Final Results

Caledonia Investments PLC 19 May 2005 Caledonia Investments plc Preliminary Results for the 12 months ended 31 March 2005 Key points â€¢ Substantial total return outperformance against FTSE All-Share Total Return â€¢ 133% outperformance over five years (125% vs -8%) â€¢ 111% outperformance over ten years (229% vs 118%) â€¢ 9% outperformance of NAV per share against FTSE All-Share over 12 months â€¢ Company total return for the year of Â£173m (264p per share) â€¢ 4.4% increase in annual dividend to 28.2p marks 38 years of progressive dividends â€¢ Â£124m invested and Â£218m disinvested â€¢ Narrowing of share price discount to NAV from 21% to 12% over the year â€¢ Payment of elective special dividend of Â£88m and capital reduction Tim Ingram, Chief Executive, commented: 'Through our consistent strategy, we have again delivered outperformance. We are continuing to see strong deal flow, but will be very discerning in our investment choices.' 19 May 2005 Enquiries: Caledonia Investments plc 020 7457 2020 (today) Tim Ingram, Chief Executive 020 7802 8080 (thereafter) Jonathan Cartwright, Finance Director College Hill 020 7457 2020 Tony Friend Richard Pearson Chairman's statement Results I am delighted to report that our second year as an investment trust has been another successful one. We are pleased once again to have delivered excellent results for shareholders with total shareholder return over five and ten years outperforming our benchmark of the FTSE All-Share Total Return index by 133% and 111% respectively, which is considerably ahead of the outperformance recorded a year ago. It has also been an eventful year in that we found a satisfactory solution to the ill-considered attempts to liquidate Caledonia and destroy a company with a proud record of delivering good value for its shareholders over a long time frame. This is fully explained under 'Elective special dividend' below. Share price We are pleased that our continued growth in net assets per share amounting to some 21% over the year has been complemented by a further reduction in the discount of our share price to our underlying assets. This discount has narrowed from 30% two years ago to 21% a year ago and now to 12% at the close of the year under review. The discount is slightly above the average of our global growth sector peer group, and still well above some of the other top performers in this sector with whom we can justifiably compare ourselves. We do well to remember however that we do not control our share price, though we have worked diligently to create greater awareness of our good long term performance, and particularly with retail investors whom we believe to be natural owners of our shares. We shall continue with this effort as Tim Ingram explains in his chief executive's report, but the restoration of stability within our shareholder base is likely also to have contributed to this lower discount so that it will prove much more challenging to continue this trend from now onwards, which may in turn affect our total return performance. Nonetheless, we believe that our long established strategy of taking significant stakes in businesses of which we have a good understanding, with particular emphasis on identifying sound managements, should continue to deliver good long term net asset value performance. Dividend We are pleased to recommend a final dividend of 19.5 pence per share bringing the total for the year to 28.2 pence. This amounts to an increase of 4.4% and maintains our policy of seeking to achieve progressive annual dividend payments, which we have now delivered for thirty-eight successive years. Elective special dividend In July 2004, the elective special dividend and reduction of capital that had been proposed to resolve the long running dispute amongst the shareholders of Caledonia's largest shareholder, The Cayzer Trust Company, in which two institutional shareholders had also become involved, became effective. This dispute had been damaging to Caledonia's business model, which is founded on being a stable investor, willing and able to take the longer term view. Under these proposals, all shareholders were offered the opportunity to receive an elective special dividend, on up to two-ninths of their shareholdings, of an amount based on an 18% discount to the company's net asset value per share, with subsequent cancellation of those shares on which the dividend was paid through a Court approved reduction of capital. I am pleased to report that, aside from The Cayzer Trust Company, which had undertaken in advance to take up its full entitlement in order to facilitate the buy-out of its dissident shareholders, and Hermes, which we expected to participate given its previous publicly expressed views in support of the liquidation of Caledonia, the shares cancelled in respect of our other shareholders only amounted to some 1% of our overall share capital. This outcome enabled us to put an end to the misplaced and potentially destabilising attempts by a small handful of shareholders to liquidate Caledonia by paying out Â£88m, or less than 10% of our shareholders' funds. We were most encouraged by this support and I would like to thank our many shareholders who believe in our long term approach and who chose to remain with us. It is good to know that the Â£88m outflow of funds has been more than made up by the subsequent increase in the value of our assets by the year end. Portfolio In my interim statement, I reported on the reduced weighting in our portfolio of our two largest holdings, Close Brothers and Kerzner International ('KI'), where disposals had netted proceeds of some Â£91m. These re-balancing issues are ones of success given the strong share price performance of these companies over time and we took advantage of an even higher price for KI shares in February of this year and realised a further Â£28m. These investments still remain our two largest holdings, at 14% and 12% of our portfolio respectively at the year end. The chief executive's report gives a more detailed commentary on our portfolio. Board We have taken the opportunity to strengthen our board over the past six months. I was pleased to welcome Richard Goblet d'Alviella, chief executive of Sofina, the Belgium-based investment company, to our board as a non-executive director in January and more recently, in April, Jamie Cayzer-Colvin and Will Wyatt as executive directors. Given our interest in finding suitable investment opportunities on the Continent, exemplified by our recent investment in Cobepa, and Sofina's not dissimilar investment philosophy to our own, Richard Goblet's wide investment experience of the continent of Europe is a valuable added resource. Jamie Cayzer-Colvin and Will Wyatt, who have worked for Caledonia since 1995 and 1997 respectively and who both became associate directors three years ago, are responsible for a growing number of recent investment initiatives. We now have a younger board which is positive, whilst maintaining the experience which is crucial to our long term approach. Sir David Kinloch retired as an executive director in January 2004 on reaching the normal retirement age, but remained as a non-executive director until the conclusion of last year's annual general meeting. Accordingly, he left the board during the year under review and I would wish to repeat my thanks to him for his valuable service to Caledonia since the company took to its new life in 1988. Sadly, Michael Wyatt also decided to retire from the board at the close of the financial year. His contribution over 30 years as a director has been huge and his steady counsel through the enormous changes which have taken place with the business over that period has stood the company in great stead. He was deputy chairman from 1994 until 2001 and became a non-executive director in 2002. I would wish to thank him most wholeheartedly on behalf of all our shareholders. Outlook It is normally difficult to interpret the crystal ball, but our view tends on the cautious side. Deficits and consumer debt in the USA are high and the latter is repeated in the UK with the added issue of rising Government spending. However, growth over the medium to longer term in Asia and the Far East, where we are inclined to seek some investment opportunities, looks interesting. We shall bear these factors in mind as we move forward in the belief that our philosophy should continue to deliver good value for shareholders. Peter Buckley Chairman Chief executive's report This is the second year that we are reporting our results as an investment trust. Last year we reported that for 2003 we had been named the 'Brightest Newcomer' by the Investment Trusts magazine and, this time, we can report that for 2004 your company won an award as 'Best Global Growth Trust'. Performance The year ended 31 March 2005 has again seen strong growth in the value of our investment portfolio. Net asset value ('NAV') per share, before accrued final dividends, has grown from 1282p at the beginning of the year to 1554p at 31 March 2005 - a growth of 21%. As the FTSE All-Share index has grown by nearly 12% during this period, this represents a 9% outperformance. The table below analyses this outperformance into its component parts. One year performance attribution Return % Market (FTSE All-Share index) 11.9 Stock selection 7.6 Sector allocation 0.5 NAV per share enhancement (elective special dividend) 2.3 Management and other expenses (1.1) Caledonia's NAV per share 21.2 Of particular note, given our style to back strong management teams, is that over 7% of the outperformance can be attributed to our having, in aggregate, invested in companies which have themselves outperformed within their sectors. Also of note is the NAV per share enhancement of 2.3%, which resulted from the elective special dividend and reduction of capital that was completed last July. This exercise, which is mentioned more fully in the chairman's statement, both resolved in full a potentially unstable situation within our largest shareholder, The Cayzer Trust Company, and directly created additional value for our remaining shareholders through the NAV per share enhancement. Notwithstanding our good shorter term performance, our approach continues to be long term and we believe that a more pertinent measure for our shareholders is our total shareholder return ('TSR'), measured over five and ten year periods. The table below shows this performance. Five and ten year relative TSR performance Caledonia FTSE All-Share TSR Total Return Outperformance To 31 March 2005 % % % 5 years 