Final Results
Caledonia Investments PLC
30 May 2007
Preliminary Results for the 12 months ended 31 March 2007
Key points
• 303% total shareholder return over ten years (194% outperformance vs
FTSE All-Share Total Return index)
• 175% total shareholder return over five years (124% outperformance vs
FTSE All-Share Total Return index)
• 10.8% increase in NAV per share (undiluted)
• 5.1% increase in annual dividend to 31.1p marks 40 years of
progressive dividends
• £290m invested and £317m of assets realised
• Payment of elective special dividend of £103m and capital reduction
Tim Ingram, Chief Executive, commented:
'Caledonia's strategy of acquiring significant supportive stakes in businesses
with strong management teams has enabled us once again to outperform our
benchmarks over five and ten years.
We are pleased to report a proposed further uplift in our final dividend,
marking 40 years of unbroken annual dividend increases. The year has also seen
an Elective Special Dividend - returning £103m to shareholders.
We continue to be excited by prospects in India and now have such investments
totalling £72m.'
30 May 2007
Enquiries:
Caledonia Investments plc 020 7457 2020 (today)
Tim Ingram, Chief Executive 020 7802 8080 (thereafter)
Jonathan Cartwright, Finance Director
College Hill
Tony Friend 020 7457 2020
Roddy Watt
Chairman's statement
Results
Our fourth year as an investment trust has again seen the growth in our net
asset value per share outpace that of the FTSE All-Share index, although the 11%
uplift and 3% outperformance were lower than the 34% and 10% achieved
respectively last year. Nonetheless our long established strategy of acquiring
significant, but usually minority, stakes in promising listed and unlisted
companies and working with proven managements to add shareholder value over the
longer term has enabled us to continue to record outperformance against our
benchmark FTSE All-Share Total Return index over five and ten years of 124% and
194% respectively.
Share price and discount
Our share price rose by 4% over the year from 1980 pence to 2066 pence with the
increase muted by a widening of the share price discount from less than 4% to
just over 9% notwithstanding the 11% increase in underlying net asset value per
share. I have cautioned in past years that it would prove challenging to
continue to reduce the share price discount and that our share price is not
ultimately within our control. The year just past has borne this out. However we
are mindful that a wider share price discount affects shareholder value and we
have used our authority to buy in our own shares when it was in the interest of
our shareholders for us to do so, as detailed in the Chief Executive's
statement.
Forty year dividend record
We are pleased to propose an increase of 5.4% in the final dividend to 21.6
pence per share from 20.5 pence last time, making a total dividend for the full
year of 31.1 pence representing a 5.1% increase over last year and costing £18m.
This marks a forty year record of successive annual dividend increases over
which period we calculate that our annual dividends per share have increased by
a factor of over 45 times as against a factor of 12 times for inflation. Such
dividends will have aggregated to an equivalent of £5.36 per share and have been
augmented by special dividends paid in 1997 and 2000 totalling £1 per share.
There have also been opportunities for shareholders to opt for two elective
special dividends. It is also of interest that 40 years ago our equivalent share
price was 15p.
Elective special dividend
In our interim statement I reported that in June 2006 we offered shareholders
the option of participating in a return of funds of up to £128m by way of an
elective special dividend on a broadly one for ten basis, with the shares so
elected being cancelled for nil consideration through a Court approved reduction
of capital. The dividend was struck at a 3% discount to the underlying NAV per
share on the designated date and the resultant dividend of 1902.17 pence per
share was taken up on 84.4% of the 6,410,579 shares eligible, resulting in a
payout of £102.9m.
Portfolio
Details of the changes in our portfolio are provided in the Chief Executive's
statement and the business review. With prices generally high, we remain
selective in our investment activity but have continued to invest where we see
good opportunities at sensible prices. During the year we invested £290m in new
and follow-on opportunities and realised £317m, the main element of which was
the £131m divestment of our remaining and long standing investment in Kerzner
International in September last year to a management buyout led by the Kerzner
family. This has proved an excellent investment since we took our initial stake
in 1994, giving a compound annual return of 15% over the period, but we were all
much saddened by the death of Butch Kerzner, the chief executive and architect
of the buyout, who died in a helicopter accident just after the transaction.
We have continued to increase our investment activity in Asia, and predominantly
in India, where we believe that there are substantial opportunities for the
longer term investor prepared to develop relationships with management teams,
often founding families, who are familiar with the local business environment.
Liquidity
Notwithstanding the £103m return of funds to shareholders described above, we
still held net liquid funds of £109m at the year end compared with £180m last
year. This is a function of the underlying dynamic of our investment activity
and, given our concern about the high prices of businesses, is a sensible
position when seeking to achieve an absolute return for shareholders over the
longer term.
