Castelnau
Group Limited
Interim
Report and Unaudited Condensed Consolidated Interim Financial
Statements
For
the period from 1 January 2023 to
30 June 2023
(Classified Regulated Information, under DTR 6 Annex 1 section
1.2)
The
Group has today, released its Interim Report and Unaudited
Condensed Consolidated Interim Financial Statements for the period
from 1 January 2023 to 30 June 2023. The Report will shortly be
available from the Company’s website:
https://www.castelnaugroup.com
Summary Information
The Group
Castelnau
Group Limited (the “Company”, “Castelnau” or “CGL”) and its
subsidiary (collectively, the “Group” or “Castelnau Group”) is a
Guernsey domiciled closed-ended investment company which was
incorporated in Guernsey on 13 March
2020 under the Companies (Guernsey) Law, 2008. The Company
is classified as a registered fund under the Protection of
Investors (Bailiwick of Guernsey) Law, 2020. Its registered office
address is PO Box 255, Les Banques, Trafalgar Court, St. Peter
Port, Guernsey GY1 3QL. The Company listed on the London Stock
Exchange’s Specialist Fund Segment (“SFS”) on 18 October 2021.
This
Interim Report and Unaudited
Condensed Consolidated Interim Financial Statements (the “Interim
Financial Statements”) comprise
the financial statements of Castelnau Group Limited and Castelnau
Group Services Limited (incorporated on 14
June 2022).
Investment Objective
The
Group's investment objective is to compound Shareholders’ capital
at a higher rate of return than the FTSE All-Share Total Return
Index over the long term.
Investment Policy
The
Group will seek to achieve a high rate of compound return over the
long term by carefully selecting investments using a thorough and
objective research process and paying a price which provides a
material margin of safety against permanent loss of capital, but
also a favourable range of outcomes.
The
Group will follow a high conviction investment strategy. The
expertise and processes developed by the Investment Manager can be
applied to all parts of the capital structure of a business, both
private and publicly quoted. These positions could be represented
by a minority stake, a control position combined with operational
involvement, full ownership of a company, a joint venture, a loan
or convertible instrument, a short position or any other instrument
which allows the Group to access value.
The
Group may select investments from all asset classes, geographies
and all parts of the capital structure of a business. Both private
and public markets are within the scope of the Group’s investment
policy. The constraints on the Investment Manager lie in the high
standards, strict hurdles and diligent processes used to select
investments. These constraints help to maximise returns by reducing
mistakes, enforcing a margin of safety and only accepting
investments with a favourable range of outcomes.
The
Group expects to hold a concentrated portfolio of investments and
the Group will not seek to reduce concentration risk through
diversification. The opportunity set will dictate the number of
holdings and the weighting of investments in the Portfolio. The
investments with the best return profiles will receive the largest
weightings. The Group will therefore have no set diversification
policies.
The
volatility of mark-to-market prices does not affect the investment
process. It is likely that volatility in the market price of a
listed investment will provide attractive entry or exit points and
so investors should expect high volatility to sit alongside the
high long-term compounding rates that the Group is aiming to
achieve.
The
constituents of local indices, the weightings of investments in
these indices and the volatility of the indices relative to the
Group will not affect investment decisions. It is anticipated that
agnosticism towards local indices will help focus research efforts,
decision making and ultimately investment performance.
The
Group may invest directly or through special purpose vehicles if
considered appropriate.
Shareholder Information
As
at 30 June 2023, the number of
Ordinary Shares in issue was 318,627,777 (31
December 2022: 183,996,058). The existing clients of Phoenix
Asset Management Partners Ltd (the “Investment Manager”, “Phoenix”
or “PAMP”) made up 70.3% of the issued shares and the investment
from SPWOne III Limited, 7.8%.
Results and Performance
The
results for the period are set out in the Unaudited Condensed
Consolidated Statement of Comprehensive Income. Retained earnings
remain negative and include finance costs, realised and unrealised
gains and losses on the Group's assets. Additional expenses have
been accrued during the period.
The
Group’s loss before tax for the period amounted to £15,301,815
(30 June 2022:
£30,064,713).
The
benchmark is the FTSE All-Share Index (total return). The Group’s
performance since PAMP was appointed is shown below:
|
|
|
Period ended 30 June 2023
|
Year ended 31 December 2022
|
Change/return
|
|
|
|
pence
|
pence
|
%
|
NAV
per Ordinary Share*
|
70.21
|
75.02
|
(6.41)
|
Ordinary
Share price
|
|
75.50
|
69.00
|
9.42
|
Benchmark
return
|
|
|
|
2.61
|
|
|
|
|
|
|
The
Ongoing Charges ratio was as follows:
|
|
|
|
|
|
|
Period ended 30 June 2023
|
Year ended 31 December 2022
|
|
|
|
|
%
|
%
|
Ongoing
Charges ratio*
|
|
|
0.62
|
0.52
|
*
These are Alternative Performance Measures (“APMs”)
Alternative Performance Measures (“APMs”)
The
disclosures of performance above are considered to represent the
Group’s APMs. An APM is a financial measure of historical or future
financial performance, financial position, or cash flows, other
than a financial measure defined or specified in the applicable
financial reporting framework. Definitions
of these APMs together with how these measures have been calculated
can be found in the Alternative Performance Measures (Unaudited)
section.
Premium/Discount to NAV
The
premium/discount of the Ordinary Share price to NAV per Ordinary
Share is closely monitored by the Board. The Ordinary Share price
closed at a 7.53% premium to the NAV per Ordinary Share as at
30 June 2023 (31 December 2022: discount of 8.02%).
Fees
The
Investment Management Agreement with Phoenix Asset Management
Partners Ltd (“PAMP”) creates significant Shareholder alignment, as
PAMP does not earn a management fee but earns a performance fee
only, which is paid in shares, and not in cash.
The
Company’s performance is measured over consecutive periods of not
less than three years (each a “Performance Period”) and is equal to
one-third of the relative outperformance to the FTSE All-Share
Total Return Index. The first Performance Period will run from
Initial Admission to 31 December
2024. No performance fees have been earned to
date.
Dividend
No
dividend is being issued for the period.
Chair’s Statement
Performance Review
This
report covers a six-month period from 1
January 2023 to 30 June
2023.
The
highlight of the period was the Dignity Plc transaction. This
resulted in an issuance of 134,631,719 new
Ordinary Shares in the Company on 10
May 2023 to enable the company to invest into Valderrama
Limited (“Valderrama”) (the bid vehicle), with Valderrama then
investing into Dignity Plc. The total number of Ordinary Shares in
the Company at the period end date was 318,627,777. This is a 73%
increase compared to the previous reporting period. The Board along
with the Investment Manager are pleased with the results of the
issue in a challenging market environment.
We
would like to extend a warm welcome to new shareholders, who either
subscribed for new shares or exchanged their Dignity shares for
shares in the Company and we thank those existing shareholders that
added to their holding in the Company. We believe this acquisition
will add substantial value per share to Castelnau Group. Post the
acquisition, the Company now holds 66.5% of the shares in
Valderrama. The Company does not hold any shares directly in
Dignity Plc post the acquisition.
The
share price return was 9.4% and the NAV total return for the period
was -6.4%, versus the benchmark FTSE All-Share Total Return Index
of +2.6%, which equates to a -9.0% relative underperformance of the
NAV.
The
main contributors to the underperformance were Hornby Plc
(“Hornby”) and Cambium International Ltd. (“Cambium”). Hornby
represents 6.0% of the portfolio and had a -36.8% price movement.
Cambium represents 5.4% of the portfolio and had a -27.1% price
movement. Additional commentary around the underperformance on both
stocks can be found in the Investment Managers report.
The
discount rates used for valuing our privately held investments have
not changed from the previous reporting period.
|
|
30 June 2023
|
31 December 2022
|
Cambium
International Ltd. - Core business
|
|
12.5%
|
12.5%
|
Cambium
International Ltd. - Little List business
|
|
25%
|
25%
|
Phoenix
S.G. Ltd
|
|
15%
|
15%
|
Rawnet
Ltd.
|
|
15%
|
15%
|
The
CGL share price predominantly traded at a premium to NAV throughout
the period. The Board, along with Liberum Capital Limited (the
“Advisers”) and the Investment Manager, monitor the share price and
any corresponding premium or discount on an ongoing
basis.
During
the period, the Company extended the loan facility to Cambium by
£5.5 million of which £4,950,000 was drawn down. £1.5 million of
the Silverwood Brands Plc (“Silverwood”) loan was converted to
equity and an impairment adjustment was made to the Showpiece
Technologies Ltd (“Showpiece") loan in line with International
Financial Reporting Standards ("IFRS"), which resulted in a 0.9%
reduction in the NAV.
Outlook
It
is still early days for the Company. The acquisition of Dignity Plc
is a strategic one that aligns with the long-term investment goals
of the Company. We are confident that this investment will
contribute positively to our overall performance in the future. The
acquisition is discussed in more detail in the Alternative
Investment Fund Manager and Investment Manager Report.
In
conclusion, while we acknowledge the disappointment with the NAV
return for the period, we want to assure our shareholders that we
remain steadfast in our long-term vision. The journey is not
without its challenges, but we believe in the resilience of our
portfolio and the capabilities of the Investment Manager and its
Partners to navigate through these times.
The
Company has a clear vision and strategy for growth and we are
well-positioned going into H2 2023. We remain committed to
delivering value to our shareholders and are confident that the
outlook for the Company is very promising.
Thank
you for your ongoing trust and support. We will continue to keep
you informed about our progress and developments as we work towards
delivering sustainable value for our shareholders over the long
term.
If
you would like to get in touch directly with me, as the Chair of
the Board; please email chair@castelnaugroup.com.
Joanne
Peacegood
Chair
13 September 2023
Holdings as at 30 June
2023
Company
|
Sector
|
Holding
|
Cost
|
Valuation
|
% of net assets
|
% of net assets
|
|
|
|
|
|
30 Jun
|
|
31 Dec
|
|
|
|
|
|
2023
|
|
2022
|
Valderrama
Ltd
|
Specialised
Consumer Services - Equity
|
192,449,120
|
194,772,419
|
191,010,286
|
85.4%
|
|
N/A
|
Phoenix
S. G. Ltd ("Stanley Gibbons")
|
Speciality
Retail - Equity
|
9,991
|
23,924,303
|
20,569,560
|
9.2%
|
|
13.9%
|
Hornby
Plc
|
Leisure
Products - Equity
|
92,337,876
|
39,050,634
|
16,620,818
|
7.4%
|
*
|
19.1%
|
Cambium
International Ltd
|
Specialised
Consumer Services - Equity
|
19,274
|
22,619,471
|
14,924,831
|
6.7%
|
|
14.8%
|
Rawnet
Ltd
|
IT
Services - Equity
|
284,173
|
5,500,001
|
6,600,000
|
3.0%
|
|
4.8%
|
Cambium
International Ltd
|
Specialised
Consumer Services - Loan
|
4,950,000
|
4,950,000
|
4,950,000
|
2.2%
|
|
0.4%
|
Ocula
Technologies Holdings Ltd
|
IT
Services - Equity
|
9,326
|
700,367
|
4,925,247
|
2.2%
|
|
3.6%
|
Silverwood
Brands Plc
|
Specialised
Consumer Services - Loan
|
4,400,000
|
4,400,000
|
4,400,000
|
2.0%
|
*
|
4.3%
|
Silverwood
Brands Plc
|
Specialised
Consumer Services - Equity
|
4,570,353
|
3,199,247
|
3,427,765
|
1.5%
|
*
|
1.6%
|
Rawnet
Ltd
|
IT
Services - Loan
|
972,255
|
972,255
|
972,255
|
0.4%
|
|
0.6%
|
Showpiece
Technologies Ltd
|
Internet
Retail - Loan
|
2,950,000
|
2,950,000
|
965,000
|
0.4%
|
|
2.0%
|
Dignity
plc ("Dignity")
|
Specialised
Consumer Services - Equity
|
-
|
-
|
-
|
0.0%
|
|
31.2%
|
Ocula
Technologies Holdings Ltd
|
IT
Services - Loan
|
3,000,000
|
3,000,000
|
-
|
0.0%
|
|
0.0%
|
Showpiece
Technologies Ltd
|
Internet
Retail - Equity
|
8,000
|
8,000
|
-
|
0.0%
|
|
0.0%
|
Total Holdings
|
|
|
|
269,365,762
|
120.4%
|
|
96.1%
|
Other
net (liabilities)/assets
|
|
|
(45,645,996)
|
(20.4%)
|
|
3.9%
|
Net assets
|
|
|
|
223,719,766
|
100.0%
|
|
100.0%
|
*As
at 30 June 2023, Hornby Plc and
Silverwood Brands Plc were listed companies. All other companies
were unlisted companies. All companies are UK
businesses.
Portfolio Analysis as at 30 June
2023
Sector
|
|
|
|
Percentage of
Net Assets
|
Specialised
Consumer Services - Equity
|
|
|
93.6%
|
Speciality
Retail - Equity
|
|
|
|
9.2%
|
Leisure
Products - Equity
|
|
|
|
7.4%
|
IT
Services - Equity
|
|
|
|
5.2%
|
Specialised
Consumer Services - Loan
|
|
|
4.2%
|
IT
Services - Loan
|
|
|
|
0.4%
|
Internet
Retail - Loan
|
|
|
|
0.4%
|
Internet
Retail - Equity
|
|
|
|
0.01%
|
Other
net liabilities
|
|
|
|
(20.4%)
|
Total
|
|
|
|
100.0%
|
Refer
to note 5 for additional disclosure on the valuation of the
holdings.
The Alternative Investment Fund Manager (“AIFM”) and Investment
Manager Report
The
NAV relative to the ASX index for the period was -9.0%. We
acknowledge that the NAV return since inception is disappointing.
However, the Company has increased its share capital by 73% since
the previous reporting period. Overall, we are pleased with this
result in a challenging economic market.
Castelnau Group Track Record
|
|
|
|
Performance
|
|
NAV return
|
Share price
|
All-Share
|
Relative NAV
|
|
|
|
total return **
|
index**
|
to ASX
|
|
|
%
|
%
|
%
|
%
|
2023
(to 30 June)
|
(6.4)
|
9.4
|
2.6
|
(9.0)
|
2022
(to 31 December)
|
(19.8)
|
(34.6)
|
0.3
|
(20.2)
|
2021
(to 31 December)*
|
(6.5)
|
5.5
|
2.5
|
(9.0)
|
Cumulative*
|
|
(29.8)
|
(24.0)
|
5.5
|
(35.3)
|
*
From 18 October 2021.
**
Share price return with dividends reinvested; All-Share index
returns with dividends reinvested. Past performance is not a
reliable indicator of future performance.
Source:
Bloomberg, Phoenix Asset Management Partners
Limited.
