www.castelnaugroup.com
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
Channel Islands
GY1 3QL
Annual Report and
Audited Financial Statements
For the year ended 31 December 2021
Strategic Report
Chair’s Statement ......................................................................................................................
3
Holdings .........................................................................................................................................
4
Portfolio Analysis ........................................................................................................................
4
Statement from the CIO of the Investment Manager ................................................
5
Investment Manager's Report ..............................................................................................
9
Governance
Board Members ........................................................................................................................
12
Disclosure of Directorships in Public Companies Listed
on Recognised Exchanges ...................................................................................................
12
Directors’ Report .......................................................................................................................
14
Directors’ Remuneration Report .......................................................................................
29
Statement of Directors’ Responsibilities ........................................................................
30
Audit Committee Report ......................................................................................................
32
Independent Auditor’s Report ...........................................................................................
35
Financial Statements
Statement of Comprehensive Income ...........................................................................
41
Statement of Financial Position ........................................................................................
42
Statement of Changes in Equity .......................................................................................
43
Statement of Cash Flows ....................................................................................................
44
Notes to the Financial Statements ..................................................................................
45
Alternative Performance Measures (Unaudited) ......................................................
60
Appendix (Unaudited) ...........................................................................................................
61
Company Information ..........................................................................................................
62
Contents.
We strive to compound
shareholders’ capital at
high rates of return.
Castelnau Group was formed by Phoenix Asset Management Partners
Limited in 2020. The listed structure provides the manager with a
permanent capital vehicle with which to make long-term investments
and acquisitions of all structures and sizes.
Castelnau Group
Strategic Report
Castelnau Group Ltd Annual Report 2021
1
Our Mission.
At Castelnau Group we strive to compound
shareholders’ capital at high rates of return.
The higher the better.
We aim to do this by collecting businesses which possess a
competitive advantage, at attractive prices.
Our structure helps us clear away short-term pressures that inhibit
value creation and nurture rational long-term capital allocation
frameworks in our holdings.
Castelnau Group Ltd Annual Report 2021
2
Strategic Report
Castelnau Group Ltd Annual Report 2021
2
The growth potential of
Castelnau’s traditional
businesses and enabling
companies is hugely
exciting.
Castelnau Group Ltd Annual Report 2021
3
Strategic Report
Chair’s
Statement
Listing Castelnau Group Limited (“CGL”) on the SFS
(Specialist Fund Segment) of the London Stock Exchange’s
Main Market on 18 October 2021 was an important step
for the Company and our investors. CGL is an investment
company established to invest in public and private
companies. The growth potential of Castelnau’s traditional
businesses and enabling companies is hugely exciting.
The Company’s investment objective is to compound
Shareholder’s capital at a higher rate of return than
the FTSE All Share Total Return Index over the long term
by using the Investment Manager's toolbox of modern
techniques to transform old economy businesses into
valuable long-term winners.
The total number of Ordinary Shares in the Company in
issue immediately following Admission was 177,552,719.
The existing clients of Phoenix Asset Management
Partners Ltd (“PAMP”) made up 70.1% of the issued
shares, the Offer for Subscription and the Placing
Programme in aggregate made up 15.8% and the
investment from SPWOne 14.1%.
Subsequent to the Company’s initial admission, an
additional two investors, whose accounts are managed
on a discretionary basis by the Company’s investment
manager, PAMP, entered into a share purchase
agreement on 11 November 2021 in respect of the in-
specie transfer of their shares in Dignity plc (“Dignity”),
Hornby plc (“Hornby”) and Phoenix SG Limited (“PSG”)
to the Company, in exchange for newly issued Ordinary
Shares.
The Investment Management Agreement with PAMP
creates significant Shareholder alignment, as PAMP
does not earn a management fee but earns a
performance fee only. The performance fee period is
three years and is equal to one-third of the relative
outperformance to the FTSE All share Total Return Index.
Performance Review
The NAV total return for the year ended 31 December
2021, was -6.5%, versus the benchmark FTSE All-Share
Index (Total Return) of +2.5%, that’s a -9.0% relative
underperformance. The main contributors to the
underperformance were Dignity and Hornby. Dignity
represents 35% of the portfolio and had a -14% price
movement. Hornby represents 22% of the portfolio and
had a -1.2% price movement.
The CGL share price traded at a premium to NAV
throughout the period. The Board, along with its Advisers,
and the Investment Manager, monitor the premium
or discount on an ongoing basis. The premium to NAV
as at 31 December 2021 is disclosed under results and
performance on page 16.
At the heart of this is PAMP’s insight that there are
businesses with a core franchise that is suffering from
the changes going on in commercial life (such as the
rise of e-commerce), which, if they could embrace
the best of modern techniques, would allow these
businesses to thrive and ultimately deliver value not
recognised in their current valuations.
In addition, the Company will own businesses that are
considered by PAMP to be "enablers", and which can
be used to enable the business transformations of
investee companies. Currently, these businesses are
Rawnet Ltd (”Rawnet”), a digital marketing and software
development company, and Ocula Technologies
Holdings Ltd (“Ocula”), a data science company.
These companies could ultimately deliver value to
Shareholders, both through the "enabling" process with
investee companies and through their own valuations as
standalone businesses.
Castelnau has been established to apply modern
techniques to traditional businesses, which it owns,
controls and influences, with the intention of creating
sustainable long-term value for Shareholders. We
appreciate that this is a short period (for many of our
shareholders) and hence look forward to sharing our
progress with you in the future, namely through the
monthly updates and also the Interim and Annual reports.
Joanne Peacegood
Chair
8 April 2022
Castelnau Group Ltd Annual Report 2021
4
Strategic Report
Company Sector Holding Cost Valuation
Percentage of
net assets
Dignityplc Specialised Consumer Services 10,255,153 70,139,747 60,505,403 35.2%
Hornby plc Leisure Products 91,336,047 38,639,781 37,904,460 22.0%
Phoenix S. G. Ltd Speciality Retail 7,610 18,577,646 18,156,159 10.5%
Rawnet Ltd IT Services 2,750,000 5,500,001 6,050,000 3.5%
Rawnet Ltd IT Services - Loan 1,111,795 1,111,795 1,111,795 0.6%
WLS International Ltd* Specialised Consumer Services 3,700 3,788,171 3,993,544 2.3%
Ocula Technologies Holdings Ltd IT Services - Loan 1,500,000 1,500,000 1,500,000 0.9%
Ocula Technologies Holdings Ltd IT Services 8,000 80 80 0.0%
Showpiece Technologies Ltd Internet Retail - Loan 750,000 750,000 750,000 0.4%
Showpiece Technologies Ltd Internet Retail 8,000 8,000 8,000 0.0%
Total Holdings 129,979,441 75.4%
Net current assets 42,147,344 24.6%
Net assets 172,126,785 100.0%
* WLS International Ltd is the holding company for Cambium Group.
Portfolio Analysis
75.7% of total holdings were listed companies and the remaining 24.3% were unlisted. All companies are UK businesses.
Holdings as at
31 December 2021
Castelnau Group Ltd Annual Report 2021
5
Strategic Report
Dear Shareholders,
Welcome to the Castelnau Group. This is our first
annual report. The following commentary is an excerpt
from our first quarterly report*.
Our principal objective that drives everything we do
is to generate high, risk-adjusted, long term returns
on your capital and to compound those over time. By
“high” we mean materially higher than the returns of
passively holding all equities and by that we mean an
excess return of 10% over the relevant indices before
fees. We are focused on absolute returns and “high” to
us means 20% per annum and above.
Returns of this magnitude are not easily achieved
and writing them down might look like an act of
overconfident hubris, but they are a yardstick by which
we are asking you to judge us. We care about how
we make those returns and will apply the Phoenix
Principles to the way we conduct ourselves. If we do
that consistently, then in time we will enhance the
reputation of our assets.
Castelnau Group’s ‘Edge’
To achieve high returns over time requires some form
of edge, some form of competitive advantage and I
will try to explain what we think ours will be. Castelnau’s
edge is a combination of factors working together.
Here are six of the more important factors.
1. Permanent Capital.
Most investment capital is redeemable in some form or
has a time horizon attached to it; ours doesn’t. Should
shareholders wish to move on then they can do that by
selling their shares in the market to another buyer. That
permanence of capital allows us to use investment
strategies that many can’t, where the short term may
look poor and where liquidity may be low. It allows a
truly business-like approach to investment.
The Board or Shareholders collectively can of course
still decide at any point to wind up the business and
redeem the capital. Permanent capital doesn’t mean
perpetuity; it means that we don’t have to operate
under threat of a redemption event.
2. Long Term Horizon.
We assess opportunities with a very long-term
timeframe and will pursue investments that benefit
from that. Most investment capital is judged over the
shorter term and held in forms with some exit in mind.
When you combine a very long-time horizon with
permanent capital you have opportunities that many
can’t pursue. A long-term horizon means that the first
priority always has to be survival. It also means that
we can afford to be patient. It does not mean however
that we don’t have urgency in pursuing our goals.
3. Standing on the Shoulders of Giants.
We don’t profess genius; we are students of it. We
draw upon the examples and teachings of some
great investors and businesspeople. We can however
substitute genius for copying. This might not seem like
it should be an edge, surely everyone could do this,
but such is human nature that they don’t. Phoenix has
been built upon the teachings of great value investors
and yet as an investment style it remains a backwater.
4. Our People and our Network.
Our greatest edge is probably the people I have
surrounded myself with. We have always taken
recruitment very seriously at Phoenix and have built
a highly capable team organically. We are extending
that approach into our businesses and when we get
that right so much of the rest takes care of itself.
We also have the privilege of access to some great
businesspeople and investors who we are connected to
through their businesses or because they are investors
in Phoenix. We draw upon this network in many ways,
from the informal through to our partnership with Sir
Peter Wood and his team at SPWOne. What we have
found is that networks beget networks and good people
tend to know and work with good people.
Decades of seeking out the best companies and
getting close to the best managements along with
attracting business-like investors to our investment
approach has gifted us a strong array of capable and
knowledgeable people. John Elkann’s EXOR is possibly
the benchmark in this regard with its very impressive
Partners Council.
Statement from the CIO
of the Investment Manager
* Please see the entire report here: https://www.castelnaugroup.com/
application/files/1416/4382/9198/Castelnau_Group_Ltd_Q4_2021.pdf
Castelnau Group Ltd Annual Report 2021
6
Strategic Report
5. Culture.
We have a way of operating that lends itself to learning
by thinking, doing, and observing. A confidence to try
things in a thoughtful and careful way and humility
to spot and admit failures that can be utilised for
incremental learnings. It is a flat, self-organising culture
that you need to be inside to truly appreciate but it
allows us to draw on the full breadth of capability from
many diverse and able brains and experiences.
6. The Castelnau Way & The Toolkit.
At Castelnau we seek to turn knowledge into a
business craft whose output is long-term shareholder
value. It is one thing to draw upon knowledge in all its
forms; analysis of facts, learning from others, results
of experiments, thinking and practice - but it is quite
another to apply that successfully. In Castelnau, just
as we do and have done for over 20 years at Phoenix,
we do it by creating a framework that allows us to
build a way of working that accumulates lessons and
continuously improves.
The Castelnau starting Line-Up
We own four principal businesses where we see the
potential for greatness, but which need the application
of our tools and techniques and the assistance of our
enabling companies. They are all in different stages of
that process and as 3 of them are public companies
we will have to be sensitive about what we say so as
not to disclose any price sensitive information.
General Attributes
All four businesses serve an emotional need
of their customers and are threatened by the
changes brought about by the internet and digital
communication. Our businesses in weddings (The
Cambium Group) and funerals (Dignity) deal with
life events whereas the other two deal with hobbies
and play (Hornby and Stanley Gibbons). Technology
is changing the way that their customers inform
themselves and make their choices. We believe all of
them can create value by embracing and fully utilising
technology and digital communication. For each
company we thus bring fresh perspective.
Castelnau Group Ltd Annual Report 2021
6
Statement from the CIO of the Investment Manager - continued
Castelnau Group Ltd Annual Report 2021
7
Strategic Report
The Cambium Group
Cambium was a small failing company when we first
took control in 2015. Our experiences here are the basis
of what we call The Castelnau Way and the Toolkit.
Since the restrictions on weddings ended in July 2021,
Cambium has surged back to life. Even with less than
half a year of trading in 2021, ‘product pledge’ revenue
was a third higher than the whole of 2019, the prior peak.
This surge in growth which, again, had a run rate over
double the prior peak combined with a workforce that
had been reduced during the COVID-19 restructuring in
2020, has caused significant challenges for the company.
To add to that the supply chain problems experienced
by suppliers are causing them to disappoint lots of
customers. This latter point is deeply distressing to an
organisation whose culture is focused on delighting
couples. It is a real test of the strength of the culture.
The run rate of new registrations and the pipeline of
activity for 2022 looks on course for very strong growth
again; the business is targeting 70% growth on 2019. By all
measures it looks like Cambium with its portfolio of brands
has grown its leadership position in wedding gift lists.
The business model for the core gift list business
involves negative working capital, minimal stock,
and no discounting. By merging with Prezola in 2019
and combining the fulfilment operations of all three
businesses they own, Cambium has now built the scale
to operate profitably.
Cambium is preparing a launch this year into a new
space which is an extension of what it does, and we will
report that when it happens.
As of the end the of December, the current valuation we
have for the equity of the Cambium business is £20.8m,
of which you currently own 19.2% (i.e. your share at the
end of December was worth £3.99m, an increase of
+5.6% in value from when we floated). We expect that
your share of the equity will increase in the near future.
Dignity
Our biggest holding is Dignity where I am also currently
CEO and have been now for 9 months. We have been
implementing the strategy I set out at the AGM to
invert the organisation, empower a customer focus,
and make a virtue of being a confederation of local
businesses that are part of a national network.
We have spent six months employing a key part of our
Castelnau approach; that is, embedding a learning
culture within. Using an approach from the Toolkit,
Dignity have been running an exercise to develop
company principles which are about to be published.
When they are in the public domain, we will share them
with you. That marks the beginning of a process that
never ends to make these principles intrinsic to the way
Dignity works so that ultimately, they become its culture.
Castelnau Group Ltd Annual Report 2021
7
Castelnau Group Ltd Annual Report 2021
8
Strategic Report
The commercial elements of our strategy will have to
await Dignity’s own announcements, but we are very
much applying all that I have mentioned previously to
set Dignity on the path to being a great business. The
early years are the toughest when you are making such
wholesale changes and so we expect them to be here.
Hornby
Hornby has recently announced that it is looking for a
new CEO and we see that as an essential step before
the work on forming company principles and applying
them to a cultural transformation.