Economic and political background
I have habitually made reference to the current economic and political
background as it can have a substantive effect on our business. Inflation is
rising faster than officially acknowledged and higher interest rates have
consequently been introduced. Government spending has increased sharply for
little identifiable benefit, and has been accompanied by an unwelcome
requirement for higher taxes. It surprises us, therefore, that our economy has
remained stable. Many in the business community are aghast at the relentless
increase in new and costly legislation but seem impotent to stem the flow. The '
Burdens Barometer' for the increase in costs for business from new legislation
since 1998, independently calculated for the British Chambers of Commerce, has
now risen to over £55bn, the majority of which is to comply with the whim of the
unaccountable bureaucracy in Brussels. Our retiring Prime Minister had promised
a referendum if the powers of Brussels were to be extended through a revised
constitution and whilst a disguised version of this seems an imminent prospect,
the promised referendum is being brushed aside. However this is entirely
consistent with the lack of integrity and growing incompetence of the present
Government and it is difficult to believe that the forthcoming change of prime
minister will herald the changes which are so urgently needed. It is therefore
important to encourage a credible opposition. It is for this reason that we have
decided to ask our shareholders for permission to enable us to make a
contribution of up to £60,000 to the Conservative Party so that it can be better
equipped to form an alternative government. To this end it is important to build
its resource - especially in marginal seats - if a change from this high spend
and low delivery Government is to become a reality.
Staff
We rely on a relatively small but dedicated management team who make judgements
on and process our various investments. They do this against the rising tide of
rules and regulations to which I have already referred and which increasingly
burden the corporate sector. I would like to thank them all on behalf of
shareholders for their diligent and unstinting efforts.
Outlook
After a strong run in the market place, particularly in the mid-cap sector,
there are signs of more volatility. This affects the pricing of new
opportunities, but our refusal to join auction processes, coupled with our
longer term approach and access to liquidity, should enable us to take advantage
of corrections in the market for the longer term benefit of shareholders.
Peter Buckley
Chairman
Chief Executive's statement
Our financial year ended 31 March 2007 saw net asset value ('NAV') per share
increase by 10.8% which was just over 3% ahead of the FTSE All-Share index over
the year.
Although for the 12 months ended 31 March 2007, our NAV per share growth was
ahead of the market, it is disappointing to note that, as a result of our
discount widening, our share price increase of 4.3% (from 1980p to 2066p) was
below the FTSE All-Share index growth of 7.7% for this 12 month period.
Significant changes in value
Our 10.8% NAV per share increase was significantly aided by four investments,
each of which provided total return gains (including the value of dividends and
distributions) of more than £10m. These were:
Quintain Estates & Development (quoted) + £22.1m
Sterling Industries (unquoted) + £21.8m
Polar Capital (quoted on 6 Feb 2007) + £11.8m
Terrace Hill (quoted) + £11.1m
No individual investments had value losses of more than £10m, but in two cases
there were losses in value of over £5m:
Alok Industries (quoted) - £6.0m
Tribal Group (quoted) - £5.0m
However, in both of the above two holdings, their share prices have improved
markedly since 31 March 2007.
In addition, the fall in value of the US dollar compared with sterling over the
period of 13.1% had an adverse effect on NAV. Although we had hedged our Kerzner
International exposure, we had not hedged our other US dollar denominated
investments, and we estimate that the foreign exchange effect on these US dollar
investments reduced NAV by around £7m.
Investment activity
It has been an active investment year for us, both for investments made and for
realisations.
As a result of our style as long term supportive and constructively involved
investors, we are approached with many opportunities not always offered to
others. During the financial year, our investment management committee evaluated
130 new investment opportunities. We made 14 new investments for a total amount
of around £128m - more than half of this in unquoted companies. In addition, a
further £162m was made in follow-on investments, giving a total investment of
£290m for the year. This is a significant increase on the £155m we invested in
the previous year. More information on these is given in the business review.
With our increased knowledge of the market in India we have been carefully
increasing our exposure to businesses trading in that rapidly expanding area. As
at 31 March 2007 the total value of our Indian investments (including two UK
listed entities that focus on India) was £71.8m - representing 5.4% of
shareholders' funds.
We continue to be actively and constructively involved with our investee
companies, which we believe materially aids performance. It is our normal policy
for a Caledonia executive to join the board of an investee company, and during
the year we have had our executives on the boards of 18 of our top 20
investments.