The
table below reports the portfolio position and share
price/valuation movements between 31
December 2022 and 30 June
2023:
|
|
Net Asset Value Table
|
Portfolio Weight
|
Share Price/
|
Asset
|
|
£ million
|
%
|
valuation moves
|
|
|
2023
|
2022
|
2023
|
2022
|
2023
|
Valderrama
|
|
191.0
|
N/A
|
85.4%
|
N/A
|
N/A
|
Phoenix
Stanley Gibbons
|
20.6
|
19.2
|
9.2%
|
13.9%
|
2.2%
|
Hornby
|
16.6
|
26.3
|
7.4%
|
19.1%
|
(36.8%)
|
Cambium
Group
|
14.9
|
20.5
|
6.7%
|
14.8%
|
(27.1%)
|
Rawnet
|
|
6.6
|
6.6
|
3.0%
|
4.8%
|
0.0%
|
Ocula
|
|
4.9
|
4.9
|
2.2%
|
3.6%
|
0.0%
|
Silverwood
|
|
3.4
|
2.2
|
2.0%
|
1.6%
|
(21.1%)
|
Showpiece
|
|
0.01
|
0.01
|
0.0%
|
0.01%
|
0.0%
|
Dignity
|
|
N/A
|
43
|
0.0%
|
31.2%
|
N/A
|
Source:
Phoenix Asset Management Partners Limited.
Performance
In
performance terms, the underperformance was mainly driven by Hornby
and Cambium. Hornby was down 37% and Cambium down 27%. Silverwood
was down 21% in the period but only represented 2.0% of the
portfolio. Phoenix SG Ltd (“PSG”) was up 2%. Rawnet Limited
(“Rawnet”), Ocula Technologies (“Ocula”) and Showpiece Technologies
(“Showpiece”) remained relatively unchanged.
Other activity
During
the period, the £1.5 million Silverwood loan (plus £99,247 accrued
interest) was converted to equity, as originally intended. The
conversion of this loan is indicative of the continued confidence
in the progress which the Silverwood team are making. The remaining
loan (excluding interest) to Silverwood equates to 2% of the NAV at
the end of the reporting period.
The
Company also added to its position in Phoenix SG to fund the
underlying business; Stanley Gibbons Ltd.
Loan position
The
principal amount of loans outstanding to portfolio companies
(excluding the Dignity deal) as a % of NAV decreased from 7.3% in
December 2022 to 5.3% at the end of
this period. The Silverwood loan conversion mentioned above
contributed to this and an impairment was made to the Showpiece
Technologies Ltd position in line with IFRS accounting standards.
The Company also extended the loan facility to Cambium by £5.5
million in the period.
The
Group considers both qualitative and quantitative factors when
determining whether an asset may be impaired. The Group considered
the following indications of impairment across the corporate loans
outstanding at the period end:
–
default or delinquency by a debtor;
–
restructuring of an amount due to the Group on terms that the Group
would not consider otherwise;
–
indications that a debtor or issuer will enter
bankruptcy;
–
adverse changes in the payment status of borrowers; or
–
observable data indicating that there is a measurable decrease in
the expected cash flows from a group of financial
assets.
The
Group considers a broad range of information when assessing credit
risk and measuring expected credit losses, including past events,
current conditions, reasonable and supportable forecasts that
affect the expected collectability of the future cash flows of the
instrument.
There
have been no historical credit losses on the corporate loans issued
by the Group. The Investment Manager has assessed the credit risk
of the loans and has concluded that they have not deteriorated
significantly in credit quality since initial recognition (with the
exception of Showpiece).
Valderrama (Dignity Plc)
Valderrama
was set-up to invest in Dignity Plc. The Company holds 66.5% of the
equity in Valderrama.
Valderrama
is a private company limited by shares that was incorporated in
Guernsey on 25 August 2022 with
registered number 70991 and has its registered office at PO Box 650,
1st Floor, Royal Chambers, St
Julian’s Avenue, St Peter Port, Guernsey GY1 3JX. Castelnau and
SPWOne V Limited (“SPWOne”) are currently Valderrama’s majority
shareholders, with the company having been incorporated for the
purposes of a 50:50 joint venture between Castelnau and SPWOne,
pursuant to which Castelnau and SPWOne agreed to invest in
Valderrama for the purposes of making an investment in Dignity
Plc.
Gary Channon, CIO of Phoenix, wrote the following in the Q2 2023
report to investors; “Although the acquisition and delisting are
now complete, we still have a final step, which is making sure that
Valderrama has sufficient capital to support the strategy. We
expect that will conclude by the end of the year and when it is
done, the temporary facility from Phoenix inside Castelnau to complete the deal
will be repaid. Castelnau owns 66% of Valderrama, that investment
is valued at £191 million, which represents 74% of the Castelnau
equity portfolio (£258 million) however, due to the temporary
gearing, it works out at 85% of the current net assets (£224
million). There are no restrictions on portfolio construction in
Castelnau, which lets us do the intelligent thing, looking for the
highest risk adjusted returns without risking a permanent loss of
capital, and then explain it to you. We would never advocate this
amount of portfolio concentration in any arm’s length investment,
no matter how cheap and downside protected, but we do have control
here and therefore, have ways to protect and manage the downside so
that Castelnau will not suffer any permanent losses of capital”.
The full report can be found here:
https://www.castelnaugroup.com/application/files/5916/9208/5097/Castelnau_Group_Ltd_Q2_2023.pdf,
and an extract can be found below.
Q2
2023 Quarterly Report
In
the Q2 2023 factsheet for the Company published in August 2023, Gary
Channon, Phoenix CIO, outlined some thoughts to shareholders
on the recent Dignity acquisition and the outlook for the year
ahead. It is repeated below, as those thoughts remain relevant
today:
Dignity
– now owned by Valderrama
Now
that we have secured full ownership of Dignity and taken it private
we can talk about what it is we are doing to turn it into a much
more valuable business. That understates the scope of the ambition,
but this report is about the investment and ultimately the
judgement of its success in that regard will be on the investment
returns it delivers.
Capital
Structure
Before
we get into the business side let's first talk about the capital
structure. It's dull and arcane so if you just want to get into the
business discussion then just skip this section, save it for
bedtime. This report was delayed because we have been seeking an
agreement with the bondholders of Dignity which has now been
reached and announced. There will be a formal vote on the 4th of
September 2023.* We negotiated with
bond holders representing more than 75% of the outstanding Series A
bonds. In summary, the agreement if approved extends last year's
deal until the end of 2024.
The
need for an agreement arose because the deal we reached with
bondholders a year ago is due to expire at the end of September 2023. That deal gave us certain waivers
from the covenant test whilst we sell 7 of our crematoria to pay
down some of the debt and reduce leverage. The 7 were chosen as the
freeholds sat outside the securitisation but the businesses sat
within.
Once
the leverage is reduced, a number of other consents kick in which
loosen the restrictions on the business that come from the whole
business securitisation structure that most of Dignity sits
in.
Our
expectation was that the natural buyers for those crematoria would
be Dignity’s funeral plan trusts, because of the alignment between
their long term returns and the long-term liabilities in the
trusts.
The
trusts have been going through a complicated process of their own
due to the start of FCA regulation of the sector. That required
Dignity to set up an entirely new trust which was FCA compliant and
then merge all of the past trusts into it. The trustees were
advised that the merger process required the consent of the court
which then got delayed and derailed by a very slow and unhelpful
response from HMRC. The process to fix this is underway and a
solution has been found, however, in the absence of a merger the
sale of the crematoria to the combined new trust was not doable in
the original timeframe.
The
extension of the deal with the bondholders allows us the time to
implement the right deleveraging transaction, whilst shielding us
from the risk of a covenant breach at a time when the profitability
is most depressed. This is essential. The reason why it is an
investment principle of Phoenix to
avoid leverage is not only due to the damage done when gearing
works against you, but also because of the damage when breaches of
covenant give power to bondholders to assert themselves at the
expense of the equity.
Value
Creation
Which
should be subtitled: ‘the
work to take Dignity from what it was to the UK’s truly leading end
of life business, generating high and enduring returns on its
capital whilst being a force for good in the society it
serves.’
The
building blocks of Value Creation are:
1. A
leading funeral plan business that expands market
penetration
2. A
network of leading community-based end of life businesses operating
with the benefits of national scale
3. A
national network of community focused crematoria and
cemeteries
Organising
the business in a way that benefits from scale, vertical
integration and a dynamic, customer-focused culture is what will
make it a commercial success.
On
top of those three main areas there are also complementary and
meaningful opportunities for us in memorialisation, coffin
manufacturing and adding other related services.
Funeral
Plans
The
number of funeral plans we will sell is a function of the
population size, our share of the market and the proportion of the
population who have one. The introduction of regulation by the FCA
this time last year has removed more than half the competitors (by
number), making market share growth easier. The population of those
who might think about taking a funeral plan is also growing, and so
our most difficult challenge will be growing product
penetration.
We
have set about this goal firstly by creating a product that is best
in class, that is innovative and that we will continually improve
upon. It is the top recommendation of Martin Lewis of MoneySavingExpert.
The
next challenge is properly launching that from a marketing
perspective in a way that reaches a much wider audience in order to
expand the market. The work on that is underway and announcements
will come when ready.
Yet
we can see that even without promotion, even though we have
gradually rolled out the product through the branch network making
sure we had all the new FCA based training and competency in place
and still don’t have it yet in all branches, the product is being
well received and is selling much better than the previous
products. We have already sold over 15,000 plans since launch, and
on top of that, we have offered the product to plan holders in
schemes that didn’t make it into regulation and have sold more than
60,000 plans to those customers.
Value
creation in funeral plans happens in three ways.
i.)
From any excess return received on monies held over and above the
assumptions used when the plans were sold. In essence this amounts
to the investment return over inflation if there is
one.
The
investment strategy has a goal of exceeding funeral price inflation
by 3% per annum. The size of the float of capital held in our
funeral plan trusts will be a function of how much we can grow the
market and our share in it. At 10% penetration (versus 7%
currently) the float reaches c.£1.7 billion and 3% equates to over
£50 million per annum. 10% is our first objective, if we achieve
12.5% penetration then assets would be £2.3 billion, and so
on.
ii.)
We build up a store of future funerals on which we will make our
margin. As we improve the efficiencies in our funeral businesses
and grow volumes our unit cost will fall which will increase the
value of a future funeral. Currently the average life expectancy of
a plan purchaser is 15 years. We aim to build margins to 30% in
funerals. Against that return is the cost of acquiring a plan which
in the past was at a similar level. We believe once we have
ourselves properly launched, growing volumes will mean that our
cost of acquisition (CPA) will decline and will be much lower than
the margin on a funeral.
iii.)
We start a relationship with a customer to whom we wish to offer
other relevant products and services. The value for this will grow
as we build out our overall end of life offering.
Funeral
Homes
We
have inherited the results of decades of a strategy that undermined
the businesses that were acquired by making it uncompetitive, by
not investing enough in it, by taking away local decision making
and by failing to adapt and innovate.
Dignity
has not previously delivered any benefits of scale; the cost
structure of our funeral businesses was higher after integration
into the group than it was before they were acquired. We believe we
can change that through improved ways of operating, introduction of
better technology and the effect of growth on operating costs per
funeral.
Throughout
2022 the funeral division went through a restructuring that removed
the management layer and organised all the branches into local
businesses run by a Business Leader. This is a newly created role
and had to be interviewed for even though most of the candidates
were internal. The end result was 168 businesses and 46 crematoria
all also run by a business leader.
That
process impacted over 3,000 people in the business and was
completed at the beginning of 2023. Although the removal of so many
management roles was expected to reduce headcount and cost, the
result has been the opposite. This was probably due to a
combination of what was a highly disruptive process at a time of an
elevated death rate creating short term need for help. So, in 2023
even as revenues have grown strongly, costs rose even
further.
Since
acquisition there has been a team of people, drawn from good
practitioners in Dignity, working with analysts from Phoenix and SPWOne reviewing every business in
numbers and in the field. From that work; good operating models
will be applied, best in class practices shared, and unviable
marginal activities and operations will be ended. The whole
portfolio of funeral businesses will then be invested in for
growth. You should expect the business and branch numbers initially
to reduce along with the headcount. Currently there are 100 less
branches than we started with in 2021.
To
give an idea of the magnitude of the effect, our top quartile
branches make a contribution of a £1,000 a funeral more than those
in the bottom quartile and it is largely a result of the cost side
of the equation. The current work has been identifying the reasons
and the solutions and we will soon move into execution
mode.
We
have been trialling the new strategy in Bristol now for 2 years and have had a person
from Phoenix embedded there
throughout. That business has grown from doing an average of 24
funerals a week across 10 branches to 30 and has grown from 14% to
17% market share. Some of those funerals come from pre-sold funeral
plans, so to really appreciate the movement in local performance,
you need to look at At Need volumes and share. At that level the
growth is 40%, going from 8.5% to 12% market share.
Whilst
growing the business, it also improved the operating efficiencies
and therefore contributes profits at well over 30%.
The
business introduced its own products using alternative venues that
has increased volumes at our crematorium in Weston-Super-Mare.
You
should expect to see the profitability of our funeral business to
grow significantly in 2024 as these changes take place.
One
of the key skills we need to possess for this model to work is an
understanding of what it takes to be a good business leader in this
end of life space; how to recruit, retain and develop such talent,
and what kind of operating framework we need to provide so that we
get the best of empowered customer focused entrepreneurial decision
making close to customers combined with the benefits of operating
at a national scale which requires some standardisation.
Once
we have refined our own estate, we will be ready to consider
expansion knowing what value we bring and what kind of expansion
makes sense for us, i.e. new openings, acquisitions, partnerships
and franchise.
We
see our funeral homes as more than arrangers of funerals; we want
them to provide a full end of life service in the communities they
serve. So, as well as funeral plans we expect to introduce more
products and services. We see our branches becoming a place where
you can drop by to discuss any aspect connected to preparing for
end of life and for us to be able to help you.
Value
creation comes as our focused portfolio of businesses builds good
margins, grows volumes and local share and we start to grow the
portfolio in a number of ways.
At
100,000 funerals (our 2025 objective), which would be 15.5% of the
market, we would expect the funeral division to contribute over
£60m per annum after capex. At a 20% share by 2032 we would be
handling 140,000 funerals a year, double our current numbers as the
ONS estimates the annual death rate by then will have reached
700,000.
We
don’t know what our ultimate market share potential is, we will
earn our right to grow by winning and earning the trust of families
and retaining it. In the Barnes postcodes, where Castelnau is
based, we have an over 50% share. That happens in communities where
we have good performing operations, and in Barnes, there is still
so much potential. Although the branch is very well positioned, it
is underwhelming visually and seems designed to avoid having anyone
drop in and yet there is a whole community here ready to be engaged
and without any alternative aside from the internet.