Our data science company, Ocula, started to apply
its proprietary technology to the Scalextric website
with favourable results. Rawnet (our Digital Marketing
company) is involved in the website development and
digital marketing.
Stanley Gibbons
We created a new business called Showpiece
Technologies Ltd (“Showpiece”) in the quarter, which
partnered with Stanley Gibbons to buy and sell off the
world’s most valuable asset by weight, the 1c Magenta,
in fractional virtual form. Having launched that
successfully within two months of purchase, Showpiece
has now lined up its next asset which is a valuable
rare coin. These efforts are an attempt to bring the
traditional worlds of stamp and coin collecting into the
modern era of digital virtual collecting and vice versa.
We plan to launch a platform to allow a secondary
market in these assets and to continue to bring new
launches.
Ocula also started to apply its technology to the
Stanley Gibbons website with favourable results.
Rawnet is also involved in the website development
and digital marketing.
Final thoughts
As the Nobel-Prize winning economist Daniel
Kahneman and others have pointed out, for true
expertise to develop there needs to be a consistency of
approach, defined parameters, and a good feedback
loop. Engineering teaches that open-loop systems
are unstable without feedback and learning. So too,
in business. That is what we are cultivating inside
Castelnau. The longer we do it, the more we learn from
experience and the stronger this edge should become.
The Castelnau Way is the approach we are adopting
to achieving our goals, the modus operandi we
are developing and evolving through practice and
experience. By contrast the Castelnau Toolkit, as
its name implies, is a very specific set of tools and
capabilities that we have been building and adding to.
These are “edges” which we believe we possess and
will apply to the goal of compounding capital at high
risk-adjusted rates. The primary way in which we will
do that is by deploying your capital in businesses
that themselves have an edge: a moat, a defensible
competitive advantage that allows them to earn a
high return on their capital and to re-invest at high
marginal rates. Such businesses, when their attributes
are obvious to all, are usually not available at prices
that will generate high returns on your capital. So, our
primary strategy is to gain control and influence of
businesses that have the potential to be great and
then to help them to realise that greatness. We want to
Build and Keep Great Companies.
In this overall context we believe Castelnau Group to
be quite a unique investment vehicle.
Gary Channon
CIO
8 April 2022
Statement from the CIO of the Investment Manager - continued
Castelnau Group Ltd Annual Report 2021
9
Strategic Report
The Company launched on 18 October 2021 with an
initial NAV of £177,512,718. The seed assets comprised
of; Dignity £63.9 million, Hornby £34.3million, Stanley
Gibbons £17.5 million and WLS International Ltd (the
wedding list business) £3.8million. CGL also acquired
Rawnet (a digital and marketing agency) and
funded a start-up data science company; Ocula.
These two companies are an important tool within
the Castelnau Toolkit and will enable the portfolio
companies in digital transformation. In addition to the
seed assets a total of £53 million was raised where
Sir Peter Wood, a cornerstone investor, made up
£25 million via his investment vehicle; SPWOne. The
Phoenix and SPWOne teams are working together to
find great businesses and apply the transformational
strategies to those businesses. It is a very exciting
partnership for Castelnau Group bringing the benefit
from the outstanding track record that Sir Peter and
the SPWOne team have in building market leading
brands, transforming industries through digitisation,
and creating significant value. Post the listing, on
11November 2021 the Company issued 6,443,339 new
shares for the purposes of an in specie transfer of
investments from Phoenix Asset Management.
The NAV per Castelnau share for the period
decreased by 6.5% and underperformed the market
which was up 2.5%. The main contributor to this
underperformance was Dignity. Dignity represents
35% of the portfolio and had a -14% price movement,
representing the majority of -6.5% performance in the
period. The Dignity share price remains volatile due to
the strategic changes being deliberately undertaken
at that business. Whilst such volatility might persist in
the near-term, from a fundamental Perspective our
investment premise has not changed.
At the time of writing this report, the latest NAV per
share (31 March 2022) was 84 pence, a 10.2% fall versus
31 December 2021. The majority of this decrease is
again due to the continued short-term volatility in
the Dignity share price. The Dignity share price has
declined 14.4% year to date. Dignity published its
annual results on 23 March 2022.
Valuation Methodology
Listed assets are priced using end of day market
prices. For investments that are not listed Phoenix has
processes in place to ensure valuations provide an
objective, consistent and transparent basis for the
fair value of unquoted securities in accordance with
International Financial Reporting Standards. Phoenix
creates individual valuation frameworks for all unlisted
securities. The final framework will vary depending on
the characteristics of the holding (for instance it may
also incorporate a listed aspect or loan).
To ensure the unlisted valuation framework is robust
Phoenix engages a third-party valuation expert to
review the framework for each new material unlisted
security. Then on at least a semi-annual basis the
third-party valuation expert will review and verify the
framework and carry out an independent valuation
against which the Investment Managers valuation is
compared. Independent value verification may be
more frequent depending on the characteristics of
each investment and the occurrence of a material
change in value. Although Phoenix is ultimately
responsible for the final valuation, in practice we
would work with the third-party valuation expert to
agree a valuation. If Phoenix could not agree a final
decision would be made at Board level.
There may be circumstances for newly acquired
investments, when Phoenix’s best estimate of fair
value of an unlisted security is a close approximation
to cost. The valuation model at acquisition is
calibrated and re-evaluated at the valuation date
and if there are no material changes to the business
and the model then the acquisition cost is used for
the valuation (i.e., no material changes to cash flow
projections, no material change in the performance of
the company, and no transactions have taken place
of the portfolio company shares with other parties).
In this scenario and when investments are deemed
immaterial in the context of their value relative to
the total portfolio value and there are no significant
changes to the portfolio company from when it was
purchased then no third-party valuation review will be
obtained.
Investment Manager’s Report
Castelnau Group Ltd Annual Report 2021
10
Strategic Report
Unlisted equities will be valued monthly by the Phoenix
investment team. These valuations will then be
reviewed and approved by Phoenix’s business team
who are functionally separate from the investment
team. Ultimate approval of the valuation is from
Phoenix’s COO. The Phoenix business team will liaise
directly with the third-party valuation expert who
review PAMP’s valuation methodology to ensure the
framework and valuation is robust.
The Company increased its position in Hornby, Dignity
and Stanley Gibbons during the period.
Post 31 December 2021, CGL purchased £40 million in
UK Treasury Bills. There has been no other investment
activity to note.
We would like to extend a warm welcome to the other
members of the Castelnau Board; Joanne Peacegood
(Independent Chair), Joanna Duquemin Nicolle
(Independent NED), Andrew Whittaker (Independent
NED), David Stevenson (Non-Independent NED).
We look forward to working with the Board over the
coming years.
Lorraine Smyth
Partner; Phoenix Asset Management Partners Ltd.
8 April 2022
Investment Manager’s Report - continued
Strategic Report
Governance
We intend to
Conduct ourselves
at all times with
integrity and
fairness.
Castelnau Group Ltd Annual Report 2021
11
Governance
Castelnau Group Ltd Annual Report 2021
12
Board Members
Joanne has over 22 years of experience in the asset management sector
across a range of asset classes. Joanne is a Non-Executive Director across
a number of sectors / asset classes including Listed, Private Equity, Debt,
Utilities, 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 Chair of the Guernsey
Investment & Fund Association Executive Committee, is a member of the
Association of Investment Companies’ (AIC) Channel Islands Committee
and also sits on the Guernsey International Business Association Council.
Joanne resides in Guernsey.
Directorships in other public listed companies:
NextEnergy Solar Fund Limited, London
Joanne Peacegood
Independent Chair
(aged 44)
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 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.
Andrew Whittaker
Independent non-executive
Director
(aged 48)
Governance
Castelnau Group Ltd Annual Report 2021
13
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
The Chartered Institute of Secretaries and Administrators in 1994.
Joanna Duquemin
Nicolle
Independent non-executive
Director
(aged 51)
Lorraine has over 15 years’ experience working in the finance industry.
This includes working in the fund and investment accounting sectors for
large banks in Dublin and London. She also worked as a client operations
manager for a software vendor and has been involved in multiple
accounting software implementation projects.
Lorraine represents the Investment Manager on the boards of the
Company, Rawnet and Ocula. Lorraine holds a Bachelor (Hons) degree in
Economics, from University College Dublin.
Lorraine Smyth
Non-Independent non-executive
Director
(aged 39)
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.
Directorships in other public listed companies:
Aurora Investment Trust plc, London
David Stevenson
Non-Independent non-executive
Director
(aged 55)
Governance
Castelnau Group Ltd Annual Report 2021
14
The Directors present their Annual Report and
AuditedFinancial Statements for the year ended
31 December 2021.
The Company
Castelnau Group Limited (the “Company” or “CGL”)
listed on the SFS (Specialist Fund Segment) of the
London Stock Exchange’s Main Market on 18 October
2021. CGL is an investment company established to
invest in public and private companies.
Investment Objective
The Company's investment objective is to compound
Shareholder’s capital at a higher rate of return than the
FTSE All Share Total Return Index over the long term.
Investment Policy
The Company 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 Company 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, ashort
position or any other instrument which allows the
Company to access value.
The Company 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 Company’s
investment policy. The constraints on the Investment
Manager lie in the high standards, strict hurdles
and diligent processes used to select investments.
Theseconstraints help to maximise returns by reducing
mistakes, enforcing a margin of safety and only
accepting investments with a favourable range of
outcomes.
The Company expects to hold a concentrated portfolio
of investments and the Company 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 Company 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 Company
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 Company 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 Company may invest directly or through special
purpose vehicles if considered appropriate.
Dividend Policy
The Company has no stated dividend target.
The Company’s investment objective is one of
capital growth and it is anticipated that returns for
Shareholders will derive primarily from capital gains.
The Company will target a Net Asset Value total return
of 10-15% above the return on the FTSE All-Share Total
Return Index per annum and a minimum absolute Net
Asset Value total return of 20% per annum.
Investors should note that the target returns noted
above are a target only and not a profit forecast. There
may be a number of factors that adversely affect the
Company’s ability to achieve the target returns and
there can be no assurance that the target will be met.
Directors’
Report
Governance
Castelnau Group Ltd Annual Report 2021
15
Borrowing Policy
There is no limit in the Articles on the level of gearing
which the Company can employ. Whilst the Company
does not currently expect to have long-term gearing as
part of its strategy, any such gearing utilised would be
expected to be below 50% of the Company’s gross asset
value (including undrawn capital commitments), in each
case measured at the time of investment. The Board may,
however, approve a higher level of gearing from time to
time, in circumstances where the Investment Manager
recommends it should do so on an opportunistic basis.
Shareholder Information
The total number of Ordinary Shares in the Company in
issue immediately following Admission was 177,552,719. The
existing clients of Phoenix Asset Management Partners Ltd
(“PAMP”) made up 70.1% of the issued shares, the Offer for
Subscription and the Placing Programme in aggregate
made up 15.8% and the investment from SPWOne 14.1%.
Going Concern
The Directors believe that, having considered the
Company’s investment objective (see page 14),
financial risk management (see note 2 to the Financial
Statements) and in view of the Company’s holdings in
cash and cash equivalents, the liquidity of investments
and the income deriving from those investments,
the Company 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 financial statements.
The Board continues to monitor the ongoing impacts
of the COVID-19 pandemic and has concluded that
the biggest threat to the Company with regards to
this pandemic is the failure for a key service provider
to maintain business continuity and resiliency while
maintaining work from home and social distancing
practices. The Board has assessed the measures in
place by key service providers to produce business
continuity and so far has not identified any significant
issues that affect the Company. For these reasons, the
Board is confident that the outbreak of COVID-19 has
not impacted the going concern assessment of the
Company.
The Alternative Investment Fund
Manager (“AIFM”) and Investment
Manager
Investment Manager
The Investment Management Agreement with 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 performance fee period is three years and
is equal to one-third of the relative outperformance to
the FTSE All share Total Return Index.
The Board considers that the interests of Shareholders,
as a whole, are best served by the ongoing
appointment of the Investment Manager to achieve
the Company’s investment objectives.
Alternative Investment Fund Manager (“AIFM”)
The Investment Management Agreement dated
23 September 2021 between the Company and
the Investment Manager, pursuant to which the
Investment Manager is appointed to act as the
Company’s alternative investment fund manager for
the purposes of the UK AIFM Regime, and accordingly
the Investment Manager is responsible for providing
portfolio management and risk management services
to the Company, subject to the overall control
and supervisions of the Directors. The Investment
Manager, in its capacity as the Company’s alternative
investment fund manager, will also make the relevant
notifications for the marketing of the Shares in the
United Kingdom and elsewhere (if required).
PAMP has been investing in UK listed equities for
23 years using a "value investing" approach to buy
high-quality businesses at attractive prices. PAMP has
delivered excellent long-term investment returns since
being set up by Gary Channon in 1998.
Shareholders may be interested in reading the historic
track record of the Phoenix UK Fund since inception,
which is an Appendix at the back of the Annual Report
and Audited Financial Statements.
PAMP’s investment process aims to identify great
businesses and management through intensive primary
research. PAMP is known for the depth of its research
Governance
Castelnau Group Ltd Annual Report 2021
16
which can often last many years before making an
investment. Once an investment is made, the investment
team maintains this intensive approach to research
through an ongoing, rigorous monitoring programme.
PAMP has an investment philosophy and approach
that is inspired and influenced by some of the great
investors such as Warren Buffett, Phil Fisher, Charlie
Munger and John Maynard Keynes. These philosophies
have been built into a "Phoenix approach" found
at https://www.phoenixassetmanagement.com/
approach/, which PAMP has continuously refined using
experience of application and analysis and learning.
This has turned the philosophical approach into a
proprietary technical approach which have been
applied to the investments managed by PAMP and
have helped to deliver long term outperformance.
Building on PAMP’s experience of investing in private
companies and companies where they have control
or influence, and in particularly in respect of what is
now The Cambium Group, the Investment Manager
has built a "Castelnau Toolbox", essentially a way
of standardising PAMP’s critical knowledge and
techniques that can be applied to a specific type
of investee company, which can be assessed and
improved through application over time.
Results and Performance
The results for the year are set out in the Statement
of Comprehensive Income. Retained earnings remain
negative and they include realised and unrealised
gains and losses on the Company's assets. Additional
expenses have been accrued during the year however
the Company did not receive any income.
The Company’s loss before tax for the year amounted
to £11,989,976 (2020: Nil).