Realisations this year totalled £317m, a similar level to the previous year. By
far the largest was the buyout by a management-led investor group of Kerzner
International, the resorts owner and operator in which we had an 8% stake. The
$237m received by us in September had been hedged at an average of $1.81 to the
pound, resulting in an overall realisation of £131m, including a £6m benefit
from the hedge. More information on our realisations is given in the business
review.
We started the year with £180m of cash and in view of our liquidity level, we
believed it to be in shareholders' interests to offer an elective special
dividend with an associated share cancellation. All such shareholder elections,
including those for oversubscription, were met in full. As a consequence,
£102.9m was paid out and shares in issue reduced by about 5.4m to around 58.7m.
As a result of the above investment activity and the elective special dividend,
our liquidity slightly reduced during the year and was £109m at 31 March 2007.
Costs
Keeping overhead costs down is an important objective for us as every pound of
cost is a pound reduction in our shareholders' net assets. Nonetheless, it is
vital that we have sufficient resources to be able to manage our portfolio
effectively in a hands-on fashion, while also attracting and evaluating a strong
deal flow. We believe that being a self-managed investment trust company, with
direct control over costs, significantly helps this objective. Our pre-tax total
expenses ratio was 0.8%, which compares favourably against a pre-tax weighted
investment trust industry average of 1.4%
Discount
As mentioned above, we are very conscious that the widening of the discount of
our share price to net asset value has a deleterious effect on our share price
performance.
We firmly believe that we should continue to concentrate our efforts on striving
to ensure that NAV per share continues to outperform the market. This is the
best way over the medium and long term of meeting our financial aims of total
shareholder return outperformance. One of the actions that aids our NAV per
share performance is, when the opportunity arises, to buy our own shares into
treasury when there is a significant discount. This we have done in a small way
during March when 40,000 shares were bought in at an average price of 1976p. In
order that such opportunities can also be exploited to the benefit of our
shareholders during the close period from our year end to the announcement of
our results, we have given, within certain pre-set parameters, irrevocable
instructions to our brokers, JPMorgan Cazenove, to purchase shares on our
behalf. On 11 May 2007, 30,000 shares were thereby purchased at a price of
2130p.
In addition to the above, we also believe that continuing to improve the
awareness of Caledonia amongst retail investors should prove beneficial. To this
end, we have programmes in place to present the company to private client
stockbrokers and leading IFAs.
Outlook
Although at the time of writing economies around the world still seem to be
buoyant and we continue to see a healthy flow of investment opportunities, we
remain conservative in our approach and are particularly careful not to overpay
for new investments. Economic cycles will continue and we believe it is in our
shareholders' interests for us to remain cautious in our investment policies. We
have liquidity on our balance sheet and would expect to remain ungeared with
continuing liquidity at the end of the current financial year.
By carefully selecting the right opportunities where there are strong management
teams, by continuing our active involvement in investee companies and by being
careful to avoid over-exuberance, we seek to maintain our distinctive
outperformance.
Tim Ingram
Chief Executive
Business review
Objectives
Caledonia aims to achieve a long term total shareholder return in excess of the
FTSE All-Share Total Return index, whilst maintaining a progressive annual
dividend, through a focused portfolio of significant stakes in companies where
we believe 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.
In addition, Caledonia aims to achieve a positive total return over rolling five
year periods.
Strategy
Caledonia's strategy is to invest in and actively manage significant stakes in
30 to 40 companies and situations where we believe there to be good
opportunities for building value. Active management will usually be achieved by
working closely and constructively with the investee management, and usually
with board representation, as a long term supportive shareholder. We self-manage
our portfolio, using in-house expertise, as well as using third party managers
who specialise in particular asset classes or geographical areas. We will in
particular seek to increase our level of investment in Asia.
Caledonia seeks new investments with a typical size of £10m to £25m, although we
may invest up to £100m in exceptional circumstances. Although Caledonia usually
aims to have an influential minority stake, we will, on occasion, be prepared to
take a controlling interest where we believe that this will maximise shareholder
value. When considering an investment opportunity, we take particular care 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 our ability to assess the capabilities and commitment of the
fund management team and we 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 managements of
companies that it has backed and to make available the considerable experience
of our own team to help the investee companies' managements to address their
business issues. The strategy for each investment, including the returns and the
timing of eventual disposal, is reviewed regularly. Investments are realised
when we believe 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 our in-house management team.
Financial review
The financial review discusses the results of the company for the financial year
and refers to the company's income statement and balance sheet. In addition to
holding minority stakes in investee businesses, the company holds majority
stakes in a number of companies. The results of these companies are included in
the consolidated financial statements. However, management view these majority
stakes as part of the company's investment portfolio and they are included in
the discussion below in this context. Where appropriate, the financial review
refers to aspects of the consolidated financial statements.