Crematoria
We
see great potential in our portfolio of crematoria to make them
individually better, to make a lot more of memorialisation both
through the crematoria and our funeral homes, and to take advantage
of the national footprint to build our direct cremation business.
We also have a pipeline of 7 more to build.
We
see a lot of scope to do more memorialisation by offering choice,
innovation and through closer working with our funeral
businesses.
Unlike
the revolution in the funeral business, the work in the crematoria
division is more evolutionary. Exchanging best practice and making
incremental improvements is the goal. Every crematorium will have a
new website and ways of engaging with the local communities
digitally as well as physically. We have some wonderful
establishments, but you wouldn’t know without visiting them. We
want to make them easier for all funeral directors to use and
reserve.
Value
creation comes through that growth in numbers, volumes, and
memorial revenues. A contribution this year which, after capex is
likely to be around £45 million, we see doubling in 6 years as a
result of those forces above.
Central
Costs
Dignity
became bloated at the centre as a result of the Transformation Plan
started in 2018. In 2021 they reached £40 million. The work of
reducing it started last year (2022 = £33 million) and now that the
company is private, we have been making further changes. Some
efficiencies require investment in technology and better processes
which take more time. We expect to get down to the right cost level
by the end of 2024 which we believe will be no more than £25
million and then that ratio to sales (c.6%) will be maintained as
the business grows.
New
Services
Our
desire to be a true full-service end of life provider means that we
will introduce new products and services, and partner with
complimentary organisations to achieve that. These are commercially
sensitive and so we will discuss them as they happen.
Other
Areas of Value Creation
We
believe our manufacturing operation and our large portfolio of
freehold commercial and residential property offers considerable
scope for value creation, and that work is already
underway.
Profitability
As
with 2022, we expect profitability to be depressed in 2023 as we
restructure the business. We expect 2023 to show some improvement
on 2022 depending on the death rate for the rest of the year, but
it is from next year onwards that we expect to see profitability
rise more significantly. As the restructuring reduces the core cost
base and improves efficiencies, margins will rise on increasing
revenues. In two to three years, we expect to be making over £100
million before tax. With all of the forces of vertical integration
working, more funeral plan sales drives more funerals, which in
turn means more cremations and a growth in profitability. On our
plans it takes 7 years to get that pre-tax profitability to £200
million. Things may and probably will unfold differently, faster or
slower, depending on a number of things both within our control and
beyond it, but once we have the business model in the right shape,
it will be generating high returns on capital and marginal growth
will also come at high returns and we will have a very valuable
business.
Using
the Phoenix intrinsic value
methodology, and even allowing for dilution for the equity being
raised at the Valderrama level, we get a value of c.£30 per share
on our central case plan. That doesn’t mean we will be able to
achieve that value in a float, but it is a guide to the amount of
potential value, and we will update that figure using the same
methodology so you will be able to see the extent to which the plan
is working.
People
The
most important determinant of our success will be our people. A new
ExCo has been assembled post-acquisition. Kate Davidson remains as Chief Executive and a
new Chief Financial Officer has been appointed (he was previously
the CFO and acting CEO of eSure where he worked with Sir
Peter Wood) and we have also
appointed a Chief Marketing Officer, Director of Operations, Chief
Transformation Officer, Chief Commercial Officer and Chief Risk
Officer. This sounds like a lot of chiefs, but these are all high
quality, driven people who are incentivised to deliver the value
discussed above. SPWOne and Phoenix are also utilising the full breadth of
their network to bring resource and expertise into this
exercise.
The
work of crafting a great company out of such a complex starting
situation is now about executing and building the right
culture.
Summarising
the Value Creation Formula
What
turns this into a great investment are three forces; i.) the price
we paid in relation to the value purchased, ii.) the value that
comes from reorganising the capital structure and having the
capital being intelligently allocated and then iii.) the value that
comes from building a growing and commercially successful end of
life business. The first two turbo charge the third. Currently the
holding is valued at the price of the acquisition. As the results
of strategy execution come through, that valuation will
change.
*
There was a formal vote on 4 September
2023 and this was approved.
Hornby Plc
The
appointment of Olly Raeburn as CEO
in January 2023 was a strategic one
for the Group. During his initial six months he has faced the
challenge of understanding a new business and its people. Despite
the limited time, Olly has demonstrated his leadership capabilities
and has also now strengthened his executive team with two
additional key hires.
Hornby
released its annual accounts in June
2023 where it reported total revenue of £55.1 million, which
represents a 2.5% increase compared to the previous year's revenue
of £53.7 million. This growth in revenue indicates some level of
improvement in the company's sales during the year. The underlying
loss before tax for the year was (£1.1) million, which is a
significant decline from the previous year's profit of £3.2
million. Reported loss was (£5.9) million (2022: £0.6 million
profit). Sales were disappointing in their most important trading
period between October-December. Several factors contributed to the
disappointing sales performance during the crucial trading period;
economic uncertainties, changes in consumer behaviour, and
imperfect demand forecasting have all played a role in the
company's challenge.
A
positive highlight from the year was digital sales. The investment
in digital and the new websites enabled a 49% increase in digital
revenue. With direct to customer sales now at c.15% of total sales
there is clear potential for further growth.
Olly,
in collaboration with the Castelnau Team, is beginning to formulate
a strategic plan and vision for the company.
A
few key areas of focus to drive growth and enhance the company's
competitive position are outlined below:
1.
Brand Vision and Proposition Development:
Olly
recognises the importance of a strong vision and a compelling value
proposition to resonate with customers for each of the company’s
brands. The strategic plan involves refining and communicating
these clear identities that reflects the brand’s values, heritage,
and product offerings. By developing a distinctive brand
proposition, each brand aims to strengthen its position in its
respective markets and attract a wider customer base.
2.
Product Development and Merchandising:
Producing
products that customers value and love is key to remaining
competitive and Hornby Plc plans to continuing investing in product
development and innovative designs. The company will focus on
introducing new product lines, enhancing existing ones, and
catering to evolving customer preferences.
3.
Data, Loyalty, and Segmentation:
As
mentioned in Olly’s CEO report, “We have 5 years of transaction
history from our D2C channel but have not taken full advantage of
that information to develop relationships and drive purposeful
growth”. Understanding customer data is crucial for informing
product development, targeted marketing, and personalised
experiences. Hornby Plc will prioritise data analysis to gain
insights into customer behaviour, preferences, and purchase
patterns.
4.
Customer Experience:
Customer
experience plays a vital role in building lasting relationships
with consumers. Hornby Plc will place a strong emphasis on
enhancing customer service, post-purchase support, and engagement
across all touchpoints.
5.
Retail Development:
The
strategic plan acknowledges the importance of retail channels in
the company’s overall success. The company will invest in an
experiential retail development to create an engaging and visually
appealing experience for customers.
Conclusion:
We
are working closely with Olly to determine a solid strategic plan
which will be vital to assessing the company’s performance and
potential for long-term investment success and shareholder
value.
Cambium
Cambium
was down 27% in the period.
The
year-to-date performance for the company has been impacted by the
effects of COVID on the wedding industry. From March 2020 to June
2021, COVID restrictions caused most weddings to be
cancelled or limited to only thirty participants. This resulted in
a significant backlog of postponed weddings, which combined with a
normal wedding year in the second half of 2021 and 2022.
However,
the expected growth for 2023 did not materialise, as the wave of
postponed weddings unwound, and the market has reverted back to a
more normal pre-COVID situation. As a result, product revenue for
the first five months of 2023 is down by 22% compared to the
equivalent period in 2022. This decline was also impacted by the
reversion to more pre-COVID cash list levels, as couples can now
travel and have larger weddings.
Hitched,
a leading wedding planning business, estimates that the total
number of weddings for all of 2023 will be 18% less than in 2022.
To account for the changing dynamics and a return to more normal
wedding trends, a model has been developed that assumes a
year-on-year decline of 20%.
To
counter these challenges and improve financial performance,
management has taken cost-cutting measures. In March, they
successfully cut expenses by approximately £750,000. A second round
amounting to £1.2 million is currently being planned, mainly from
salaries expected in the Autumn when a comprehensive plan to
automate roles and utilise Artificial Intelligence is
implemented.
The
company has also launched a new business called "Little List" in
the baby list and gifting market. This venture has seen positive
early traction, with 2,500 registrations since its soft launch in
February 2023. Additionally,
investment is being made to enhance RockMyWedding's position as a
leading wedding planner and resource platform, aiming to guide
engaged couples in planning their wedding day and driving customers
directly to gift lists without intermediaries.
Historical Performance - Wedding List (including Homeware
Outlet)
|
|
|
(GBP millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY-22
|
FY-21
|
FY-20
|
FY-19
|
Pledge
Product Revenue
|
|
|
|
23.1
|
19.1
|
4.7
|
14.3
|
Gross
Profit
|
|
|
|
|
|
7.0
|
6.8
|
1.2
|
3.7
|
Costs
|
|
|
|
|
|
|
(9.2)
|
(6.8)
|
(7.8)
|
(9.8)
|
EBITDA
on pledge
|
|
|
|
|
(2.4)
|
0.0
|
(6.6)
|
(6.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source:
Cambium International Ltd.
Current Fiscal Year –
Wedding List (including Homeware Outlet)
|
|
|
(GBP millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
Previous
|
Change vs
|
|
|
|
|
|
|
|
Fiscal Year
|
Expectations
|
Previous Expectations
|
|
|
|
|
|
|
|
Expectation
|
for Current Year
|
(%)
|
Pledge
Revenue
|
|
|
|
|
|
18.1
|
25.0
|
(27%)
|
Gross
Profit
|
|
|
|
|
|
7.0
|
8.8
|
(20%)
|
Costs
|
|
|
|
|
|
|
(8.4)
|
(9.6)
|
9%
|
EBITDA
|
|
|
|
|
|
|
(3.0)
|
(0.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source:
Cambium International Ltd.
Phoenix SG Ltd
In
Q4 of 2022, Tom Pickford was
appointed CEO of the Stanley Gibbons Group (the “SG Group”). He has
been focused on cost savings and simplifying the company structure
in parallel to building out a new strategy and vision for the
company.
The
SG Group ‘s revenue and EBITDA underperformed in FY2023 compared to
budget estimates. The main reason for the underperformance was a
fall in sales volume despite a small increase in gross margin
driven by operational changes towards the end of the year. The SG
Group undertook a substantial reduction in staff in the first half
of 2023 in recognition of the decline in volume and changes in
business focus outlined below: the associated costs contributed to
reduction in EBITDA in the year, however, lower staff costs should
now drive improvements in future quarters.
|
|
|
|
|
31 March
|
31 March
|
|
|
|
|
|
|
2023
|
2023
|
|
Income Statement (GBP millions)
|
|
(Actual)
|
(Budget)
|
Variance
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
11.1
|
13.8
|
(20%)
|
Cogs
|
|
|
|
|
(6.3)
|
(7.9)
|
(20%)
|
Gross
Profit
|
|
|
|
4.8
|
5.9
|
(19%)
|
Gross
Margin
|
|
|
|
43%
|
43%
|
|
Overheads
|
|
|
|
(7.4)
|
(6.7)
|
10%
|
EBITDA
|
|
|
|
|
(2.6)
|
(0.8)
|
225%
|
EBITDA
Margin
|
|
|
|
(23%)
|
(6%)
|
|
Depreciation
and Amortisation
|
|
|
(0.6)
|
(0.4)
|
50%
|
Loss
before tax
|
|
|
|
(3.1)
|
(1.2)
|
158%
|
Source:
SG Group.
The
new strategy will leverage the historic brand value of Stanley Gibbons and A H Baldwins & Sons,
along with their extensive in-house expertise and data assets, to
extend the group’s activities into a multi-category collectibles
business with associated collecting services. The SG Group will add
categories such as trading cards and sporting memorabilia to its
portfolio and bring to market new added-value services for
collectors.
A
key hire was made in April 2023 to
lead the extension of collectibles categories into a broader and
more diverse customer base, and discussions are ongoing with
potential partners in the UK and abroad where activities can be
accelerated.
The
SG Group intends to significantly expand its auction activities,
including into the new collectibles categories. This recognises the
market trend for collectors to go direct to auction with its open,
market-led pricing rather than using more opaque commission-based
dealing. Auctions bring the advantage of lower capital requirements
when acquiring consignments compared to buying in stock for direct
dealing, although both will continue to be part of the future
strategy for appropriate customers and transactions.
The
SG Group is exploring options to move the publications business
from a physical to digital form. This reduces the costs of physical
publications and creates opportunities to monetise data assets. In
addition, branded product manufacturing will be franchised to
reduce the capital requirements.
Finally,
the SG Group is also exploring business adjacencies in the coin
dealing market, which can be outlined in more detail in future
updates.
Ocula Technologies
Valuation
The
value of our stake in Ocula was unchanged from the previous
reporting period (as at 31 December
2022) at £4.9 million although our equity ownership of the
company fell from 67% to 50% post the recent equity
raise.
This
valuation is based on a combination of factors, most notably, the
recent external investment from Lloyds Bank (March 2023) but also the ongoing market
validation of Ocula's products, its revenue growth potential, and
the probability of success.
Activity
Ocula,
as an early-stage technology company, has made significant strides
in the marketplace and shows much promise for the future. With the
aforementioned successful external investment from Lloyds and a
post-money valuation of £10 million, the company has demonstrated
its potential and garnered early validation. To solidify its
position and establish itself as a sustainable player in the
industry, Ocula needs to continue to focus on winning new customers
and sustaining its revenue growth. The company's performance so far
has been encouraging. Securing circa ten paying clients, including
renowned names such as the winners of the 2023 Super Bowl the
Kansas City Chiefs and the Atlanta Falcons in the US, showcases
Ocula's ability to attract prestigious clientele. Additionally,
their successful conversion of AO World, a prominent UK online
retailer, into a paying client adds further credibility to their
offerings. This customer momentum in 2023 indicates increasing
market traction, reaffirming the external valuation it
received.
Yet,
in the competitive landscape of technology and SaaS businesses,
continuous growth is imperative. Ocula's near-term pipeline of
prospective clients, which includes some very prominent UK high
street brands presents a critical opportunity for expansion.
Winning these clients will not only boost revenue but also serve as
further validation of Ocula's value proposition.
Silverwood
Silverwood
was founded in 2021 by experienced consumer entrepreneurs
Andrew Tone and Andrew Gerrie and is listed on the AQSE
exchange. It is an investment vehicle focusing primarily on the
beauty sector, an industry in which both founders have considerable
experience.
To
date, Silverwood has made investments into five different
businesses with a controlling interest in three of those. To find
out more about the brands, visit
https://www.silverwoodbrands.com.
The
£1.5 million loan to Silverwood’s was converted to equity in the
period. The conversion of this loan is indicative of our continued
confidence in the progress the Silverwood team are
making.