124.5 (8.2) 132.7 10 years 229.7 118.4 111.3 We have significantly outperformed our benchmark and this performance again puts us in the top quartile when measured against the global growth sector for all investment trusts over these periods. The above table also shows that, as for last year, we have been producing positive returns during the last five and ten year periods, the former when our benchmark has been in negative territory. This we will continue to strive to do. In order to enhance our ability to produce positive returns in times when equity markets are flat or falling, as well as being prepared to hold cash we also invest in other classes of assets such as unquoted investments (22% of the portfolio at 31 March 2005), property (13%) and hedge funds (3%). In all these cases, our business policy is the same: to back, with long term capital, carefully selected management teams. Investment activity Our investment style remains consistent. We only invest when we are confident that we are backing management teams that should be able to create good medium and long term value for their shareholders. We look to take significant shareholdings in such situations, usually with a Caledonia executive taking a position on the board of the investee company, and where we are aiming to be a long term supportive and involved investor. This is a distinctive but unusual style, particularly in relation to quoted companies, and one that brings us a strong flow of investment opportunities. Considerable time is spent analysing these opportunities and we are very discerning in our final selection, especially in relation to the quality of the management. The entry price is obviously a further major consideration, as we need to be confident that there is room for good value creation over the medium term. During the course of our financial year, our investment committee evaluated around 150 potential new investment opportunities. These were short-listed down to a more manageable number, which were then intensely evaluated and from which we made seven new investments for a total amount of Â£60m. In addition, we invested a further Â£64m as follow-on funding in existing investments. This is a similar level to the previous year when a total of Â£108m was invested in new and follow-on investments. Both new and follow-on investments for the year ended 31 March 2005 are shown below. New and follow-on investments Resultant Investment Cost holding Category Country Business Â£m % New investments Cobepa 22.8 9.4 Unquoted Belgium Investment company Incisive Media 10.6 8.8 Quoted UK Business publishing Omniport 6.0 39.2 Unquoted UK Regional airport owner Indian securities 7.4 Quoted India Portfolio of quoted Indian securities Berkshire Capital 5.1 30.0 Unquoted USA Investment banking advisor Terrace Hill 4.1 7.5 Quoted UK Commercial property developer Seven Publishing 3.5 21.7 Unquoted UK Magazine publisher 59.5 Follow-on investments General Practice 16.9 30.0 Unquoted UK Health care property developer and owner Oval 12.5 27.4 Unquoted UK Insurance broking consolidator Polar Capital 9.3 24.6 1 Hedge fund Cayman Paragon and Asia ex-Japan funds hedge funds Tribal Group 9.2 7.4 Quoted UK Support services for the UK public sector Melrose Resources 0.9 6.7 Quoted UK Oil and gas exploration and production Other 15.5 Includes private equity fund draw downs 64.3 123.8 1. Holding in the management company was unchanged. A second distinctive characteristic of our investment style is our hands-on approach after we have made the investment. As stated above, it is our normal policy for a Caledonia investment executive to join the board of the investee company as a non-executive director, and considerable time is spent in working supportively with management to achieve long term shareholder value creation. A large portion of the investment executive's time is spent in this way, and we believe that such an approach is a significant contributor to our performance. During the year, we have had a Caledonia executive as a director on the boards of 24 of our top 30 investments. Whether we have representation on the board or not, efforts are made to influence constructively the operations and strategies of each investee company. Although we are a long term investor, we believe that there comes a time when it is appropriate for us to disinvest, or partially sell down, from an investment. In addition, there may be redemptions within funds in which we have invested which give rise to capital flows back to Caledonia. During the year, we realised some Â£218m through such events as listed in the table below. Full and partial disinvestments Â£m Kerzner International 62.0 Close Brothers 57.1 Aberforth LP fund 23.8 Radio Investments 13.7 Polar Capital and funds 12.4 Distributions from private equity funds 8.1 Redleaf II 7.0 Paladin Resources 6.5 Hill & Smith Holdings 5.2 Active Capital Trust 5.1 Offshore Logistics/Bristow - capital reorganisation 3.7 Amerindo Internet Fund 3.0 Other 10.1 217.7 As a general rule, we disinvest when we believe that, going forward, the funds released can achieve a higher return for our shareholders through being employed elsewhere, or when concentration of risk considerations mean it is prudent to reduce our holding. However, when disinvesting, particular care is taken to ensure that we do not damage our valuable reputation as a long term supportive investor. Treasury We started the year with net liquid funds of Â£34m. Although some borrowings were incurred during the year to finance the special dividend which was paid in July, by the end of the year, as a result of our net disinvestment activity, we again had net liquid funds of around Â£40m and, thus, no external borrowings, reflecting our conservative approach in the present market conditions. At our extraordinary general meeting in June last year, we sought and obtained authority to buy our own shares on the open market, which we can now hold in treasury, when we believe this is beneficial to our shareholders. During the year, we bought into treasury 100,000 of our shares at a price of 1015p per share. We will be seeking approval at our forthcoming annual general meeting to extend this authority for a further year, as we believe there may be further opportunities for us to enhance shareholder value in this way. We have taken a cautious approach to our structural US dollar currency exposures, which arise because some of our investments are denominated in US dollars. During the year, we increased the extent of our dollar hedging so that by the end of the financial year these structural dollar exposures were fully hedged. Costs Keeping overhead costs down is an important objective for us. Every pound of overhead cost is a pound reduction in our shareholders' net assets. We believe that being a self-managed investment trust with direct control over costs significantly helps this objective. Our overhead costs for the year were about 1% of our net assets, which compares favourably against a pre-tax weighted industry average of 1.5% - particularly in view of the time-consuming hands-on approach that we take with our investment portfolio. Shareholders We believe that putting our efforts into growing NAV per share is the best way to achieve our financial objectives for our shareholders. However, we are aware of the continuing desire of shareholders also to see a narrowing in the discount of our share price when compared with NAV per share. We reported last year on initiatives we were taking to create an environment which would encourage a narrowing of this discount. These initiatives are bearing fruit in that our discount, which was around 21% at 31 March 2004, had narrowed to around 12% at 31 March 2005. It is our belief that our shareholder objectives are in line with the aspirations of many retail investors, and we are continuing to increase the awareness of Caledonia as an investment trust amongst potential retail shareholders. As part of this initiative, we arranged from 1 November 2004 for our shares to be listed on the stock exchange in New Zealand, where UK incorporated investment trusts currently offer a more tax efficient means of investment for New Zealand resident individuals when compared with other collective investment vehicles. As a result of this and other initiatives, we estimate that, during the course of the year, the percentage of retail shareholders has increased by around 7% to about 23% at 31 March 2005. Recent activity The only significant changes to our portfolio in the six weeks since our year end have been the sale of all of our shares in F&C Asset Management for Â£20m and the purchase for Â£18m of a 22% stake in Satellite Information Services, an unquoted company specialising in the distribution of betting related media. The future Since our financial year end, stock markets have experienced some turbulence, justifying our stance to be cautious and ungeared. We are confident that the resilience of our long term approach should continue to prove to be of value in these times. We are continuing to see a strong flow of good business opportunities, and our approach to these remains cautious but consistent. Over the last eighteen months, we have spent significant amounts of time looking at the higher growth markets in Asia and the Far East, and during the last few months have initiated a small portfolio of quoted Indian shares - these were valued at Â£8.4m at 31 March 2005, which represents a 13.5% gain on cost. We believe that the fast growing Indian economy offers good opportunities for our long term approach and, although we would not expect this area to become a particularly significant part of our portfolio in the short to medium term, we are hoping to increase our investment activity in that country. We are also looking at opportunities in China, but with added caution in view of the linguistic, legal and cultural challenges for a financial investor in that area. We are, of course, also continuing to look at opportunities in our traditional markets. By carefully selecting the right opportunities where there are strong management teams, by continuing our active involvement in investee companies and through disinvesting when appropriate, we seek to maintain our distinctive performance. Tim Ingram Chief executive Objectives and strategy Objectives Caledonia aims to achieve a long term total shareholder return in excess of the FTSE All-Share Total Return index, while maintaining a progressive annual dividend, through a focused portfolio of significant stakes in companies where it believes there to