Key performance indicators
Our key performance indicators are as follows:
o Net asset value per share growth against the movement in the FTSE All-Share over one year
o Share price total return performance against the FTSE All-Share over five and ten years
o Absolute share price total return over five years
o Total expenses ratio
o Deal flow.
Net asset value
Net asset value ('NAV') per share, on an undiluted basis, was 2283p at 31 March
2007, compared with 2061p at the same date in 2006 and 1543p (restated under
IFRS) in 2005. The increase over the year of 222p (10.8%) was principally driven
by portfolio performance (+11.8%), partially offset by annual dividends paid
(-1.5%). The elective special dividend paid in July 2006 added 0.3% to undiluted
NAV per share. Table 1 shows the components of the movement in NAV per share
over the year.
Table 1: Movement in NAV per share
NAV No shares NAV/share
£m 000's p
At 31 March 2006 1,307.0 63,411 2061
Total return 137.7 - 244
Annual dividends (1) (18.5) - (30)
Elective special dividend (2) (102.9) (5,411) 6
Treasury and employee trust shares (1.7) (48) -
Share-based payments 1.6 - 2
At 31 March 2007 1,323.2 57,952 2283
1. NAV per share movement is taken as the dividend per share.
2. NAV per share enhancement is based on the NAV per share at the date of the elective special
dividend of 1961p.
The company's NAV at 31 March 2007 of £1,323.2m (2006 - £1,307.0m) differs from
the group's consolidated NAV of £1,311.0m (2006 - £1,324.5m) due to the
inclusion of investments in subsidiaries at fair value in the company balance
sheet as opposed to the underlying share of net assets in the consolidated
balance sheet.
Total return
Caledonia achieved a total return for the year ended 31 March 2007 of £137.7m,
which equates to 10.5% on opening equity (2006 - 35.6%). The key components were
investment gains and investment income recorded over the year. The profit for
the period and net income recognised directly in equity together comprise the
company's total return, summarised in table 2.
Table 2: Total return
2007 2006
£m £m
Gains and losses on investments 96.5 352.7
Gains and losses on derivatives 5.6 (9.0)
Provisions - (10.0)
Investment income 40.1 22.6
Gross portfolio return 142.2 356.3
Management expenses (11.0) (10.8)
Other expenses (1.1) (1.0)
Net portfolio return 130.1 344.5
Treasury income and expenses 3.5 3.5
Taxation 2.5 1.4
Profit for the year 136.1 349.4
Gains and losses recognised in equity 1.6 (0.9)
Total recognised income and expense ('total return') 137.7 348.5
Gross portfolio return
Gross portfolio return comprises gains and losses on investments, investment
income and other items. The downturn in performance in 2007 (12.4%), compared
with 2006 (37.6%), reflected a slower growth in equity markets during the year.
The FTSE All-Share rose by just 7.7% in 2007, compared with 24.0% in 2006.
Net gains and losses on investments for the year were £96.5m, compared with
£352.7m for the previous year. An analysis of this return is given in table 3.
Table 3: Net gains and losses on investments
2007 2006
£m £m
Unquoted investments 54.4 103.0
Quoted investments 42.1 249.7
96.5 352.7
Net gains on quoted investments included £14.9m in respect of Polar Capital and
Kingdom Group, which were listed in London and Hong Kong respectively during the
year.
Net gains on derivatives of £5.6m in 2007 comprised £6.0m of gains on forward
currency sale contracts taken out to hedge the US dollar exposure on our
remaining investment in Kerzner International, which was sold in September 2006,
and a £0.4m loss on a basket of options to hedge against fluctuations in
deferred proceeds on the sale of an investment in September 2005. Net losses on
derivatives of £9.0m in 2006 arose on forward currency sale contracts taken out
to hedge the currency exposure on our US dollar denominated investments.
A provision of £10.0m was made in 2006 in response to a liability that may arise
as the result of a subsidiary entering administration.
Investment income of £40.1m was 77.4% higher than the £22.6m booked in 2006.
This increase resulted from the investment during the year in a number of new
high-yielding loan instruments, increasing income by £6.2m, and substantial
dividends received from investments in subsidiaries of £12.2m, compared with
£2.0m in 2006.
An analysis of gross portfolio returns in 2007 from our principal investments is
shown in table 4.