Rawnet
Valuation
The
valuation of our 100% stake in Rawnet Limited remains unchanged
from the previous reporting period (as at 31
December 2022) at £6.6 million. We
value Rawnet using a straightforward Discounted Cash Flow model of
its future cashflows. The
company’s track record of profitable growth and simple business
model mean it is not a complicated business to value.
Activity
Rawnet’s
revenue performance in the first half of 2023 temporarily fell
short of expectations. The company experienced project setbacks
including the loss of a major project due to resource constraints.
Moreover, the macroeconomic conditions in the market in 2023 has
led to some prospective clients tightening their budgets, resulting
in a hesitancy towards new spending. In response to these
difficulties, Rawnet management took proactive measures to reduce
costs across the company.
As
the second half of the year begins, the management enacted a plan
to downsize the headcount from 70 to around 60 employees. This
move, coupled with other cost-cutting initiatives, aims to reduce
monthly operating expenses significantly, bringing the breakeven
revenue level down to approximately £4.3 million for the full
year. Impressively,
management handled the adjustment well and remains optimistic about
the potential to achieve a profit this year, assuming the
successful conversion of new third-party business in the second
half of 2023. Supporting
this optimism, it recently won a very large contract with a new
customer which serves as a reminder of Rawnet’s longstanding
position and reputation in the market.
Showpiece
Showpiece
continued to present four existing assets on its platform: the
Magenta 1c stamp, Charles Darwin’s Origin of Species 1st edition,
Andy Warhol’s Reigning Queens masterpiece and a 1937 Edward VIII
penny. The company also continues to seek the right types of assets
to fractionalise at values we are happy with, and a further two
assets likely to generate extraordinary public interest have been
explored, with one very promising for presentation in Q3
2023.
As
part of Showpiece’s journey to explore opportunity in the
marketplace, the company researched the potential for an
FCA-regulated alternative investment platform fractionalising high
growth assets, such as collectible vehicles and whisky, to sit
alongside its ‘hobby’ collectibles platforms. Such assets could be
presented to retail investors as investment products rather than
collectibles. This has generated valuable insights into the
marketplace, and a model to build the platform has been identified
which can be used if assets and capital are available at the right
price, however, a move into this market is not currently
planned.
Showpiece
will continue to focus on the core hobby collectibles and is also
using the expertise of its technology team to assist the wider
Stanley Gibbons business in its
online plans, which also helps to reduce Showpiece’s operational
costs while maintaining the business capabilities. During the
period, the company continued its software platform development
activities to include enhanced onboarding for new customers and
improvements to the User Interface and User Experience on its
website homepage. The company also explored potential partnerships
to facilitate a potential future US expansion.
CGL
owns an 80% equity stake in Showpiece Technologies Limited, the
remaining 20% is owned by Stanley Gibbons Plc. CGL owns 64% of
Stanley Gibbons and Phoenix Asset
Management in total own 83% of the company across numerous
funds.
During
the period, the Group recognised an expected credit loss of
£1,985,000 on the original loan of £4.2 million to Showpiece
Technologies Limited and at 30 June
2023, the Group valued its equity stake in Showpiece at
£Nil. The adjustments to the loan and equity value have been made
due to an increased level of uncertainty around the Showpiece
business.
Graham Shircore
Partner;
Phoenix Asset Management Partners Ltd.
13 September 2023
Board Members
Biographical details of the Directors are as follows:
Joanne
Peacegood
(aged
45)
(Independent
Chair)
Joanne
has over 24 years of experience in the financial services/asset
management sector. Joanne is a non-executive director with a
portfolio of clients including Financial Services and Operating
Businesses. Joanne’s portfolio includes Listed, Private Equity,
Debt, Utilities, Renewables, Hedge, Real Estate and Asset Managers.
Prior to becoming a non-executive director, Joanne worked for PwC
in the Channel Islands, UK and
Canada and held leadership roles
in Audit, Controls Assurance, Risk & Quality and Innovation
& Technology.
Joanne
is an FCA with the ICAEW, graduating with an honours degree in
Accounting and holds the IOD Diploma. Joanne is the Deputy Chair of
the Guernsey International Business Association and the immediate
past Chair of the Guernsey Investment & Fund Association.
Joanne resides in Guernsey.
Andrew Whittaker (aged 50)
(Independent non-executive Director)
Andrew
is an experienced director and currently sits on several investment
manager and investment fund boards specialising in debt, venture,
renewables and buyouts. Andrew has over 20 years of experience in
the investment sector and the funds industry.
Andrew
is currently the Managing Director of Aver Partners, having
previously been Managing Director at Ipes (Barings/Apex) and
preceding that, Managing Director at Capita (Sinclair Henderson/Link). He has held senior
management roles at Moscow Narodny (VTB Capital), DML (Halliburton)
and qualified whilst at Midland (HSBC/Montagu).
Andrew
graduated from Cardiff University
and Aix-Marseille Université. He is a Chartered Management
Accountant and is a Member of the Chartered Institute for
Securities and Investment (CISI). Andrew is currently Chair of the
British Venture Capital Association (BVCA) Channel Islands Working
Group and a member of the Association of Investment Companies’
(AIC) Technical Committee. He is a previous Chair of the Guernsey
Investment Fund Association (GIFA), Council member of Guernsey
International Business Association (GIBA), member of the
Association of Real Estate Funds (AREF) Regulatory Committee and of
Invest Europe’s (formally European Venture Capital Association’s
(EVCA)) Technical Group.
Joanna Duquemin Nicolle
(aged 53) (Independent non-executive Director)
Joanna
has over 30 years’ experience working in the finance industry in
Guernsey. Joanna is currently Chief Executive Officer of Elysium
Fund Management Limited, having previously been a Director and the
Company Secretary of Collins Stewart Fund Management Limited where
she worked on, and led, numerous corporate finance assignments and
stock exchange listings in addition to undertaking fund
administration and company secretarial duties.
Joanna
has extensive experience in the provision of best practice
corporate governance and company secretarial services to a diverse
range of companies traded on the AIM market of the London Stock
Exchange, listed on the Main Market of the London Stock Exchange,
Euronext and The International Stock Exchange. Joanna qualified as
an associate of ICSA: The Chartered Governance Institute UK &
Ireland in 1994 and was elected to
Fellowship in May 2023.
David Stevenson (aged 57)
(Non-Independent non-executive Director)
David Stevenson is a columnist for the Financial Times,
Citywire and Money Week and author of a number of books on
investment matters. He was the founding director of Rocket Science
Group. Currently he is a director of Aurora Investment Trust Plc,
Secured Income Fund Plc, Gresham House Energy Storage Fund Plc and
AltFi Limited and a strategy consultant to a number of asset
management firms and investment banks.
Graham Shircore (aged 41)
(Non-Independent non-executive Director)
Graham
graduated from Bath University with a BSc (Hons.) degree in
Business Administration. During his time at university, he
completed internships with Fidelity, Principal Investment
Management and Motorola Finance as well as passing the IMC
exam.
In
2005, he joined Aviva Investors on the graduate scheme, and then
became a UK Equity Analyst. Having passed all three levels of the
CFA exam, he became a UK Equity Fund Manager in 2008 and later also
managed European funds before joining Rothschild Wealth Management
in 2013 as a Senior Equity Analyst. There he helped shape and
implement the equity research process, investing on a
geographically unconstrained basis.
Graham
was, until recently, a non-executive director of Stanley Gibbons having formerly acted as Chief
Executive Officer, and a non-executive director of Showpiece
Technologies Ltd. Graham is now a non-executive director of Dignity
Plc and Dignity Finance Plc.
Directors’ Report
The
Directors are responsible for preparing the Interim Report and the
Unaudited Condensed Consolidated Interim Financial Statements in
accordance with applicable law and regulations. The Directors
consider that the AIFM and Investment Manager Report of this
Interim Report and Unaudited Condensed Consolidated Interim
Financial Statements provide details of the important events which
have occurred during the period and their impact on the financial
statements. The following statement on the Principal Risks and
Uncertainties, the Related Party Transactions, the Statement of
Directors’ Responsibilities and the AIFM and Investment Manager
Report together constitute the Directors’ Report of the Group for
the six months ended 30 June 2023.
The outlook for the Group for the remaining six months of the year
ending 31 December 2023 is discussed
in the AIFM and Investment Manager Report. Details
of the investments held at the period end and the structure of the
portfolio at the period end are provided in the Holdings and
Portfolio Analysis sections.
Principal Risks and Uncertainties
The
principal risks faced by the Group, together with the approach
taken by the Board towards them, have been summarised
below.
Valuation
of investments
The
Group’s investments had a total value of £269,365,762 as at
30 June 2023 (31 December
2022: 132,645,371). The
portfolio represents a substantial portion of the net assets of the
Group. As such, this is the largest factor in relation to the
consideration of the financial statements. These investments are
valued in accordance with the accounting policies set out in the
Annual Financial Statements. The risks associated with valuation of
investments are managed by the Investment Manager and reviewed by
the Board. The Board considered the valuation of the investments
held by the Group as at 30 June 2023
to be reasonable based on information provided by the Investment
Manager, AIFM, Administrator, Custodian and Depositary on their
processes for the valuation of these investments.
The
Board reviewed the valuation policy and PAMP went through the
valuation process/techniques with the Board around private asset
investments. There has been no change to the valuation policy and
the process remains the same which has also been confirmed with the
Board. The Board are satisfied with the approach and the valuation
policy and processes.
The
Board receives the monthly NAV as well as quarterly detailed
updates on the portfolio which include changes to the valuations.
The Board is updated when there is/or potential to be significant
changes in valuation. As part of the annual audit process and the
Board signing off on the annual financial statements, the Board
receives the valuations packs and also the third-party (Kroll)
reports. The Board scrutinises the valuations/reports and ensures
they are satisfied prior to sign off.
The
Board also asks questions regularly (including during quarterly
board meetings, or ad hoc meetings) to understand performance and
the impact on valuation. The Board has access to detailed valuation
reports as and when requested.
Market
risk
As a
result of investments in publicly traded portfolio companies, the
Group will be exposed to equity securities price risk. The market
value of the Group’s holdings in publicly traded portfolio
companies could be affected by a number of factors, including, but
not limited to: a change in sentiment in the market regarding such
companies; the market’s appetite for specific business sectors; and
the financial or operational performance of the publicly traded
portfolio companies which may be driven by, amongst other things,
the cyclicality of some of the sectors in which some or all of the
publicly traded portfolio companies operate. Equity prices and
returns from investing in equity markets are sensitive to various
factors, including but not limited to: expectations of future
dividends and profits; economic growth; exchange rates; interest
rates; and inflation. The value of any investment in equity markets
is therefore volatile and it is possible, even when an investment
has been held for a long time, that an investor may not get back
the sum invested. Any adverse effect on the value of any equities
in which the Group invests from time to time could have a material
adverse effect on the Group’s financial condition, business,
prospects and results of operations and, consequently, the Net
Asset Value and/or the market price of the
Shares.
The
Board receives a quarterly update, or more frequently as required,
from the Investment Manager regarding investment
performance.
Liquidity
risk
Investments
made by the Group may be illiquid and this may result in
delays/shortfall of expected cash flows to the Group.
Investments
in private assets (including private portfolio companies) are
highly illiquid and have no public market. There may not be a
secondary market for interests in private assets. Such illiquidity
may affect the Group’s ability to vary its portfolio or dispose of,
or liquidate part of, its portfolio, in a timely fashion (or at
all) and at satisfactory prices in response to changes in economic
or other conditions.
If
the Group is required to dispose of or liquidate an investment on
unsatisfactory terms, it may realise less than the value at which
the investment was previously recorded, which could result in a
decrease in Net Asset Value.
The
performance of investments in private assets can also be volatile
because those assets may have limited product lines, markets or
financial reserves, or be more susceptible to major economic
setbacks or downturns. Private assets may be exposed to a variety
of business risks including, but not limited to: competition from
larger, more established firms; advancement of incumbent services
and technologies; and the resistance of the market towards new
companies, services or technologies.
The
crystallisation of any of these risks or a combination of these
risks may have a material adverse effect on the development and
value of a portfolio company and, consequently, on the portfolio
and the Group’s financial condition, results of operations and
prospects, with a consequential adverse effect on the Net Asset
Value and/or the market price of the Shares.
Furthermore,
repeated failures by portfolio companies to achieve success may
adversely affect the reputation of the Group or Investment Manager,
which may make it more challenging for the Group and the Investment
Manager to identify and exploit new opportunities and for other
portfolio companies to raise additional capital, which may
therefore have a material adverse effect on the portfolio and the
Group’s financial condition, results of operations and prospects,
with a consequential adverse effect on the Net Asset Value and/or
the market price of the Shares.
The
Board receives a quarterly update, or more frequently as required,
from the Investment Manager regarding investment
performance.
Credit
risk
Counterparties
such as financial institutions may not meet their obligations
regarding foreign currency and cash balances. The Board ensures
that counterparties have an acceptable long and short term credit
rating.
Concentration
risk
The
Group expects to hold a concentrated portfolio of investments and
the Group will not seek to reduce concentration risk through
diversification. The opportunity set will dictate the number of
holdings and the weighting of investments in the portfolio. The
investments with the best return profiles will receive the largest
weightings. The Group will therefore have no set diversification
policies.
Other Risks and Uncertainties
Cyber
risk
The
Board ensures they have a sufficient understanding of cyber risk to
enable them to manage any potential unauthorised access into
systems and identifying passwords or deleting data. The Board
discusses cyber risks at the quarterly board meeting and also
ensures they are continuing to keep themselves up to date on the
risks through attending professional seminars on the topic,
following good password practices and vigilance to any suspicious
links or attachments. The
Group is exposed to the cyber risks of its third-party service
providers. The Audit Committee received the internal controls
reports of the relevant service providers where available, and was
able to satisfy itself that adequate controls and procedures were
in place to limit the impact to the Group’s operations.
Operational
risk
The
Group is exposed to the operational and cyber risks of its
third-party service providers and considered the risk and
consequences in the event that these systems failed during the
period. The Investment Manager, Registrar, Depositary,
Administrator and Company Secretary each have comprehensive
business continuity plans which facilitate continued operation of
the business in the event of a service disruption or major
disruption. The Audit Committee received the internal controls
reports of the relevant service providers where available, and was
able to satisfy itself that adequate controls and procedures were
in place to limit the impact to the Group’s operations,
particularly with regard to a financial loss. The performance of
service providers is reviewed annually via its Remuneration and
Management Engagement Committee. Each service provider’s contract
defines the duties and responsibilities of each and has safeguards
in place including provisions for the termination of each agreement
in the event of a breach or under certain circumstances. Each
agreement also allows for the Board to terminate subject to a
stated notice period. During the year ended 31 December 2022, the Board undertook a thorough
review of each service provider and agreed that their continued
appointment remained appropriate and in the Group’s long term
interest. The Board’s next review will be at the Management
Engagement Committee meeting on 13 December
2023.