The benchmark is the FTSE All-Share Index (total
return). The Company’s performance since PAMP was
appointed is shown below:
Period ended
31 December
2021*
pence
change/
return
%
NAV per Ordinary Share 93.55 (6.45)
Ordinary Share price 105.50 5.50
Benchmark return 2.50
The Ongoing Charge Ratio was as follows:
Period ended
31 December
2021*
%
Ongoing charge ratio** 0.32
* Performance assessed since the Company listed on the SFS (Specialist Fund Segment) of the London Stock Exchange's Main Market on 18 October 2021
** These are Alternative Performance Measures ("APMs")
Alternative Performance Measures (“APMs”)
The disclosures of Performance above are considered
to represent the Company’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 on page 60.
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 12.77% premium to the NAV
per Ordinary Share as at 31 December 2021 (2020: N/A).
Control of the Level of Ongoing Charges
The Board monitors the Company’s operating costs
carefully. Based on the Company’s average net assets
Directors’ Report - continued
Governance
Castelnau Group Ltd Annual Report 2021
17
for the year ended 31 December 2021, the Company’s
ongoing charges figure calculated in accordance
with the Association of Investment Companies (AIC)
methodology was 2.80% (2020: Nil). As the size of the
Company grows, the Board will manage expenses with
the intention of keeping costs down and reducing the
ongoing charge ratio accordingly.
Custodian and Depositary
Custody and Depositary services are provided by
Northern Trust (Guernsey) Limited (the “Depositary”).
The depositary was appointed on 18 October 2021. The
terms of the Depositary agreement allow Northern
Trust (Guernsey) Limited to receive professional fees
for services rendered. The Depositary agreement
includes custodian duties. For additional information
refer to note 13 to the Financial Statements.
Directors
The Directors of the Company during the year and at
the date of this Report are set out on pages 12 to 13.
Directors' and Other Interests
The Directors of the Company held the following
Ordinary Shares beneficially:
Number of
ordinary shares
% of issued
share capital
Joanne Peacegood 10,000 0.01%
Andrew Whittaker 40,000 0.02%
Joanna Duquemin Nicolle 75,000 0.04%
David Stevenson – –
Lorraine Smyth – –
Corporate Governance
The Board is committed to high standards of corporate
governance and has implemented a framework
for corporate governance which it considers to be
appropriate for an investment company in order
to comply with the principles of the UK Corporate
Governance Code (the “UK Code”). The Company is
also required to comply with the Code of Corporate
Governance (the “GFSC Code”) issued by the Guernsey
Financial Services Commission.
This Corporate Governance Statement, together with
the Going Concern Statement, Viability Statement
and the Statement of Directors’ Responsibilities set out
on pages 30 to 31, indicates how the Company has
complied with the principles of good governance of
the UK Code and its requirements on Internal Control.
The Company is a member of the AIC and by
complying with the AIC Code of Corporate Governance
(the “AIC Code”) is deemed to comply with both the UK
Code and the GFSC Code.
The Board has considered the principles and
recommendations of the AIC Code, and considers that
reporting against these will provide better information
to Shareholders. To ensure ongoing compliance with
these principles, the Board reviews a report from
the Corporate Secretary at each quarterly meeting,
identifying how the Company is in compliance and
identifying any changes that might be necessary.
The AIC Code is available on the AIC’s website,
www.theaic.co.uk. The UK Code is available in the
Financial Reporting Council’s website, www.frc.org.uk.
Since listing on the SFS (Specialist Fund Segment)
of the London Stock Exchange’s Main Market on
18October 2021, the Company has complied with
the recommendations of the AIC Code and thus the
relevant provisions of the UK Code, except as set out
below.
The UK Code includes provisions relating to:
• the role of the Chief Executive;
• Executive Directors’ remuneration;
• Annually assessing the need for an internal audit
function;
• Senior Independent Director.
Governance
Castelnau Group Ltd Annual Report 2021
18
It is acknowledged in the UK Corporate Governance
Code that some of its provisions may not be relevant
to externally managed investment companies (such
as the Company). The Board does not consider that
the above provisions are relevant to the Company.
The Company will therefore not comply with these
provisions.
Whilst the Company will seek to comply with the
AIC Code as far as practicable it is likely that it will
not be able to so comply with all of the AIC Code
requirements. In particular, in relation to the Director
appointed by the holder of the B Share, this Director
will be appointed by the Investment Manager and
therefore will not be entirely independent of the
Investment Manager. Further, such Director will not be
subject to annual re-election. In addition, the holder of
the B Share has the power to ensure that no Directors
are removed or appointed without its consent.
The GFSC’s Finance Sector Code of Corporate
Governance (the “Code”) applies to the Company. The
GFSC has stated in the Code that companies which
report against the UK Corporate Governance Code or
the AIC Code are deemed to meet the requirements of
the Code, and need take no further action. Accordingly,
as the Company will report against the AIC Code, it will
be deemed to meet the requirements of the Code.
Role, Composition and Independence of the
Board
The Board is the Company’s governing body and has
overall responsibility for maximising the Company’s
success by directing and supervising the affairs of
the business and meeting the appropriate interests
of Shareholders and relevant stakeholders, while
enhancing the value of the Company and also
ensuring protection of investors. A summary of the
Board’s responsibilities is as follows:
• statutory obligations and public disclosure;
• strategic matters and financial reporting;
• risk assessment and management including
reporting compliance, governance, monitoring and
control; and
• other matters having a material effect on the
Company.
The Board’s responsibilities for the Annual Report
and Audited Financial Statements are set out in the
Statement of Directors’ Responsibilities on pages 30
to 31. Biographies for all the Directors can be found on
pages 12 to 13.
The Board consists of five non-executive Directors of
which three are female and two are male. Three of the
five directors are considered to be independent of the
Investment Manager and as prescribed by the Listing
Rules.
The Board does not consider it appropriate to appoint
a Senior Independent Director because a majority of
the Directors are deemed to be independent by the
Company. The Board considers it has the appropriate
balance of diverse skills and experience, independence
and knowledge of the Company and the wider sector,
to enable it to discharge its duties and responsibilities
effectively and that no individual or group of
individuals dominates decision making. The Chair is
responsible for leadership of the Board and ensuring
its effectiveness. The Chair is Joanne Peacegood. The
Chair of the Board must be, and is considered to be,
independent for the purposes of Chapter 15 of the
Listing Rules.
The Board needs to ensure that the Annual Report
and Audited Financial Statements, taken as a whole,
isfair, balanced and understandable and provides the
information necessary for Shareholders to assess the
Company’s position and performance, business model
and strategy. In seeking to achieve this, the Directors
have set out the Company’s investment objective
and policy and have explained how the Board and
its delegated Committees operate and how the
Directors review the risk environment within which the
Company operates and set appropriate risk controls.
Furthermore, throughout the Annual Report and
Audited Financial Statements, the Board has sought to
provide further information to enable Shareholders to
have a fair, balanced and understandable view.
The Board has contractually delegated responsibility
for the management of its investment portfolio, the
arrangement of custodial and depositary services
and the provision of administration, accounting,
registrar and company secretarial services including
the independent calculation of the Company’s NAV
Directors’ Report - continued
Governance
Castelnau Group Ltd Annual Report 2021
19
and the production of the Annual Report and Financial
Statements which are independently audited.
The Board is responsible for the appointment and
monitoring of all service providers to the Company.
The Directors are kept fully informed of investment and
financial controls and other matters by all services
providers that are relevant to the business of the
Company and should be brought to the attention of
the Directors.
The Nominations Committee shall regularly review
the structure, size, composition (including the skills,
knowledge, experience and diversity) of the Board as a
whole and make recommendations to the Board with
regard to any changes.
The Board has a breadth of experience relevant to the
Company and the Directors believe that any changes
to the Board’s composition can be managed without
undue disruption. With any new director appointment
to the Board, consideration will be given as to what
induction process is appropriate.
Directors’ Attendance at Meetings
The Board holds quarterly Board meetings to discuss
matters including: portfolio performance, strategy,
dividend policy, structure, finance, corporate
governance, marketing, risk management, liquidity,
compliance, asset allocation and gearing, contracts
and Company performance. The quarterly Board
meetings are the principal source of regular
information for the Board enabling it to determine
policy and to monitor performance, compliance and
controls but these meetings are also supplemented by
communication and discussions throughout the year.
A representative from each of the Investment Manager,
AIFM, Administrator and Corporate Broker attends
each Board meeting either in person or by telephone
thus enabling the Board to fully discuss and review
the Company’s operation and performance. Each
Director has direct access to the Portfolio Manager and
Company Secretary and may, at the expense of the
Company, seek independent professional advice on
any matter. Both appointment and removal of these
parties is to be agreed by the Board as a whole.
The Audit Committee meets at least twice a year, the
Management Engagement Committee (“MEC”) and
Remuneration and Nomination Committee meet at
least once a year. In addition, adhoc meetings of the
Board to review specific items between the regular
scheduled quarterly meetings can be arranged.
Between formal meetings there is regular contact with
the Portfolio Manager, AIFM, Administrator, Custodian
and Depositary and the Corporate Broker.
Although some of the Directors hold other listed Board
positions, none of these is for a trading company and
the Board is satisfied that they have sufficient time
commitment to carry out their duties for the Company
as evidenced by their attendance at the Board and
Audit Committee meetings during the year.
At the Board meetings, the Directors review the
management of the Company’s assets and liabilities
and all other significant matters so as to ensure that
the Directors maintain overall control and supervision
of the Company’s affairs.
Appointment and Retirement of Directors
Subject to the Companies Law and the Articles, the
Directors shall have power at any time, and from time
to time, without sanction of the Company in general
meeting but subject to receiving the written consent
of the holder of the B Share, to appoint any person
to be a Director, either to fill a casual vacancy or as
an additional Director. Any Director so appointed
shall hold office only until the next following annual
general meeting and shall then be eligible for
re-appointment. Subject to the Companies Law and
the Articles, the Company may by ordinary resolution
appoint any person as a Director; and remove any
person from office as a Director and there shall be
no requirement for the appointment or removal of
two or more Directors to be considered separately.
A Director may resign from office as a Director by
giving notice in writing to that effect to the Company.
There is no age limit at which a Director is required
to retire. At each annual general meeting of the
Company, each Director, other than the Director
appointed by the holder of the B Share pursuant to
the Articles, shall retire from office and each Director
may offer themselves for election or re-election by the
Shareholders.
Governance
Castelnau Group Ltd Annual Report 2021
20
Board Performance and Training
On appointment to the Board, Directors will be
offered relevant training and induction. Training is
an on-going matter as is discussion on the overall
strategy of the Company. The Board will undertake an
annual Board Evaluation of performance. This exercise
was completed in February 2022. The results of the
evaluation were satisfactory with no issues identified
but future evaluations will be more meaningful as
it is very early in the Company’s life to comment
meaningfully.
On appointment to the Board, each Director
considered the expected time needed to discharge
their responsibilities effectively. The Directors confirmed
that each had sufficient time to allocate and would
inform the Board of any subsequent changes. In
accordance with the AIC Code, if and when any
Director, including the Chair, has been in office (or
upon re-election would at the end of that term, be in
office) for more than nine years, the Board will consider
whether there is a risk that such Director might
reasonably be deemed to have lost independence
through such long service.
In respect of the Criminal Finances Act 2017 which has
introduced a new corporate criminal offence (“CCO”)
of ‘failing to take reasonable steps to prevent the
facilitation of tax evasion’, the Board confirms that they
are committed to zero tolerance towards the criminal
facilitation of tax evasion.
Board Diversity
When appointing new Directors and reviewing the
Board composition, the Board considers, amongst
other factors, diversity, balance of skills, knowledge,
gender, social and ethnic background and experience.
The Board, however, does not consider it appropriate
to establish targets or quotas in this regard. As at
31 December 2021, the Board comprised of three
female and two male Directors. The Company has no
employees.
Board Committees and their Activities
Terms of Reference
All Terms of Reference of the Board’s Committees are
available from the Administrator upon request.
Management Engagement Committee
In accordance with the AIC Code, the Company has
established a Management Engagement Committee
which is chaired by Joanna Duquemin Nicolle and
includes Andrew Whittaker, Joanne Peacegood and
David Stevenson. The Management Engagement
Committee will meet at least once a year or more
often if required. Its principal duties will be to consider
the terms of appointment of the Investment Manager
and other service providers and it will annually review
those appointments and the terms of engagement.
Audit Committee
The Company’s Audit Committee is chaired by Andrew
Whittaker and includes Joanna Duquemin Nicolle and
Joanne Peacegood. The Audit Committee will meet at
least three times a year. The Board considers that the
members of the Audit Committee have the requisite
skills and sector experience to fulfil the responsibilities
of the Audit Committee. The Audit Committee will
examine the effectiveness of the Company’s control
systems. It will review the half-yearly and annual
reports and also receive information from the
Investment Manager. It will also review the scope,
results, cost effectiveness, independence and
objectivity of the external Auditor.
Further details on the Audit Committee can be found in
the Audit Committee Report on page 32.
Remuneration Committee
The Company’s Remuneration Committee consists
of all of the Directors and is chaired by Joanne
Peacegood. The Remuneration Committee will meet
at least twice a year or more often if required. The
Remuneration Committee’s main functions include:
(i) agreeing the policy for the remuneration of the
Directors and reviewing any proposed changes to
the policy;
(ii) reviewing and considering ad hoc payment to the
Directors in relation to duties undertaken over and
above normal business; and
(iii) appointing independent professional remuneration
advice.
Directors’ Report - continued
Governance
Castelnau Group Ltd Annual Report 2021
21
Nomination Committee
The Company’s Nomination Committee consists of all
of the Directors and is chaired by Andrew Whittaker.
The Nomination Committee will meet at least once a
year or more often if required. Its principal duties will be
to advise the Board on succession planning bearing in
mind the balance of skills, knowledge and experience
existing on the Board and will make recommendations
to the Board in this regard. The Nomination Committee
advises the Board on its balance of relevant skills,
experience, gender, race, ages and length of service
of the Directors serving on the Board. All appointments
to the Board will be made in a formal and transparent
matter.
For each Director, the tables below set out the
number of Board and Audit Committee meetings
they were entitled to attend during the period ended
31 December 2021 and the number of such meetings
attended by each Director.
Held Attended
Scheduled Board Meetings
Joanne Peacegood 2 2
Andrew Whittaker 2 2
David Stevenson 2 2
Joanna Duquemin Nicolle 2 2
Lorraine Smyth 2 2
Audit Committee Meetings
Joanne Peacegood 1 1
Andrew Whittaker 1 1
Joanna Duquemin Nicolle 1 1
No other sub-committee meetings were held during the year.