Table 4: Gross portfolio return
Gains/ Gross
(losses) Income return
£m £m £m
Quintain Estates & Development 21.1 1.0 22.1
Sterling Industries 16.8 5.0 21.8
Polar Capital 10.4 1.4 11.8
Terrace Hill 10.8 0.3 11.1
Satellite Information Services 10.0 - 10.0
Oval 8.8 1.0 9.8
Rathbones 6.2 1.5 7.7
A G Barr 5.4 0.6 6.0
CBPE funds 5.8 - 5.8
Tribal Group (5.2) 0.2 (5.0)
Alok Industries (6.3) 0.3 (6.0)
Other investments 18.4 28.8 47.2
102.2 40.1 142.3
Gains and losses on investments included net gains on derivatives of £5.6m.
Sterling Industries' gross portfolio return of £21.8m reflected improved trading
and earnings multiples and Polar Capital's increase of £11.8m reflected
principally its successful IPO in February 2007. Satellite Information Services'
valuation increase was underpinned by a recent third party share transaction.
Oval continued its successful integration of regional insurance brokers and the
Close Brothers Private Equity ('CBPE') funds benefited from some substantial
realisations during the year.
Expenses
Management expenses comprise the costs incurred in managing the operations of
the company and totalled £11.0m for the year, compared with £10.8m in 2006.
Other expenses of £1.1m (2006 - £1.0m) comprised transaction costs of potential
and completed investments of £0.5m (2006 - £1.0m) and £0.6m of expenses related
to the elective special dividend.
Treasury income and expenses
Gains on money market funds and net finance income, totalling £3.5m (2006 -
£3.6m), reflected the net returns on treasury assets during the year. The
company held net liquidity in term deposits and money market funds averaging
some £100m over the year, but, for a short period in July and August 2006, had
net borrowings to finance the elective special dividend in advance of the
proceeds from the sale of our stake in Kerzner International. Exchange losses of
£0.7m (2006 - £0.1m) arose from holding foreign currency balances.
Dividends
Interim and final dividends
During the year, we paid out dividends of 30.0p per share (2006 - 28.6p),
amounting to £18.5m (2006 - £18.2m), representing the final dividend for 2006 of
20.5p per share and the interim dividend for 2007 of 9.5p per share.
Caledonia maintains a progressive dividend policy and has an unbroken record of
annual dividend increases over the last 40 years.
Elective special dividend
In May 2006, Caledonia offered shareholders the option of participating in a
return of funds of up to £128m by way of an elective special dividend and
associated reduction of capital. The dividend for each share elected was
1902.17p, representing a discount of 3% to the NAV per share of 1961p on the
certification date of 7 July 2006. The elected shares were subsequently
cancelled for nil consideration. Shareholders elected 5.411m shares, being 84.4%
of the total shares eligible, resulting in a total payment of £102.9m.
The elective special dividend increased NAV per share for all shares remaining
by 6p, or 0.3%.
Treasury and employee trust shares
Shares held in treasury and held by the employee share trust are excluded from
the NAV per share calculation.
At 31 March 2007, we held 140,000 shares in treasury, of which 40,000 shares
were bought during the year at a cost of £0.8m.
Caledonia operates an employee share trust to hold shares pending transfer to
employees as a result of the exercise of share options or calling of deferred
bonus awards. At 31 March 2007, 703,284 shares were held by the trust, increased
from 695,189 shares held at the end of the previous year. During the year, the
trust transferred 56,010 shares to staff on exercise of share options and bought
64,105 shares. These transactions resulted in a net payment by the trust of
£0.9m.
Share price total return
We measure our longer term performance by comparing our share price total return
against the FTSE All-Share Total Return over five and ten years and also by our
absolute share price total return over rolling five year periods. The total
return measure assumes the re-investment of dividends on the ex-dividend date at
the closing share price on that date.
Whilst the share price total return provides an accurate measure of investors'
returns, it should be noted that it is based on the company's share price, which
is not within the company's direct control.
Shares in Caledonia have produced a total return to investors of 175% over five
years and 303% over ten years, compared with total returns of 51% and 109%
respectively from the FTSE All-Share - an outperformance of 124% and 194%.
As well as seeking to outperform the FTSE All-Share Total Return index over five
and ten year periods, the company also aims to deliver an absolute return on a
rolling five year basis. Over the last 14 years, we have made an absolute return
over rolling five year periods, except for a short period in late March and
early April 2003.
Total expenses ratio
The calculation of our pre-tax total expenses ratio ('TER') is based on our
annualised management expenses, divided by closing net assets. For the purposes
of calculating the TER, management expenses reported in the income statement are
adjusted to expense the fair value of equity rights granted under our deferred
bonus plan in the year to which the award related. This differs from the
accounting treatment, which expenses some of the entitlements over the three
year vesting period.
