whereby goodwill is
calculated on incremental interest acquired as a residual after valuing the incremental share of identifiable net assets at fair value of
€0.3 million.
86
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
14. DERIVATIVES
The following table shows the notional amount and fair value amounts by product contract type held by the
Company.
Foreign exchange
Notional
contract amount
31 December
2020
€000
Fair value-
Assets
31 December
2020
€000
Notional
contract amount
31 December
2019
€000
Fair value-
Assets
31 December
2019
€000
4,343
4,343
39
39
–
–
–
–
The notional contract amounts of foreign exchange contracts indicate the nominal value of transaction
outstanding at the balance sheet date; they do not represent amounts at risk.
15. CURRENT FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
The current financial assets balance of €7.5 million (31 December 2019: €4.0 million) comprises solely the
contingent consideration receivable from the sale of Telecable. The contingent consideration is payable by
Euskaltel in cash up to a maximum amount of €15 million in aggregate upon confirmation that a range of net tax
assets are available to Euskaltel and may be used to offset its future tax payments.
Balance at 31 December 2019
Fair value changes recognised in profit or loss
Foreign exchange differences
Balance at 31 December 2020
Note
7
€000
3,997
3,746
(244)
7,499
Calculation of fair value at 31 December 2020
For all periods prior to December 2020, the fair value of the contingent consideration was calculated using a
probability-weighted discounted cash flow model that calculated a value based on the assumption that the
contingent consideration would be resolved by applying the mechanisms established in the Telecable Sale and
Purchase Agreement (“SPA”) . The SPA required Euskaltel to obtain a binding ruling from the Spanish General
Directorate of Taxation (“DGT”) confirming certain tax assets are eligible for use upon a qualifying merger of the
Telecable entities. This was applied for in 2018 with the expectation that it would take approximately six months
to be delivered but has yet to be issued and this delay is a common issue with taxpayers with open rulings before
the DGT.
Given this delay, during the second half of 2020, Zegona engaged with Euskaltel to try to devise an alternative
arrangement for settling the contingent consideration. As a result of this, Euskaltel carried out a new analysis
of the underlying tax credits together with its tax advisers and concluded that they are recoverable. Euskaltel
therefore recognized both a deferred tax asset to reflect the credits of approximately €25 million and a short-
term financial liability with related parties of €8.7 million in respect of Zegona’s entitlement to receive 35% of
the value of the credits. Zegona considers that this disclosure constitutes an adjusting post balance sheet event
in accordance with the terms of IAS 10 Events after the reporting period and has therefore used this information
in calculating the fair value of the contingent consideration. Zegona is therefore confident that Euskaltel will
settle the full €8.7 million liability shortly after the Euskaltel board is released of its duty of passivity following the
completion of the Tender Offer for Euskaltel discussed in note 27.
87
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
Zegona has calculated the fair value of the contingent consideration financial asset by updating its probability-
weighted discounted cash flow model that calculates the present value of the expected cash flows for two main
outcomes. The fair value was determined by calculating a weighted average of those cash flows according to
the probability of each scenario occurring. As a result, a fair value of €7.5 million was assigned to the contingent
consideration which primarily reflects Zegona’s high confidence in the base case assumption that the full €8.7
million recorded in Euskaltel’s financial statements will be paid shortly after the successful completion of the
Tender Offer. The assumptions with the most significant impact on fair value are the time period (227 days) and
discount rate (7.5%) applied in discounting for the time value of money and the probability assigned to each
outcome. A +/- 10% change in any of the key assumptions would not result in a material impact on the fair value.
Calculation of fair value at 31 December 2019
As at 31 December 2019, Zegona still expected to resolve the contingent consideration by applying the
mechanisms established in the Telecable Sale and Purchase Agreement SPA. Applying these mechanisms, the
eventual amount to be received depends on several factors that are entirely specific to Euskaltel. These factors
include the availability of tax assets, the extent to which there will be sufficient taxable profits to utilise these
assets, and assumptions around the outcome of certain open interactions with the Spanish tax authorities.
The fair value of the contingent consideration was calculated using a probability-weighted discounted cash flow
model that calculates the present value of the expected cash flows for 12 different plausible combinations of
outcomes. The fair value was determined by calculating a weighted average of those cash flows according to the
probability of each scenario occurring. As a result of this analysis, a fair value of €3.9 million was assigned to the
contingent consideration. This value recognises the possibility of certain material downside cases that Zegona
considered to be unlikely to occur (particularly in relation to the merger approval discussed below not being
granted) and therefore the eventual amount received could be greater than this fair value.
The significant unobservable inputs used in the base case (which had a present value of €5.9 million) , being
management’s assessment of the present value of the most likely outcome and the impact of each input on the
value of the base case at 31 December 2019, holding the other inputs constant, are shown below:
Merger approval:
The likelihood of receiving a binding ruling by the Spanish General Directorate of Taxation confirming certain tax
assets are eligible for use upon a qualifying merger of the Telecable entities.
Input used in the base case model:
Successful
Usability of available assets:
Sensitivity of the base case:
If the merger is unsuccessful, the revised base case
present value would be €nil
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:
82% usable
Sensitivity of the base case:
Usability scenarios ranged from 41% to 100%, causing
the present value of the base case to range from €3
million to €7.2 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:
6 months
Sensitivity of the base case:
If the timing is increased to 18 months, the revised base
case present value would be €5.5 million
88
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
16. ACCRUALS AND OTHER PAYABLES
Trade payables
Accrued interest
Other accruals
Trade payables
Payable to direct subsidiary
Other payables
Accruals
Consolidated
31 December
2020
€000
Consolidated
31 December
2019
€000
372
57
1,850
2,279
267
103
2,186
2,556
Company
31 December
2020
€000
Company
31 December
2019
€000
57
21,909
169
393
22,528
106
15,527
74
386
16,093
17. BANK BORROWINGS
In December 2020, the Company extended its credit facility with Barclays Bank PLC (“Barclays”) for a total of £15
million. The drawdown amount remained unchanged at £10 million. Interest was payable quarterly in arrears
on the drawn amount at a rate of 2.6% per annum above the 3-month LIBOR interest rate. A commitment fee of
0.6% per annum was payable on the undrawn amount of £5 million. The Company had the right to prepay the
loan at any time.