Strategy
The Company 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, ashort
position or any other instrument which allows the
Company to access value.
Internal Controls
The Board is ultimately responsible for establishing and
maintaining the Company’s system of internal financial
and operating control and for maintaining and
reviewing its effectiveness. The Company’s risk matrix
continues to be the core element of the Company’s risk
management process in establishing the Company’s
system of internal financial and reporting control. The
risk matrix is prepared and maintained by the Board
which initially identifies the risks facing the Company
and then collectively assesses the likelihood of each
risk, the impact of those risks and the strength of
the controls operating over each risk. The system of
internal financial and operating control is designed to
manage rather than to eliminate the risk of failure to
achieve business objectives and by their nature can
only provide reasonable and not absolute assurance
against misstatement and loss.
These controls aim to ensure that assets of the
Company are safeguarded, proper accounting
records are maintained and the financial information
for publication is reliable. The Board confirms that there
is an ongoing process for identifying, evaluating and
managing the significant risks faced by the Company.
This process has been in place for the year under
review and up to the date of approval of this Annual
Report and Audited Financial Statements and is
reviewed by the Board and is in accordance with the
AIC Code.
Governance
Castelnau Group Ltd Annual Report 2021
22
The AIC Code requires Directors to conduct at least
annually a review of the Company’s system of internal
financial and operating control, covering all controls,
including financial, operational, compliance and risk
management. The Board has evaluated the systems
of internal controls of the Company. In particular, ithas
prepared a process for identifying and evaluating
the significant risks affecting the Company and the
policies by which these risks are managed. The Board
also considers whether the appointment of an internal
auditor is required and has determined that there is no
requirement for a direct internal audit function.
The Board has delegated the day to day
responsibilities for the management of the Company’s
investment portfolio, the provision of custodial and
depositary services and administration, accounting,
registrar and company secretarial functions including
the independent calculation of the Company’s NAV
and the production of the Annual Report and Financial
Statements which are independently audited.
Formal contractual agreements have been put
in place between the Company and providers
of these services. Even though the Board has
delegated responsibility for these functions, it retains
accountability for these functions and is responsible
for the systems of internal control. At each quarterly
Board meeting, compliance reports are provided
by the Administrator, Company Secretary, Portfolio
Manager, AIFM and Depositary. The Board also receives
confirmation from the Administrator of its accreditation
under its controls report.
Procedure for Identifying Risks
The procedures in place to identify emerging or
principal risks are described below.
The Audit Committee regularly reviews the Company’s
risk matrix, focusing on ensuring that the appropriate
controls are in place to mitigate each risk. A system
has been established to identify emerging risks as
they occur as detailed below. The experience and
knowledge of the Audit Committee and Board is
invaluable to these discussions, as is advice received
from the Board’s service providers, specifically the
Investment Manager who is responsible for all portfolio
management services.
The market and operational risks and financial impact
as a result of the COVID-19 pandemic, and measures
introduced to combat its spread, were discussed
by the Board, with updates on operational resilience
received from the Investment Manager, Administrator
and other key service providers.
The following is a description of the role each service
provider plays in the identification of emerging risks.
I. Investment Manager: the Investment Manager
advises the Board at each meeting on world
markets, stock market trends, information on stock
specific matters as well as regulatory, political and
economic changes likely to impact the Company’s
portfolio;
II. Distributor and Broker: provides advice periodically
specific to the Board on the Company’s share
register, sector, competitors and the investment
company market;
III. Company Secretary and Accounting Advisor: briefs
the Board on forthcoming legislation or regulatory
changes that might impact the Company;
IV. AIC: The Company is a member of the AIC, which
provides regular technical updates as well as
drawing members’ attention to forthcoming
industry and regulatory issues.
Procedure for Oversight of Risks
Audit Committee: The risk matrix is kept under review.
This includes a review of the risk procedures and
controls in place at the key service providers to ensure
that emerging (as well as known) risks are adequately
identified and – so far as practicable – mitigated.
Experienced Non-Executive Directors on the
Committee, each bringing external knowledge of the
investment trust (and financial services generally)
marketplace, trends, threats etc. as well as macro/
strategic insight.
Directors’ Report - continued
Governance
Castelnau Group Ltd Annual Report 2021
23
Principal Risks and Uncertainties
The principal risks faced by the Company, together
with the approach taken by the Board towards them,
have been summarised below.
Valuation of investments
The Company’s investments had a total value of
£129,979,441 as at 31 December 2021. The portfolio
represents a substantial portion of net assets of the
Company. 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 note 3 and note 4 to the
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 Company as at
31 December 2021 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.
Some of the Company's investments (including certain
of the Target Assets) will include securities and other
interests that are very thinly traded, for which no market
exists or which are restricted as to their transferability
under applicable laws and/or the relevant investment
documentation. Whilst the valuations of the Company's
investments will be in compliance with IFRS, some of
the Company's investments will be difficult to value
accurately. Such valuations may be conducted on an
infrequent basis, are subject to a range of uncertainties
and will involve the Investment Manager and/or the Audit
Committee exercising judgement. Valuations made
by or on behalf of the Company may be made, in part,
on valuation information provided by the Investment
Manager and/or third parties (including entities in which
the Company may directly or indirectly invest). The
Company and the Investment Manager may not be in
a position to confirm the completeness, genuineness or
accuracy of such information or data. There can be no
guarantee that the basis of calculation of the value of the
Company's investments used in the valuation process will
reflect the actual value achievable on realisation of those
investments. This may lead to volatility in the valuation of
the Company's portfolio and, as a result, volatility in the
price of the Shares.
Market risk
As a result of investments in publicly traded Portfolio
Companies, the Company will be exposed to equity
securities price risk. The market value of the Company’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 Company invests from time
to time could have a material adverse effect on the
Company’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 Company may be illiquid
and this may result in delays/shortfall of expected cash
flows to the Company.
The Company’s investments in private assets will
not be liquid, which may limit its ability to realise
investments at short notice, at a fair value or at all and
may be subject to risks.
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 Company’s ability to vary its portfolio or dispose
of, or liquidate part of, its portfolio, in a timely fashion
Governance
Castelnau Group Ltd Annual Report 2021
24
(or at all) and at satisfactory prices in response to
changes in economic or other conditions.
If the Company were 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 Company’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 Company or Investment Manager,
which may make it more challenging for the Company
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
Company’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 Company expects to hold a concentrated portfolio
of investments and the Company 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 Company will therefore have
no set diversification policies.
Other Risks and Uncertainties
The other risks faced by the Company, together with
the approach taken by the Board towards them, have
been summarised below:
COVID-19
Consideration of the impact of COVID-19 in the market
and in regard to all assets, but in particular the assets
that constitute a higher risk due to closure of this type
of businesses for a longer period. The Investment
Manager is in constant communication with the
Directors of each investment and has mitigants in
place for each investment.
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 Company
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 Company’s operations.
Operational risk
The Company 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 year. The Investment
Directors’ Report - continued
Governance
Castelnau Group Ltd Annual Report 2021
25
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 Company’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
under review the Board undertook a thorough review of
each service provider and agreed that their continued
appointment remained appropriate and in the
Company’s long term interest.
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 Company
was considered by the Board. Having been provided with
assurance from each of the key service providers, the
Board was satisfied that no such breach had occurred.
Geopolitical risk
Russia’s invasion of Ukraine is a new emerging risk to the
global economy. The resulting imposition of international
sanctions on Russia will have wider global effect on
the supply and prices of certain commodities and
consequently on inflation and general economic growth
of the global economy and will have the potential to
delay the global economic recovery from COVID-19.
Viability Statement
Under the UK Corporate Governance Code (the “UK
Code”) and the AIC Code of Corporate Governance
(the “AIC Code”), the Board is required to produce a
“viability statement” which considers the Company’s
current position and principal risks and uncertainties
combined with an assessment of the prospects of the
Company in order to be able to state that they have
a reasonable expectation that the Company will be
able to continue in operation over the period of their
assessment. The Board considers that five years is
an appropriate period to assess the viability of the
Company. Whilst the Board has no reason to believe
that the Company will not be viable for a longer period,
it has chosen this period given the uncertainty of the
investment world and the strategy period. In selecting
this period the Board considered the environment
within which the Company operates and the risks
associated with the Company.
The Company’s prospects are driven by its business
model and strategy. The Company’s investment objective
is to compound Shareholder’s capital at a higher rate of
return than the FTSE All Share Total Return Index over the
long term. The Company will target a Net Asset Value total
return of 10-15% above the return on the FTSE All-Share
Total Return Index per annum and a minimum absolute
Net Asset Value total return of 20% per annum.
The Board confirms they have performed a robust
assessment of the principal and emerging risks facing
the Company and the Board’s assessment of the
Company over the five year period has been made
with reference to the Company’s current strategy,
position and prospects and the Board’s risk appetite
having considered each of the Company’s Principal
Risks and Uncertainties summarised on pages 23 to 24.
The Board has also considered the Company’s cash
flows and income flows. The Company has no stated
dividend target. The Company’s investment objective is
one of capital growth and it is anticipated that returns
for Shareholders will derive primarily from capital gains.
The Company will target a Net Asset Value total return
of 10-15% above the return on the FTSE All-Share Total
Return Index per annum and a minimum absolute Net
Asset Value total return of 20% per annum.
Key assumptions considered by the Board in relation to
the viability of the Company are as follows and these
are stressed in terms of liquidity of the portfolio:
(i) investments are in line with the investment
objective and investment policy as set out in the
Company’s prospectus; and
Governance
Castelnau Group Ltd Annual Report 2021
26
(ii) the Company has the ability to meet running costs
and standing expenses.
The Board has a reasonable expectation that the
Company will be able to continue in operation and
meet its liabilities as they fall due over the period of
their assessment.
The Board having considered the analysis above,
have a reasonable expectation that the Company
will remain viable over the five year period
to 31 December 2026.
Report under Section 172 of the Companies
Act2006
Although the Company is domiciled in Guernsey, in
accordance with the guidance set out in the AIC Code,
the Directors describe in the Annual Report how the
matters set out in Section 172 of the UK Companies Act
2006 have been considered in their board discussions
and decision making.
Directors’ duty to promote the success of the
Company
The Board seeks to understand the views of
the Company’s Shareholders and its other key
stakeholders as well as how their interests and the
matters set out in section 172 of the Companies
Act 2006 in the UK ("Companies Act") have been
considered. As part of the Board and stakeholder
evaluation processes that are undertaken annually,
the Board reviews its engagement mechanisms to
ensure they remain effective. In fulfilling their duties, the
Directors carefully consider the likely consequences
of their actions over the long-term and on other key
stakeholders.
(i) the Company’s investment objective and policy;
(ii) the main trends and factors likely to affect the
future development, performance and position of
the Company’s business;
(iii) the Company’s key performance indicators;
(iv) the Company’s peers;
(v) the Company’s overall strategy; and
(vi) the Company’s core values which are integrity,
accountability, transparency and commitment.
Identifying stakeholders
As an externally managed investment company, the
Company’s operational activities are all outsourced
and therefore it does not have any employees.
The Board has identified its key stakeholders which
include Shareholders, investee companies, Investment
Manager, financial advisers, the Company Secretary,
Administrator, Registrar, Lawyers, Depositary and
Custodian. The Board is aware of the need to foster
the Company’s relationships with its key stakeholders
through its stakeholder management activities.
The Board provides oversight and challenge to the
Investment Manager to ensure that the Company
meets its requirements to create and preserve
Shareholder value.
Shareholder engagement
The Board welcomes Shareholders’ views and
places great importance on communication with its
Shareholders. Shareholders wishing to meet with the
Chair and other Board members should contact the
Company’s Administrator by emailing
Castelnau_group@ntrs.com.
On 10 September 2021, Shareholders had the
opportunity to vote on the resolutions as specified in
the Notice of AGM. For subsequent AGMs, the Notice of
the AGM and the results will be released to the LSE in
the form of an announcement.
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 whole. The Company is a closed-ended
investment company without employees. As such, it
is the view of the Board that the direct environmental
and social impact of the Company is limited and that
ESG considerations are most applicable in respect of
the asset allocation decisions made for its portfolio.
The Company 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
Directors’ Report - continued
Governance
Castelnau Group Ltd Annual Report 2021
27
factors into its investment process. The Board receives
regular updates from the Investment Manager on its
ESG processes and assesses their suitability for the
Company. 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 Company does not have executive directors
or employees. It 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.
Key service providers
The Company does not have any employees and
as such the Board delegates responsibility for its
day to day operations to a number of key service
providers. The activities delegated, service levels and
other related reports to the activities of each service
provider (such as their own approach to such matters
as cyber risk and assessment of climate change risk
to operations) are closely monitored, where and as
appropriate by the Board and they are required to
report to the Board at set intervals.
Monitoring of key decisions and the outcome of those
decisions
The Board meets at least quarterly and at such other
times as deemed appropriate. During these meetings,
the Board considers reports from the Investment
Manager on the Company’s portfolio, its investment
activity and sector diversity. In addition, the Investment
Manager provides an overview of engagement with
the investee companies as well as potential investee
companies. The Board debates the Company’s
portfolio and notable acquisitions or disposals at
each of its meetings and challenges stock selection
where deemed appropriate. In between meetings,
the Investment Manager and Board maintain contact
through which they consider investment ideas,
further fundraising initiatives and market outlook
and strategies to consider adjusting the Company’s
portfolio in line with the Company’s investment policy.
During the year the Board discussed the merits and
structure of The Castelnau Group, with the Investment
Manager and advisers and considered the long-term
interests of the Company’s Shareholders during those
discussions.
In addition, the Board receives reports from the
Financial Adviser on the Company’s Shareholder
base including any changes; its Secretary on latest
governance issues, legal or market announcements;
and its Administrator on the Company’s management
accounts. Furthermore, the Board receives reports
from its Stockbroker on the performance of the
Company’s peers and ad hoc reports from its other key
stakeholders as deemed appropriate.
On an annual basis, the Board will undertake a review
of its stakeholders which include a review of their
control report and policies, such as whistleblowing,
anti-bribery, anti-money laundering and corruption,
cyber security, data protection policies and each
entity’s business continuity arrangements to ensure
they are in place and are adequate.
Boardroom diversity
The Board currently comprises five non-executive
Directors of which three are female and two are male.
The Board considers its composition, including the
balance of skills, knowledge, diversity (including gender
and race) and experience, amongst other factors on
an annual basis and when appointing new Directors.
The Board has considered the recommendations of
the Davies and Parker review but does not consider
it appropriate to establish targets or quotas in
this regard. Refer to page 20 for more information.
Summary biographical details of the Directors are set
out on pages 12 and 13.