be good opportunities for building value. Caledonia measures its performance over the long term by comparing its total shareholder return against the FTSE All-Share Total Return index over five and ten year periods. Strategy Caledonia's strategy is to invest in and actively manage significant stakes in 30 to 40 companies and situations where it believes there to be good opportunities for building value. Active management will usually be achieved by working closely and constructively with the investee management, often through board representation, as a long term supportive shareholder. Risk is managed by holding a diversified portfolio, with at least 50% of the portfolio in quoted securities or liquid assets. Caledonia self-manages its portfolio, using in-house expertise, as well as using third party managers who specialise in particular asset classes or geographical areas. Caledonia seeks new investments with a typical size of Â£10m to Â£25m. Although Caledonia usually aims to have an influential minority stake it will, on occasion, be prepared to take a controlling interest where it believes that this will maximise shareholder value. When considering an investment opportunity, particular care is taken in appraising the capabilities and commitment of the management team of the prospective investee company. The anticipated total return from the investment, the strategy in relation to it, and the overall risks, are carefully analysed as part of the investment process. Caledonia will invest part of its portfolio in third party managed funds. Again, a core skill is its ability to assess the capabilities and commitment of the fund management team and Caledonia will often seek to obtain a significant stake in the management company, thereby potentially enhancing returns to shareholders. Caledonia seeks to work closely and constructively with the management of companies that it has backed and to make available the considerable experience of its own team to help the investee company's management to address the business issues. The strategy for each investment, including the returns and the timing of eventual disposal, is reviewed regularly. Investments are realised when it is believed that the funds released can provide better long term returns, but in a manner consistent with Caledonia's reputation as a supportive long term investor. Whilst the source of funding for new investments generally comes from its own resources, Caledonia may at times seek to enhance returns by taking on moderate levels of gearing. Tight control is exercised over costs, notwithstanding Caledonia's active and participative management style. Cost containment is significantly aided by managing the large majority of investments through the in-house management team. Competitive advantages Caledonia believes that its history and strategy deliver the following key competitive advantages: Favoured access -- Caledonia's long established and valuable reputation as a supportive long term investor attracts a strong deal flow of opportunities not always available to others, which enables it to be highly selective in its investments. Long experience -- Caledonia's management team has long experience of proactively working with the management teams of investee companies to identify and promote business growth opportunities. Self-management -- Caledonia's portfolio is largely self-managed, thereby reducing third party fees and ensuring that performance gains accrue to Caledonia's shareholders. Where investments are made in managed funds, Caledonia seeks to secure a stake in the asset management business, to enhance further potential returns. Progressive dividends -- Caledonia has a substantial level of distributable reserves to support its progressive dividend policy for the foreseeable future. Investment analysis Holdings of 1% or more of total assets Equity Country of Proportion of Name holding incorporation Nature of business Total total assets % Â£m % Close Brothers 1,2 12.5 UK Merchant banking 139.5 14.2 Kerzner International 1,2 10.1 Bahamas Resorts owner and 117.4 11.9 operator British Empire Securities 19.9 UK Investment trust 104.9 10.7 1,2 Paladin Resources 1 9.0 UK Oil and gas exploration 55.7 5.7 Quintain Estates & 7.0 UK Property holding/ 48.2 4.9 Development 1 development Rathbone Brothers 1,2 11.3 UK Fund management 37.4 3.8 Polar Capital and funds 24.6 UK/Cayman Fund management and 27.4 2.8 2,3,4 funds Cobepa 2 9.4 Belgium Investment company 26.1 2.6 Offshore Logistics/Bristow 5.6 USA/UK Helicopter services 23.8 2.4 1,2 Aberforth LP fund 3 25.5 UK Managed fund 22.5 2.3 F&C Asset Management 1 1.9 UK Fund management 21.1 2.1 General Practice 2 30.0 UK Health care properties 19.9 2.0 Eddington Capital and 50.0 UK/Cayman Fund management and 18.5 1.9 funds 2,3,5 funds Oval 2 27.4 UK Insurance services 17.0 1.7 A G Barr 1 9.4 UK Soft drinks 16.8 1.7 Wallem 2 74.4 Cayman Shipping services 15.7 1.6 Savills 1,2 4.2 UK Property agency 15.5 1.6 Marketform 2 26.8 UK Insurance services 15.1 1.5 Melrose Resources 1 6.7 UK Oil and gas exploration 14.8 1.5 Incisive Media 1,2 8.8 UK Publishing 13.6 1.4 Easybox 2 99.2 Luxembourg Self storage 12.3 1.2 Edinmore 2 100.0 UK Property trading/ 11.0 1.1 investment Sterling Industries 2 100.0 UK Engineering 10.8 1.1 Amber Industrial 2 100.0 UK Speciality chemicals 10.7 1.1 The Sloane Club 2 100.0 UK Residental club owner/ 10.1 1.0 operator Buckingham Gate 2 100.0 UK Property holding 9.9 1.0 SVB Holdings 1,2 5.3 UK Insurance 9.5 1.0 Other investments 106.3 10.8 Total investments 951.5 96.6 Net liquid assets 33.9 3.4 Net assets 985.4 100.0 Dividend accrual (12.4) Shareholders' funds 973.0 1. Equity securities listed on the UK or overseas stock exchanges. 2. Board representation. 3. Advisory committee representation. 4. Included Â£7.3m for the management company and Â£20.1m of funds. 5. Included Â£0.7m for the management company and Â£17.8m of funds. Investment analysis Asset distribution Sector Â£m % Financial 258.0 26.2 Leisure and media 161.5 16.4 Industrial and services 169.6 17.2 Property 123.3 12.5 Managed general funds 228.5 23.2 Other 10.6 1.1 Net liquid assets 33.9 3.4 985.4 100.0 Category Â£m % Equities -- quoted 649.4 65.9 Equities -- unquoted 131.0 13.3 Loans and fixed income 78.9 8.0 Private equity LPs 49.4 5.0 Hedge and other funds 42.8 4.4 Net liquid assets 33.9 3.4 985.4 100.0 Geography Â£m % United Kingdom 722.6 73.3 Continental Europe 54.8 5.6 North America 172.5 17.5 Asia and Far East 33.1 3.4 Latin America 2.4 0.2 985.4 100.0 Based on country of domicile or underlying spread for funds. Currency Â£m % Pounds sterling 913.7 92.7 US dollar 4.3 0.4 Euro 43.2 4.4 Other 24.2 2.5 985.4 100.0 Based on currency of investment, net of currency hedges. Investment analysis Sector weighting Caledonia organises its investments into sectors, based on groupings of the FTSE industry sectors. UK listed securities are classified according to their standard listing sector. Other securities are classified according to the FTSE sector they would probably be included in, if they were listed. The Caledonia sectors are as follows: Financial Industrial and services Other Banks Aerospace and defence Electricity Insurance Automobiles and parts Food and drug retailers Life assurance Chemicals Food producers and processors Speciality and other finance Electronic and electrical Gas distribution equipment Engineering and machinery General retailers Leisure and media Oil and gas Health Beverages Steel and other metals Household goods and textiles Leisure, entertainment and hotels Support services Information technology hardware Media and photography Transport Mining Tobacco Personal care and household products Property Pharmaceuticals and biotech Managed general funds Construction and building Software and computer services materials Investment companies Forestry and paper Telecommunication services Real estate Utilities other The following table shows the weighting of Caledonia's portfolio by sector in relation to the equivalent FTSE industry grouping: Portfolio Portfolio FTSE All-Share Â£m % % Financial 258.0 27.1 23.6 Leisure and media 161.5 17.0 11.8 Industrial and services 169.6 17.8 22.8 Property 123.3 13.0 4.4 Managed general funds 228.5 24.0 2.6 Other 10.6 1.1 34.8 951.5 100.0 100.0 Investment analysis Holdings by sector Private Loans equity Hedge Proportion Equity Equities Equities and partner- and of total fixed other interest quoted unquoted income ships funds Total assets Name % Â£m Â£m Â£m Â£m Â£m Â£m % Financial Close Brothers 12.5 139.5 -- -- -- -- 139.5 14.2 Rathbone Brothers 11.3 37.4 -- -- -- -- 37.4 3.8 F&C Asset Management 1.9 21.1 -- -- -- -- 21.1 2.1 Oval 27.4 -- 10.0 7.0 -- -- 17.0 1.7 Marketform 26.8 -- 7.6 7.5 -- -- 15.1 1.5 SVB Holdings 5.3 4.9 -- 4.6 -- -- 9.5 1.0 Polar Capital 24.6 -- 7.3 -- -- -- 7.3 0.7 Eddington Capital 50.0 -- 0.1 0.6 -- -- 0.7 0.1 Other investments 2.5 7.2 0.7 -- -- 10.4 1.1 205.4 32.2 20.4 -- -- 258.0 26.2 Leisure and media Kerzner International 10.1 117.4 -- -- -- -- 117.4 11.9 A G Barr 9.4 16.8 -- -- -- -- 16.8 1.7 Incisive Media 8.8 13.6 -- -- -- -- 13.6 1.4 The Sloane Club 100.0 -- 10.1 -- -- -- 10.1 1.0 Other investments -- 3.6 -- -- -- 3.6 0.4 147.8 13.7 -- -- -- 161.5 16.4 Industrial and services Paladin Resources 9.0 55.7 -- -- -- -- 55.7 5.7 Offshore Logistics/ 5.6 22.9 0.9 -- -- -- 23.8 2.4 Bristow Wallem 74.4 -- 15.7 -- -- -- 15.7 1.6 Melrose Resources 6.7 14.8 -- -- -- -- 14.8 1.5 Easybox 99.2 -- -- 12.3 -- -- 12.3 1.2 Sterling Industries 100.0 -- 10.5 0.3 -- -- 10.8 1.1 Amber Industrial 100.0 -- -- 10.7 -- -- 10.7 1.1 Other investments 10.2 6.7 6.5 2.4 -- 25.8 2.6 103.6 33.8 29.8 2.4 -- 169.6 17.2 Property Quintain Estates & 7.0 48.2 -- -- -- -- 48.2 4.9 Development General Practice 30.0 -- 2.8 17.1 -- -- 19.9 2.0 Savills 4.2 15.5 -- -- -- -- 15.5 1.6 Edinmore 100.0 -- 2.0 9.0 -- -- 11.0 1.1 Buckingham Gate 100.0 -- 9.9 -- -- -- 9.9 1.0 Other investments 5.7 8.1 0.1 4.9 -- 18.8 1.9 69.4 22.8 26.2 4.9 -- 123.3 12.5 Managed general funds British Empire Securities 19.9 104.9 -- -- -- -- 104.9 10.7 Cobepa 9.4 -- 26.1 -- -- -- 26.1 2.6 Aberforth LP fund 25.5 -- -- -- 22.5 -- 22.5 2.3 Polar Capital funds -- -- -- -- 20.1 20.1 2.0 Eddington Capital fund -- -- -- -- 17.8 17.8 1.8 Other investments 7.9 2.4 2.3 19.6 4.9 37.1 3.8 112.8 28.5 2.3 42.1 42.8 228.5 23.2 Other Other investments 10.4 -- 0.2 -- -- 10.6 1.1 Total investments 649.4 131.0 78.9 49.4 42.8 951.5 96.6 Net liquid assets 33.9 3.4 Total assets 985.4 100.0 Dividend accrual (12.4) Shareholders' funds 973.0 Investment review Financial Caledonia