Regulatory
risk
Poor
governance, compliance or administration, including particularly
the risk of loss of investment trust status and the impact this may
have on the Group were considered by the Board. Having been
provided with assurance from each of the key service providers
during the year ended 31 December
2022, the Board was satisfied that no such breach had
occurred. The Board’s next review will be at the Management
Engagement Committee meeting on 13 December
2023.
Geopolitical
risk
Russia’s
invasion of Ukraine and the
subsequent energy crisis are risks to the global economy. The
invasion itself and resulting international sanctions on
Russia are believed to have
already caused substantial economic damage to that country, which
is likely to worsen the longer the sanctions are in place, and had
some wider global effect on the supply and prices of certain
commodities and consequently on inflation and general economic
growth of the global economy. The effects vary from country to
country, depending, for example, on their dependence on Russian
energy supplies, particularly gas, which cannot be so easily
transported and substituted as oil. The full effects will take time
to flow through fully and manifest themselves in the balance sheets
of companies, and impact their ability to repay loans.
Environmental,
Social and Governance (“ESG”) matters
The
Board recognises the importance of Environmental, Social and
Governance (“ESG”) factors in the investment management industry
and the wider economy as a whole. It is the view of the Board that
direct environmental and social impact of the Group is limited and
that ESG considerations are most applicable in respect of the asset
allocation decisions made for its portfolio.
The
Group has appointed the Investment Manager to advise it in relation
to all aspects relevant to the Investment Portfolio. The Investment
Manager has a formal ESG framework which incorporates ESG factors
into its investment process. The Board receives regular updates
from the Investment Manager on its ESG processes and assesses their
suitability for the Group. ESG factors are assessed by the
Investment Manager for every transaction as part of their
investment process. Climate risks are incorporated in the ESG
analysis under environmental factors.
The
Group has entered into contractual arrangements with a network of
third parties (the “Service Providers”) who provide services to it.
The Board, through the Management Engagement Committee, undertakes
annual due diligence on, and ongoing monitoring of, all such
Service Providers including obtaining a confirmation that each such
Service Provider complies with relevant laws regulations and good
practice and has ESG policies in place.
Related Party Transactions
The
Group’s Investment Manager is Phoenix Asset Management Partners
Limited, (“Phoenix” or “PAMP” or the “Investment Manager”). PAMP is
considered a related party in accordance with the Listing Rules.
The Investment Manager will not receive a management fee in respect
of its portfolio management services to the Group. The Investment
Manager will become entitled to a performance fee subject to
meeting certain performance thresholds. Details
of the investment management arrangements are shown in
note
14.
The
members of the Board are also considered related parties. Further
details of the Board’s remuneration and shareholdings can be found
in note 15.
Castelnau Group Services Limited
Castelnau
Group Services Limited (“CGSL”), the 100% subsidiary of the
Castelnau Group, retained the services of an average of 3 staff
during the 6-month period to 30 June
2023, all deployed to portfolio companies or to PAMP. During
the period, one member of staff transitioned to a permanent role in
a portfolio company, as this was more suited to the role, however
we expect this member of staff to return to CGSL in 2024. A
graduate intern was hired and immediately deployed within the
Group.
CGSL
is also acting as an intermediary to promote the use of key
resources among group companies, and in this period there was a
significant sharing of development resources. CGSL charges
relatively small commissions in order to cover the running costs of
the subsidiary itself and should present a negligible positive
contribution to the parent company’s profit and loss in this and
all future periods. The use of CGSL as an intermediary greatly
assists in tracking the benefits attributable to shared resources,
and for planning purposes.
Valderrama
During
the period, Yellow (SPC) Bidco Limited (“Bidco”), a newly formed
indirect wholly-owned subsidiary of Valderrama Limited
(“Valderrama”), a joint venture between SPWOne and the Group, made
an offer to acquire the issued and to be issued share capital of
Dignity Plc (the “Acquisition”). Valderrama is a private company
limited by shares that is incorporated in Guernsey. The cash
consideration payable by Bidco to Dignity Shareholders under the
terms of the Acquisition was financed by equity capital invested by
SPWOne and the Group in Valderrama, which was made available by
Valderrama to Bidco pursuant to a series of intercompany loans, via
Valderrama subsidiaries.
Valderrama
was set-up to invest in Dignity Plc and the Group holds 66.5% of
the equity in Valderrama. Refer to the AIFM and Investment Manager
Report and note 15 of the Financial Statements for additional
details on the Acquisition.
Going Concern
The
Directors believe that, having considered the Group’s investment
objective in the Summary Information section, financial risk
management, principal risks and in view of the Group’s holdings in
cash and cash equivalents, the liquidity of investments and the
income deriving from those investments, the Group has adequate
financial resources and suitable management arrangements in place
to continue as a going concern for at least twelve months from the
date of approval of the Unaudited Condensed Consolidated Interim
Financial Statements.
Statement of Directors’ Responsibilities
The
Directors confirm that to the best of their knowledge:
-
These
Interim Financial Statements have been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting"
and give a true and fair view of the assets, liabilities, equity
and profit or loss of the Group as required by the UK Listing
Authority’s Disclosure and Transparency Rule (“DTR”)
4.2.4R.
-
The
Interim Management Report includes a fair review of the information
required by:
(a)
DTR
4.2.7R of the Disclosure Guidance and Transparency Rules
of
the United Kingdom’s Financial Conduct Authority, being an
indication of important events that have occurred during the period
from 1 January 2023 to 30 June 2023 and their impact on the Interim
Financial Statements; and a description of the principal risks and
uncertainties for the remaining six months of the year;
and
(b)
DTR
4.2.8R of the Disclosure Guidance and Transparency Rules of the
United Kingdom’s Financial Conduct Authority, being related party
transactions that have taken place during the period from
1 January 2023 to 30 June 2023 and that have materially affected
the financial position or performance of the Group during that
period as included in note 15 and
any changes in the related party transactions described in the
Annual Report and Audited Financial Statements for the year ended
31 December 2022 that could do
so.
By
order of the Board,
Joanne
Peacegood Andrew
Whittaker
Director Director
13 September 2023
Unaudited Condensed Consolidated Statement of Comprehensive
Income
For
the period from 1 January 2023 to
30 June 2023
|
|
|
|
|
For the period from 1 January 2023 to 30 June
2023
|
For the period from 1 January 2022 to 30 June
2022
|
For the year ended 31 December 2022
|
|
|
|
|
|
Total
|
Total
|
Total
|
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
GBP
|
GBP
|
GBP
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
966,768
|
47,028
|
548,767
|
Expenses
|
|
|
7
|
(2,702,113)
|
(433,501)
|
(1,234,288)
|
|
|
|
|
|
(1,735,345)
|
(386,473)
|
(685,521)
|
Finance
costs
|
|
|
15
|
(6,739,310)
|
-
|
-
|
Impairment
of financial assets at amortised cost
|
5
|
(1,985,000)
|
-
|
(3,000,000)
|
Net
gains on foreign currency
|
|
|
|
|
171
|
-
|
-
|
Net
losses on financial assets at fair value through profit or
loss
|
5
|
(4,842,331)
|
(29,678,240)
|
(30,405,675)
|
Loss before tax
|
|
|
|
|
(15,301,815)
|
(30,064,713)
|
(34,091,196)
|
Tax
expense
|
|
|
|
|
-
|
-
|
(2,889)
|
Total comprehensive loss for the period/year
|
|
|
|
|
(15,301,815)
|
(30,064,713)
|
(34,094,085)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pence
|
Pence
|
Pence
|
Loss
per ordinary share – Basic and diluted
|
|
|
12
|
(6.67)
|
(16.34)
|
(18.53)
|
All items in the above statement derive from continuing operations.
All revenue is attributable to the equity holders of the
Group.
The accompanying notes form an integral part of these Interim
Financial Statements.
Unaudited Condensed Consolidated Statement of Financial
Position
As
at 30 June 2023
|
|
|
30 June 2023
|
|
30 June 2022
|
|
31 December 2022
|
|
Notes
|
|
GBP
|
|
GBP
|
|
GBP
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Audited)
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
Investments
- bonds
|
|
|
-
|
|
3,998,795
|
|
-
|
Investments
- equity
|
5
|
|
258,177,754
|
|
118,572,197
|
|
122,684,739
|
Investments
- loans
|
5
|
|
11,188,008
|
|
5,186,795
|
|
9,960,632
|
Office
equipment
|
|
|
1,170
|
|
-
|
|
-
|
|
|
|
269,366,932
|
|
127,757,787
|
|
132,645,371
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
Trade
and other receivables
|
8
|
|
584,909
|
|
54,139
|
|
357,102
|
Cash
and cash equivalents
|
|
|
8,926,543
|
|
16,701,180
|
|
7,652,732
|
|
|
|
9,511,452
|
|
16,755,319
|
|
8,009,834
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
278,878,384
|
|
144,513,106
|
|
140,655,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
Earn-out
liability
|
9
|
|
2,482,395
|
|
-
|
|
-
|
Loans
payable
|
15
|
|
48,199,020
|
|
-
|
|
-
|
Finance
costs payable
|
15
|
|
4,207,643
|
|
-
|
|
-
|
Other
payables
|
10
|
|
269,560
|
|
150,592
|
|
275,857
|
|
|
|
55,158,618
|
|
150,592
|
|
275,857
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
Earn-out
liability
|
9
|
|
-
|
|
2,300,442
|
|
2,346,648
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
55,158,618
|
|
2,451,034
|
|
2,622,505
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
223,719,766
|
|
142,062,072
|
|
138,032,700
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
Share
capital
|
11
|
|
285,105,642
|
|
184,116,761
|
|
184,116,761
|
Retained
deficit
|
|
|
(61,385,876)
|
|
(42,054,689)
|
|
(46,084,061)
|
TOTAL EQUITY
|
|
|
223,719,766
|
|
142,062,072
|
|
138,032,700
|
|
|
|
|
|
|
|
|
Number of Ordinary Shares in issue
|
11
|
|
318,627,777
|
|
183,996,058
|
|
183,996,058
|
NAV per Ordinary Share (pence)
|
13
|
|
70.21
|
|
77.21
|
|
75.02
|
The Interim Financial Statements were approved and authorised for
issue by the Board of Directors on 13
September 2023 and signed on its behalf by:
Joanne Peacegood Andrew
Whittaker
Director Director
The accompanying notes form an integral part of these Interim
Financial Statements.
Unaudited Condensed Consolidated Statement of Changes in
Equity
For
the period from 1 January 2023 to
30 June 2023
|
|
Note
|
Share Capital
|
Retained Deficit
|
Total
|
|
|
GBP
|
GBP
|
GBP
|
Opening
equity
|
|
|
184,116,761
|
(46,084,061)
|
138,032,700
|
Loss
for the period
|
|
-
|
(15,301,815)
|
(15,301,815)
|
Issue
of new Ordinary Shares
|
|
100,988,881
|
-
|
100,988,881
|
Closing
equity
|
|
11
|
285,105,642
|
(61,385,876)
|
223,719,766
|
|
|
|
|
|
|
|
|
|
|
For
the period from 1 January 2022 to 30 June 2022
(Unaudited)
|
|
|
|
|
|
|
|
Share Capital
|
Retained Deficit
|
Total
|
|
|
GBP
|
GBP
|
GBP
|
Opening
equity
|
|
184,116,761
|
(11,989,976)
|
172,126,785
|
Loss
for the period
|
|
|
-
|
(30,064,713)
|
(30,064,713)
|
Closing
equity
|
|
11
|
184,116,761
|
(42,054,689)
|
142,062,072
|
|
|
|
|
|
|
|
|
|
|
For
the year ended 31 December 2022 (Audited)
|
|
|
|
|
|
|
|
Share Capital
|
Retained Deficit
|
Total
|
|
|
GBP
|
GBP
|
GBP
|
Opening
equity
|
|
184,116,761
|
(11,989,976)
|
172,126,785
|
Loss
for the year
|
|
|
-
|
(34,094,085)
|
(34,094,085)
|
Closing
equity
|
|
11
|
184,116,761
|
(46,084,061)
|
138,032,700
|
The accompanying notes form an integral part of these Interim
Financial Statements.
Unaudited Condensed Consolidated Statement of Cash
Flows
For
the period from 1 January 2023 to
30 June 2023
|
|
For the period from 1 January 2023 to 30 June
2023
|
For the period from 1 January 2022 to 30 June
2022
|
Year to 31 December 2022
|
|
|
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
Notes
|
GBP
|
GBP
|
GBP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
Total
comprehensive loss for the period/year
|
|
(15,301,815)
|
(30,064,713)
|
(34,094,085)
|
Impairment
of financial assets at amortised cost
|
1,985,000
|
-
|
3,000,000
|
Net
losses on financial assets at fair value through profit or
loss
|
4,842,331
|
29,678,240
|
30,405,675
|
Net
gains on foreign currency
|
|
(171)
|
-
|
-
|
Increase
in receivables
|
8
|
(227,807)
|
(15,106)
|
(318,069)
|
Increase
in provisions
|
9
|
135,747
|
100,442
|
146,648
|
Increase
in finance costs payable
|
|
4,207,643
|
-
|
-
|
(Decrease)/increase
in payables
|
10
|
(6,297)
|
(38,236)
|
87,029
|
Net cash used in operating activities
|
|
(4,365,369)
|
(339,373)
|
(772,802)
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
Purchases
of equity and bonds
|
5
|
(200,071,666)
|
(106,010,773)
|
(107,826,128)
|
Loans
issued
|
5
|
(4,920,000)
|
-
|
(13,325,000)
|
Sale/maturity
of equity and bonds
|
5
|
59,736,320
|
78,554,187
|
81,353,360
|
Cash
received from repayment of loans
|
5
|
1,707,624
|
-
|
3,726,163
|
Purchase
of office equipment
|
|
(1,170)
|
-
|
-
|
|
|
|
|
|
Net cash used in investing activities
|
|
(143,548,892)
|
(27,456,586)
|
(36,071,605)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Issue
of Ordinary Shares
|
11
|
100,988,881
|
-
|
-
|
Proceeds
from loans received
|
|
85,301,968
|
-
|
-
|
Repayment
of loans received
|
|
(37,102,948)
|
-
|
-
|
|
|
|
|
|
Net cash flow from financing activities
|
|
149,187,901
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash
equivalents
|
1,273,640
|
(27,795,959)
|
(36,844,407)
|
Cash
and cash equivalents at beginning of period/year
|
7,652,732
|
44,497,139
|
44,497,139
|
Exchange
gain on cash and cash equivalents
|
|
171
|
-
|
-
|
|
|
|
|
|
Cash and cash equivalents at end of period/year
|
8,926,543
|
16,701,180
|
7,652,732
|
The accompanying notes form an integral part of these Interim
Financial Statements.