The effect of this adjustment is to increase reported management expenses by
£0.1m to £11.1m in 2007 and £1.4m to £12.2m in 2006. The management expenses of
£10.6m in 2005 are not affected.
The TER in 2007 was 0.84%, compared with 0.94% in 2006 and 1.08% in 2005.
Deal flow
Our ability to access attractive investment opportunities, through our extensive
network, is crucial to our strategy of being a long term supportive investor. We
measure our deal flow according to the number of opportunities that have passed
our initial screening process and warrant further investigation as opportunities
in which we might be interested in investing. During the year, we actively
considered 130 new investment opportunities, compared with 125 in 2006.
Cash flows
The key cash flows during the year comprised an aggregate inflow of £309.5m
(2006 - £323.0m) from the realisation of investments and outflow of £290.4m
(2006 - £160.2m) for the purchase of investments. In addition, there was a cash
outflow of £102.9m in respect of the elective special dividend paid in July
2006.
Liquidity
At the year end, we held cash equivalents totalling £108.6m (2006 - £179.6m).
Gearing
Caledonia had no debt at 31 March 2007 (2006 - £nil). However, during the year,
short term borrowings were incurred and rose to £43.0m in August 2006, to
finance in part the elective special dividend. These borrowing were repaid
between July and September 2006 from the proceeds of planned investment
realisations.
Subsidiary companies of Caledonia had borrowings totalling £66.0m at 31 March
2007 (2006 - £42.0m) to finance operations.
Investment portfolio
The value of the investment portfolio at 31 March 2007 was £1,228.9m, compared
with £1,148.0m at 31 March 2006.
Movement
Table 5 illustrates the movement in the value of the portfolio over the year.
Table 5: Movement in value of the investment portfolio
2007 2006
£m £m
Opening investment portfolio 1,148.0 947.1
Investment 290.0 155.2
Realisation proceeds (316.8) (298.0)
Gains and losses on investments and derivatives 102.1 343.7
Rolled-up interest 5.2 -
Limited partnership current accounts 0.4 -
Closing investment portfolio 1,228.9 1,148.0
'Realisation proceeds' and 'gains and losses on investments and derivatives'
included a £5.6m gain (2006 - £9.0m loss) of gains and losses on derivatives.
Investment
Caledonia invested a total of £290.0m in the year, compared with £155.2m in
2006. A summary of the principal investments, analysed between new and follow-on
situations, is given in table 6.
Table 6: Investment
Resulting
equity
holding Country of Cost
Name % Category domicile Business £m
New investments
Ermitage 60.0 Equity/loans Jersey Hedge funds management 22.1
TGE Gas Engineering 49.9 Equity/loans Germany Gas engineering 19.2
Celerant 49.0 Equity/loans UK Management consultant 15.9
Serica Energy 8.4 Equity UK Oil and gas 13.4
Nova Springboard fund Capital/loans Guernsey Investment fund 13.1
Eredene Capital 19.6 Equity UK Indian property 12.0
Begbies Traynor 9.3 Equity UK Business support 11.4
Penta Geronimo fund Capital/loans UK Pub estates fund 5.6
Marwadi 19.5 Equity India Broking 4.9
Real Estate Investors 12.9 Equity UK Property 4.6
Other investments (4) 5.7
127.9
Follow-on investments
Polar Capital funds Shares Ireland/Cayman Hedge funds 31.9
Incisive Media Equity UK Publishing 20.4
Edinmore 100 Loans UK Property 16.4
Bristow Group 6.9 Equity/prefs US Helicopter services 13.9
Melrose Resources 8.9 Equity UK Oil and gas 13.1
Varun Shipping 11.1 Equity India Shipping 12.9
Avanti Screenmedia 25.1 Equity UK Screen media 6.5
Novae Group 6.1 Equity UK Insurance 6.1
Alok Industries 14.9 Equity India Textiles 5.6
Other investments 35.3
162.1
Total 290.0
During the year, we appraised 130 new opportunities and invested £127.9m in 14
of these.
Of these new investments, three totalling £17.2m were made directly or
indirectly in India and one for £1.2m indirectly in China. This is in line with
our strategy of increasing our investment exposure to these markets. Included in
the indirect investments in India is our £12.0m investment in Eredene Capital,
an AIM-listed company that invests in Indian property. In addition, we made
follow-on investments directly and indirectly in Indian companies of £24.7m,
including £12.9m in Varun Shipping, the quoted shipping group and £5.6m in Alok
Industries, the quoted textiles manufacturer.