The Barclays facility is due to mature on 14 October 2021. Additionally, any amounts outstanding would have
become immediately repayable on the occurrence of certain events of default including a drop in the value of
Euskaltel shares to €3.42 or below, a change of control of Euskaltel or Zegona and other customary events of
default. The Barclays facility was secured by a charge over 32.2 million Euskaltel shares.
18. MANAGEMENT INCENTIVE SCHEME
The holders of the Management Shares are entitled to 15% of the growth in value of Zegona during a series
of separate Calculation Periods, provided that ordinary shareholders achieve a 5% Preferred Return (a 5% per
annum return on a compounded basis on shareholders’ net investment) in each Calculation Period.
Holders of the Management Shares may exercise their shares by redeeming them at any point between the
third and fifth anniversary of the start of each Calculation Period. When management exercises its Management
Shares, 99% of these shares are redeemed, with the remaining Management Shares continuing to have rights
to the management incentive. There are also provisions for exercise by Management if there is a takeover or
acquisition of Zegona (including by a scheme of arrangement) , or Zegona sells all or substantially all of its assets
and distributes the net proceeds to shareholders.
Upon exercise, provided the Preferred Return has been met, holders of the Management Shares receive 15%
of the increase in value of Zegona in either Zegona ordinary shares or cash at the discretion of Zegona. If the
Preferred Return has not been achieved, no payment is made.
The first Calculation Period began on 14 August 2015. In recognition that the first 5-year Calculation Period was
due to end in August 2020, an independent committee of the Board was formed in April 2020 to review a number
of matters relating to the incentive arrangements.
89
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
In accordance with the scheme rules, Zegona management redeemed its Management Shares on 25th June 2020
which was in advance of the end of the first Calculation Period on 14 August 2020 and outside of anticipated
closed periods. At this date, the value of Zegona shares (based on the 30-day volume weighted average price,
”VWAP”) was below the £1.21 level required for the Preferred Return to be met. The value of Zegona’s investment
in Euskaltel and its cash and cash equivalents net of bank borrowings50 on this date was worth £1.28 per Zegona
share, which was above both the Preferred Return level and the Net Shareholder Invested Capital per share of
£0.955.
Following the redemption, 51,546,370 Management Shares in Zegona Limited remain allotted, issued and fully
paid as shown in the table below:
Eamonn O’Hare
Robert Samuelson
Zegona senior management
Participation in
growth in
value
Number of
Management
Shares
Nominal value
of Management
Shares
8.88%
4.44%
1.68%
30,500,000
15,250,000
5,796,370
51,546,370
£3.05
£1.53
£0.58
£5.16
Upon exercise of the Management Shares, a new Calculation Period automatically begins, with Management
entitled to 15% of the growth in value of Zegona over the new Calculation Period, provided the Preferred Return
is achieved over this period. The starting value against which the growth in value and the Preferred Return are
calculated (the “Baseline”) at the beginning of the new Calculation Period is set at the higher of the Market
Capitalisation of Zegona, defined as 30-day VWAP, and the Net Shareholder Invested Capital on that date.
Therefore, a new Calculation Period commenced on 25 June 2020 with the new Baseline value set at £0.955 per
Zegona share.
Each time a new Calculation Period begins, the renewal of the Management Shares’ rights is subject to a vote by
Zegona’s shareholders at the next Annual General Meeting (“AGM”) . If shareholders representing 75 per cent or
more of the shares vote against the renewal at the AGM, the Management Shares will cease to have any rights
and will be redeemed for no value. Management could receive value prior to the AGM vote if there is a takeover
or acquisition of Zegona (including by a scheme of arrangement) , or Zegona sells all or substantially all of its
assets and distributes the net proceeds to shareholders.
Under IFRS 2, the new Calculation Period constitutes a new share-based payment award for which the holders
of the Management Shares began to render services from June 25, 2020. However, for the purposes of IFRS 2,
the grant date of the award cannot be until Zegona’s shareholders vote to ratify the renewal of the management
incentive scheme at Zegona’s 2021 AGM.
In these circumstances, IFRS 2 requires the fair value of the award to be estimated at each balance sheet date,
and an expense recognised from the date that holders begin to render services. This estimate will be recalculated
and adjusted at each balance sheet date prior to Zegona’s 2021 AGM. Once Zegona’s shareholders have voted to
ratify the renewal of the management incentive scheme at the 2021 AGM, the fair value will be recalculated and
the cumulative expense adjusted for a final time.
Accordingly, Zegona engaged an independent valuation specialist to estimate the fair value of the award as at
31 December 2020 using a Monte Carlo model. The value of the award on the valuation date was £0.0786 per
Management Share which will be recognised in the Consolidated Statement of Comprehensive Income subject
to any adjustments for future revaluations discussed above. For the period to 31 December 2020 a total of €0.8
million was recognised and €0.1 million in relation to 3rd party costs incurred in the renewal of Scheme.
50 Defined by Zegona as “Underlying Asset Value per Share” at 31 of December 2020 -excludes the value of contingent consideration
receivable and any value for Zegona management.