has a history of investing in financial services companies and we have been actively involved in the development of many such businesses. Although we sold part of our Close Brothers stake during the year, our weighting in this sector of 27% is still greater than the FTSE All-Share weighting of 24% and reflects our interest in an area where long term growth prospects should be achievable. Over the year, the value of our holdings in financial services companies has decreased by 2%, compared with an increase of 8% in this sector of the FTSE All-Share. Close Brothers valuation: Â£139.5m; holding 12.5% Close Brothers is the largest independent quoted merchant bank in the UK. Caledonia has been a supportive shareholder since 1986, which highlights our long term investment approach. One of Caledonia's directors is an independent non-executive director of the company. Close Brothers has been a very successful investment, due in no small part to its sound management. At the start of the year, it represented over 21% of our portfolio and, after careful consideration, we decided that it would be appropriate to rebalance the holding. As a result, we sold 7.4m shares for just over Â£57m in June last year. The remaining holding of 18m shares is still our largest investment, representing 14% of our portfolio. In March this year, Close Brothers released a very satisfactory set of interim results for the six months ending January 2005. Operating profit on ordinary activities before taxation and goodwill amortisation increased by 13% over the same period a year earlier, to Â£65.1m. Earnings per share before goodwill amortisation also grew by 13%, rising from 27.7p to 31.2p. Investment banking profits increased by some 17% compared with the same period a year earlier and contributed 51% to the group's operating result. Components of these results include market-making, which performed well given the quiet conditions in the early part of the period, and corporate finance, which completed a pleasing number of transactions for clients. The key driver of growth, however, was the asset management division, which saw profits more than double with funds under management growing by 22% to Â£6.1bn, from Â£5.0bn a year earlier. Banking, which represents the remaining 49% of operating profits, saw profits grow by 2% from the same period a year earlier. Close Brothers' loan book increased to Â£2.0bn from Â£1.7bn, with an organic growth rate of some 6%. Rathbone Brothers valuation: Â£37.4m; holding 11.3% Rathbones specialises in providing personalised investment management and wealth management services for private clients and trustees, including discretionary asset management, tax planning, trust and private company management and banking services. It manages Â£7.7bn of funds, including over Â£800m managed by Rathbone Unit Trust Management. Rathbones' profit before tax (before exceptional gains and goodwill amortisation) for its year ended 31 December 2004 increased by 32.0% to Â£26.0m and earnings per share (before goodwill amortisation) increased by 22.8% to 46.8p. Total funds under management rose by 13.2% to Â£7.7bn and the dividend of 27.5p was a 5.8% increase over the previous year. The first three months of 2005 saw Rathbones in discussion with Rensburg about a possible merger. Rathbones continued to regard the strategic and financial case for merging Rensburg and Rathbones as compelling but, in the absence of a recommendation from the Rensburg board, decided not to proceed with an offer. Rathbones will continue to pursue its existing strategy of developing its investment management and wealth management businesses organically, as well as by selective acquisitions and recruitments where culturally compatible and demonstrably earnings enhancing to Rathbones' shareholders. F&C Asset Management valuation: Â£21.1m; holding 1.9% F&C Asset Management is one of the five largest UK fund management businesses, following the merger of ISIS Asset Management and F&C in the second half of 2004. Caledonia had been a long term and influential shareholder in ISIS and, until the merger, had board representation. Our shareholding in the company, which was renamed F&C Asset Management, was diluted to 1.9% as a result of this merger. The results of F&C for the year to 31 December 2004 are difficult to compare with previous years as a result of the merger. However, earnings per share rose from 12.0p to 14.0p and the dividend was maintained at 11.0p per share for the year. F&C Asset Management was also able to confirm that it would deliver the cost savings which were a significant driving factor behind the merger. Funds under management were Â£125bn at 31 December 2004 and F&C Asset Management is aiming to build these through delivering strong investment performance and increased choice of investment alternatives for its institutional and retail customers. Since the year end, our holding in F&C has been sold for Â£20m. Oval valuation: Â£17.0m; holding 27.4% Oval is a UK commercial insurance and financial services broking business with annualised fee and commission turnover of about Â£36m. It was established in late 2003, with financial support from Caledonia, to acquire and integrate some of the best regional broking businesses in this still fragmented industry. Our investment, in the form of equity and a convertible loan, now totals Â£17m. The Oval concept involves the use of its own equity as well as cash as consideration for its acquisitions, which should provide incentives to vendors and help to maintain the value of goodwill acquired. As it grows, Oval can take advantage of economies of scale and the improved terms of trade available from insurers. Oval's experienced and energetic management team has now successfully completed and begun integrating five acquisitions, RP Hodson, Bland Bankart, Beddis & Partners, Halkett Associates and Barfield. This has resulted in rapid growth, with original revenue targets achieved early. Profitability is broadly in line with expectations and more acquisitions are planned. Marketform valuation: Â£15.1m; holding 26.8% Marketform is an unquoted Lloyd's insurance business, with substantial management ownership. It specialises in medical malpractice and general liability business for insureds outside the USA. Marketform manages the business of a consortium of medical malpractice underwriters on a fee and profit commission basis and participates in the consortium through its own partially aligned corporate syndicate, for which it also acts as managing agent. Caledonia has been a minority shareholder since autumn 2003, through an investment of Â£15.1m in equity and convertible loan capital. Profits after tax for 2004 were broadly in line with expectations. The specialised nature of Marketform's classes of business offers some protection from rate competition and the outlook remains attractive. SVB Holdings valuation: Â£9.5m; holding 5.3% SVB is a listed Lloyd's insurance business, focusing on longer tail speciality lines, such as financial institutions cover, directors' and officers' liability and professional indemnity, as well as shorter tail property insurance, aviation re-insurance and some marine cover. It also has insurance distribution businesses, which produce about a quarter of its premium income. In 2003, Caledonia invested Â£9.1m in equity and Â£4.9m in convertible bonds to back a vigorous new management team to take advantage of the sharply improved trading conditions prevailing after 11 September 2001. However, as a result of severe deterioration in earlier years' losses, SVB had a tough year in 2004. At the time we invested, problems in SVB's US casualty treaty reinsurance and other liability business (underwritten in 2001 and prior years) had surfaced, but their full scale and severe toxicity were not then apparent to anyone. The new management discontinued this area of the business, which is now being run off in a separate unit. Unexpectedly bad loss reviews began to disclose the full scale of the old year problems in the first half of 2004 and further reserves of Â£37.8m were required. In addition, at 30 June 2004, an exceptional loss provision of Â£103.6m was established, of which Â£67.1m remains unused. SVB's on-going business continues to be very profitable. We have confidence in the management team and support their view that, in the course of time, the continuing profitability of the on-going business should substantially outstrip the old year losses. Polar Capital valuation: Â£7.3m (Â£27.4m including funds); holding 24.6% In January 2001, Caledonia co-founded Polar Capital with a highly respected team of fund managers. Our assistance in formulating the Polar Capital structure, obtaining FSA approvals and recruitment of its key personnel, illustrates well our ability to play a constructive role in the formation of a business that has shown impressive growth. Funds under management at the year end stood in excess of $2bn. Polar Capital is a research driven fund management company, providing a highly entrepreneurial environment for talented managers within a structure that offers a level of marketing, administrative and operational support normally only found in much larger organisations. With a staff of 38, Polar Capital manages $0.65bn in hedge funds and $1.35bn in long-only funds. Caledonia owns 24.6% of the management company, with the staff owning the balance, and is represented on the board of the management company and the boards of its funds. As a result of the success and profitability of the business over the year, the value of our equity investment increased from Â£5.1m to Â£7.3m. In addition, Polar Capital repaid Â£1.0m of subordinated loan notes, initially provided by Caledonia for regulatory capital. Eddington Capital valuation: Â£0.7m (Â£18.5m including funds); holding 50.0% Eddington Capital was established in 2003 and is another example of Caledonia co-founding a business in the fund management arena. As a specialist in high return fund of hedge funds, Eddington Capital launched its flagship Triple Alpha Fund on 1 September 2003, which Caledonia seeded with Â£15m. Since launch, while Eddington built up a track record, limited marketing of the Triple Alpha Fund has taken place and it only grew from Â£15m to Â£23m. Eddington has recently started active marketing of the fund and its investment approach is seen as refreshingly different from that of other funds of funds. As potential investors become more familiar with the fund, Eddington hopes to see assets under management rise steadily later in the year. Improving