Stewardship code
The Board and the Investment Manager support and
have a strong commitment to the UK Stewardship
Code, the latest version of which was issued by FRC
took effect from 1 January 2020 and endorsed by
the AIC which sets out the principles of effective
stewardship by institutional investors.
Governance
Castelnau Group Ltd Annual Report 2021
28
Modern slavery disclosure
Due to the nature of the Company’s business, being
a company that does not offer goods or services to
consumers, the Board considers that it is not within
the scope of modern slavery. The Board considers
the Company’s supply chains, dealing predominately
with professional advisers and service providers in the
financial service industry, to be low risk in this matter.
Anti-bribery and corruption
It is the Company’s policy to conduct all of its business
in an honest and ethical manner. The Company
takes a zero-tolerance approach to bribery and
corruption and is committed to acting professionally,
fairly and with integrity in all its business dealings and
relationships wherever it operates. The Company’s
policy and the procedures that implement it are
designed to support that commitment. The Board has
made enquiries of its third-party service providers to
ensure their procedures and policies are in place. Refer
to page 32 for more information.
Tax evasion
The Company maintains a zero-tolerance policy
towards the provision of illegal services, including the
facilitation of tax evasion. The Company has received
assurances from the Company’s main contractors and
suppliers that they maintain a zero-tolerance policy
towards the provision of illegal services, including the
facilitation of tax evasion.
Significant Shareholdings
Shareholders with holdings of more than 5.0% of the Shares of the Company at 31 December 2021 were as follows:
Number of
ordinary shares
% of issued
share capital
State Street Nominees Limited OM01 Acct 52,997,909 28.80%
Nortrust Nominees Limited 35,578,967 19.34%
Goldman Sachs Securities (Nominees) Limited ISLEG Acct 25,000,000 13.59%
Harewood Nominees Limited 4213100 Acct 24,563,184 13.35%
Those invested directly or indirectly in 5.0% or more of
the issued share capital of the Company will have the
same voting rights as other holders of the Shares.
Annual General Meeting (AGM)
The Company’s AGM will be held at 12.15pm on
6 September 2022 at the offices of Northern Trust
International Fund Administration Services (Guernsey)
Limited, Trafalgar Court, Les Banques, St Peter Port,
Guernsey, Channel Islands, GY1 3QL.
Should a Shareholder have a question that they would
like to raise at the AGM, the Board requests that they
either ask the question in advance of the AGM by
sending it by email to Castelnau_group@ntrs.com. All
questions raised, together with the relevant answer, will
be placed on the Company’s website at
www.castelnaugroup.com.
Independent Auditor
A resolution for the reappointment of Grant Thornton
Limited (”Grant Thornton”) as auditor to the Company
will be proposed at the annual general meeting. Grant
Thornton have indicated their willingness to continue in
office.
Signed on behalf of the Board of Directors on
8 April 2022 by:
Andrew Whittaker Joanna Duquemin Nicolle
Director Director
Directors’ Report - continued
Governance
Castelnau Group Ltd Annual Report 2021
29
The Company is not required to present a Directors’
Remuneration Report, and this report does not purport
to meet all of the requirements of a typical listed UK
company’s Directors’ Remuneration Report, but has
been provided as the Directors believe that it may be
useful of this annual report and financial statements.
The aggregate amount of Directors’ fees should
not exceed £250,000 per annum to allow for the
appointment of additional director(s) to allow for an
overlap in appointments thereby assisting with Board
succession planning.
Remuneration Policy
The Company's policy in regard to Directors'
remuneration is to ensure that the Company maintains
a competitive fee structure in order to recruit, retain
and motivate non-executive Directors of excellent
quality in the overall interests of Shareholders.
It is the responsibility of the Remuneration
Committee to consider the Directors' remuneration,
however the Nomination Committee will review any
proposed changes. The Board ultimately receives
the recommendations and approves the Director’s
Remuneration.
No element of the Directors' remuneration is
performance related, nor does any Director have any
entitlement to pensions, share options or any long-
term incentive plans from the Company.
Directors are remunerated in the form of fees, payable
annually, to the Director personally. No Directors have
been paid additional remuneration by the Company
outside their normal Directors’ fees and expenses.
Joanne Peacegood is entitled to an annual fee of
£40,000. Andrew Whittaker is entitled to an annual
fee of £35,000. Joanna Duquemin Nicolle and David
Stevenson are entitled to an annual fee of £30,000.
Lorraine Smyth has waived her right to receive a
Director fee. The Directors received the following pro
rata remuneration in the form of Directors’ fees relating
to the year ended 31 December 2021:
Director fees
Joanne Peacegood 24,137
Andrew Whittaker 17,836
Joanna Duquemin Nicolle 11,219
David Stevenson 6,082
Lorraine Smyth –
59,274
Appropriate Directors' and Officers’ liability insurance
cover is maintained by the Company on behalf of the
Directors.
Each Director’s appointment letter provides that, upon
the termination of his/her appointment, that he/she
must resign in writing and all records remain the
property of the Company. The Directors’ appointments
can be terminated in accordance with the Articles and
without compensation.
A Director may resign from office as a Director by
giving notice in writing to that effect to the Company.
There is no age limit at which a Director is required
to retire. Notwithstanding the foregoing, all Directors
have agreed to stand for re-election annually and are
re-elected by the Shareholders at the AGM.
The amounts payable to Directors shown in note
6 to the Financial Statements are for services as
non-executive Directors. No Director has a service
contract with the Company, nor are any such
contracts proposed.
Directors’ Remuneration
Report
Signed on behalf of the Board of Directors on 8 April 2022 by:
Andrew Whittaker
Director
Joanna Duquemin Nicolle
Director
Governance
Castelnau Group Ltd Annual Report 2021
30
Statement of Directors’
Responsibilities
The Directors are responsible for preparing the
Annual Report and the Audited Financial Statements
in accordance with applicable Guernsey law and
regulations.
The Companies (Guernsey) Law, 2008 requires the
Directors to prepare Financial Statements for each
financial year. Under that law they have elected to
prepare the Financial Statements in accordance with
International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards
Board ("IASB") and applicable law.
The Financial Statements are required by law to
give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for
that period.
In preparing these Financial Statements, the Directors
are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are
reasonable and prudent;
• state whether applicable accounting standards
have been followed, subject to any material
departures disclosed and explained in the Financial
Statements; and
• prepare the Financial Statements on the going
concern basis unless it is inappropriate to presume
that the Company will continue in business.
The Directors confirm that they have complied
with these requirements in preparing the Financial
Statements.
The Directors are responsible for keeping proper
accounting records which disclose with reasonable
accuracy at any time the financial position of the
Company and to enable them to ensure that the
Financial Statements have been properly prepared
in accordance with The Companies (Guernsey)
Law,2008. They have general responsibility for taking
such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
So far as each Director is aware, there is no relevant
audit information of which the Company’s auditor is
unaware, and each Director has taken all the steps
that he or she ought to have taken as a Director in
order to make himself or herself aware of any relevant
audit information and to establish that the Company’s
auditor is aware of that information.
The Directors are responsible for the oversight of
the maintenance and integrity of the corporate and
financial information in relation to the Company
website; the work carried out by the auditor does
not involve consideration of these matters and,
accordingly, the auditor accepts no responsibility for
any changes that may have occurred to the financial
statements since they were initially presented on the
website.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors are responsible for ensuring that the
Annual Report and Audited Financial Statements
include information requirements by the Disclosure
Guidance and Transparency Rules ("DTR") of the
Financial Conduct Authority ("FCA") with regard
to corporate governance, require the Company
to disclose how it has applied the principles, and
complied with the provision of the corporate
governance code applicable to the Company.
The Directors confirm that to the best of their
knowledge:
(a) The Financial Statements have been prepared
in accordance with IFRS and give a true and fair
view of the assets, liabilities, financial position and
profit or loss of the Company as at and for the year
ended 31 December 2021.
Governance
Castelnau Group Ltd Annual Report 2021
31
(b) The Annual Report includes information detailed
in the Chair’s Statement, Investment Manager’s
Report, Directors’ Report, Statement of Directors’
Responsibilities, Directors’ Remuneration Report and
Audit Committee Report and provides a fair review
of the information required by:
(i) DTR 4.1.8 and DTR 4.1.9 of the Disclosure Guidance
and Transparency Rules, being a fair review of
the Company business and a description of
the principal risks and uncertainties facing the
Company; and
(ii) DTR 4.1.11 of the Disclosure Guidance and
Transparency Rules, being an indication of
important events that have occurred since the
end of the financial year and the likely future
development of the Company.
In the opinion of the Board, the Financial
Statements taken as a whole, are fair, balanced
and understandable and provide the information
necessary to assess the Company’s position and
performance, business model and strategy.
By order of the Board,
Andrew Whittaker
Director
8 April 2022
Joanna Duquemin Nicolle
Director
Governance
Castelnau Group Ltd Annual Report 2021
32
On the following pages, we present the Audit
Committee’s Report, setting out the responsibilities of
the Audit Committee and its key activities for the year
ended 31 December 2021.
The Audit Committee has scrutinised the
appropriateness of the Company’s system of risk
management and internal financial and operating
controls, the robustness and integrity of the Company’s
financial reporting, along with the external audit
process. The Audit Committee has devoted time to
ensuring that controls and processes have been
properly established, documented and implemented.
During the course of the year, the information that the
Audit Committee has received has been timely and
clear and has enabled the Committee to discharge its
duties effectively.
Role and Responsibilities
The primary function of the Audit Committee is to
assist the Board in fulfilling its oversight responsibilities.
This includes reviewing the financial reports and other
financial information and any significant financial
judgement contained therein, before publication.
In addition, the Audit Committee reviews the systems
of internal financial and operating controls on a
continuing basis that the Administrator, Portfolio
Manager, AIFM, and Custodian and Depositary and
the Board have established with respect to finance,
accounting, risk management, compliance, fraud
and audit. The Audit Committee also reviews the
accounting and financial reporting processes,
along with reviewing the roles, independence and
effectiveness of the external auditor.
The ultimate responsibility for reviewing and approving
the Annual and Interim Financial Statements remain
with the Board.
The Audit Committee's full terms of reference can be
obtained by contacting the Company's Administrator.
Risk Management and Internal
Control
The Board, as a whole, considers the nature and extent
of the Company’s risk management framework and
the risk profile that is acceptable in order to achieve
the Company’s strategic objectives. As a result, it is
considered that the Board has fulfilled its obligations
under the AIC Code.
The Audit Committee continues to be responsible
for reviewing the adequacy and effectiveness of the
Company’s on-going risk management systems and
processes. Its system of internal controls, along with its
design and operating effectiveness, is subject to review
by the Audit Committee through reports received
from the Portfolio Manager, AIFM and Custodian and
Depositary, along with those from the Administrator
and external auditor.
Fraud, Bribery and Corruption
The Board has relied on the overarching requirement
placed on the service providers under the relevant
agreements to comply with applicable law,
including anti-bribery laws. A review of the service
provider policies will take place at the Management
Engagement Committee Meetings. The Board receives
confirmation from all service providers that there has
been no fraud, bribery or corruption.
Financial Reporting and Significant
Financial Issues
The Audit Committee assesses whether suitable
accounting policies have been adopted and whether
the Portfolio Manager has made appropriate estimates
and judgements. The Audit Committee reviews
accounting papers prepared by the Portfolio Manager
and Administrator which provides details on the main
financial reporting judgements.
Audit Committee
Report
Governance
Castelnau Group Ltd Annual Report 2021
33
The Audit Committee also reviews reports by the
external auditors which highlight any issues with
respect to the work undertaken on the audit. The Audit
Committee is satisfied that the judgements made
by the Investment Manager and Administrator are
reasonable, and that appropriate disclosures have
been included in the Financial Statements.
The signicant issues considered
during the year by the Audit Committee
in relation to the Financial Statements
and how they were addressed are
detailed below:
Valuation of investments
Some of the Company’s investments (including
certain of the Target Assets) will include securities
and other interests that are very thinly traded, for
which no market exists or which are restricted as to
their transferability under applicable laws and/or
the relevant investment documentation. Whilst the
valuations of the Company’s investments will be
in compliance with IFRS, some of the Company’s
investments will be difficult to value accurately. Such
valuations may be conducted on an infrequent basis,
are subject to a range of uncertainties and will involve
the Investment Manager and/or the Audit Committee
exercising judgement. Valuations made by or on behalf
of the Company may be made, in part, on valuation
information provided by the Investment Manager
and/or third parties (including entities in which the
Company may directly or indirectly invest). The
Company and the Investment Manager may not be in
a position to confirm the completeness, genuineness
or accuracy of such information or data. There can be
no guarantee that the basis of calculation of the value
of the Company’s investments used in the valuation
process will reflect the actual value achievable on
realisation of those investments. This may lead to
volatility in the valuation of the Company’s portfolio
and, as a result, volatility in the price of the Shares.
Revenue
Proceeds from any disposal of the Company’s interests
in Portfolio Companies through liquidity events,
including sales of equity following IPOs and trade
sales, may vary substantially from year to year. In
addition, earnings produced by Portfolio Companies
are typically reinvested for the purpose of growth, and
payments of dividends by assets are often subject to
milestones which may not be achieved. This means
the return received by the Company from these
sources may vary substantially from year to year.
Notwithstanding that the Company does not expect
to receive much in the way of returns from dividends,
these variations in overall returns may have a material
adverse effect on the portfolio and on the Company’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.
External Auditor
The Audit Committee has responsibility for making a
recommendation on the appointment, re-appointment
and removal of the external auditor. Grant Thornton
was appointed as the first auditor of the Company
following a competitive tender process. During the
year the Audit Committee received and reviewed
audit plans and reports from the external auditor.
It is standard practice for the external auditor to
meet privately with the Audit Committee without the
Investment Manager and other service providers being
present at each Audit Committee meeting.
To assess the effectiveness of the external audit
process, the auditor was asked to articulate the
steps that they have taken to ensure objectivity and
independence, including where the auditor provides
non-audit services. The Audit Committee monitors the
auditor’s performance, behaviour and effectiveness
during the exercise of their duties, which informs the
decision to recommend reappointment on an annual
basis.
Governance
Castelnau Group Ltd Annual Report 2021
34
The Company does not utilise external auditor for
internal audit purposes, secondments, tax compliance,
private letter rulings, accounting advice or valuation
advice. The Company's auditors performed the
audit of the Company's financial statements,
prepared in accordance with IFRS as issued by the
IASB, in accordance with International Standards on
Auditing(ISAs).
The audit engagement leader responsible for the audit,
Mr Cyril Swale, will rotate off CGL after having served
five years.