90
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
The key inputs to the Monte Carlo model used to estimate the fair value of the award were as follows:
Share price at measurement date
Expected volatility
Dividend yield
Risk-free interest rate
Number of simulations
19. CALLED UP SHARE CAPITAL
Allotted, called up and fully paid
2020
Number
At 1 January
Shares issued
Less: shares repurchased and cancelled
221,935,177
–
(2,965,101)
2020
€’000
2,855
–
(34)
2019
Number
126,219,449
95,715,728
–
At 31 December
218,970,076
2,821
221,935,177
£1.055
16%
0%
0%
100,000
2019
€’000
1,763
1,092
–
2,855
The nominal value of the total ordinary shares is £0.01 and the total allotted, called up and fully paid equates to
£2,189,701 (2019: £2,219,352) .
During 2020 Zegona purchased and cancelled a total of 2,965,101 ordinary shares for a nominal value of £29,651.
For more information on the share buyback programme refer to note 21.
All ordinary shares confer identical rights including in respect of capital, dividends and voting. There are no
restrictions on the distributions of dividends or the repayment of capital.
20. RESERVES
Foreign currency translation reserve
The foreign currency translation reserve includes the foreign exchange differences arising from the translation
of the Consolidated Financial Statements functional currency of Sterling (“£”) to presentational currency euro
(“€”) . This reserve is a non-distributable reserve. The movement in this reserve for the period is driven primarily
by the movement in closing €:£ exchange rates from 1.18 at 31 December 2019 to 1.11 at 31 December 2020.
Share-based payment reserve
The share-based payment reserve represents the cumulative build-up of the incentive scheme costs over the
vesting period as the employees gradually render service. More information on the share-based Management
incentive scheme can be found on Note 18. This is a non-distributable reserve.
Retained earnings
The retained earnings reserve includes cumulative net profits and permitted transfers from the share-based
payment reserve. This is a distributable reserve.
91
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
Other Reserves
At 1 January 2020
Cancellation of shares purchased
Dividend paid
At 31 December 2020
At 1 January 2019
Issue of shares, net of costs
Dividend paid
At 31 December 2019
Capital
redemption
reserve
€’000
Share premium
reserve
€’000
–
34
–
34
108,793
–
–
108,793
Capital
redemption
reserve
€’000
Share premium
reserve
€’000
–
–
–
–
–
108,793
–
108,793
Other reserve
€’000
195,763
(3,599)
(11,348)
Total Other
Reserves
€’000
304,556
(3,565)
(11,348)
180,816
289,643
Other reserve
€’000
205,623
–
(9,860)
Total Other
Reserves
€’000
205,623
108,793
(9,860)
195,763
304,556
Capital redemption reserve
When the Company buys back shares out of distributable reserves and those shares are immediately cancelled,
the amount by which the Company’s issued share capital is reduced must be transferred to the capital redemption
reserve. The capital redemption reserve is a requirement under s692 of the Companies Act 2006 to preserve the
Company’s capital and is a non-distributable reserve.
Share premium reserve
The reserve comprises amounts subscribed for share capital in excess of nominal value less costs directly
attributable to the issue of new shares. The share premium reserve is a requirement under s610 of the Companies
Act 2006 and is a non-distributable reserve.
Other reserve
On 8 June 2016, following approval by special resolution of the shareholders at the Annual General Meeting of the
Company on 15 April 2016, the share premium account of the Company was cancelled, as confirmed by an Order
of High Court of Justice, Chancery Division. Upon the cancellation of the share premium account, the balance of
€386.045 million was transferred to the Other reserve. The Other reserve forms part of the distributable reserves
of the Company.
The Other reserve also comprise the total costs of buying back shares (the nominal value of the shares and any
premium paid) , which are charged against distributable reserves.
Distributable reserves
The Company’s total distributable reserves as at 31 December 2020 were £140 million, which equates to €156
million at 31 December 2020 foreign exchange rates (2019: £142 million, which equates to €167 million at 31
December 2019 foreign exchange rates) .
92
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
21. SHARE BUYBACK
On 7 January 2020, Zegona commenced a share buyback programme to purchase its ordinary shares up to a
maximum consideration of £10 million. Zegona’s Board set a buyback policy that allowed shares to be acquired at
prices up to the Underlying Asset Value per Share51. This programme concluded on 31 March 2020 and 2,442,447
ordinary shares, with a nominal value of £24,424, were purchased and cancelled for a total of £2,461,592.
On 24 June 2020, Zegona announced a further share buy-back programme for the purchase of up to a maximum
of £10 million of its ordinary shares. This programme concluded on 15 September 2020 and 522,654 ordinary
shares, with a nominal value of £5,227, were purchased and cancelled for a total of £604,455.
During 2020 Zegona purchased and cancelled a total of 2,965,101 ordinary shares for a total of £3,066,047,
representing 1.35% of the total shares in issue.
22. CAPITAL MANAGEMENT
Our objective when managing capital is to maintain a flexible capital structure that optimises the costs and
availability of capital at acceptable risk with the primary objective of maximising shareholder value. In the
management of capital and its definition, we include share capital and all equity reserves attributable to the
equity holders of the Company.
Zegona manages its capital structure and makes adjustments in light of changes in economic conditions and
the requirements of any covenants. To maintain or adjust the capital structure, Zegona may adjust the dividend
payment to shareholders, return capital to shareholders, make distributions of non-cash assets to shareholders
or issue new shares.
The Company has authorisation to make market purchases of up to 10% of its current issued ordinary share
capital (within specified price parameters) until the end of the 2021 AGM. Any shares repurchased by the
Company pursuant to this authority may be held in treasury and subsequently resold for cash, cancelled or used
for employee share scheme purposes.
Throughout 2020, Zegona met the financial covenants associated to the facilities described in note 17.
23. EARNINGS PER ORDINARY SHARE
Basic EPS is calculated by dividing the profit attributable to ordinary shareholders of the Company by the weighted
average number of ordinary shares in issue during the year.