the performance and increasing the size of the Triple Alpha Fund should result in Eddington earning increasing performance fees. Investment review Leisure and media Caledonia has long experience of the leisure and media sector through its involvement in the hospitality and publishing industries. Although we sold part of our Kerzner International stake and our holding in Radio Investments during the year, further investments in media companies have maintained a weighting greater than the FTSE All-Share index, at 17% compared with 12%. Over the year, our holdings have increased in value by 35%, compared with an increase in the leisure and media companies in the FTSE All-Share index of 11%. Kerzner International valuation: Â£117.4m; holding 10.1% Kerzner International ('KI') is a leading developer, owner and operator of destination resorts, casinos and luxury hotels worldwide. Caledonia backed the management team when Sun International Hotels (now KI) was founded in 1994. Caledonia has had a non-executive director on KI's board from the outset. In July 2004, Caledonia reduced its holding in KI by selling 1.3m shares at $47.50 per share, as part of a transaction which allowed Istithmar, a company owned by the Government of Dubai, to acquire a 13% holding in KI. Istithmar is KI's partner in building a new $1.1bn 'Atlantis' resort on The Palm, Jumeirah in Dubai. We reduced our stake further in February this year, when we sold 886,000 shares at $61.48 per share. Caledonia's remaining 3.62m shares represented 12% of our portfolio at the year end and were valued at Â£117.4m. Earlier this year, KI reported 2004 full year adjusted earnings per share of $2.47, compared with $2.36 achieved in 2003. The company's flagship operation is Atlantis, Paradise Island, a 2,317 room, ocean-themed destination resort off Nassau in The Bahamas. The resort includes the world's largest open-air marine habitat and is the home to the largest casino in the Caribbean. KI continues to develop the resort and is currently constructing the Atlantis Marina Village, comprising five new restaurants and retail space, together with further timeshare developments at the Harborside at Atlantis. Plans are also in hand for expanding the water park attractions and constructing a 600 room all-suite hotel and a 500 room condominium hotel. The company was also responsible for the development of, and receives income derived from, Mohegan Sun in Uncasville, Connecticut, which has become one of the premier casino destinations in the United States. In its luxury resort hotel business, the company manages nine resort hotels primarily under the One&Only brand. The resorts, featuring some of the top-rated properties in the world, are located in The Bahamas, Mexico, Mauritius, the Maldives and Dubai. In addition to the Phase III expansion in The Bahamas, KI currently has a number of new developments under construction or in an advanced stage of planning. These include a 2,000 room Atlantis project on The Palm, Jumeirah in Dubai, a 600 room hotel and casino project in Morocco, a One&Only hotel in Cape Town, South Africa, and a casino in Northampton, for which KI received its certificate of consent from the UK Gaming Board in 2004. A G Barr valuation: Â£16.8m; holding 9.4% Caledonia has been a long term shareholder and supporter of A G Barr, which manufactures, markets and distributes a range of carbonated soft drinks, including the well known brands of Irn-Bru and Tizer, as well as juice drinks and mineral water. A G Barr recently announced an excellent set of results for the year to 31 January 2005. Pre-tax profits rose 13.1% to Â£15.6m in a competitive market for soft drinks as a result of improved margins and increased market share for its core brands. Earnings per share rose by 13.3% to 56.6p and there was a 12.7% increase in the dividend to 28.75p per share. A G Barr has been improving and developing its manufacturing and distribution operations and also announced a significant programme of capital investment of Â£17m over three years to produce further efficiencies. This news was well received by the market and the share price has continued to perform strongly since 31 March 2005. Incisive Media valuation: Â£13.6m; holding 8.8% Incisive Media is one of the UK's foremost specialist providers of business information. Through leading magazines, consultancy, conferences and exhibitions, websites and a variety of other platforms, it serves a number of business sectors, especially in retail and wholesale financial markets. Caledonia acquired a 6.4% stake in Incisive Media through supporting a fundraising in April 2004, to finance the acquisition of a specialist private equity publishing business, and further purchases of shares were made during the period. Caledonia is represented on the board. In its year to 31 December 2004, Incisive Media reported a 49% increase in pre-tax profits to Â£7.7m on turnover which rose 31% to Â£46.5m - evidence of the quality of the margins achieved by the management team. Diluted earnings per share, adjusted for goodwill, rose 20% to 7.96p. The current year has started well and Incisive Media is confident of producing another year of strong earnings growth in 2005. The Sloane Club valuation: Â£10.1m; holding 100% The Sloane Club is a residential members club, based in the heart of Chelsea. Caledonia bought the Club in 1991 on a long lease, both as a property investment and because of its trading potential. It has been enlarged and modernised, most recently with the addition of air conditioning, flat screen TVs and broadband internet service, and currently has a membership of around 3,500. Caledonia is actively involved in the management of the business. The Club enjoys the support of a loyal membership. However, the recruitment of new members, together with the retention of existing members, is important to its future prosperity. Overall profitability remained stable during the year, in which the refurbishment of the rooms enabled the Club to achieve an 11% increase in the average room rate, although this was offset by a fall in occupancy. The business has continued to make progress with a number of successful sales and marketing initiatives during the year. In addition, the Club is actively engaged in the pursuit of hotel management opportunities. The Sloane Club competes in the 4 star hotel sector and, for the foreseeable future, expects the trading environment to remain challenging. Investment review Industrial and services Caledonia's experience in the industrial and services sector dates back many decades, giving us the expertise to work closely with management teams of investee companies. During the year, we identified few attractive new opportunities and, as a result, only 18% of our investments are in this sector, compared with 23% for the FTSE All-Share index. However, we have made some follow-on investments in activities where we see value opportunities. Over the year, our holdings have increased in value by 32%, compared with an increase in the industrial and services companies in the FTSE All-Share index of 19%. Paladin Resources valuation: Â£55.7m; holding 9.0% Paladin is an independent oil and gas exploration and production company with assets in the North Sea, Australia, Indonesia, Romania, Tunisia and Gabon. During the year, we sold part of our holding in Paladin for Â£6.5m. Despite this, the strength of Paladin's share price during the period has seen the value of our residual stake rise to be the fourth largest in our portfolio. Paladin reported strong financial results for 2004, on similar levels of production to 2003. Operating cash flow was particularly impressive at Â£171.9m and earnings per share increased 24% to 11.1p. The dividend was increased by 8% to 1.7p and reserves showed a 5% increase. Paladin entered new territory during the year with the purchase for $150m of an interest in the Laminaria and Corallina permits in the Timor Sea off the coast of Australia. This acquisition fits neatly with Paladin's strategy of purchasing assets where further active investment enhances production. The outlook for the coming year is favourable, with a strong oil price and a heavy capital investment programme driving increased production. Offshore Logistics/Bristow valuation: Â£23.8m; holding 5.6% Offshore Logistics, together with its affiliate company, Bristow Helicopters, is a major provider of helicopter transportation services to the oil and gas industry worldwide. During the year, Â£3.7m was received as a result of a capital reorganisation of Offshore Logistics' affiliate, Bristow Helicopters. In February 2005, Offshore Logistics reported substantially improved diluted earnings per share of $1.82 for the nine months to 31 December 2004, compared with $0.86 for the same period in 2003. Together with generally higher levels of activity and improved margins, the benefits of restructuring the business to improve efficiencies are coming through. This has been assisted by new fleet introductions and customer and safety orientated initiatives. Offshore Logistics is listed on the New York Stock Exchange and Caledonia is represented on the board. Wallem valuation: Â£15.7m; holding 74.4% Wallem is a maritime services group based in Hong Kong. Caledonia has been a shareholder of Wallem for over 12 years and has board representation. Wallem's activities encompass ship and cargo broking, ship management, shipping and air cargo agency services and maritime software development. In the period under review, which has been a period of strong growth in the shipping sector, Wallem has increased the fleet of ships under management substantially and seen higher activity and profit from its agency business. Wallem reported significantly higher pre-tax profits for the year to 30 September 2004. Wallem continues to perform strongly in its current financial year. It has also established a number of new operations in Asia and Europe, which positions Wallem well to take advantage of further growth in world shipping markets and China in particular. As a result of its strong performance, our valuation of Wallem has increased by 49% over the year to 31 March 2005. Melrose Resources valuation: Â£14.8m; holding 6.7% Melrose Resources is an oil and gas exploration and production company listed in London. The company has interests in Bulgaria, Egypt, the United States and France. The highlight of an eventful year for Melrose was the first production from the Galata gas field in Bulgaria, which came on stream in June 2004. The seven month contribution from Galata, allied with a 