The remuneration paid to Grant Thornton and to other
Grant Thornton member firms for audit and non-audit
services in respect of the year ended 31 December 2021
was £43,000 (2020: N/A).
For any questions on the activities of the Audit
Committee not addressed in the foregoing, a member
of the Audit Committee remains available to attend
each AGM to respond to such questions.
The Audit Committee Report was approved by the
Audit Committee on 8 April 2022 and signed on
behalfby:
Andrew Whittaker
Chair, Audit Committee
Audit Committee Report - continued
Governance
Castelnau Group Ltd Annual Report 2021
35
Independent Auditor’s Report to the
Members of Castelnau Group Limited
Opinion
We have audited the financial statements of Castelnau Group Limited (the “Company”), for the year ended 31
December 2021 which comprise the Statement of Comprehensive Income, the Statement of Financial Position,
the Statement of Changes in Equity, the Statement of Cash Flow, and Notes to the financial statements, including
a summary of significant accounting policies. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial Reporting Standards (IFRSs) as issued by the
International Standards Board (IASB).
In our opinion, the accompanying financial statements:
• give a true and fair view of the state of the Company’s affairs as at 31 December 2021 and of its loss for the year
then ended;
• have been properly prepared in accordance with IFRSs as issued by the International Standards Board (IASB);
and
• have been prepared in accordance with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs) and applicable law.
Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of
the financial statements’ section of our report. We are independent of the Company in accordance with the
International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants
(including International Independence Standards) (IESBA Code), together with the ethical requirements that are
relevant to our audit of the financial statements in Guernsey, and we have fulfilled our other ethical responsibilities
in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Governance
Castelnau Group Ltd Annual Report 2021
36
Independent Auditor’s Report to the Members of Castelnau Group Limited – continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the financial statements of the current period. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
The key audit matter How the matter was addressed in our audit
Valuation of unquoted investments
(2021: £28.21m, and 2020: £nil)
The valuation of unquoted investments, which comprised 22%
of the total fair value of the Company’s investments, requires
significant judgment, use of estimates, industry specialism and
expertise and specific market consideration, as described in
Notes 3b, 4.1 and 5 to the financial statements and in the Audit
Committee Report on page 33.
The fair value of unquoted investments might be misstated
due to application of inappropriate methods (methodologies),
assumptions or source data for estimates made and/or
inappropriate underlying judgments made due to error or
fraud.
Our audit procedures consisted of:
• Obtaining an understanding of management’s processes,
policies and methodologies in relation to the valuation of
the unquoted investments and confirm our understanding
by performing walkthrough of relevant controls in the
valuation process to confirm they are appropriately
designed and implemented;
• Obtaining and inspecting the valuation models prepared
by the Investment Manager, and inspecting the supporting
data to assess whether the data used is appropriate and
relevant;
• Holding discussions with management to evaluate
whether the fair value of unquoted investments is
reasonably stated and corroborated those discussions
with the supporting documents inspected, including
challenging the assumptions made by management;
• Assessing whether the valuation of unquoted investments’
accounting policy is in line with the requirements of IFRS
and consistently applied;
• Assessing the independence, competence and objectivity
of management’s external valuation expert;
• Obtaining the valuations prepared by the management
and the valuation report prepared by management’s
external expert and challenged the valuation conducted
by them through the following:
• Assessing whether the valuation model used by
management to estimate the fair values of the
unquoted investments are consistent with methods
usually used by market participants for similar types of
instruments;
• Reviewing key assumptions considered within
management’s external expert’s report and ensuring
that these assumptions are reasonable and consistent
with the requirements of the accounting standards;
• Testing key inputs/data used in the calculation of
the fair value, such as discount rates, forecasts etc.,
through inspecting supporting documents and
discussions with management; and
• Ensuring the estimates of fair value of management
is within the range of values determined by
management’s external expert.
Our results
Based on the work performed, we are satisfied that the
valuation of the Company’s investments are in accordance
with IFRS and within our estimated valuation range.
Governance
Castelnau Group Ltd Annual Report 2021
37
Other information
The Directors are responsible for the other information. The other information comprises the information included
in the Annual Report and Audited Financial Statements, but does not include the financial statements and our
auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies (Guernsey) Law,
2008 requires us to report to you if, in our opinion:
• proper accounting records have not been kept by the Company; or
• the Company’s Financial Statements are not in agreement with the accounting records; or
• we have not obtained all the information and explanations, which to the best of our knowledge and belief, are
necessary for the purposes of our audit.
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on pages 30 and 31, the Directors
are responsible for the preparation of the financial statements which give a true and fair view in accordance
with IFRSs as issued by the International Standards Board (IASB), and for such internal control as the Directors
determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
Governance
Castelnau Group Ltd Annual Report 2021
38
Independent Auditor’s Report to the Members of Castelnau Group Limited – continued
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by the Directors.
• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,
and whether the financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards
applied.
From the matters communicated with the directors, we determine those matters that were of most significance
in the audit of the financial statements of the current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
Governance
Castelnau Group Ltd Annual Report 2021
39
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with section 262 of the
Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Cyril Swale
For and on behalf of Grant Thornton Limited
Chartered Accountants
St Peter Port
Guernsey
Date: 8 April 2022
Financial Statements
Financial
Statements
40
Castelnau Group Ltd Annual Report 2021
Financial Statements
Castelnau Group Ltd Annual Report 2021
41
Statement of Comprehensive Income
For the year ended 31 December 2021
Notes
31 December
2021
Total
GBP
13 March to
31 December
2020
Total
GBP
Income – –
Total income – –
Expenses
Net losses on financial assets at fair value through profit or loss 5 (10,021,645) –
Other expenses 6 (1,968,331) –
Loss before tax (11,989,976) –
Tax – –
Total comprehensive loss for the year/period (11,989,976) –
Pence Pence
Loss per share – Basic and diluted 11 (6.57) –
All items in the above statement derive from continuing operations. No operations were acquired or discontinued
during the period. All revenue is attributable to the equity holders of the Company.
The accompanying notes on pages 45 to 59 form an integral part of these financial statements.
Financial Statements
Castelnau Group Ltd Annual Report 2021
42
Statement of Financial Position
As at 31 December 2021
Notes
31 December
2021
GBP
31 December
2020
GBP
NON-CURRENT ASSETS
Investments – equity 5 126,617,646 –
Investments – loans 5 3,361,795 –
129,979,441 –
CURRENT ASSETS
Trade and other receivables 7 39,033 1
Cash and cash equivalents 44,497,139 –
44,536,172 1
TOTAL ASSETS 174,515,613 1
NON-CURRENT LIABILITIES
Earn out liability 8 1,283,333 –
CURRENT LIABILITIES
Earn out liability 8 916,667 –
Other payables 9 188,828 –
1,105,495 –
TOTAL LIABILITIES 2,388,828 –
NET ASSETS 172,126,785 1
EQUITY
Share capital 10 184,116,761 1
Retained deficit (11,989,976) –
TOTAL EQUITY 172,126,785 1
Number of Ordinary Shares in issue 10 183,996,059 –
NAV per Ordinary Share (pence) 12 93.55 –
The financial statements on pages 41 to 59 were approved and authorised for issue by the Board of Directors on
8April 2022 and signed on its behalf by:
Andrew Whittaker
Director
Joanna Duquemin Nicolle
Director
The accompanying notes on pages 45 to 59 form an integral part of these financial statements.
Financial Statements
Castelnau Group Ltd Annual Report 2021
43
Statement of Changes in Equity
For the year ended 31 December 2021
Note
Share Capital
GBP
Retained Deficit
GBP
Total
GBP
Opening equity 1 – 1
Loss for the year – (11,989,976) (11,989,976)
Issue of new Ordinary Shares 10 184,116,760 – 184,116,760
Closing equity 184,116,761 (11,989,976) 172,126,785
For the period from 13 March to 31 December 2020
Share Capital
GBP
Retained Earnings
GBP
Total
GBP
Opening equity – – –
Profit for the period – – –
Issue of new Ordinary Shares 1 – 1
Closing equity 1 – 1
The accompanying notes on pages 45 to 59 form an integral part of these financial statements.
Financial Statements
Castelnau Group Ltd Annual Report 2021
44
Statement of Cash Flows
For the year ended 31 December 2021
Notes
31 December
2021
GBP
13 March to
31 December
2020
GBP
Operating activities
Loss before tax (11,989,976) –
Net losses on financial assets at fair value through profit or loss 10,021,645 –
Increase in receivables 7 (39,032) (1)
Increase in provisions 8 2,200,000 –
Increase in payables 9 188,828 –
Net cash flow from/(used in) operating activities 381,465 (1)
Investing activities
Purchase of investments 5 (140,314,291) –
Loan repayment 5 313,205 –
Net cash used in investing activities (140,001,086) –
Financing activities
Issue of Ordinary Shares 10 184,116,760 1
Net cash flow from financing activities 184,116,760 1
Increase in cash and cash equivalents 44,497,139 –
Cash and cash equivalents at beginning of year/period – –
Cash and cash equivalents at end of year/period 44,497,139 –
The accompanying notes on pages 45 to 59 form an integral part of these financial statements.
Financial Statements
Castelnau Group Ltd Annual Report 2021
45
1. General information
Castelnau Group Limited (the “Company”), registration number 67529, is a limited company incorporated and
domiciled in Guernsey. The registered office address of the Company is PO Box 255, Les Banques, Trafalgar Court,
St. Peter Port, Guernsey GY1 3QL. The Company was incorporated on 13 March 2020 and listed on the Specialist
Fund Segment (“SFS”) of the London Stock Exchange’s Main Market on 18 October 2021.
The Company’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 on page 62.
The financial statements of the Company are presented for the year ended 31 December 2021 and were
authorised for issue by the Board on 8 April 2022.
2. Statement of compliance
a) Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are in compliance with The
Companies (Guernsey) Law, 2008. The Company is subject also to the continuing obligations imposed on all
investment companies whose shares are admitted to trading on the SFS of the Main Market.
These financial statements are presented in Sterling ("GBP or £"), which is also the Company's functional currency
(please see note 3d for further details).
b) Going concern
The financial statements have been prepared on a going concern basis. In forming this opinion, the Directors have
considered any potential impact of the COVID-19 pandemic on the going concern and viability of the Company.
The Board continues to monitor the ongoing impacts of the COVID-19 pandemic and has concluded that the
biggest threat to the Company with regards to this pandemic is the failure for a key service provider to maintain
business continuity and resiliency while maintaining work from home and social distancing practices. The Board
has assessed the measures in place by key service providers to produce business continuity and so far has
not identified any significant issues that affect the Company. For these reasons, the Board is confident that the
outbreak of COVID-19 has not impacted the going concern assessment of the Company.
The Directors have a reasonable expectation that the Company has adequate operational resources to continue
in operational existence for at least twelve months from the date of approval of these financial statements. Further
information on the Company’s going concern can be found on pages 15 and 45.
c) Basis of measurement
The financial statements have been prepared on a historical cost basis, except for certain financial instruments,
which are measured at fair value through profit or loss.
Notes to the nancial statements
For the year ended 31 December 2021
Financial Statements
Castelnau Group Ltd Annual Report 2021
46
3. Signicant accounting policies
a) Adoption of new IFRS standards
A number of new standards, amendments to standards and interpretations are effective for the annual periods
beginning after 1 January 2021. None of these are expected to have a significant effect on the measurement of the
amounts recognised in the financial statements of the Company.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for
31December 2021 reporting periods and have not been early adopted by the Company. These standards are not
expected to have a material impact on the entity in the current or future reporting periods and on foreseeable
future transactions.
IFRS 9 Financial Instruments (amendments resulting from Annual Improvements to IFRS Standards
2018-2020)
1 January 2022
IAS 1 Presentation of Financial Statements (amendments regarding the classification of liabilities
and the disclosure of accounting policies)
1 January 2023
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (amendments regarding
the definition of accounting estimates)
1 January 2023
IAS 37 Provisions, Contingent Liabilities and Contingent Assets (amendments regarding the costs
to include when assessing whether a contract is onerous)
1 January 2022
b) Financial instruments
Recognition and derecognition
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual
provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are
transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
Financial assets
Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a significant financing component all financial assets are
initially measured at fair value adjusted for transaction costs (where applicable).
Financial assets, other than those designated and effective as hedging instruments, are classified into one of the
following categories:
• amortised cost
• fair value through profit or loss (FVTPL), or
• fair value through other comprehensive income (FVOCI).
In the periods presented the Company does not have any financial assets categorised as FVOCI.
The classification is determined by both:
• the entity’s business model for managing the financial asset, and
• the contractual cash flow characteristics of the financial asset.
Notes to the financial statements – continued
Financial Statements
Castelnau Group Ltd Annual Report 2021
47
Subsequent measurement of financial assets
a) Investments as FVTPL
Investments held at fair value through profit or loss are initially recognised at fair value, being the consideration
given and excluding transaction or other dealing costs associated with the investment. Refer to note 4 and note 5
for judgements, estimations and assumptions made in relation to financial instruments.
After initial recognition, investments are measured at fair value through profit or loss. Gains or losses on investments
measured at fair value through profit or loss are included in the Statement of Comprehensive Income and transaction
costs on acquisition or disposal of investments are also included in the Statement of Comprehensive Income.
For investments that are actively traded in organised financial markets, fair value is determined by reference
to stock exchange quoted market bid prices at the close of business on the year-end date. All purchases and
sales of investments are recognised on the trade date, i.e. the date that the Company commits to purchase or
sell an asset. Investments held at fair value through profit or loss are initially recognised at fair value, being the
consideration given and excluding transaction or other dealing costs associated with the investment.
Unquoted investments are measured at fair value, which is determined by the Directors in accordance with the
International Private Equity and Venture Capital valuation guidelines and IFRS 13. Valuation reports provided by the
Investment Manager of the unquoted investments are used to calculate the fair value where there is evidence
that the valuation is derived using fair value principles that are consistent with the Company’s accounting policies
and valuation methods. Such valuation reports may be adjusted to take account of changes or events to the
reporting date, or other facts and circumstances which might impact the underlying value.
Upon the sale of an investment, in part or wholly, the fair value would be the expected sale price where this is
known or can be reliably estimated.
b) Financial assets at amortised cost
The Company’s financial assets at amortised cost are made up of loans to investments and receivables.
Financial assets are measured at amortised cost if the assets meet the following conditions (and are not
designated as FVTPL):
• they are held within a business model whose objective is to hold the financial assets and collect its contractual
cash flows, and
• the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
After initial recognition, these are measured at amortised cost using the effective interest method.