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume
conversion of all potentially dilutive ordinary shares. As more fully detailed in note 18, Management Shares in
the share capital of Zegona Limited have been issued and, on exercise, the value of these shares is expected to
be delivered by the Company issuing new ordinary shares. Hence, the Management Shares could have a dilutive
effect, although the Company has the right at all times to settle such value in cash. No adjustment to EPS has
been made in respect of the Management Shares as they were anti-dilutive for the year ended 31 December
2020.
Profit for the year attributable to equity holders of the parent (€000)
2020
13,966
2019
42,056
Weighted average number of ordinary shares
219,658,462
211,183,547
Basic and diluted EPS (€)
0.06
0.20
51 Defined as the value of Zegona’s investment in Euskaltel, Zegona’s cash and cash equivalents net of bank borrowings per share as
discussed in the Nomination and Remuneration Report on page 42.
93
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
24. DIVIDEND PAID
The Company declared an interim dividend on 6 February 2020 at a rate of 2.0p per share, totalling £4.4 million
(€5.1 million) . The dividend was paid on 6 March 2020. In the comparative period, the Company declared an
interim dividend on 31 January 2019 at a rate of 2.5p per share, totalling £3.2 million (€3.7 million) , which was
paid on 1 March 2019.
On 9 June 2020 the Company declared an interim dividend at the rate of 2.6p per share for a total of £5.7
million (€6.3 million) . The dividend was paid on 31 July 2020. In the comparative period, the Company declared
a dividend on 2 August 2019 at a rate of 2.5 pence per share, totalling £5.5 million. The dividend was paid on 6
September 2019.
25. RELATED PARTY TRANSACTIONS
In the opinion of the Directors, there is no one single controlling party.
Parties are considered to be related if one party has the ability to control the other party or exercise significant
influence over the other party, or the parties are under common control or influence, in making financial or
operational decisions.
Related party transactions of the Company
Mark Brangstrup Watts, a Non-executive Director of Zegona up until 12 May 2020, is a designated member of
Marwyn Capital LLP (“Marwyn”) , which was compensated for various office services provided to the Company.
During the period to 12 May 2020, services totalling €25k were received from Marwyn (2019: €69k) .
Mark Brangstrup Watts is an ultimate beneficial owner of Axio Capital Solutions Limited (“Axio”) , which provided
company secretarial, administrative and accounting services to Zegona. During the period to 12 May 2020,
services totalling €173k were received from Axio (2019: €354k) .
Transactions with key management personnel
The Board considers the Executive Directors and Non-Executive Directors of the Company to be the key
management personnel of Zegona. Details of the amounts paid to key management personnel are detailed in
the Directors’ Remuneration Report on pages 36 and 43. Holdings of Management Shares are detailed in note 18.
26. AUDITOR’S REMUNERATION
Fees for the audit of the Company’s annual accounts
Total audit fees
Fees for procedures on interim financial statements
Total non-audit fees
2020
€000
288
288
44
44
2019
€000
270
270
11
11
27. POST BALANCE SHEET EVENTS
Tender Offer for Euskaltel
On 28 March 2021, a wholly-owned subsidiary of MásMóvil Ibercom, S.A.U. (“MásMóvil”) , a Spanish
telecommunications operator and portfolio company of the private equity funds KKR, Providence and Cinven,
announced that it had launched a tender offer to acquire 100% of Euskaltel for €11.17 per share in cash (the
“Offer”) . The Offer values Zegona’s 21.44% shareholding at c.€427.7 million.
94
ZEGONA COMMUNICATIONS PLC
NOTES TO THE FINANCIAL STATEMENTS
On 27 March 2021 Zegona and MásMóvil entered into an irrevocable agreement, by virtue of which MásMóvil
has undertaken to launch the Offer and Zegona to accept the Offer and tender its shareholding during the
acceptance period (the “Irrevocable Undertaking”) . Kutxabank (19.9% shareholder in Euskaltel) and Alba (11%
shareholder in Euskaltel) have signed substantially equivalent irrevocable undertakings, resulting in over 52% of
Euskaltel’s total outstanding shares being subject to irrevocable undertakings to tender in the Offer.
The main terms of the Irrevocable Undertaking are as follows:
The remaining obligations on the offeror, MásMóvil, include (amongst others) :
• No right to withdraw the Offer without the authorisation of Zegona if any conditions are required for
regulatory approvals.
• A range of commitments in the event that the Offer is successful and MásMóvil is the controlling shareholder
of Euskaltel, including to maintain Euskaltel’s Basque headquarters and not execute a mass redundancy
programme for a period of at least five years, to prioritise the deployment of a 5G network in the Basque
Region, and to promote actions to ensure prompt access for Euskaltel’s customers to ultra-fast FTTH
broadband services.
• An undertaking not to sell, directly or indirectly, Euskaltel’s shares to a third party at a price higher than
that finally paid in the Offer within a period of 2 years from settlement of the Offer, save in the event of an
eventual sale or IPO of MásMóvil Ibercom, S.A.U.
The remaining obligations on Zegona include (amongst others) :
•
•
To tender all its Euskaltel shares in the Offer during the acceptance period and not to sell or transfer its
Euskaltel shares during the period of the Offer.
To use its voting rights in Euskaltel to vote against any resolution that could prevent or frustrate the Offer or
which could significantly reduce the synergies available.
In the event of a material breach of the Irrevocable Undertaking by either party, the breaching party shall pay
the non-breaching party, as liquidated damages, an amount equivalent to 15% of the value of Zegona’s Euskaltel
shareholding as calculated at the Offer price. This is not an exhaustive remedy for wilful misconduct, gross
negligence or fraud.
The Offer is subject to regulatory approvals and the acceptance of the Offer by a number of shares representing
at least 75% plus one share of the total outstanding share capital of Euskaltel.