258% increase in production in Egypt, helped overall production rise to over 8,000 barrels of oil equivalent per day ('boepd'), compared with 1,300 boepd in the previous year. Profits after tax for the year rose by 174% to Â£7.7m, driving an increase of 70% in earnings per share to 10.7p and a very welcome maiden dividend of 1.0p was declared. During the period, Melrose raised Â£24.6m of new equity, in which Caledonia participated with a further Â£1m investment, and agreed a syndicated debt facility of $75m to help fund working capital requirements. Encouragingly, oil and gas reserves increased by 14% compared with the previous year. A number of new exploration licenses were secured in Egypt and Bulgaria, as well as a permit to explore in the Rhone-Maritime concession off the southern Mediterranean coast of France. Easybox valuation: Â£12.3m; holding 99.2% Easybox, a self storage business currently operating in Italy and Spain, was established in 2000 by Caledonia and a joint venture partner. Caledonia bought out its partner in early 2003. We have a longstanding relationship with the management of Easybox, who had previously developed Abacus into a leading UK self storage business. Abacus, a Caledonia-owned company, was sold in 1998 for a substantial profit. Finding new sites for operations continues to prove very difficult, particularly in Spain. Whilst a number of these have been viewed during the year, none have been found which meet Easybox's exacting requirements. The existing six facilities are all trading well, particularly the highly visible store in Rome. Total retail space let increased by 37% to 19,427 sq m and revenue is up 40% on last year. The company's financial position continues to strengthen and operating cash flow is positive. Sterling Industries valuation: Â£10.8m; holding 100% Sterling Industries comprises three distinct businesses, all operating in the engineering sector. Sterling Hydraulics is a specialist designer and manufacturer of hydraulic valves primarily used in the construction machinery industry. Bloom Engineering designs and builds burners for the iron and steel and aluminium industries. Process Combustion Corporation ('PCC') designs, manufactures, and supplies combustion heat transfer and pollution control systems to various industries to meet environmental requirements. Sterling Hydraulics is currently enjoying strong demand for its products, driven by high commodity prices stimulating demand for construction and mining machinery. The results for the year show a significant improvement on last year's outturn and the Sterling board regards the prospects for the coming year as most encouraging. Bloom Engineering has operations in Europe, the USA and China. Whilst benefiting from high steel prices in the USA, the European business has continued to find the market challenging. Prospects in China are encouraging following Bloom's first order from Bao Steel, which was delivered during the year. PCC had a successful year in Europe and the USA, with prospects in the latter looking better than for several years. Amber Industrial valuation: Â£10.7m; holding 100% Amber is a speciality chemicals business with two significant parts, a global silicones compounding division and an industrial consumables distribution division operating in Germany, Austria, France and Switzerland. At the start of the year, Amber sold its UK aerosols division and has subsequently relocated its headquarters and UK silicones operation. Since Caledonia's year end, Amber has also made a property disposal realising proceeds of around Â£1m. Underlying operating profits, which exclude discontinued businesses and the non-recurring costs associated with the disposal of the aerosols division, were up 28% in the year to March 2005. This was due mainly to improved trading conditions in the USA. As a result of the disposal of the aerosols division, Amber's valuation has been reduced to Â£10.7m from Â£12.8m a year earlier. Investment review Property Caledonia's history of property investment has gained us valuable knowledge of this sector. We invest in both property assets and in property management companies. We have made follow-on investments in General Practice and our weighting in property companies has increased to 13%, compared with 4% in the FTSE All-Share index. However, the FTSE All-Share represents quoted property companies only and not properties held through other vehicles. Over the year, our holdings have increased in value by 20%, compared with an increase in the property companies in the FTSE All-Share index of 21%. Quintain Estates & Development valuation: Â£48.2m; holding 7.0% Quintain is a property investment and development company, with a proven track record, specialising in commercial properties. Over the year, the value of our holding has grown by 25%, reflecting the continued outperformance of Quintain against the FTSE All-Share index. Quintain has now received planning consent for the first phase of the Wembley development and completed all commercial contracts at the Greenwich Peninsula. In addition to progress with these special projects, Quintain has completed a successful programme of disposals and purchases within its main portfolio. In July 2004, a new Â£475m corporate loan was syndicated that, combined with the ongoing revenue stream from its investment assets, has ensured that Quintain is in a strong financial position to acquire new assets and fund its special projects. Profit before tax decreased to Â£5.0m for the six months ended 30 September 2004, compared with Â£7.3m in the corresponding period in 2003. This was due largely to exceptional costs relating to the re-financing of the company's debt. However, Quintain notes that the increasing value of the Wembley and Greenwich projects signals that it is on track to deliver good net assets growth for the year to March 2005. General Practice valuation: Â£19.9m; holding 30.0% General Practice Group ('GPG') was formed over 10 years ago to develop and invest in new surgeries for doctors in general practice and other associated primary care premises. Caledonia initially invested in GPG in 2002 and has recently made an additional investment of Â£16.9m to enable GPG to increase substantially its portfolio of surgeries across the country. GPG now owns 108 properties, with over 40 new properties per annum being added to the portfolio through its development programme. In the NHS there are currently over 9,000 main surgeries and 2,500 branch surgeries. The NHS's aim is to bring all general practice premises up to modern standards, with over 3,000 new surgeries combining primary and community services. GPG is a market leader in this expanding sector. GPG's annualised rent roll for the year ended March 2005 was Â£8m and it is on target to exceed Â£20m by 2008. Savills valuation: Â£15.5m; holding 4.2% Savills is a listed property agency and advisory business operating in the UK, Continental Europe and the Far East. Recognising the strength and calibre of the management team, and the potential for value creation, Caledonia built up its stake mainly in 2003. One of Caledonia's directors is a non-executive director of Savills. For the year to 31 December 2004, Savills showed strong performance with turnover up 9% to Â£328m and group operating profit increasing 10% to Â£39m. As a result, the share price also showed strong performance. As a major initiative, Savills has launched its fund management arm, Cordea Savills, and had around Â£1.4bn of funds under management at the end of December 2004. Edinmore valuation: Â£11.0m; holding 100% Edinmore is a wholly owned property group specialising in rural estates and commercial property. Caledonia provides the finance and is actively involved in the management of the business. Edinmore has had another solid year, achieving a number of substantial and profitable disposals, mainly in the rural sector of its property portfolio. Residential properties in rural areas and agricultural land have continued to command good prices, normally above expectations. Few substantial rural properties or portfolios have come to the market in the past twelve months and opportunities have, therefore, been very limited. Land has been kept back from the market due to continuing uncertainty with regard to CAP reform, but it is anticipated that more land will become available within the next year or two. It has been a very busy year for Edinmore's commercial property activities, with a number of substantial investments having been secured, mainly in joint ventures with other property companies. Although good rental returns have been achieved and there are few voids, Edinmore is working hard on asset management to increase yields where possible and improve the quality of the properties, with a view to achieving enhanced capital values on their disposal when market conditions are perceived to be right. Buckingham Gate valuation: Â£9.9m; holding 100% Caledonia acquired 30 Buckingham Gate, London, in December 2000 for its headquarters, as the scale of our activities had outgrown our former City office. The property is a seven floor office building in a prime West End location. Caledonia occupies four floors, with the remaining space let out. As well as being our head office, this allows us to let space, and thereby provide easy access, to some of our investee companies. Buckingham Gate has benefited from the gradual recovery of the West End commercial property market, where there is less over supply than in the City. The success of Polar Capital, the fund management company in which Caledonia has a significant stake, caused it to vacate the one floor it occupied to move to larger premises. The space vacated has already been partly re-let. Investment review Managed general funds Caledonia has particular expertise in identifying and supporting asset management teams, which we often back with an investment in the management company as well as in the fund itself. Our weighting of 24% in managed general funds is greater than the 3% of investment companies that make up the FTSE All-Share index, as a substantial proportion of our interests are structured as limited partnerships or offshore investment funds. Over the year, our holdings have increased in value by 31%, compared with an increase in the investment companies in the FTSE All-Share index of 15%. British Empire Securities valuation: Â£104.9m; holding 19.9% British Empire is a UK investment trust whose objective is to achieve capital growth from a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying net asset value. Caledonia