Notes to the Unaudited Condensed Consolidated Interim Financial
Statements
For
the period from 1 January 2023 to
30 June 2023
1. General information
Castelnau
Group Limited (the “Company”) is a Guernsey domiciled closed-ended
investment company which was incorporated in Guernsey on
13 March 2020 under the Companies
(Guernsey) Law, 2008. The Company is classified as a registered
fund under the Protection of Investors (Bailiwick of Guernsey) Law
2020. Its registered office address is PO Box 255, Les Banques,
Trafalgar Court, St. Peter Port, Guernsey GY1 3QL. The Company
listed on the London Stock Exchange’s Specialist Fund Segment
(“SFS”) on 18 October
2021.
These
Unaudited Condensed Consolidated Interim Financial Statements (the
“Interim Financial Statements”) comprise the financial statements
of Castelnau Group Limited and Castelnau Group Services Limited
(the “Subsidiary”) (incorporated on 14 June
2022), together referred to as the "Group".
The
Group’s principal activity is to seek to achieve a high rate of
compound return over the long term by carefully selecting
investments using a thorough and objective research process and
paying a price which provides a material margin of safety against
permanent loss of capital, but also a favourable range of
outcomes.
Details
of the Directors, Investment Manager and Advisers can be found in
the Group Information section.
The
Interim Financial Statements of the Group are presented for the six
months ended 30 June 2023 and were
authorised for issue by the Board on 13
September 2023.
2. Accounting policies
a. Statement of compliance
The
Interim Financial Statements of the Company for the period
1 January 2023 to 30 June 2023 have been prepared in accordance
with IAS 34, “Interim Financial Reporting”, together with
applicable legal and regulatory requirements of the Companies
(Guernsey) Law, 2008 and the Disclosure Guidance and Transparency
Rules of the United Kingdom’s Financial Conduct Authority. The
Interim Financial Statements do not include all the information and
disclosure required in the Annual Consolidated Financial Statements
and should be read in conjunction with the Annual Report and
Audited Financial Statements for the year ended 31 December 2022, which were prepared in
accordance with International Financial Reporting Standards as
issued by the IASB (“IFRS”) and which received an unqualified audit
report.
These
Interim Financial Statements are presented in Sterling ("GBP” or
“£"), which is also the Group's functional currency.
There
are no accounting pronouncements which have become effective from
1 January 2023 that have a
significant impact on the Group’s Interim Financial
Statements.
b. Basis of preparation
The
Interim Financial Statements have been prepared under the
historical cost basis, except for financial assets held at fair
value through profit or loss (“FVTPL”). The principal accounting
policies adopted in the preparation of these Interim Financial
Statements are consistent with the accounting policies stated in
note 3 of the Annual Consolidated Financial Statements for the year
ended 31 December 2022. The
preparation of these Interim Financial Statements is in conformity
with IAS 34, “Interim Financial Reporting”, and requires the
Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the Interim
Financial Statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
materially differ from those estimates.
c. New standards, interpretations and amendments adopted by the
Group
The
accounting policies adopted in the preparation of the Interim
Financial Statements are consistent with those followed in the
preparation of the Group’s Annual Financial Statements for the year
ended 31 December 2022, which were
prepared in accordance with IFRS. There has been no early adoption,
by the Group, of any other standard, interpretation or amendment
that has been issued but is not yet effective.
d.
Basis of consolidation
The
Group’s Interim Financial Statements consolidate those of the
parent company and its subsidiary as of 30
June 2023. The reporting date for the Group is 31
December.
A
subsidiary is an entity over which the Company exercises control. A
subsidiary is fully consolidated from the date on which control is
transferred to the Company. They are deconsolidated from the date
that control ceases.
Control
is achieved when the Group is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee.
Specifically, the Group controls an investee if, and only if, the
Group has:
•
Power over the investee (i.e., existing rights that give it the
current ability to direct the relevant activities of the
investee),
•
Exposure, or rights, to variable returns from its involvement with
the investee, and
•
The ability to use its power over the investee to affect its
returns.
All
transactions and balances between Group companies are eliminated on
consolidation, including unrealised gains and losses on
transactions between Group companies. Where unrealised losses on
intra-group asset sales are reversed on consolidation, the
underlying asset is also tested for impairment from a Group
perspective. Amounts reported in the financial statements of the
Subsidiary have been adjusted where necessary to ensure consistency
with the accounting policies adopted by the Group.
Profit
or loss and other comprehensive income of the Subsidiary is
recognised from the effective date of acquisition, or up to the
effective date of disposal, as applicable.
The
main purpose and activities of the Subsidiary are providing
services that relate to the Group’s investment activities and
therefore the entity is required to consolidate the
Subsidiary.
3. Judgements, estimations or assumptions
The
assessment of the Group as an investment entity is consistent with
that made in the Audited Financial Statements for the year ended
31 December 2022 and therefore the
Company has classified its investments at fair value through profit
or loss in the Statement of Financial Position, with the exception
of the subsidiary. An investment entity is still required to
consolidate a subsidiary where that subsidiary largely provides
services that relate to the investment entity’s activities. The
Subsidiary is discussed in note 2d.
All
other estimates and judgements made by the Board of Directors are
consistent with those made in the Audited Financial Statements for
the year ended 31 December
2022.
Going concern
The
Directors believe that, having considered the Group’s investment
objective, financial risk management and in view of the Group’s
holdings in cash and cash equivalents, the liquidity of investments
and the income deriving from those investments, the Group has
adequate financial resources and suitable management arrangements
in place to continue as a going concern for at least twelve months
from the date of approval of the Interim Financial
Statements.
4. Interest in the Subsidiary
Set
out below are the details of the Subsidiary held directly by the
Group:
Name of Subsidiary
|
Date of acquisition
|
Domicile
|
Ownership
|
Castelnau
Group Services Limited “CGSL”
|
14
June 2022
|
United
Kingdom
|
100%
|
Castelnau
Group Limited acquired 50,000 ordinary shares in CGSL at a total
cost of £50,000. No goodwill, bargain purchase or other gains were
recognised on the acquisition of CGSL.
As
at 30 June 2023, the net asset value
of CGSL is made up of £76,467 which is made up of assets of
£230,266 and liabilities of £153,799.
The
objective of CGSL is to provide skilled services to the Group’s
portfolio companies. Additional
background information can be found in the Directors’
Report.
5. Investments in unconsolidated
subsidiaries/associates
For the period ended 30 June 2023
|
|
|
|
|
|
|
FVTPL
|
FVTPL
|
Amortised cost
|
|
|
|
|
Bonds
|
Equity
|
Loans
|
Total
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|
|
|
GBP
|
GBP
|
GBP
|
GBP
|
INVESTMENTS
|
|
|
|
|
|
Opening
portfolio cost
|
|
-
|
163,111,446
|
12,960,632
|
176,072,078
|
Purchases
at cost
|
|
-
|
200,071,666
|
4,920,000
|
204,991,666
|
Proceeds
on maturity/principal repayment
|
-
|
(59,736,320)
|
(1,707,624)
|
(61,443,944)
|
Realised
losses on maturity
|
|
-
|
(13,590,140)
|
(3,000,000)
|
(16,590,140)
|
Cost
|
|
|
-
|
289,856,652
|
13,173,008
|
303,029,660
|
Unrealised
gains on investments
|
-
|
5,570,435
|
-
|
5,570,435
|
Unrealised
losses on investments/ impairment*
|
-
|
(37,249,333)
|
(1,985,000)
|
(39,234,333)
|
Fair value/carrying amount
|
|
-
|
258,177,754
|
11,188,008
|
269,365,762
|
Realised
losses on maturity
|
|
-
|
(13,590,140)
|
(3,000,000)
|
(16,590,140)
|
Movement
in unrealised gains on investments
|
-
|
(342,911)
|
-
|
(342,911)
|
Movement
in unrealised losses on investments/impairment*
|
-
|
9,090,720
|
1,015,000
|
10,105,720
|
Net losses on financial assets
|
|
-
|
(4,842,331)
|
(1,985,000)
|
(6,827,331)
|
|
|
|
|
|
|
|
|
* £1,985,000 impairment of financial assets at amortised cost
relates to a loan facility with Showpiece Technologies
Limited.
For the year ended 31 December 2022
|
|
|
|
|
|
FVTPL
|
FVTPL
|
Amortised cost
|
|
|
|
|
Bonds
|
Equity
|
Loans
|
Total
|
|
|
|
(Audited)
|
(Audited)
|
(Audited)
|
(Audited)
|
|
|
|
GBP
|
GBP
|
GBP
|
GBP
|
INVESTMENTS
|
|
|
|
|
|
Opening
portfolio cost
|
|
-
|
136,639,291
|
3,361,795
|
140,001,086
|
Purchases
at cost
|
|
81,353,973
|
26,472,155
|
13,325,000
|
121,151,128
|
Proceeds
on maturity/principal repayment
|
(81,353,360)
|
-
|
(3,726,163)
|
(85,079,523)
|
Realised
losses on maturity
|
|
(613)
|
-
|
-
|
(613)
|
Cost
|
|
|
-
|
163,111,446
|
12,960,632
|
176,072,078
|
Unrealised
gains on investments
|
-
|
5,913,346
|
-
|
5,913,346
|
Unrealised
losses on investments/ impairment*
|
-
|
(46,340,053)
|
(3,000,000)
|
(49,340,053)
|
Fair value/carrying amount
|
|
-
|
122,684,739
|
9,960,632
|
132,645,371
|
Realised
losses on maturity
|
|
(613)
|
-
|
-
|
(613)
|
Movement
in unrealised gains on investments
|
-
|
5,143,839
|
-
|
5,143,839
|
Movement
in unrealised losses on investments/impairment*
|
-
|
(35,548,901)
|
(3,000,000)
|
(38,548,901)
|
Net losses on financial assets
|
|
(613)
|
(30,405,062)
|
(3,000,000)
|
(33,405,675)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* £3,000,000 impairment of financial assets at amortised cost
relates to a loan facility with Ocula Technologies Holdings
Limited.
Name of investee company
|
Date of acquisition
|
Domicile
|
Ownership
|
Rawnet
Limited
|
12
February 2021
|
United
Kingdom
|
100.00%
|
Showpiece
Technologies Limited
|
12
November 2021
|
United
Kingdom
|
80.00%
|
Ocula
Technologies Holdings Limited
|
22
January 2021
|
United
Kingdom
|
50.26%
|
Silverwood
Brands Plc
|
13
October 2022
|
United
Kingdom
|
1.77%
|
Phoenix
SG Limited
|
14
October 2021
|
Cayman
Islands
|
63.78%
|
Cambium
International Limited
|
14
October 2021
|
Cayman
Islands
|
60.14%
|
Valderrama
Limited
|
14
April 2023
|
Channel
Islands
|
66.48%
|
Loans
The
Group had a loan facility of £3,000,000 with Ocula Technologies
Holdings Limited as borrower with termination date of 6 May 2024, and no interest accruing or payable.
On 3 March 2023, the loan was written
off as part of a funding round whereby Lloyds Banking Group
acquired 14.54% of Ocula Technologies Holdings Limited through the
issue of new shares at a post-money valuation for Ocula
Technologies of £10 million, resulting in an increase in the value
of the Group's holding in Ocula from £700,367 pre-money to
£4,925,247 post-money. The Group held 50.26% of the issued share
capital after the Lloyds Banking Group investment.
The
Group had a loan facility of £2,000,000 with the Cambium Group as
borrower. The termination date was 11 March
2023. On this date, the loan facility was increased to
£7,500,000 and the termination date was extended to 11 March 2025. No interest was accrued or
payable.
The
Group had a loan facility for £1,500,000 dated 15 December 2022 with Silverwood Brands Plc as
borrower, with interest accruing at 15%. On 31 May 2023, the loan was converted into equity
in Silverwood. The Group held 1.8% of the equity in Silverwood
following the conversion.
The
Group has a loan facility for £4,399,999 dated 13 October 2022 with Silverwood Brands Plc as
borrower. The termination date is on the first anniversary of the
first drawdown. Interest is accrued at 15%.
The
Group has a loan facility of £4,200,000 with Showpiece Technologies
Limited as borrower. During the period, an amount of £1,985,000 was
recognised as expected credit loss. The termination date is
19 November 2024. No interest shall
accrue or be payable.
The
Group has a loan facility of £1,186,795 with Rawnet Limited as
borrower. The termination date is 16
February 2025. No interest shall accrue or be
payable.
The
utilised amounts on each facility are disclosed in the Portfolio
Holdings section.
|
|
|
|
30 June 2023
|
30 June 2022
|
31 December 2022
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
Classification
|
|
|
GBP
|
GBP
|
GBP
|
Level
1
|
|
|
|
16,720,065
|
73,559,200
|
69,315,063
|
Level
2
|
|
|
|
3,427,765
|
-
|
2,171,429
|
Level
3
|
|
|
|
238,029,924
|
49,011,792
|
51,198,247
|
Total non-current investments held at ‘FVTPL’
|
258,177,754
|
122,570,992
|
122,684,739
|
There
were
no
transfers
between
levels
during
the
period (31 December 2022:
Nil).
Measurement of fair value of investments for the period ended
30 June 2023
The
same valuation methodology and process was deployed for the year
ended 31 December 2022. Valderrama
(acquired during the period), is valued at the acquisition cost of
Dignity Plc less transaction costs.