Realisations
Caledonia made full and partial realisations of holdings during the year with
total proceeds of £316.8m (2006 - £298.0m), a summary of which is given in table
7.
Table 7: Realisations
Realised
Proceeds gain
Name Nature of realisation £m £m
Kerzner International Full sale of holding 131.0 109.2
Sterling Industries Capital distributions 28.7 14.9
Edinmore Holdings Loan repayments 26.9 -
Incisive Media Partial sale of holding 24.5 3.6
Savills Partial sale of holding 21.7 18.1
Polar Capital funds Redemption of funds 16.5 2.8
Aberforth LP fund Fund distributions 11.9 11.9
CBPE LP funds Fund distributions 8.7 8.3
Pragma FCPR Fund distributions 6.1 2.2
Celerant Loan repayments 5.6 -
Greenhill Capital fund Fund distributions 5.4 4.4
Other realisations 29.8 (9.9)
316.8 165.5
The Kerzner International sale proceeds of £131.0 include £6.0m of forward
currency contract gains.
Of particular note, we sold our remaining 8% holding in Kerzner International,
the NYSE listed resorts owner and operator, to a management-led investor group
for £131.0m, resulting in a £109.2m gain over residual cost. Kerzner
International has realised a total of £216.0m on an investment costing £43.0m,
giving an IRR of 15.2% over the 13 years we had been invested.
We sold most of our holding in Savills, the UK listed property agency in the
year, and the balance of our holding at the beginning of April 2007. Overall,
this investment yielded an IRR of 43.9% over the 5 years we had been invested.
Analysis
Table 8 below analyses the investment portfolio by business sector. Over the
year, there has been a shift in the composition of our portfolio from consumer,
with the realisation of our holding in Kerzner International, and into oil and
gas, with the acquisition of TGE Gas Engineering and Serica Energy and an
increase in our stake in Melrose Resources.
Table 8: Portfolio value by business sector
2007 2007 2006 2006
£m % £m %
Financial 375.8 30 328.0 29
Funds 338.0 28 312.4 27
Property 166.6 14 148.8 13
Oil and gas 111.5 9 45.4 4
Industrial 96.5 8 72.6 6
Consumer 140.5 11 240.8 21
1,228.9 100 1,148.0 100
Table 9 below shows the analysis by security type. The reduction in listed
equities results from the realisation of our holding in Kerzner International
and the increased percentage in loans and fixed income reflected the structure
of recent investments.
Table 9: Portfolio value by security type
2007 2007 2006 2006
£m % £m %
Equities listed 760.5 62 774.6 67
Equities unlisted 188.6 15 183.4 16
Loans and fixed income 108.3 9 65.2 6
Hedge and other funds 171.5 14 124.8 11
1,228.9 100 1,148.0 100
The analysis by currency of the investment instruments is shown in the table 10
below. The principal change over the year was the move away from the US dollar,
due to the sale of our holding in Kerzner International and the increase in
pounds sterling as the proceeds from Kerzner International were converted and
most of the year's investments were sterling denominated.
Table 10: Portfolio value by currency
2007 2007 2006 2006
£m % £m %
Pound sterling 1,032.0 83 879.5 76
Euro 72.1 6 44.7 4
US dollar 71.8 6 187.1 16
Indian rupee 43.1 4 29.7 3
Other 9.9 1 7.0 1
1,228.9 100 1,148.0 100
Table 11 below analyses the investment portfolio value by the age of
investments, measured from the date of initial investment. The value of
investments held for over 7 years has reduced as a result of the realisation of
our holding in Kerzner International. This has been replaced by new investments.
Table 11: Portfolio value by age
2007 2007 2006 2006
£m % £m %
Under 1 year 130.4 11 81.6 7
1 to 3 years 264.2 21 313.4 27
3 to 5 years 259.1 21 90.7 8
5 to 7 years 110.8 9 74.1 6
Over 7 years 464.4 38 588.2 52
1,228.9 100 1,148.0 100
As at 31 March 2007, the weighted average age of the investment portfolio,
measured from the date of initial investment, was 8.4 years (2006 - 9.3 years).
Table 12 below analyses the investment portfolio value by geographical region,
based on the country of domicile and the underlying spread of investments in
funds. Over the year, there has been a reduction in our North American
interests, with the realisation of our holding in Kerzner International, an
increase in Europe, with new investments in Ermitage and TGE Gas Engineering,
and an increase in our Asian interests, in line with our strategy of increasing
our exposure in this region.