has been a significant shareholder for over 14 years and is represented on the board. British Empire has continued to perform strongly, both outperforming its benchmark indices and remaining as a top performer in the Association of Investment Trust Companies' Global Growth sector. Over the year to March 2005, net asset total return was 25.5% compared with a total return of 15.6% for the FTSE All-Share index. From the end of 2004 until recently, British Empire has been trading at a premium to its stated net asset value, reflecting this strong performance. It has also been taking profit and moving some of its portfolio onto a more defensive footing, should current market levels not prove sustainable. Cobepa valuation: Â£26.1m; holding 9.4% Compagnie Benelux Paribas SA ('Cobepa') is a Belgian investment company with an attractive portfolio of listed and unlisted investments. Caledonia was part of a consortium that backed the management team to purchase Cobepa from BNP Paribas in April 2004 and is represented on Cobepa's board. The portfolio is currently valued at â‚¬449m, the largest holding being Dicobel, the parent company of Autoglass. Other investments of note include D'Ieteren and NAVTEQ, the NYSE quoted supplier of in-car navigation systems. Cobepa seeks to invest between â‚¬20m to â‚¬50m of equity in either minority shareholdings, alongside families or other institutions, or majority positions where transactions are structured as leveraged buyouts. Its sphere of investment encompasses Belgium, France and Holland. Aberforth LP fund valuation: Â£22.5m; holding 25.5% This limited partnership fund was launched in March 2001 with a remit to acquire significant shareholdings in smaller UK listed companies and to work with those companies to release latent value. Caledonia committed Â£25m to this fund, which was fully drawn down by March 2003. By 31 March 2005, the Â£25m was fully repaid, together with a further Â£4.5m from underlying realisations. The carrying value of Â£22.5m at 31 March 2005 represents Caledonia's interest in the remaining fund, which contains five underlying portfolio investments. As at that date, the fund had generated an IRR of almost 33% per annum, based upon both realised and unrealised gains, showing outperformance against the FTSE All-Share index and demonstrating a significant achievement by the Aberforth team in both stock selection and timing of investment and disinvestment. Caledonia is represented on the advisory committee. Polar Capital funds valuation: Â£20.1m Caledonia has an investment in both Polar Capital and a number of its funds. Our investment in the management company is reviewed in the financial section. The majority of our Polar Capital fund investments are in hedge funds, which aim to generate a positive return substantially above the market risk free rate, irrespective of market conditions. These funds have performed well, returning between -1% and 21% over 2004. During the year, Caledonia moved between various Polar Capital funds. We redeemed our investments in the Paragon and Japan funds for Â£11.4m and invested a total of Â£9.3m in the new Asia ex-Japan fund, launched at the end of 2004, and the Paragon fund. Eddington Capital fund valuation: Â£17.8m The Triple Alpha Fund is the first investment vehicle of Eddington Capital Management, reviewed in the financial section. The fund is a multi-strategy fund of hedge funds, which seeks to deliver two and a half times the returns of the mainstream hedge fund universe. In the 18 months since launch, the fund has performed in line with that target, delivering an 18% return. Performance to date is in excess of the returns earned by comparable indices, but hedge fund performance in general fell short of the long term outperformance we would have liked. An abnormally high correlation between strategies, fickle market sentiment and an absence of volatility have all reduced returns from hedge funds and the gain in value of the Triple Alpha Fund, although positive for the year, was lower than we had hoped for. Financial review Caledonia became an investment trust company as from 1 April 2003 and, as such, we believe that the company statement of total return and company balance sheet are the most appropriate statements for reporting our performance. Therefore, this review discusses the financial results of the company. Basis of presentation of accounts Caledonia is an investment trust company, but we are relatively unusual in holding trading subsidiaries as part of our investment portfolio. Our ownership of subsidiaries requires us to prepare consolidated accounts, but the accounting rules prevent us from including subsidiaries in the consolidated accounts at valuation. The consolidated balance sheet would not, therefore, give a presentation of our investment portfolio consistent with other investment trusts. However, the company balance sheet does allow us to show the entire portfolio (including subsidiaries) at valuation and is, therefore, considered to be the most relevant statement in presenting our financial position. Consistent with the presentation of other investment trusts, we also present a company statement of total return. Actual proceeds from the disposal of any individual investment will inevitably depend on market and economic conditions prevailing at the time. Company total return Company total return for the year was Â£173.2m, or 263.6p per share, compared with Â£282.8m, or 391.5p per share last year. Gains on investments over the year totalled Â£165.8m. This included gains of Â£39.2m on Kerzner International, Â£28.3m on British Empire, Â£24.8m on Paladin Resources and Â£13.5m on the Aberforth LP fund. As a result of investment sales during the year, historic gains of Â£98.4m were realised, notably Â£45.8m and Â£43.3m on the sales of part of our stakes in Kerzner International and Close Brothers respectively. Income from investments of Â£18.9m fell from last year's figure of Â£21.5m. The dividends from most of our principal investments were maintained or increased over the year. However, the dividend from Close Brothers reduced by Â£1.7m as a result of the sale of part of our stake and a dividend of Â£1.3m from Wallem in 2004 was not repeated. Management costs rose to Â£10.0m from Â£9.1m last year. This movement included increased pension contributions of Â£0.6m as part of a programme to address the company's defined benefit scheme's deficit. Other corporate costs of Â£0.4m comprised the costs associated with the elective special dividend and reduction of capital, which was completed in July 2004. The cost last year of Â£2.5m arose principally from the liquidation proposals promoted by a minority group of shareholders in The Cayzer Trust Company, which were subsequently withdrawn. Interest payable of Â£1.0m, the same as last year, arose principally on amounts due to a subsidiary undertaking. The total taxation charge (revenue and capital) for the year amounted to Â£0.1m, compared with Â£0.4m last year. Dividend An interim dividend of 8.7p per share has been paid and the directors have recommended a final dividend of 19.5p per share, making a total of 28.2p per share for the year at a cost of Â£17.9m. This is a 4.4% increase over the total dividend for 2004 of 27.0p per share. International Financial Reporting Standards The requirement for Caledonia to adopt International Financial Reporting Standards ('IFRS'), commencing with the year beginning 1 April 2005, is a process of major change, for which we have established a project team working in conjunction with the external auditors and other technical advisers. The key differences between IFRS and UK GAAP for Caledonia are the requirements to: - mark listed portfolio investments from mid-market prices to bid prices (IAS 39); - incorporate the difference between the balance sheet value of pension fund assets and discounted liabilities (IAS 19). These adjustments are not expected to result in a material change in reported net asset values. In addition, under IFRS 2 'Share-based payments', it will be necessary to expense benefits conferred on employees through the granting of share options. This entry will be debited through the company's income statement, but will have no effect on NAV per share. The first accounts to reflect the adoption of IFRS will be the interim report for the six months to 30 September 2005. This interim report will include comparative figures adjusted in accordance with IFRS, together with the required restatement of the 31 March 2005 balance sheet. We are committed to ensuring compliance with all material aspects of IFRS and action is being taken to establish the accounting policies, systems and reporting changes that will be required to be implemented. Jonathan Cartwright Finance director Company statement of total return For the year ended 31 March 2005 Revenue Capital Total Revenue Capital Total 2005 2005 2005 2004 2004 2004 Â£m Â£m Â£m Â£m Â£m Â£m Gains on investments Realised -- 99.2 99.2 -- 20.1 20.1 Unrealised -- 66.6 66.6 -- 254.2 254.2 -- 165.8 165.8 -- 274.3 274.3 Income 18.9 -- 18.9 21.5 -- 21.5 Administrative expenses (10.0) -- (10.0) (9.1) -- (9.1) Costs of settlement proposals (0.4) -- (0.4) (2.5) -- (2.5) Return before finance costs and tax 8.5 165.8 174.3 9.9 274.3 284.2 Interest payable (1.0) -- (1.0) (1.0) -- (1.0) Return before tax 7.5 165.8 173.3 8.9 274.3 283.2 Tax on ordinary activities 1.8 (1.9) (0.1) -- (0.4) (0.4) Return attributable to shareholders 9.3 163.9 173.2 8.9 273.9 282.8 Return per ordinary share Basic 14.2p 249.4p 263.6p 12.3p 379.2p 391.5p Diluted 14.1p 248.6p 262.7p 12.3p 378.4p 390.7p Company reconciliation of movement in shareholders' funds Restated 2005 2004 Â£m Â£m Revenue return 9.3 8.9 Capital return 163.9 273.9 Total return 173.2 282.8 Dividends (17.9) (19.4) Elective special dividend (88.0) -- Employee share trust (4.3) (0.1) Purchase of own shares (1.0) -- Movement in the year 62.0 263.3 Opening balance 911.0 647.7 Closing balance 973.0 911.0 Dividends per ordinary share 28.2p 27.0p The proposed final dividend of 19.5p per ordinary share will be paid on 28 July 2005 to shareholders on the register at the close of business on 1 July 2005. Company balance sheet At 31 March 2005 Restated 2005 2004 Â£m Â£m Fixed assets Investments 951.4 893.0 Current assets Debtors 9.4 12.7 Short term deposits 36.4 32.8 Cash at bank and in hand 3.2 6.0 49.0 51.5 Creditors falling due within one year (27.4) (18.5) Net current assets 21.6 33.0 Total assets less current liabilities 973.0 926.0 Creditors falling due after more than one year