Discounting is omitted where the effect of discounting is immaterial.
Fair Value Hierarchy
Under IFRS 13, investment companies are required to disclose the fair value hierarchy that classifies financial
instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to
estimate the fair values.
Level 1 Valued using quoted prices in active markets for identical assets
Level 2 Valued by reference to valuation techniques using observable inputs other than quoted prices included
within Level 1
Level 3 Valued by reference to valuation techniques using inputs that are not based on observable market data
Financial Statements
Castelnau Group Ltd Annual Report 2021
48
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to
the fair value measurement of the relevant asset.
Impairment of financial assets
IFRS 9’s impairment requirements use forward-looking information to recognise expected credit losses– the
‘expected credit loss (ECL) model’. Instruments within the scope of the requirements included loans and trade
receivables.
The Company considers a broader 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.
In applying this forward-looking approach, a distinction is made between:
• financial instruments that have not deteriorated significantly in credit quality since initial recognition or that
have low credit risk (‘Stage 1’) and
• financial instruments that have deteriorated significantly in credit quality since initial recognition and whose
credit risk is not low (‘Stage 2’).
‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.
‘12-month expected credit losses’ are recognised for the first category (i.e. Stage 1) while ‘lifetime expected credit
losses’ are recognised for the second category (i.e. Stage 2).
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over
the expected life of the financial instrument.
Receivables and prepayments
Other receivables are amounts due in the ordinary course of business. If collection is expected in one year or
less, they are classified as current assets. If not, they are presented as non-current assets. Other receivables are
recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate
method, less provision for impairment assessed using the simplified approach of expected credit loss model on
experience of previous losses and expectation of future losses..
Financial liabilities
Classification and measurement of financial liabilities
The Company’s financial liabilities are made up of trade and other payables. Financial liabilities are initially
measured at fair value, and, where applicable, adjusted for transaction costs unless the Company designated a
financial liability at FVTPL.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method except for
derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair value with gains or
losses recognised in profit or loss (other than derivative financial instruments that are designated and effective as
hedging instruments). All interest-related charges and, if applicable, changes in an instrument’s fair value that are
reported in profit or loss are included within finance costs or finance income.
Notes to the financial statements – continued
Financial Statements
Castelnau Group Ltd Annual Report 2021
49
c) Income and expenses
All income and expenses are included in the Statement of Comprehensive Income on an accruals basis and are
recognised through profit or loss in the Statement of Comprehensive Income.
d) Foreign currency
The currency of the primary economic environment in which the Company operates (the functional currency)
is pounds sterling (“sterling”), which is also the presentational currency of the Company. Transactions involving
currencies other than sterling are recorded at the exchange rate ruling on the transaction date. At each year end
date, monetary items and non-monetary assets and liabilities, which are fair valued, and which are denominated
in foreign currencies, are retranslated at the closing rates of exchange. Such exchange differences are included
in the Statement of Comprehensive Income and allocated to capital if of a capital nature or to revenue if of a
revenue nature. Exchange differences allocated to capital are taken to gains on disposal or investment holding
losses, as appropriate.
e) Cash and cash equivalents
Cash and Cash Equivalents in the Cash Flow Statement comprise cash held at bank.
f) Share capital
The Company's Ordinary Shares are classified as equity.
g) Taxation
The Company has been granted Exempt Status under the terms of The Income Tax (Exempt Bodies) (Guernsey)
Ordinance, 1989 to income tax in Guernsey. Its liability for Guernsey taxation is limited to an annual fee of £1,200
(2020: Nil). The activities of the Company do not constitute relevant activities as defined by the Income Tax
(Substance Requirements) (Implementation) Regulations, 2018 (as amended) and as such the Company was out
of scope.
h) Provisions, contingent assets and contingent liabilities
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the
most reliable evidence available at the reporting date, including the risks and uncertainties associated with the
present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required
in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their
present values, where the time value of money is material.
No liability is recognised if an outflow of economic resources as a result of present obligations is not probable.
Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.
4. Judgements, estimations or assumptions
The Directors have reviewed matters requiring judgements, estimations or assumptions. The preparation of the
financial statements requires management to make judgements, estimations or assumptions that affect the
amounts reported for assets and liabilities as at the year-end date and the amounts reported for revenue and
expenses during the year. However, the nature of the estimation means that actual outcomes could differ from
those estimates.
Financial Statements
Castelnau Group Ltd Annual Report 2021
50
4.1 Investment valuation
The critical judgement, estimate or assumption that may have a significant risk of causing a material adjustment
to the Company’s NAV relates to the valuation of the Company’s unquoted (Level 3) investments, which is
approximately 16% of the Company’s NAV.
The Level 3 holding is valued in line with accounting policy as disclosed in Note 3(b).
Whilst the Board considers the methodologies and assumptions adopted in the valuation of unquoted
investments are reasonable and robust, because of the inherent uncertainty of the valuation, the values used may
differ significantly from the values that would have been used had a ready market for the investment existed and
the differences could be significant. These values may need to be revised as circumstances change and material
adjustments may still arise as a result of revaluation of the unquoted investments fair value within the next year.
4.2 Earn-out liability
The total purchase price for Rawnet included both an up-front consideration as well as an earn-out payment
contingent on future performance of the business. In addition to the valuation of the investment there was an
assessment of the fair value of the liability related to the potential future payment of the earn-out (see note 8). The
earn-out payment has been recognised at fair value (taking into account the probability of payment and a discount
rate). The earn-out payment is considered to be additional purchase price and as such the fair value of the earn-out
payment has been recorded as a liability and the fair value considered part of the purchase price. Subsequent
remeasurement of the liability is recognised in the Statement of Comprehensive Income as ”Change in fair value of
contingent consideration”.
4.3 Assessment as investment entity
Entities that meet the definition of an investment entity within IFRS 10 are required to measure their subsidiaries at
fair value through profit or loss rather than consolidate them. The criteria which define an investment entity are as
follows:
(i) An entity that obtains funds from one or more investors for the purpose of providing those investors with
investment services;
(ii) An entity that commits to its investors that its business purpose is to invest solely for returns from capital
appreciation, investment income or both; and
(iii) An entity that measures and evaluates the performance of substantially all of its investments on a fair value
basis.
The Company has several investors that have access to investment management services and opportunities.
Inaddition some of the investors are not related parties of the Company or members of the group.
The Company’s objective to provide a “high rate of compound return” is consistent with that of an investment
entity. The Company has clearly defined exit strategies for each of its investment classes, these strategies are
again consistent with an investment entity.
The Company uses a variety of methods or valuation techniques and makes assumptions based on market
conditions existing at each Statement of Financial Position date to value financial assets at fair value through
profit or loss that are not traded in active markets. The valuation techniques have been prepared with the goal
that fair value measurements derived when using these valuation techniques are compliant with IFRS.
The Directors, upon considering the above criteria, have concluded that the Company meets the definition of an
investment entity. Therefore, the Company has classified its investments at fair value through profit or loss in the
Statement of Financial Position.
Notes to the financial statements – continued
Financial Statements
Castelnau Group Ltd Annual Report 2021
51
5. Investments
Investments in unconsolidated subsidiaries:
Name of investee company Date of acquisition Domicile Ownership
Rawnet Limited 12 February 2021 United Kingdom 100%
Ocula Technologies Holdings Limited 22 January 2021 United Kingdom 78%
Showpiece Technologies Limited 12 November 2021 United Kingdom 80%
WLS International Limited 14 October 2021 Cayman Islands 19%
Phoenix SG Limited 14 October 2021 Cayman Islands 55%
Equity
31 December
2021
GBP
Loans
31 December
2021
GBP
Total
31 December
2021
GBP
13 March to
31 December
2020
GBP
INVESTMENTS
Opening portfolio cost – – – –
Purchases at cost 136,639,291 3,675,000 140,314,291 –
Loan repayment – (313,205) (313,205) –
136,639,291 3,361,795 140,001,086 –
Unrealised gains on investments 769,507 – 769,507 –
Unrealised losses on investments (10,791,152) – (10,791,152) –
Fair value 126,617,646 3,361,795 129,979,441 –
Movement in unrealised gains on
investments
769,507 – 769,507 –
Movement in unrealised losses on
investments
(10,791,152) – (10,791,152) –
Net losses on financial assets (10,021,645) – (10,021,645) –
The transaction charges on the purchase and sale of investments during the current year were £14,134 (2020: Nil)
included in the Statement of Comprehensive Income.
Loans
The Company has a loan facility of £3,000, 000 with Ocula Technologies Holdings Limited as borrower. The
termination date is 6 May 2024. No interest shall accrue or be payable.
The Company has a loan facility of £1,000, 000 with Showpiece Technologies Limited as borrower. The termination
date is 19 November 2024. No interest shall accrue or be payable.
The Company has a loan facility of £1,500, 000 with Rawnet Limited as borrower. The termination date is 15 February
2022. No interest shall accrue or be payable.
The utilised amounts on each facility are disclosed on the Portfolio Report on page 4.
Financial Statements
Castelnau Group Ltd Annual Report 2021
52
31 December
2021
GBP
13 March to
31 December
2020
GBP
Classification
Level 1 98,409,862 –
Level 2 – –
Level 3 28,207,784 –
Total non-current investments held at ‘FVTPL’ 126,617,646 –
There were no transfers between levels during the year (2020: Nil).
Measurement of fair value of investments
Listed assets are priced using end of day market prices. For investments that are not listed, Phoenix has processes
in place to ensure valuations provide an objective, consistent and transparent basis for the fair value of unquoted
securities in accordance with International Financial Reporting Standards. Phoenix creates individual valuation
frameworks for all unlisted securities. The final framework will vary depending on the characteristics of the holding
(for instance it may also incorporate a listed aspect or loan).
To ensure the unlisted valuation framework is robust, Phoenix engages a third-party valuation expert to review the
methodologies and assumptions for each new material unlisted security. Then on at least a semi-annual basis the
third-party valuation expert will review and verify the framework and carry out an independent valuation against
which the Investment Managers valuation is compared. Independent value verification may be more frequent
depending on the characteristics of each investment and the occurrence of a material change in value. Although
Phoenix is ultimately responsible for the final valuation, in practice we would work with the third-party valuation
expert to agree a valuation. If Phoenix could not agree a final decision would be made at Board level.
There may be circumstances when Phoenix values an unlisted security at cost when that represents Phoenix's
best estimate of fair value. In this scenario and when investments are deemed immaterial in the context of their
value relative to the total portfolio value and there are no significant changes to the portfolio company from when
it was purchased (i.e., no material changes to cash flow projections, no material change in the performance of
the company, and no transactions have taken place of the portfolio company shares with other parties) then no
third-party valuation review will be obtained.
Unlisted equities will be valued monthly by the Phoenix investment team. These valuations will then be reviewed
and approved by Phoenix’s business team who are functionally separate from the investment team. Ultimate
approval of the valuation is from Phoenix’s COO. The Phoenix business team will liaise directly with the third-party
valuation expert who review PAMP’s valuation methodology to ensure the framework and valuation is robust.
The following valuation techniques are used for instruments categorised in Level 3:
Notes to the financial statements – continued
Financial Statements
Castelnau Group Ltd Annual Report 2021
53
Investment in Rawnet – The fair value of this investment was determined using a discounted cash flow model.
This approach indicates fair value based on the present value of the cash flows that a business (or security) is
expected to generate in the future. Fair value is estimated by discounting the expected cash flows of a business to
present value at a discount rate that reflects the timing and risk of collecting the projected cash flows.
Investment in Phoenix S.G (“PSG”) – PSG is a company incorporated in the Cayman Islands whose sole purpose
was to make a number of investments in Stanley Gibbons entities. The Company’s investment in PSG is valued by
utilising the Net Asset Value per share of PSG. The Net Asset Value of PSG includes its shares in Stanley Gibbons
and some other assets related to Stanley Gibbons. The fair value of PSG was determined based on the sum of all
approach. The other assets include a loan to Stanley Gibbons and rights to receivables in relation to the sale of
stamp inventories.
Investment in WLS International (“WLS”) – WLS is a company incorporated in the Cayman Islands whose sole
purpose was to investment in WLS Holdings. The Company’s investment in WLS is valued by utilising the Net Asset
Value per share of WLS. The fair value of WLS includes it’s 100% ownership of WLS Holdings, now known as Cambium.
The fair value of Cambium was determined using a discounted cash flow model.
The following table provides information about sensitivity of the fair value measurement to changes in the most
significant inputs:
Description
Significant
unobservable
input
Estimate of the
input
Sensitivity of fair value to changes in
unobservable inputs
Investment in Phoenix S.G.
(valuation of the rights to
receivables in relation to the
sale of stamp inventories)*
Monthly sales rate -1.0% An increase to -0.9%/(decrease to -1.1%)
would (decrease)/increase fair value by
(-1.52%)/1.43%
Discount rate 5% An increase to 6%/(decrease to 4%)
would (decrease)/increase fair value
by (-4.19%)/4.46%
Sales premium to SGG
valuation
98% An increase to 108%/(decrease to 88%)
would increase/(decrease) fair value
by 2.10%/(-1.72%)
Investment in Rawnet FY22-26 Compound sales
Growth rate
18% An increase to 23%/(decrease to 13%)
would increase/(decrease) fair value
by 20%/(-18%)
Investment in WLS
International
Discount rate Growth rate 15% An increase to 16%/(decrease to 14%)
would(decrease)/increase fair value
by (-3.38%)/3.38%
* The sensitivity analysis for the stamp inventories has been calculated on a weighted average basis.
Financial Statements
Castelnau Group Ltd Annual Report 2021
54
6. Expenses
31 December
2021
Total
GBP
13 March to
31 December
2020
Total
GBP
Administrator's fee 50,821 –
Audit fees 43,000 –
Directors' fee 27,370 –
Legal and professional fees 47,856 –
Investment transaction charges 14,134 –
Change in fair value of contingent consideration (550,001) –
Set up costs 2,247,739 –
Sundry costs 72,324 –
Depositary fee 7,344 –
Trustee fee 7,344 –
Bank interest 400 –
1,968,331 –
Directors’ fees of £31,904 for the have been accrued under set up costs.
7. Trade and other receivables
31 December
2021
GBP
13 March to
31 December
2020
GBP
Prepayments 39,032 –
Other receivables 1 1
39,033 1
Notes to the financial statements – continued
Financial Statements
Castelnau Group Ltd Annual Report 2021
55
8. Earn-out liability
31 December
2021
GBP
13 March to
31 December
2020
GBP
Earn-out liability – Non current 1,283,333 –
Earn-out liability – Current 916,667 –
2,200,000 –
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
£916,667 at each payment date. 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 tranche is effectively guaranteed, some uncertainty remains with regards to
the second two tranches.