Hedging instrument
On 8 April 2021, Zegona Limited entered into a Deal Contingent Forward Purchase Agreement with Barclays Bank
PLC to hedge the full amount of proceeds it expects to receive on the successful completion of the Offer. Under
the terms of the contract, Zegona has sold €430 million and will receive between £371.9 million and £372.1
million (depending on the actual date of settlement) only if the Offer is successfully completed.
Interim dividends
Zegona received a dividend on 12 February 2021 from Euskaltel at a rate of €0.14 per share, totalling €5.4 million.
In accordance with Zegona’s dividend policy, this was passed through to Zegona’s shareholders by payment of a
dividend at a rate of 2.2p per share, totalling £4.8 million (€5.6 million) . The Zegona dividend was declared on 21
December 2020 and paid on 9 March 2021.
Intercompany transfer of Euskaltel shares
On 2 March 2021, as part of an internal reorganisation designed to simplify the structure of its holdings in
Euskaltel, Zegona Communications PLC contributed 3,878,965 shares in Euskaltel S.A. with a value as at the
closing mid-price on 2 March 2021 of €31,807,513 to its subsidiary, Zegona Limited, in exchange for one Ordinary
Share of Zegona Limited.
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ZEGONA COMMUNICATIONS PLC
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the Annual General Meeting (the “AGM”) of Zegona Communications plc (the
“Company”) will be held at the offices of Travers Smith LLP, 10 Snow Hill, London, EC1A 2AL on 30 June 2021 at
12.00 p.m. for the transaction of the following business:
To consider and, if thought fit, to pass the following resolutions, numbers 1 to 12 of which will be proposed as
ordinary resolutions and numbers 13 to 17 of which will be proposed as special resolutions:
1.
THAT the Company’s financial statements for the year ended 31 December 2020, together with the Directors’
report and the auditor’s report on those financial statements and on the auditable part of the Directors’
remuneration report, be received.
2. THAT Eamonn O’Hare be re-elected as a Director.
3. THAT Robert Samuelson be re-elected as a Director.
4. THAT Richard Williams be re-elected as a Director.
5. THAT Ashley Martin be re-elected as a Director.
6. THAT Kjersti Wiklund be re-elected as a Director.
7. THAT Suzi Williams be re-elected as a Director.
8.
THAT KPMG LLP be re-appointed as auditor to the Company until the conclusion of the next annual general
meeting of the Company.
9. THAT the Directors be authorised to fix the auditor’s remuneration.
10. THAT the payment of the interim dividend, in lieu of a final dividend, of 2.2p per ordinary share to the
Company’s shareholders on 9 March 2021 be and is confirmed, approved and ratified for all purposes.
11. THAT the Directors’ remuneration report, which is set out in the annual report of the Company for the year
ended 31 December 2020, be approved.
12. THAT for the purposes of section 551 Companies Act 2006 (the “Act”) (and so that expressions used in this
resolution shall bear the same meanings as in the said section 551) , the Directors be and are generally and
unconditionally authorised to exercise all powers of the Company to allot:
12.1
12.2
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 £729,900 to such persons and
at such times and on such terms as they think proper; and further
equity securities (as defined in section 560 of the Act) in connection with a rights issue in favour of
the holders of equity securities and any other persons entitled to participate in such issue where
the equity securities respectively attributable to the interests of such holders and persons are
proportionate (as nearly as may be) to the respective number of equity securities held by them up
to a maximum nominal amount of £729,900,
subject only to such exclusions or other arrangements as the Directors may consider necessary or expedient
to deal with treasury shares, fractional entitlements or legal or practical problems under the laws of any
territory or requirements of any recognised regulatory body or stock exchange in any territory, provided that
such authority shall expire at the conclusion of the next annual general meeting of the Company or the date
which is 18 months after the date on which this resolution is passed, whichever is the earlier, save that the
Company be and is hereby authorised to make, prior to the expiry of such periods, any offer or agreement
which would or might require such shares or rights to be allotted or granted after the expiry of the said
periods and the Directors may allot such shares or grant such rights under any such offer or agreement as if
the authority had not expired.
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NOTICE OF ANNUAL GENERAL MEETING
13. THAT the Company be and is hereby authorised to renew the rights attached to the Management Shares
following the commencement of a new calculation period.
14. THAT if resolution 12 set out in the Notice convening this Meeting is passed, the Directors be and are hereby
authorised to allot equity securities (as defined in section 560 of the Act) for cash under the authority given
by that resolution and/or to sell ordinary shares held by the Company as treasury shares for cash as if section
561 of the Act did not apply to any such allotment or sale, such authority to be limited to:
14.1
the allotment of equity securities in connection with an issue or offering in favour of holders of
equity securities (but in the case of an allotment pursuant to the authority granted under resolution
12.2, such power shall be limited to the allotment of equity securities by way of a rights issue only)
and any other persons entitled to participate in such issue or offering where the equity securities
respectively attributable to the interests of such holders and persons are proportionate (as nearly
as may be) to the respective number of equity securities held by or deemed to be held by them on
the record date of such allotment, subject only to such exclusions or other arrangements as the
Directors may consider necessary or expedient to deal with treasury shares, fractional entitlements
or legal or practical problems under the laws of any territory or requirements of any recognised
regulatory body or stock exchange in any territory; and
14.2
the allotment (otherwise than pursuant to paragraph 14.1 above) of equity securities up to a nominal
amount of £109,485,
such authority, unless renewed, to expire at the conclusion of the next annual general meeting of the
Company or the date which is 18 months after the date on which this resolution is passed, whichever is
the earlier, but in each case, prior to its expiry the Company may make offers, and enter into agreements,
which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the
authority expires and the Directors may allot equity securities (and sell treasury shares) under any such offer
or agreement as if the authority had not expired.