Quantitative information of significant unobservable inputs and
sensitivity analysis to significant changes in unobservable inputs
within Level 3 hierarchy
The
significant unobservable inputs used in fair value measurement
categorised within Level 3 of the fair value hierarchy together
with a quantitative sensitivity as at 30
June 2023 and 31 December 2022
are shown below:
As at 30 June 2023 (Unaudited)
|
|
|
|
|
|
|
Description
|
Significant unobservable input
|
Estimate of the input
|
Sensitivity of fair value to changes in unobservable
inputs
|
Investment
in Phoenix S.G.
|
Discount
rate
|
15%
|
An
increase to 16%/(decrease to 14%) would (decrease)/increase fair
value by (-93%)/111%
|
Auction
sales
|
65%
|
An
increase to 70%/(decrease to 60%) would increase/(decrease) fair
value by 28%/(-35%)
|
Stamp
dealing sales
|
15%
|
An
increase to 17%/(decrease to 13%) would increase/(decrease) fair
value by 4%/(-4%)
|
Coin
dealing sales
|
10%
|
An
increase to 12%/(decrease to 8%) would increase/(decrease) fair
value by 4%/(-4%)
|
Auction
op margin
|
53%
|
An
increase to 56%/(decrease to 50%) would increase/(decrease) fair
value by 7%/(-4%)
|
Stamp
dealing op margin
|
5%
|
An
increase to 7%/(decrease to 3%) would increase/(decrease) fair
value by 4%/(-4%)
|
Coin
dealing op margin
|
15%
|
An
increase to 17%/(decrease to 13%) would increase/(decrease) fair
value by 2%/(-4%)
|
Investment
in Rawnet
|
FY22-26
Compound sales Growth rate
|
9%
|
An
increase to 12%/(decrease to 3%) would increase/(decrease) fair
value by 64%/(-50%)
|
Discount
rate
|
15%
|
An
increase to 18%/(decrease to 12%) would (decrease)/increase fair
value by (-17%)/21%
|
Investment
in Cambium
|
Discount
rate
|
12.5%
|
An
increase to 13.5%/(decrease to 11.5%) would (decrease)/increase
fair value by (-6.13%)/7.67%
|
Revenue
growth rate
|
10%
|
An
increase to 11%/(decrease to 9%) would increase/(decrease) fair
value by 7.67%/(-7.36%)
|
Group
product margin
|
42%
|
An
increase to 44%/(decrease to 40%) would increase/(decrease) fair
value by 1.23%/(-0.92%)
|
As at 31 December 2022 (Audited)
|
|
|
|
|
|
|
Description
|
Significant unobservable input
|
Estimate of the input
|
Sensitivity of fair value to changes in unobservable
inputs
|
Investment
in Phoenix S.G.
|
Discount
rate
|
15%
|
An
increase to 16%/(decrease to 14%) would (decrease)/increase fair
value by (-9.52%)/11.34%
|
Sales
rate exc auctions
|
10%
|
An
increase to 12%/(decrease to 8%) would increase/(decrease) fair
value by 5.02%/(-4.93%)
|
Sales
rate auctions
|
29%
|
An
increase to 31%/(decrease to 27%) would increase/(decrease) fair
value by 3.88%/(-3.84%)
|
Coins
margins exc auctions
|
28%
|
An
increase to 30%/(decrease to 26%) would increase/(decrease) fair
value by 4.06%/(-4.16%)
|
Coins
auction sales margins
|
20%
|
An
increase to 22%/(decrease to 18%) would increase/(decrease) fair
value by 4.11%/(-4.20%)
|
Stamps
margins exc auctions
|
44%
|
An
increase to 45%/(decrease to 43%) would increase/(decrease) fair
value by 1.78%/(-1.83%)
|
Stamp
auction sales margins
|
27%
|
An
increase to 29%/(decrease to 25%) would increase/(decrease) fair
value by 6.80%/(-6.85%)
|
Investment
in Rawnet
|
FY22-26
Compound sales Growth rate
|
19%
|
An
increase to 24%/(decrease to 15%) would increase/(decrease) fair
value by 82%/(-59%)
|
Discount
rate
|
15%
|
An
increase to 18%/(decrease to 12%) would (decrease)/increase fair
value by (-19%)/24%
|
Investment
in Cambium
|
Discount
rate
|
12.5%
|
An
increase to 13.5%/(decrease to 11.5%) would (decrease)/increase
fair value by (-6.76%)/7.65%
|
Revenue
growth rate
|
12%
|
An
increase to 13%/(decrease to 11%) would increase/(decrease) fair
value by 7.35%/(-7.65%)
|
Group
product margin
|
42%
|
An
increase to 44%/(decrease to 40%) would increase/(decrease) fair
value by 0.88%/(-1.18%)
|
6. Segment reporting
The
Group had two reportable segments which are Castelnau Group Limited
(an investment company with an objective to compound Shareholders’
capital at a higher rate of return than the FTSE All-Share Total
Return Index over the long term) and Castelnau Group Services
Limited (a company that provides marketing and branding services).
In identifying these operating segments, management follows the
objectives of Castelnau Group Limited and Castelnau Group Services
Limited.
Segment
information for the period/year is as follows:
|
|
Castelnau
Services
Group Limited
|
Castelnau Services Group Limited
|
Total
30 June 2023
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
Consultancy
services
|
|
|
-
|
575,174
|
575,174
|
Interest
income
|
|
|
391,594
|
-
|
391,594
|
Segment income
|
|
|
391,594
|
575,174
|
966,768
|
Gross
wages
|
|
|
-
|
(344,317)
|
(344,317)
|
Other
expenses
|
|
|
(2,144,358)
|
(213,438)
|
(2,357,796)
|
|
|
|
|
(2,144,358)
|
(557,755)
|
(2,702,113)
|
Finance
costs
|
|
|
(6,739,310)
|
-
|
(6,739,310)
|
Net
gains on foreign currency
|
|
|
171
|
-
|
171
|
Net
losses on financial assets
|
|
|
(6,827,331)
|
-
|
(6,827,331)
|
Segment (loss)/profit before tax
|
(15,319,234)
|
17,419
|
(15,301,815)
|
Taxation
|
|
|
|
-
|
-
|
-
|
Segment comprehensive (loss)/income
|
(15,319,234)
|
17,419
|
(15,301,815)
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
278,648,118
|
230,266
|
278,878,384
|
Segment
liabilities
|
|
|
(55,004,819)
|
(153,799)
|
(55,158,618)
|
Segment net assets
|
|
|
223,643,299
|
76,467
|
223,719,766
|
|
|
|
|
|
|
|
|
|
Castelnau
Services
Group Limited
|
Castelnau Services Group Limited
|
Total
31 December 2022
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
Consultancy
services
|
|
|
-
|
327,895
|
327,895
|
Interest
income
|
|
|
220,872
|
-
|
220,872
|
Segment income
|
|
|
220,872
|
327,895
|
548,767
|
Gross
wages
|
|
|
-
|
(299,141)
|
(299,141)
|
Other
expenses
|
|
|
(918,330)
|
(16,817)
|
(935,147)
|
|
|
|
|
(918,330)
|
(315,958)
|
(1,234,288)
|
Net
losses on financial assets
|
|
|
(33,405,675)
|
-
|
(33,405,675)
|
Segment (loss)/profit before tax
|
(34,103,133)
|
11,937
|
(34,091,196)
|
Taxation
|
|
|
|
-
|
(2,889)
|
(2,889)
|
Segment comprehensive (loss)/income
|
(34,103,133)
|
9,048
|
(34,094,085)
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
140,462,845
|
192,360
|
140,655,205
|
Segment
liabilities
|
|
|
(2,489,193)
|
(133,312)
|
(2,622,505)
|
Segment net assets
|
|
|
137,973,652
|
59,048
|
138,032,700
|
As
at 30 June 2022, the Group was
engaged in a single segment of business, being Castelnau Group
Limited.
7. Expenses
|
|
|
|
30 June 2023
|
30 June 2022
|
31 December 2022
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
|
|
|
GBP
|
GBP
|
GBP
|
Administrator's
fee
|
|
|
48,680
|
39,179
|
78,386
|
Audit
fees
|
|
|
|
32,194
|
21,324
|
45,841
|
Change
in fair value of contingent consideration
|
|
|
135,747
|
140,510
|
146,648
|
Depositary
fee
|
|
|
23,390
|
16,214
|
30,297
|
Directors'
fee
|
|
|
67,500
|
67,500
|
135,000
|
Employee
benefits*
|
|
|
344,317
|
-
|
299,141
|
Investment
transaction charges
|
|
-
|
2,904
|
2,904
|
Legal
and professional fees
|
|
|
1,911,275
|
23,513
|
258,358
|
Operating
expenses
|
64,430
|
52,157
|
91,568
|
Sundry
costs
|
|
|
57,641
|
53,986
|
115,848
|
Trustee
fee
|
|
|
16,939
|
16,214
|
30,297
|
|
|
|
|
2,702,113
|
433,501
|
1,234,288
|
7.1 Employee benefits expense
Employee benefits
|
|
|
|
|
|
|
|
|
|
30 June 2023
|
30 June 2022
|
31 December 2022
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
*Included in expenses
|
|
|
GBP
|
GBP
|
GBP
|
Wages
and salaries
|
|
|
298,106
|
-
|
281,692
|
Employers’
national insurance contributions
|
38,282
|
-
|
14,183
|
Pension
costs
|
|
|
7,061
|
-
|
3,266
|
Employee
healthcare
|
|
|
868
|
-
|
-
|
|
|
|
|
344,317
|
-
|
299,141
|
8.
Trade and other receivables
|
|
|
|
30 June 2023
|
30 June 2022
|
31 December 2022
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
|
|
|
GBP
|
GBP
|
GBP
|
Prepayments
|
|
|
66,986
|
52,459
|
51,860
|
Income
receivable
|
|
|
471,740
|
1,680
|
151,468
|
Trade
receivables
|
|
|
46,183
|
-
|
153,774
|
|
|
|
|
584,909
|
54,139
|
357,102
|
9. Earn-out liability
|
|
|
|
30 June 2023
|
30 June 2022
|
31 December 2022
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
|
|
|
GBP
|
GBP
|
GBP
|
Earn-out
liability - Non-current
|
-
|
2,300,442
|
2,346,648
|
Earn-out
liability - Current
|
|
|
2,482,395
|
-
|
-
|
|
|
|
|
2,482,395
|
2,300,442
|
2,346,648
|
The
earn-out liability is the fair value of the liability related to
the potential future payment of the earn-out of Rawnet. The total
earn-out payment is to be paid over three different periods, with a
maximum payment of £903,311 at each payment date. Payments for all
three years will be made within 5 days of 12
February 2024. The amount of the earn-out which will be paid
is conditional upon not only the performance of Rawnet itself, but
also on the growth and performance of its clients (other Castelnau
portfolio companies). It is considered likely that the earn-out
will be paid in full based on expectations as of the valuation
date. While full payment of the first and second tranches is
effectively guaranteed, some uncertainty remains with regards to
the final tranche.
The
earn-out liability has been revalued by discounting the
probability-weighted earn-out payments back to present value at a
rate of 12%.
10. Other payables
|
|
|
|
30 June 2023
|
30 June 2022
|
31 December 2022
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
|
|
|
GBP
|
GBP
|
|
Other
accrued expenses
|
|
|
132,642
|
150,592
|
156,199
|
Trade
payables
|
|
|
111,308
|
-
|
93,923
|
Social
security and other taxes
|
|
|
25,610
|
-
|
25,735
|
|
|
|
|
269,560
|
150,592
|
275,857
|
11. Share capital
|
|
|
|
30 June 2023
|
30 June 2022
|
31 December 2022
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
Allotted,
called up and fully paid Ordinary
|
|
|
|
Shares*
|
|
|
318,627,777
|
183,996,058
|
183,996,058
|
Class
B Share**
|
|
|
1
|
1
|
1
|
Total
number of shares in issue
|
|
318,627,778
|
183,996,059
|
183,996,059
|
|
|
|
|
|
|
Allotted,
called up and fully paid Ordinary
|
|
|
|
|
Shares
|
|
GBP
|
285,105,641
|
184,116,760
|
184,116,760
|
Class
B Share
|
|
GBP
|
1
|
1
|
1
|
Total
Share Capital
|
|
GBP
|
285,105,642
|
184,116,761
|
184,116,761
|
* No
par value with one voting right per share
**
Held by the Investment Manager with no voting rights
On
23 January 2023, the boards of
directors of Dignity and Bidco, a newly formed company indirectly
owned or controlled by a consortium comprised joint offerors SPWOne
V Limited, the Group and PAMP, together with SPWOne V Limited and
Castelnau (the “Consortium”), announced that they had reached
agreement on the terms of a recommended cash offer to be made by
Bidco to acquire the entire issued and to be issued share capital
of Dignity, other than the Dignity shares already owned or
controlled by the Group and PAMP (the “Announcement”).
On
1 February 2023, the Group published
a prospectus (the “Prospectus”) containing details of:
• a
proposed issue of up to 133,052,656 new Ordinary Shares to be
issued by the Company in connection with the acquisition of Dignity
Plc (the "Takeover Offer");
• a
proposed issue of up to 32,442,740 Ordinary Shares to be issued by
the Company pursuant to the Consortium Rollover;
• a
placing of up to 154,000,000 Ordinary Shares at 75.02p (the "Issue
Price") per Ordinary Share (the "Placing"); and
• a
placing programme for up to 300,000,000 Ordinary Shares and/or C
Shares (the "Placing Programme").
The
Placing was intended to raise proceeds to assist with the funding
of the Company's cash funding obligation pursuant to the Takeover
Offer and, if sufficient, further investment in accordance with the
Company’s investment policy.
On
5 May 2023, the Group announced that
it had raised gross proceeds of £56.6 million through the placing
of an aggregated of 75,461,138 new Ordinary Shares.
A
further 26,727,844 Ordinary Shares were issued in connection with
the Takeover Offer to those Dignity Shareholders who opted for the
Listed Share Alternative. In addition, 32,442,737 Ordinary Shares
were issued pursuant to the Consortium Rollover as described in the
Prospectus. The aggregate number of new Ordinary Shares issued
pursuant to the Placing, Takeover Offer and Consortium Rollover was
134,631,719.
The
Group did not purchase any of its own shares during the period
ended 30 June 2023 or during the year
ended 31 December 2022. No shares
were cancelled during either period/year.
No
shares were held in Treasury or sold from Treasury during the
period ended 30 June 2023 or during
the year ended 31 December
2022.
12. Loss per ordinary share
Loss
per share is based on the loss of £15,301,815 (30 June 2022: £30,064,713) attributable to the
weighted average of 229,369,179 (30 June
2022: 183,996,058) Ordinary Shares in issue during the
period.
There
is no difference between the weighted average Ordinary diluted and
undiluted number of Shares. There is no difference between basic
and diluted loss per share as there are no diluted
instruments.
13. Net Asset Value per ordinary share
The
figure for Net Asset Value (“NAV”) per Ordinary Share is based on
£223,719,766 (31 December 2022:
£138,032,700) divided by 318,627,777 voting Ordinary Shares in
issue at 30 June 2023 (31 December 2022: 183,996,058).
The
table below is a reconciliation between the NAV per Ordinary Share
announced on the London Stock Exchange and the NAV per Ordinary
Share disclosed in these Interim Financial Statements.
|
|
|
|
|
Net assets
|
NAV per share
|
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
|
|
|
|
|
GBP
|
Pence
|
NAV
as published on
30
June 2023
|
|
223,719,766
|
70.21
|
NAV as disclosed in these financial statements
|
|
223,719,766
|
70.21
|
14. Material agreements
Details
of the management, administration and secretarial contracts can be
found in the Directors’ Report of the Group’s Annual Financial
Statements for the year ended 31 December
2022. There were no transactions with Directors other than
disclosed in note 15. As at 30 June
2023, there were no fees payable to PAMP.
a)
Investment Manager and Alternative Investment Fund Manager
(“AIFM”)
The
Investment Manager will not receive a management fee in respect of
its portfolio management services to the Group. The Investment
Manager will become entitled to a performance fee subject to
meeting certain performance thresholds.