Long term borrowings -- (4.8) Amounts due to subsidiary undertaking -- (10.2) -- (15.0) Net assets 973.0 911.0 Capital and reserves Called up share capital 3.6 4.0 Share premium account 1.3 1.3 Non-distributable reserves 621.9 458.0 Distributable reserves 355.3 451.9 Own shares (9.1) (4.2) Total shareholders' funds 973.0 911.0 Net asset value per ordinary share After accrued final dividend 1535p 1264p Before accrued final dividend 1554p 1282p Key accounting policies Basis of preparation The accounts have been prepared under the historical cost convention, modified to include the revaluation of investments, and in accordance with applicable accounting standards. Investment trust companies generally report under the Statement of Recommended Practice - Financial Statements of Investment Trust Companies ('IT SORP'), dated January 2003 and published by the Association of Investment Trust Companies. The IT SORP assumes, however, that an investment trust is also an investment company and can take advantage of the special provisions given to investment companies under company law and accounting standards. Caledonia is not an investment company and, in these circumstances, the IT SORP states that an investment trust company should prepare its financial statements in accordance with the normal rules contained in Schedule 4 to the Companies Act 1985 and accounting standards. Caledonia recognises, however, that presenting information that is comparable with other investment trusts is important to investors. It therefore augments its financial statements with the information and disclosures required by the IT SORP in respect of the performance of the company. This is because the company balance sheet (unlike that of the group) can reflect full net asset value, and the movement in this figure is a key measure of Caledonia's performance. A statement of total return on an IT SORP basis is also presented to explain this movement. The group has implemented UITF 37 'Purchases and Sales of Own Shares' and UITF 38 'Accounting for ESOP Trusts', which require the cost of shares in the company held by the group to be shown as deductions from shareholders' funds. Previously, own shares were shown as fixed asset investments. This change has not materially affected previously reported profits and losses, but comparative figures have been restated in the balance sheet. The group has also implemented UITF 17 (Revised 2003) 'Employee Share Schemes', which requires the minimum profit and loss charge for share options granted to be determined as the intrinsic value. Previously, the charge was based on either intrinsic value or, where purchases of shares were made by an ESOP trust at fair value, by reference to the cost of shares available for the award less any contributions payable by the employees. The implementation of the revised UITF 17 had no material impact on the group's previously reported profits and losses. Valuation of investments Investments are included according to the following guidelines, which have been drawn up having regard to the British Venture Capital Association ('BVCA') guidelines. Quoted investments, for which an active market exists, are valued at mid-market price. Unquoted equity investments are valued by the directors on a number of bases depending on the nature of each investment. Early-stage investments will generally be valued at cost, less a provision if performance is substantially below expectations, for one year or until the investment starts to earn significant maintainable profits. Investments earning significant maintainable profits are generally valued using an earnings multiple, based on current year profit after tax and an earnings multiple for a comparable quoted company or sector average. A discount will be applied to recognise the absence of a ready market on which the holding can be sold. The liquidity discount will normally be 30%, but may be reduced to 10% if an initial public offering or realisation is imminent. For some asset-backed businesses, such as where there is a significant property element, the earnings multiple method of valuation is inappropriate, and a net realisable asset basis is applied. It may also be appropriate to use the net realisable asset basis of valuation if this results in a higher valuation than the earnings method, or the company is incurring losses. A third party valuation, such as an independent valuation report or a material arm's length transaction, will provide prima facie evidence of fair value and will usually take precedence over other methods. Unquoted fixed income shares and loan investments are valued at the lower of cost or recoverable amount. Investments in unquoted funds are valued at the net asset value of the fund, with an appropriate adjustment where the net asset value has not been calculated in accordance with BVCA guidelines. Realised surpluses or deficits on the disposal of investments are taken to the realised capital reserve of the company, and unrealised surpluses and deficits on the revaluation of investments are taken to the unrealised capital reserve. Consolidated profit and loss account For the year ended 31 March 2005 2005 2004 Â£m Â£m Turnover 122.7 125.8 Operating loss (9.0) (11.5) Loss on sale of operations (0.6) -- Profit on sale of properties 1.1 -- Loss on ordinary activities before investment income (8.5) (11.5) Income from investments 16.5 17.3 Interest receivable 0.9 1.1 Interest payable (2.3) (0.8) Profit on ordinary activities before tax 6.6 6.1 Tax on profit on ordinary activities (0.7) (2.2) Profit on ordinary activities after tax 5.9 3.9 Minority interests (equity) (0.1) (0.1) Profit for the financial year 5.8 3.8 Dividends (17.9) (19.4) Loss charged for the financial year (12.1) (15.6) Earnings per ordinary share Basic 8.8p 5.3p Diluted 8.8p 5.3p Dividends per ordinary share 28.2p 27.0p Consolidated statement of total recognised gains and losses For the year ended 31 March 2005 2005 2004 Â£m Â£m Gains/(losses) on investments Realised 99.1 21.3 Unrealised 68.4 270.4 Revaluation of former associates transferred to investments -- (21.3) Exchange differences (0.2) (3.7) Tax on sales of investments (2.2) (0.4) Minority interests (equity) (0.2) (0.1) Other recognised gains and losses 164.9 266.2 Profit for the financial year 5.8 3.8 Total recognised gains and losses 170.7 270.0 Consolidated balance sheet At 31 March 2005 Restated 2005 2004 Â£m Â£m Fixed assets Intangible assets 3.2 4.9 Tangible assets 82.0 84.1 Investments 898.5 830.5 983.7 919.5 Current assets Stocks 23.3 26.4 Debtors 34.6 36.6 Short term deposits 38.2 40.2 Cash at bank and in hand 13.1 14.6 109.2 117.8 Creditors falling due within one year Short term borrowings (3.0) (4.3) Other creditors (52.1) (50.0) (55.1) (54.3) Net current assets 54.1 63.5 Total assets less current liabilities 1,037.8 983.0 Creditors falling due after more than one year Long term borrowings (37.9) (42.3) Provision for liabilities and charges Deferred taxation (0.7) (1.5) 999.2 939.2 Minority interests Equity (0.9) (0.8) Non-equity (0.2) (0.3) 998.1 938.1 Capital and reserves Called up share capital 3.6 4.0 Share premium account 1.3 1.3 Capital redemption reserve 1.2 1.2 Revaluation reserve 325.4 270.6 Profit and loss account 676.1 665.6 Own shares (9.5) (4.6) Total shareholders' funds 998.1 938.1 Company and consolidated cash flows For the year ended 31 March 2005 Company Group 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Net cash inflow from operating activities 8.6 3.1 19.7 (0.2) Servicing of finance Interest paid (1.0) (1.0) (2.2) (0.7) Dividends paid to minority shareholders -- -- (0.1) (0.1) (1.0) (1.0) (2.3) (0.8) Taxation Group relief received 1.5 -- -- -- UK tax paid -- (1.3) (1.3) (1.3) Overseas tax paid -- -- (0.7) (0.5) 1.5 (1.3) (2.0) (1.8) Capital expenditure and financial investment Purchase of investments (127.4) (107.3) (126.0) (96.7) Sale of investments 218.5 125.8 217.6 109.2 Dividends received 8.8 -- -- -- Liquidation of subsidiary undertakings -- 6.9 -- -- Purchase of tangible fixed assets -- -- (4.7) (6.6) Sale of tangible fixed assets -- -- 2.6 0.4 99.9 25.4 89.5 6.3 Acquisitions and disposals Purchase of subsidiary undertakings -- -- (2.4) (9.2) Cash acquired with subsidiary undertakings -- -- -- 0.6 Sale of subsidiary undertakings -- -- 3.3 -- -- -- 0.9 (8.6) Equity dividends paid (18.9) (19.1) (18.9) (19.1) Net cash inflow before management of liquid resources 90.1 7.1 86.9 (24.2) Management of liquid resources (3.6) 6.1 2.0 3.7 Financing Repayment of short term loans -- -- (0.1) (0.3) Repayment of long term loans (4.8) -- (4.8) -- Issue of long term loans -- -- -- 27.4 Purchase of own shares (1.0) -- (1.0) -- Elective special dividend (88.0) -- (88.0) -- Sale of forward currency contracts 8.8 -- 8.8 -- Employee share trust (4.3) -- (4.3) -- Issue of shares by subsidiary undertakings -- -- -- 0.1 (89.3) -- (89.4) 27.2 Decrease in cash in the year (2.8) 13.2 (0.5) 6.7 Reconciliation of net cash flows to movement in net funds Company Group 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Decrease in cash in the year (2.8) 13.2 (0.5) 6.7 Cash outflow from decrease in debt 4.8 -- 4.9 (27.1) Cash outflow from increase in deposits 3.6 (6.1) (2.0) (3.7) Change in net funds resulting from cash flows 5.6 7.1 2.4 (24.1) Acquisitions -- -- 0.2 (10.4) Exchange differences -- -- (0.4) (0.5) Movement in net funds in the year 5.6 7.1 2.2 (35.0) Opening balance of net funds 34.0 26.9 8.2 43.2 Closing balance of net funds 39.6 34.0 10.4 8.2 The information in this news release does not constitute statutory accounts within the meaning of Schedule 240 of the Companies Act 1985 (the Act). The statutory accounts for the year ended 31 March 2005 will be delivered to the Registrar of Companies in England and Wales in accordance with Section 242 of the Act. The auditor has reported on those accounts; the report was unqualified and did not contain a statement under Section 237(2) or (3) of the Act. Copies of this statement are available at the company's registered office, Cayzer House, 30 Buckingham Gate, London SW1E 6NN. This information is provided by RNS The company news service from the London Stock Exchange

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Caledonia Investments (CLDN)

Thursday, 23rd May 2024

COMPANIES COVERED:

HL. QQ. AJB

Another day and another round of takeover talk with Hargreaves Lansdown being eyed by private equity suitors. AJ Bell also advances on upbeat earnings news whilst QinetiQ upgrades its profit guidance, too.

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