15. THAT if resolution 12 set out in the Notice convening this Meeting is passed, the Directors be and are hereby
authorised in addition to any authority granted under resolution 12 to allot equity securities (as defined in
section 560 of the Act) for cash under the authority given by that resolution and/or to sell ordinary shares
held by the Company as treasury shares for cash as if section 561 of the Companies Act 2006 did not apply
to any such allotment or sale, such authority to be:
15.1
15.2
limited to the allotment of equity securities or sale of treasury shares up to a nominal amount of
£109,485; and
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.
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ZEGONA COMMUNICATIONS PLC
NOTICE OF ANNUAL GENERAL MEETING
16. THAT the Company be and is hereby generally and unconditionally authorised for the purpose of section 701
Companies Act 2006 to make market purchases (as defined in section 693 of the said Act) of ordinary shares
of £0.01 each in the capital of the Company (“ordinary shares”) provided that:
16.1
16.2
16.3
16.4
16.5
the maximum number of ordinary shares hereby authorised to be purchased is 32,823,614, being
equal to 14.99 per cent. of the issued ordinary shares;
the minimum price (exclusive of expenses) which may be paid for such ordinary shares is £0.01 per
share, being the nominal amount thereof;
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) ;
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
the Company may make a contract to purchase its own ordinary shares under the authority conferred
by this resolution prior to the expiry of such authority, and such contract will or may be executed
wholly or partly after the expiry of such authority, and the Company may make a purchase of its own
ordinary shares in pursuance of any such contract.
17. THAT the Company be and is hereby authorised to provide notice to shareholders of general meetings of the
Company of at least 14 clear days’ notice.
BY ORDER OF THE BOARD
Secretary: Crestbridge Corporate Services Limited
Date: 19 April 2021
Registered Office: 47 Esplanade, St Helier, Jersey, JE1 0BD
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ZEGONA COMMUNICATIONS PLC
NOTICE OF ANNUAL GENERAL MEETING
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)
(b)
the AGM will be at 10 Snow Hill, London, EC1A 2AL or, if those offices are closed, immediately
outside the offices;
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)
(e)
there will be no presentation at the AGM, nor will there be any opportunity to ask questions of the
Board;
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.
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.
Of course, if circumstances change and the restrictions are lifted or relaxed before the AGM, the Company
will notify shareholders of any changes to the proposed format for the AGM as soon as possible via its
website. The timetable published by the Government gives 21 June as the current intended date for all
Covid-related restrictions to be withdrawn. The Company will continue to monitor the situation over the
coming weeks.
A member entitled to attend and vote at the Meeting convened by the above Notice is entitled to appoint
a proxy to exercise all or any of the rights of the member to attend and speak and vote on his behalf. A
proxy need not be a member of the Company. A member may appoint more than one proxy in relation
to the Meeting, provided that each proxy is appointed to exercise the rights attached to a different share
or shares held by that member. The right to appoint a proxy does not apply to any person to whom this
notice is sent who is a person nominated under section 146 of the Companies Act 2006 (the “Act”) to
enjoy information rights (a “Nominated Person”) .
(ii)
(iii)
(iv)
(v)
To appoint a proxy you may:
(a)
use the Form of Proxy enclosed with this Notice of Annual General Meeting. To be valid, the Form of
Proxy, together with the power of attorney or other authority (if any) under which it is signed or a
notarially certified or office copy of the same, must be received by post or (during normal business
hours only) by hand to Link Group, PXS1 Central Square, 29 Wellington Street, Leeds, LS1 4DL or at
the electronic address provided in the proxy form, in each case no later than 12:00 p.m. on 28 June
2021; or
(b)
if you hold your shares in uncertificated form, use the CREST electronic proxy appointment service
as described in the CREST manual or in the Explanatory Notes to the resolutions set out below.
Alternatively, you may submit your proxy electronically using the share portal service at www.signalshares.
com. If not already registered for the share portal, you will need your investor code which is located on
your share certificate.
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ZEGONA COMMUNICATIONS PLC
NOTICE OF ANNUAL GENERAL MEETING
(vi)
(vii)
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.
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.
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)
(x)
(xi)
(xii)
Pursuant to section 360B of the Act and Regulation 41 of the Uncertificated Securities Regulations 2001
(as amended) , only shareholders registered in the register of members of the Company as at close of
business on 28 June 2021 shall be entitled to attend and vote at the AGM in respect of the number of
shares registered in their name at such time. If the Meeting is adjourned, the time by which a person must
be entered on the register of members of the Company in order to have the right to attend and vote at
the adjourned Meeting is close of business, 48 hours before the time fixed for the adjourned Meeting.
Changes to the register of members after the relevant times shall be disregarded in determining the rights
of any person to attend and vote at the Meeting.
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.
From the date of this notice, copies of the terms and conditions of appointment of the Non-Executive
Directors and the service contracts of the Zegona Chairman and Executive Directors are available
for inspection at the registered office of the Company, 8 Sackville Street, Mayfair, London, W1S 3DG,
during usual business hours on any weekday (Saturdays, Sundays and public holidays excluded) until the
conclusion of the AGM and will be available for inspection at the place of the AGM for at least 15 minutes
prior to and during the Meeting.
Save as set out in these notes, members who have general queries relating to the AGM should contact
Link Group on 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open
between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales. Please note that
you may not use any electronic address or other contact details provided in this notice of AGM, or any
related documents (including the Chairman’s letter and Form of Proxy) , for any purpose other than those
expressly stated.
(xiii) As at 19 April 2021 (being the last business day prior to the publication of this notice) the Company’s
issued share capital consists of 218,970,076 ordinary shares, carrying one vote each. Therefore, the total
voting rights in the Company as at 19 April 2021 are 218,970,076.