The
Performance Fee is equal to one third of the outperformance of the
Net Asset Value total return (on an undiluted basis and excluding
any accrual or payment of the Performance Fee) after adjustment for
inflows and outflows (such inflows and outflows including, for the
avoidance of doubt, tender payments and, buybacks), with dividends
reinvested, over the FTSE All-Share Total Return Index, for each
Performance Period (or, where no performance fee is payable in
respect of a financial year, in the period since a Performance Fee
was last payable). The Net Asset Value total return is based on the
weighted number and Net Asset Value of the Ordinary Shares in issue
over the relevant Performance Period.
During
the period, performance fees of £Nil (30
June 2022: £Nil) were charged to the Group, of which £Nil
(31 December 2022: £Nil) remained
payable at the end of the period/year.
b)
Administrator and Secretary
Northern
Trust International Fund Administration Services (Guernsey) Limited
(the "Administrator") is entitled to: (i) an administration fee of
0.05% of the Net Asset Value of the Group up to £200 million, 0.03%
of the Net Asset Value of the Group between £200 million and £400
million, and 0.02% of the Net Asset Value of the Group over £400
million (subject to a minimum administration fee of £60,000); (ii)
a financial reporting fee of £10,000; (iii) a company secretarial
services fee of £10,000; and (iv) an additional fee of £2,000 while
the Administrator acts as the Group’s nominated firm (as described
in the FCA Handbook), in each case per annum (exclusive of VAT). In
addition, the Administrator is entitled to certain other fees for
ad hoc services rendered from time to time. During the period,
administration and secretarial fees of £48,680 (30 June 2022: £39,179) were charged to the Group,
of which £24,696 (31 December 2022:
£35,206) remained payable at the end of the period/year.
c)
Depositary
Northern
Trust (Guernsey) Limited (the "Depositary") is entitled to: (i) a
custody fee of 0.02% of the Net Asset Value of the Group (subject
to a minimum of £20,000); and (ii) a depositary services fee of
0.02% of the Net Asset Value of the Group up to £200 million,
falling to 0.01% of the Net Asset Value of the Group over £200
million (subject to a minimum depositary services fee of £20,000),
in each case per annum (exclusive of VAT). In addition, the
Depositary is entitled to certain other fees for ad hoc services
rendered from time to time. During the period, depositary fees of
£23,390 (30 June 2022: £16,214) were
charged to the Group, of which £8,238 (31
December 2022: £7,043) remained payable at the end of the
period/year.
d)
Registrar
The
Group utilises the services of Link Market Services (Guernsey)
Limited as Registrar
in
relation to the transfer and settlement of Ordinary Shares. Under
the terms of the Registrar Agreement, the Registrar is entitled to
a fee calculated on the basis of the number of Shareholders and the
number of transfers processed (exclusive of VAT). In addition, the
Registrar is entitled to certain other fees for ad hoc services
rendered from time to time. During the period, registrar fees
of £18,806
(30
June 2022: £7,223) were charged to the Group, of which
£8,136 was prepaid (31 December 2022:
£11,613) at the end of the period/year.
15. Related parties
Directors’
remuneration & expenses
The
Directors’ fees for the period/year are as follows:
|
|
|
|
30 June 2023
|
30 June 2022
|
31 December 2022
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
|
|
|
GBP
|
GBP
|
GBP
|
Joanne
Peacegood
|
|
|
20,000
|
20,000
|
40,000
|
Andrew
Whittaker
|
|
|
17,500
|
17,500
|
35,000
|
Joanna
Duquemin Nicolle
|
|
|
15,000
|
15,000
|
30,000
|
David
Stevenson
|
|
|
15,000
|
15,000
|
30,000
|
Graham
Shircore
|
|
|
-
|
-
|
-
|
|
|
|
|
67,500
|
67,500
|
135,000
|
No
Directors’ fees were outstanding as at 30
June 2023 (31 December 2022:
£Nil).
Shares
held by related parties
The
number of Ordinary Shares held by the Directors were as
follows:
|
|
|
|
30 June 2023
|
30 June 2022
|
31 December 2022
|
|
|
|
|
(Unaudited)
|
(Unaudited)
|
(Audited)
|
|
|
|
|
Number of Ordinary shares
|
Number of Ordinary Shares
|
Number of Ordinary Shares
|
Joanne
Peacegood
|
|
|
10,000
|
10,000
|
10,000
|
Andrew
Whittaker
|
|
|
40,000
|
40,000
|
40,000
|
Joanna
Duquemin Nicolle
|
|
|
75,000
|
75,000
|
75,000
|
David
Stevenson
|
|
|
-
|
-
|
-
|
Graham
Shircore
|
|
|
-
|
-
|
-
|
Shares
held by related parties
As
at 30 June 2023, the Investment
Manager held no Ordinary Shares and 1 Class B Share (31 December 2022: no Ordinary Shares and 1 Class
B Share) of the Issued Share Capital. Partners and employees of the
Investment Manager held 49,830 Ordinary Shares at 30 June 2023 (31 December
2022: no Ordinary Shares).
Other
Gary Channon is CEO and CIO of Phoenix Asset Management
Partners Limited, the Investment Manager. Mr Channon was CEO of
Dignity which was a portfolio holding before the acquisition. Mr
Channon became CEO of Dignity Plc on 22
April 2021 and his final day as CEO was 9 June 2022, when he also stepped down from the
Dignity Plc Board following the Group's Annual General
Meeting.
During
the period, Bidco, a newly formed indirect wholly-owned subsidiary
of Valderrama, a joint venture between SPWOne and the Group, made
an offer to acquire the issued and to be issued share capital of
Dignity Plc (the “Acquisition”). The cash consideration payable by
Bidco to Dignity Shareholders under the terms of the Acquisition
was financed by equity capital invested by SPWOne and the Group in
Valderrama, which was made available by Valderrama to Bidco
pursuant to a series of intercompany loans, via Valderrama
subsidiaries.
The
Group and SPWOne are currently Valderrama’s sole controlling
shareholders, with the company having been incorporated for the
purposes of a 50:50 joint venture between the Group and SPWOne,
pursuant to which the Group and SPWOne agreed to invest in
Valderrama for the purposes of making investments in line with the
Group’s investment objectives and investment policy, namely the
acquisition of Dignity Plc. Steven
Tatters, who is COO of Phoenix Asset Management Partners
Limited, the Investment Manager, was appointed as a Director of
Valderrama on 25 August 2022, and
Director of Bidco and all other Valderrama subsidiaries on
13 October 2022. More details of the
Valderrama structure can be found in the Offer Document:
https://www.castelnaugroup.com/application/files/2816/7639/1442/Offer_document_FINAL_14-Feb-23.pdf
Following
the acquisition of Dignity Plc, Mr. Tatters was appointed as a
Director of Dignity Group Holdings Limited on 25 May 2023 and as a Director of Dignity Funerals
Limited on 12 June 2023.
Graham Shircore is a Director of the Group and an employee
of Phoenix Asset Management Partners Limited. Mr. Shircore was also
appointed as a Director of Dignity Group Holdings Limited on
25 May 2023.
Lorraine Smyth continues to be a Director of the Subsidiary.
Ms. Smyth is an employee of Phoenix Asset Management Partners
Limited, the Investment Manager. Ms. Smyth is currently also a
Director of Rawnet which is a portfolio holding.
Roderick Manzie is a Director of the Subsidiary. Mr. Manzie
is also a Director of some of the portfolio holding companies. Mr.
Manzie became a Director of Stanley Gibbons Group Plc on
11 July 2023, a Director of Showpiece
Technologies Limited on 10 August
2023 and has been a Director of Ocula Technologies Holdings
Limited, and Ocula Technologies Limited since 16 August 2022.
A
number of other Phoenix Asset Management Partners Limited employees
hold Directorships at certain Group portfolio companies. The
Directorships are held in the normal course of business and enable
Phoenix Asset Management Partners Limited to be represented on the
Boards of the portfolio companies.
The
Company has entered into an agreement with Ocula, the “Ocula
Castelnau Software Services Agreement”, to provide services to some
of the Company’s portfolio companies. Ocula charged the Company
£400,000 for the 12 months to 30 June
2023. As of 1 July 2023, the
annual Ocula fee has increased to £450,000 per annum.
On
20 January 2023, the Company entered
into an unsecured term loan facility of £49,000,000 with Phoenix UK
Fund Limited as lender. During the period, £25,301,968 was drawn
down and repaid from this facility and the facility was
subsequently terminated on 19 May
2023. Interest on the facility accrued at 15% per annum and
a total of £2,531,667 in interest was accrued and paid in the
period. £Nil remains payable at 30 June
2023.
On
20 January 2023, the Company entered
into an unsecured term loan facility of £60,000,000 made available
through Phoenix UK Fund Limited, with Morgan Stanley Bank N.A. as
original lender. As at 30 June 2023,
total drawdowns on the facility were £48,199,020. Interest is
accrued at SONIA+7.5% per annum. During the period, loan facility
fees of £1,020,000 were charged, and interest accrued of
£3,187,643, both of which remains payable at 30 June 2023.
Total
interest and facility fees charged on the loan facilities with
Phoenix UK Fund Limited for the period was £6,739,310.
16. Financial risk management
The
Group’s activities expose it to a variety of financial risks:
market risk (including currency risk, interest rate risk and other
price risk), credit risk, liquidity risk and capital
risk.
These
Interim
Financial Statements do
not include the financial risk management information and
disclosures required in the Annual Financial Statements; they
should be read in conjunction with the Group’s Annual Financial
Statements for the year ended 31 December
2022.
17. Post period end events
These
Interim Financial Statements were approved for issuance by the
Board on 13 September 2023.
Subsequent events have been evaluated to this date.
Subsequent
to the period end and up to the date of signing of the Unaudited
Condensed Consolidated Interim Financial Statements, the following
events took place:
On
19 July 2023, further to the issue of
new ordinary shares in connection with the acquisition of Dignity
Plc as announced on 5 May 2023, the
Company issued a further 7,479 Ordinary Shares in connection with
the Listed Share Alternative pursuant to the Statutory Squeeze Out.
Following this, the Company’s issued share capital was 318,635,256
Ordinary Shares with one voting right per share, and 1 Class B
Share held by the Investment Manager with no voting
rights.
As
of 21 August 2023, Graham Shircore has advised of his intention to
step down from the Board and the Investment Manager has advised the
Company’s Directors of its intention to imminently nominate a
replacement for Graham which will be considered by the Company’s
Nomination Committee and by the Board at a board meeting to be held
directly after the Annual General Meeting.
Alternative Performance Measures (Unaudited)
In
accordance with ESMA Guidelines on Alternative Performance Measures
("APMs"), the Board has considered what APMs are included in the
Interim Report and Interim Financial Statements which require
further clarification. APMs are defined as a financial measure of
historical or future financial performance, financial position or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. The APMs included in
the interim report are unaudited and outside the scope of
IFRS.
Premium/Discount
If
the share price is higher than the NAV per share, the shares are
said to be trading at a premium. The size of the premium is
calculated by subtracting the share price at period end of 75.50p
(31 December 2022: 69.00p) from the
NAV per share at period end of 70.21p (31
December 2022: 75.02p) and is usually expressed as a
percentage of the NAV per share of 7.53% (31
December 2022: discount of 8.02%). If the share price of an
investment company is lower than the NAV per share, the shares are
said to be trading at a discount.
Ongoing Charges
The
ongoing charges represent the Group’s operational and recurring
expenses, excluding finance costs, expressed as a percentage of the
average of the monthly net assets during the period. The Board
continues to be conscious of expenses and works hard to maintain a
sensible balance between good quality service and cost.
|
|
|
|
Period ended 30 June 2023
|
Year ended 31 December 2022
|
|
|
|
|
(Unaudited)
|
(Audited)
|
|
|
|
|
GBP
|
GBP
|
Average
NAV for the period/year (A)
|
|
172,827,968
|
150,013,156
|
Operating
expenses (annualised) (B)
|
|
1,068,014
|
786,345
|
Ongoing
charges (B/A)
|
|
|
0.62%
|
0.52%
|
NAV Total Return
NAV
total return is the percentage increase or decrease in NAV,
inclusive of dividends paid and reinvested, in the reporting
period/year. It is calculated by adding the increase or decrease in
NAV per share with the dividend per share when paid and reinvested
back into the NAV, and dividing it by the NAV per share at the
start of the year.
|
|
|
|
Period ended 30 June 2023
|
Year ended 31 December 2022
|
|
|
|
|
(Unaudited)
|
(Audited)
|
|
|
|
|
pence
|
pence
|
Opening
NAV per share (A)
|
|
75.02
|
93.55
|
Closing
NAV per share
|
|
|
70.21
|
75.02
|
Decrease
in NAV per share (B)
|
|
(4.81)
|
(18.53)
|
NAV
total return (B/A)
|
|
|
(6.41%)
|
(19.81%)
|
NAV per Ordinary Share
NAV
per share is calculated by dividing the total Net Asset Value of
£223,719,766 (31 December 2022:
£138,032,700) by the number of Ordinary Shares at the end of the
period of 318,627,777 Ordinary Shares (31
December 2022: 183,996,058). This produces a NAV per share
of 70.21p (31 December 2022: 75.02p),
which was a decrease of 6.41% (31 December
2022: decrease of 19.81%).
Group Information
Directors – Parent (all
non-executive) Financial
Adviser and Broker
Joanne Peacegood (Chair) Liberum
Capital
Limited
Andrew Whittaker
25 Ropemaker Street
Joanna
Duquemin
Nicolle
London
David Stevenson EC2Y
9LY
Graham Shircore
Registered Office Solicitors
to
the
Group as
to
English
law
PO Box 255 Gowling
WLG (UK) LLP
Trafalgar
Court 4
More London Riverside
Les
Banques London
St.
Peter Port SE1
2AU
Guernsey
Channel Islands
GY1
3QL
AIFM and Investment Manager Solicitors
to the Group
as to Guernsey law
Phoenix Asset Management Partners Limited Carey
Olsen (Guernsey) LLP
64-66 Glentham Road
Carey
House
London SW13 9JJ Les
Banques
Guernsey
Channel Islands
GY1
4BZ
Administrator and Company
Secretary Independent
Auditor
Northern Trust International Fund
Grant
Thornton Limited
Administration Services (Guernsey) Limited
St.
James Place
PO Box 255 St.
James Street
Trafalgar
Court St.
Peter Port
Les
Banques Guernsey
St.
Peter Port GY1
2NZ
Guernsey
Channel Islands
GY1
3QL
Custodian and Depositary
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
Channel Islands
GY1 3DA
Registrar
Link Market Services (Guernsey) Limited
Mont
Crevelt House
Bulwer
Avenue
St.
Sampson
Guernsey
GY2
4LH