9. Other payables
31 December
2021
GBP
13 March to
31 December
2020
GBP
Other accrued expenses 188,828 –
188,828 –
10. Share capital
31 December
2021
13 March to
31 December
2020
Allotted, called up and fully paid Number 183,996,059 1
Ordinary Shares GBP 184,116,761 1
The Company did not purchase any of its own shares during the year ended 31 December 2021 or 2020. No shares
were cancelled during either year.
No shares were held in Treasury or sold from Treasury during the year ended 31 December 2021 or 2020.
11. Loss per ordinary share
Loss per share is based on the loss of £11,989,976 (2020: Nil) attributable to the weighted average of 182,573,503
(2020: 1) Ordinary Shares in issue during the year.
There is no difference between the weighted average Ordinary diluted and undiluted number of Shares. There is
no difference between basic and diluted earnings per share as there are no diluted instruments.
Financial Statements
Castelnau Group Ltd Annual Report 2021
56
12. Net assets per ordinary share
The figure for net assets per Ordinary Share is based on £172,126,784 (2020: 1) divided by 183,996,059 (2020: 1) voting
Ordinary Shares in issue at 31 December 2021.
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 financial statements.
Net assets
GBP
NAV per share
pence
NAV as published on 31 December 2021 172,126,785 93.55
NAV as disclosed in these financial statements 172,126,785 93.55
13. Material agreements
Details of the management, administration and secretarial contracts can be found in the Directors’ Report. There
were no transactions with directors other than disclosed in the Directors’ Remuneration Report. As at 31 December
2021 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 Company. 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 year, performance fee of Nil (2020: Nil) were charged to the Company, of which Nil (2020: Nil) remained
payable at the end of the year.
b) Administrator and Secretary
Northern Trust International Fund Administration Services (the "Administrator") is entitled to: (i) an administration
fee of 0.05% of the Net Asset Value of the Company up to £200 million, 0.03% of the net asset value of the Company
between £200 million and £400 million, and 0.02% of the net asset value of the Company over £400million
(subjectto 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 Company’s
nominated firm (as described in the FCA Handbook), in each case per annum (exclusive of VAT). Inaddition, the
Administrator is entitled to certain other fees for ad hoc services rendered from time to time. During the year,
administration and secretarial fees of £50,821 (2020: Nil) were charged to the Company, of which £18,361 (2020: Nil)
remained payable at the end of the year.
Notes to the financial statements – continued
Financial Statements
Castelnau Group Ltd Annual Report 2021
57
c) Registrar
The Company 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
year, registrar fees of £4,219 (2020: Nil) were charged to the Company, of which £4,219 (2020: Nil) remained payable
at the end of the year.
d) Depositary
Northern Trust (Guernsey) Limited (the "Depositary") is entitled to: (i) a custody fee of 0.02% of the net asset value
of the Company (subject to a minimum of £20,000); and (ii) a depositary services fee of 0.02% of the net asset
value of the Company up to £200 million, falling to 0.01% of the net asset value of the Company 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 year,
depositary fees of £7,344 (2020: Nil) were charged to the Company, of which £7,344 (2020: Nil) remained payable
at the end of the year.
14. Related parties
Directors’ remuneration & expenses
The Director’s fees are disclosed in the Director’s Remuneration Report on page 29. No Directors’ fees were
outstanding as at 31 December 2021 (2020: £Nil).
Shares held by related parties
The amount of ordinary shares held by the Directors are disclosed in the Director’s Report on page 17. As at
31December 2021, the Investment Manager held no Shares (2020: no Shares) of the Issued Share Capital. Partners and
employees of the Investment Manager held no Shares (2020: no Shares).
Gary Channon is CEO and CIO of Phoenix Asset Management Partners Limited, the Investment Manager.
MrChannon is currently CEO of Dignity which is a portfolio holding. Mr Channon became CEO on 22 April 2021.
Lorraine Smyth is a Director of the Company and an employee of Phoenix Asset Management Partners Limited, the
Investment Manager. Ms. Smyth is currently a Director of Rawnet and Ocula which are portfolio holdings.
15. Financial instruments – risk analysis
The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out
in the Strategic Report. Issues associated with portfolio distribution and concentration risk are discussed in the
Investment Policy section of the Strategic Report. This note, which is incorporated in accordance with accounting
standard IFRS 7, examines in greater detail the identification, measurement and management of risks potentially
affecting the value of financial instruments and how those risks potentially affect the performance and financial
position of the Company. The risks concerned are categorised as follows:
(a) Potential Market Risks, which are principally:
(i) Currency Risk
Financial Statements
Castelnau Group Ltd Annual Report 2021
58
(ii) Interest Rate Risk and
(iii) Other Price Risk
(b) Liquidity Risk
(c) Credit Risk
(d) Capital management policies and procedures
Each is considered in turn below:
A (i) Currency Risk
The portfolio as at 31 December 2021 was invested in sterling securities and there was no currency risk arising from
the possibility of a fall in the value of sterling impacting upon the value of investments or income.
The Company had no foreign currency borrowings at 31 December 2021 or 31 December 2020 and no sensitivity
analysis is presented for this risk.
A (ii) Interest Rate Risk
The Company did not hold fixed interest securities at 31 December 2021 or 31 December 2020.
With the exception of cash, no interest rate risks arise in respect of any current asset. All cash held as a current
asset is sterling denominated, earning interest at the bank’s or custodian’s variable interest rates.
The Company had no borrowings at 31 December 2021 or 31 December 2020.
A (iii) Other Price Risk
The principal price risk for the Company is the price volatility of shares that are owned by the Company. As
described in the Investment Manager’s Review, the Company spreads its investments across different sectors and
geographies, but, as shown by the Portfolio Analysis in the Business Review, the Company may maintain relatively
strong concentrations in particular sectors selected by the Investment Manager.
The effect on the portfolio of a 10.0% increase or decrease in market prices would have resulted in an increase
or decrease of £9,840,986 (2020: Nil) in the investments held at fair value through profit or loss at the period end,
which is equivalent to 5.72% (2020: Nil) in the net assets attributable to equity holders. This analysis assumes that
all other variables remain constant.
B Liquidity Risk
The following table analyses the Company’s liabilities into relevant maturity groupings based on the maturities
at the statement of financial position date. The amounts in the table are the undiscounted net cash flows on the
financial liabilities:
Up to 1
month
1-6
months
6-12
months
More than 12
months Total
As at 31 December 2021
Earn-out liability – – 916,667 1,283,333 2,200,000
Other payables – – 188,828 – 188,828
– – 1,105,495 1,283,333 2,388,828
Notes to the financial statements – continued
Financial Statements
Castelnau Group Ltd Annual Report 2021
59
C Credit Risk
The Company invests in quoted equities and fixed interest securities which are level 1 and level 3 investments.
Themajority of cash is currently placed with The Northern Trust Company. The Company is subject to credit risk to
the extent that this institution may be unable to return this cash. The Northern Trust Company is a wholly owned
subsidiary of The Northern Trust Corporation. The Northern Trust Corporation is publicly traded and a constituent
of S&P 500. The Northern Trust Corporation has a credit rating of A+ from Standard & Poor's and A2 from Moody's.
At 31 December 2021, cash at bank comprised £44,497,139 (2020: Nil) held by the Depository which is the maximum
credit risk that the Company is exposed to.
Credit Risk arising on transactions with brokers relates to transactions awaiting settlement. This risk is considered
to be very low because transactions are almost always undertaken on a delivery versus payment basis with
member firms of the London Stock Exchange.
D Capital management policies and procedures
The Company’s capital management objectives are:
• to ensure the Company’s ability to continue as a going concern; and
• to provide an adequate return to Shareholders by pursuing investment policies commensurately with the level
of risk.
The Company monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as
presented on the face of the Statement of Financial Position.
The Company sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial
liabilities. The Company manages the capital structure and makes adjustments to it in the light of changes in
economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure, the Company may adjust the amount of dividends paid to Shareholders (within the statutory limits
applying to investment trusts), return capital to Shareholders, issue new shares, or sell assets.
16. Post period end events
These financial statements were approved for issuance by the Board on 8 April 2022. Subsequent events have
evaluated to this date.
On 11 March 2022, the Company entered into a loan agreement with The Cambium Group UK Holdings Limited as
the borrower. The total commitment was £2 million.
Russia’s invasion of Ukraine is a new emerging risk to the global economy. The resulting imposition of international
sanctions on Russia will have wider global effect on the supply and prices of certain commodities and
consequently on inflation and general economic growth of the global economy and will have the potential to
delay the global economic recovery from COVID-19. There has been no significant impact on business operations
caused by this risk.
Financial Statements
Castelnau Group Ltd Annual Report 2021
60
In accordance with ESMA Guidelines on Alternative Performance Measures ("APMs") the Board has considered
what APMs are included in the Annual Report and Audited 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 annual report is unaudited and outside the scope of IFRS.
Discount/Premium
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. The size of the discount is calculated by subtracting the share price at year end (105.50p) from the NAV
per share at year end (93.55p) and is usually expressed as a percentage of the NAV per share (12.77%). If the share
price is higher than the NAV per share, the shares are said to be trading at a premium.
Ongoing Charges
The ongoing charges represent the Company’s operating expenses, excluding financecosts, expressed as a
percentage of the average of the monthly net assets during the year (see page 16). TheBoard continues to be
conscious of expenses and works hard to maintain a sensible balance between good quality service and cost.
Average NAV for the year (A) 171,343,518
Operating expenses (annualised) (B) 556,863
Ongoing charges (B/A) 0.32%
NAV Total Return
NAV total return is the percentage increase or decrease in NAV, inclusive of dividends paid and reinvested, in the
reporting period. 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 period.
Alternative Performance Measures
(Unaudited)
Financial Statements
Castelnau Group Ltd Annual Report 2021
61
Phoenix UK Fund Performance Table
The FTSE All-Share index used is with dividends reinvested.
Year
Investment Return
(Gross) NAV Return (Net) All Share Index Share Price £
Launch 1,000.00
1998 (8 months) 17.6% 14.4% (3.3%) 1,143.71
1999 (1.3%) (4.6%) 24.3% 1,090.75
2000 24.7% 23.0% (5.7%) 1,341.46
2001 31.7% 26.0% (13.1%) 1,690.09
2002 (17.8%) (20.1%) (22.6%) 1,349.64
2003 51.5% 49.8% 20.9% 2,021.24
2004 14.1% 11.2% 12.8% 2,247.26
2005 1.4% 0.3% 22.0% 2,254.99
2006 9.5% 8.3% 16.8% 2,442.90
2007 3.4% 2.3% 5.3% 2,498.40
2008 (39.5%) (40.2%) (29.9%) 1,494.31
2009 62.8% 59.7% 30.2% 2,386.48
2010 1.1% 0.0% 14.7% 2,386.37
2011 3.0% 1.9% (3.2%) 2,430.75
2012 48.3% 42.2% 12.5% 3,456.27
2013 40.5% 31.3% 20.9% 4,539.47
2014 1.9% 0.1% 1.2% 4,544.25
2015 20.1% 14.7% 0.9% 5,211.13
2016 9.1% 7.6% 16.8% 5,605.58
2017 21.5% 16.3% 13.1% 6,518.69
2018 (13.6%) (14.7%) (9.5%) 5,558.97
2019 30.3% 27.7% 19.1% 7,098.36
2020 (3.9%) (4.9%) (9.7%) 6,748.66
2021 23.4% 18.7% 18.3% 8,011.17
2022 (to 28 February) 0.8% 0.6% (0.8%) 8,061.03
Cumulative 1347.9% 706.1% 229.9%
Annualised Returns 11.9% 9.2% 5.1%
Appendix (Unaudited)
Financial Statements
Castelnau Group Ltd Annual Report 2021
62
Company Information
Directors (all non-executive)
Joanne Peacegood (Chair)
Andrew Whittaker
Joanna Duquemin Nicolle
Lorraine Smyth
David Stevenson
Registrar
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
Channel Islands
GY1 3QL
Financial Adviser
Liberum Capital Limited
25 Ropemaker Street
London
EC2Y 9LY
AIFM and Investment Manager
Phoenix Asset Management Partners Limited
64-66 Glentham Road
London
SW13 9JJ
Solicitors to the Company as to English law
Gowling WLG (UK) LLP
4 More London
Riverside
London
SE1 2AU
Administrator and Company Secretary
Northern Trust International Fund
Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
Channel Islands
GY1 3QL
Solicitors to the Company as to Guernsey law
Carey Olsen (Guernsey) LLP
PO Box 96,
Carey House
Les Banques
St Peter Port
Guernsey
Channel Islands
GY1 4BZ
Custodian and Depositary (appointed 18 October 2021)
Nothern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey
Channel Islands
GY1 3DA
Independent Auditor
Grant Thornton Limited
P O Box 313
Lefebvre House
Lefebvre Street
St Peter Port
Guernsey
GY1 3TF
Designed & printed by Perivan
Strategic Report
Chair’s Statement ......................................................................................................................
3
Holdings .........................................................................................................................................
4
Portfolio Analysis ........................................................................................................................
4
Statement from the CIO of the Investment Manager ................................................
5
Investment Manager's Report ..............................................................................................
9
Governance
Board Members ........................................................................................................................
12
Disclosure of Directorships in Public Companies Listed
on Recognised Exchanges ...................................................................................................
12
Directors’ Report .......................................................................................................................
14
Directors’ Remuneration Report .......................................................................................
29
Statement of Directors’ Responsibilities ........................................................................
30
Audit Committee Report ......................................................................................................
32
Independent Auditor’s Report ...........................................................................................
35
Financial Statements
Statement of Comprehensive Income ...........................................................................
41
Statement of Financial Position ........................................................................................
42
Statement of Changes in Equity .......................................................................................
43
Statement of Cash Flows ....................................................................................................
44
Notes to the Financial Statements ..................................................................................
45
Alternative Performance Measures (Unaudited) ......................................................
60
Appendix (Unaudited) ...........................................................................................................
61
Company Information ..........................................................................................................
62
Contents.
We strive to compound
shareholders’ capital at
high rates of return.
Castelnau Group was formed by Phoenix Asset Management Partners
Limited in 2020. The listed structure provides the manager with a
permanent capital vehicle with which to make long-term investments
and acquisitions of all structures and sizes.
Castelnau Group
www.castelnaugroup.com
PO Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey
Channel Islands
GY1 3QL
Annual Report and
Audited Financial Statements
For the year ended 31 December 2021