(xiv) The information required to be published by section 311A of the Act (information about the contents of
this notice and numbers of shares in the Company and voting rights exercisable at the AGM and details
of any members’ statements, members’ resolutions and members’ items of business received after
the date of this notice) may be found at www.zegona.com. Subject 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.
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ZEGONA COMMUNICATIONS PLC
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 2 to 13 set out in the Notice detail the ordinary resolutions and resolutions 1 and 14 to 17 detail the
special resolutions. Further explanation in relation to the resolutions is set out below.
Resolution 1 – To approve the Annual Report and Financial Statements
Resolution 1 proposes the receipt and adoption of the Annual Report, which includes the Financial Statements
of the Company for the year ended 31 December 2020, together with the Directors’ report and auditor’s report
on those Financial Statements.
The Company’s Annual Report, including the Financial Statements for the year ended 31 December 2020, is
available on the Company’s website, www.zegona.com. The Annual Report was prepared in compliance with the
requirements of the Act and the requirements of the Listing Rules of the Financial Conduct Authority that would
apply if the Company was listed on the Premium segment of the Official List as at the date of their approval by
the Board.
Resolutions 2 to 7 – Election of Directors
Resolutions 2 to 7 deal with the re-election of each Director of the Company that, subject to the Articles of
Association of the Company (the “Articles”) , is required to retire at every annual general meeting of the Company.
All Directors on the Board will retire at the AGM for this reason. Each of such Directors is offering himself for
re-election and resolutions 2 to 7 propose the re-election of such Directors. Biographies of each of the Directors
retiring in accordance with the Articles are set out on pages 19 and 20 of the Annual Report. Suzi Williams is
the chair of the Nomination and Remuneration Committee. Ashley Martin is the chair of the Audit and Risk
Committee and, if re-elected, will continue in this role.
The Chairman has confirmed that, following a performance review in line with the UK Corporate Governance
Code, all of the Directors continue to perform effectively and contributed positively to the Board meetings that
they attended during 2020 as set out on page 22 of the Annual Report and subsequently to the date of this notice.
Resolutions 8 and 9 – Re-appointment and remuneration of auditor
The appointment of KPMG LLP as auditor of the Company, which started on 18 November 2016, terminates at
the conclusion of the AGM. KPMG LLP has indicated its willingness to stand for re-appointment as auditor of the
Company until the conclusion of the annual general meeting to be held in 2021. The Directors, as well as the
Audit and Risk Committee, recommend that KPMG LLP be re-appointed and that its remuneration be fixed.
Resolution 10 – Dividend payment
This resolution seeks to ratify the payment by the Company of a second interim dividend, in lieu of a final dividend,
of 2.2 p per ordinary share to shareholders of the Company on 9 March 2021. The dividend payment followed the
Company’s interim dividend payment of 2.6 p per ordinary share in July 2020, thus bringing the total shareholder
dividend payments for 2020 to 4.8 p per share.
Resolution 11 – Directors’ remuneration report
In accordance with the requirements under the Act, shareholders are being asked to approve the Directors’
remuneration report set out on pages 30 to 47 of the Annual Report. The actual remuneration paid to Directors
in 2020 was made within the boundaries of the Directors’ remuneration policy approved by shareholders at the
2019 Annual General Meeting.
Resolution 12 – Directors’ authority to allot shares
The existing power granted to the Directors to allot ordinary shares expires at the conclusion of the AGM.
Accordingly, resolution 12 is proposed to renew the Directors’ authority to allot ordinary shares of up to a
maximum nominal amount of (i) £729,900 (being one-third of the Company’s issued ordinary share capital as
at 19 April 2021) to such persons and upon such conditions as the Directors may determine; and (ii) a further
maximum aggregate nominal amount of £729,900 (being one-third of the Company’s issued ordinary share
capital as at 19 April 2021) in connection with a rights issue (as defined in resolution 12 of the Notice) , 19 April
2021 being the latest practicable date before the publication of this notice.
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ZEGONA COMMUNICATIONS PLC
EXPLANATORY NOTES TO THE RESOLUTIONS
This request for authority to allot shares up to a maximum of two-thirds of the Company’s issued ordinary share
capital is in line with the guidelines published by the Investment Association.
The authorities sought under resolution 12 will expire on the earlier of (i) the end of the next annual general
meeting of the Company and (ii) the date which is eighteen months after the date on which this resolution is
passed. The resolution replaces a similar resolution passed at the Annual General Meeting of the Company held
on 30 June 2021. The Directors have no present intention of exercising such authority. However, the Directors
consider it important to have the maximum ability and flexibility commensurate with good corporate governance
guidelines to raise finance to enable the Company to respond to market developments and conditions. No shares
are currently held by the Company in treasury.
Resolution 13 – Authorisation to renew the Management incentive scheme
This resolution seeks authority from shareholders for the Company to renew the rights attached to the
Management Shares following the commencement of a new Calculation Period on 25 June 2020. A core feature
of the incentive scheme is that there must be a shareholder vote to renew the rights attached to the Management
Shares (as described in more detail in Note 18 to the financial statements) when a Calculation Period ends and
another one automatically starts.
Resolutions 14 and 15 – Disapplication of pre-emption rights
The Act requires that shares or other equity securities allotted for cash are offered first to existing shareholders
in proportion to their existing holdings. The passing of resolutions 14 and 15 would allow the Directors to allot
shares (or sell any shares which the Company may hold in treasury following a purchase of its own shares) without
first offering the securities to existing shareholders.
Accordingly, resolution 14 allows the Directors to allot shares and sell treasury shares for cash (i) in connection
with a pre-emptive offer or pre-emptive rights issue and/or (ii) otherwise up to a nominal value of £109,485,
equivalent to 5 per cent. of the total issued ordinary share capital of the Company (excluding treasury shares)
as at 19 April 2021, being the latest practicable date prior to the date of publication of this notice, without first
having to offer them to existing shareholders in proportion to their holdings.
The Pre-Emption Group’s Statement of Principles also supports the annual disapplication of pre-emption rights
in respect of allotments of shares and sales of treasury shares for cash representing no more than an additional
5 per cent. of issued ordinary share capital (exclusive of treasury shares) , to be used only in connection with an
acquisition or specified capital investment. The Pre-Emption Group’s Statement of Principles defines “specified
capital investment” as meaning one or more specific capital investment related uses for the proceeds of an issue
of equity securities, in respect of which sufficient information regarding the effect of the transaction on the
Company, the assets the subject of the transaction and (where appropriate) the profits attributable to them is
made available to shareholders to enable them to reach an assessment of the potential return.
Accordingly, resolution 15 authorises the Directors to allot new shares pursuant to the allotment authority given
by resolution 12, or sell treasury shares, for cash up to a further nominal amount of £109,485, being an additional
5 per cent. of the entire issued share capital of the Company as at 19 April 2021, only in connection with an
acquisition or specified capital investment which is announced contemporaneously with the allotment, or which
has taken place in the preceding six month period and is disclosed in the announcement of the allotment. If
the authority given in resolution 15 is used, the Company will publish details of the allotment in its next annual
report.
The authorities will expire on the earlier of: (i) the end of the next annual general meeting of the Company; and
(ii) the date which is 18 months after the date on which this resolution is passed. This resolution replaces a similar
resolution passed at the Annual General Meeting of the Company held on 30 June 2021.
Resolution 16 – Purchases of own shares by the Company
This resolution seeks authority from shareholders for the Company to make market purchases of its own ordinary
shares, limited to the purchase of 10 per cent. of the ordinary shares in issue as at 19 April 2021.
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EXPLANATORY NOTES TO THE RESOLUTIONS
The maximum and minimum prices payable are also limited in the resolution. The authority will only be exercised
if the Directors consider that there is likely to be a beneficial impact on earnings per ordinary share and that it is in
the best interests of the Company at the time. The Company will be able to hold the ordinary shares which have
been repurchased as treasury shares and re-sell them for cash, cancel them or use them for the purposes of any
employee share schemes. No options to subscribe for ordinary shares have been granted and are outstanding
as at 19 April 2021, although shares issued in the Company’s incentive schemes may be exchanged for ordinary
shares in certain circumstances.
Resolution 17 – Reduction of notice period for general meetings of the Company
This resolution seeks authority from shareholders for the Company to call general meetings at 14 clear days’
notice, as opposed to 21 clear days’ notice. While the Company’s Articles already provide that the Company can
call any general meeting (other than an annual general meeting) at 14 clear days’ notice, the Act requires that,
in order to do so, the reduction from 21 days to 14 days must be approved by way of a special resolution of the
Company’s shareholders. It is the Company’s intention to continue to call annual general meetings at 21 clear
days’ notice.
Action to be taken
You are asked to either:
1.
complete the Form of Proxy enclosed with this Notice of Annual General Meeting and return it, together
with any power of attorney or other authority under which it is signed or a notarially certified or office copy
thereof, to Link Group, PXS1 Central Square, 29 Wellington Street, Leeds LS1 4DL, so as to arrive no later than
12:00 p.m. on 28 June 2021; or
2.
if you hold your shares in uncertificated form, use the CREST electronic proxy appointment service as
described below.
Completion of the Form of Proxy or appointment of a proxy through CREST does not prevent a member from
attending and voting in person.
Shares held in uncertificated form – electronic proxy appointment through CREST
CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment
service may do so for the AGM and any adjournment(s) thereof by utilising the procedures described in the
CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who
have appointed (a) voting service provider(s) , should refer to their CREST sponsor or voting service provider(s) ,
who will be able to take the appropriate action on their behalf.
In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a “CREST
Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland’s specifications
and must contain the information required for such instructions, as described in the CREST Manual (www.
euroclear.com/CREST) . The message must be transmitted so as to be received by the issuer’s agent, Link Group
(ID RA10) , by 12:00 p.m. on 28 June 2021. For this purpose, the time of receipt will be taken to be the time (as
determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s
agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that
Euroclear UK & Ireland does not make available special procedures in CREST for any particular messages. Normal
system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or
sponsored member or has appointed (a) voting service provider(s) , to procure that his CREST sponsor or voting
service provider(s) take(s) ) such action as shall be necessary to ensure that a message is transmitted by means of
the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5) (a)
of the Uncertificated Securities Regulations 2001 (as amended) .
103
ZEGONA COMMUNICATIONS PLC
ADVISERS
Joint Corporate Brokers
J.P. Morgan Cazenove
25 Bank Street
London
E14 5JP
Telephone: +44 (0) 20 7134 4000
Barclays Bank plc
5 The North Colonnade
Canary Wharf
London
E14 4BB
Telephone: +44 (0) 20 3134 9801
Canaccord Genuity Limited
88 Wood Street
London, UK
EC2V 7QR
Telephone: +44 (0)20 7523 8000
Public Relations Adviser
Tavistock Communications Limited
1 Cornhill
London
EC3V 3ND
Telephone: +44 (0) 20 7920 3150
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Telephone: +44 (0) 20 7311 1000
Registrar
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
Telephone: +44 (0) 20 8639 3399
Company Secretary
Crestbridge Corporate Services Ltd
47 Esplanade
St Helier
Jersey
JE1 0BD
Telephone: +44 (0)1534 835 600
Solicitors to the Company
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Telephone: +44 (0) 20 7295 3000
Milbank, Tweed, Hadley & McCloy LLP
10 Gresham Street
London
EC2V 7JD
Telephone: +44 (0) 20 7615 3000
104
ZEGONA COMMUNICATIONS PLC