Table 12: Portfolio value by geography
2007 2007 2006 2006
£m % £m %
United Kingdom 924.4 75 847.5 75
Continental Europe 102.8 8 51.6 4
North America 88.0 7 196.7 17
Asia 104.8 9 48.6 4
Other countries 8.9 1 3.6 --
1,228.9 100 1,148.0 100
Table 13 lists our investment portfolio holdings of over 1% of net assets.
Table 13: Significant holdings
Equity Proportion
holding Country Total of net
of
Name % domicile Nature of business £m assets %
Close Brothers (1,2) 12.2 UK Merchant banking 182.2 13.8
British Empire Securities 18.5 UK Investment trust 137.2 10.4
(1,2)
Quintain Estates & 7.3 UK Property investment and 84.6 6.4
Development (1) development
Rathbone Brothers (1,2) 10.8 UK Fund management 59.8 4.5
Polar Capital funds (2) Ireland/ Hedge and long-only funds 47.4 3.6
Cayman
Bristow Group (1,2) 6.9 US/UK Helicopter services 38.8 2.9
Melrose Resources (1,2) 8.9 UK Oil and gas exploration 37.5 2.8
Cobepa (2) 9.4 Belgium Investment company 35.9 2.7
Oval Financial (2) 29.0 UK Insurance broking 32.6 2.5
Satellite Information 22.5 UK Betting information distribution 25.9 2.0
Services (2)
Polar Capital (1,2) 16.8 UK Fund management 25.6 1.9
A G Barr (1) 9.4 UK Soft drinks 23.1 1.7
Eddington Triple Alpha Fund Cayman Fund of hedge funds 23.0 1.7
(2)
Novae Group (1,2) 6.1 UK Insurance services 22.5 1.7
Ermitage (2) 60.0 Jersey Hedge funds management 22.1 1.7
Sterling Industries (2) 100.0 UK Engineering 21.8 1.6
TGE Gas Engineering (2) 49.9 Germany Gas engineering 19.9 1.5
Terrace Hill (1,2) 8.1 UK Property development 19.3 1.5
Alok Industries (1,2) 14.9 India Textiles manufacturer 17.0 1.3
India Capital Growth Fund 26.3 Guernsey Investment company 16.7 1.3
(1,2)
Incisive Media (2) UK Business publishing 16.5 1.2
Avanti Screenmedia (1,2) 25.1 UK Screen media services 15.9 1.2
The Sloane Club (2) 100.0 UK Residential club owner and 14.0 1.1
operator
Serica Energy (1) 8.4 UK Oil and gas exploration 13.7 1.0
Buckingham Gate (2) 100.0 UK Property investment 13.2 1.0
Other investments 262.7 19.9
Total investments 1,228.9 92.9
Net current assets 94.3 7.1
Net assets 1,323.2 100.0
1. Equity securities listed on UK or overseas stock exchanges.
2. Board representation.
Income statement
for the year ended 31 March 2007
Company Group
2007 2006 2007 2006
£m £m £m £m
Gains and losses on investments held at fair value
through profit or loss 96.5 352.7 66.0 321.6
Gains and losses on derivatives used to hedge the
fair value of investments 5.6 (9.0) 5.9 (9.0)
Provisions - (10.0) (3.1) (6.9)
Investment income 40.1 22.6 25.5 21.4
Gross portfolio return 142.2 356.3 94.3 327.1
Management expenses (11.0) (10.8) (11.0) (10.8)
Other expenses (1.1) (1.0) (1.1) (1.0)
Net portfolio return 130.1 344.5 82.2 315.3
Revenue from sales of goods and services - - 135.0 109.1
Operating expenses - - (120.0) (106.9)
Gain on disposal of available for sale investments - - - 0.3
Gain on disposal of operations - - 4.4 31.4
Gain on investment property - - - 1.7
Share of results of joint ventures - - 6.1 1.0
Profit before finance costs 130.1 344.5 107.7 351.9
Gains on money market funds held at fair value
through profit or loss 1.0 0.8 1.0 0.8
Treasury interest receivable 3.5 3.6 4.3 4.6
Exchange movements (0.7) (0.1) (0.7) (0.1)
Finance costs (0.3) (0.8) (4.1) (3.2)
Profit before tax 133.6 348.0 108.2 354.0
Taxation 2.5 1.4 (0.3) (0.4)
Profit for the year 136.1 349.4 107.9 353.6
Attributable to
Equity holders of the parent 136.1 349.4 106.1 353.5
Minority interest - - 1.8 0.1
136.1 349.4 107.9 353.6
Basic earnings per ordinary share 228.6p 551.4p 178.3p 558.3p
Diluted earnings per ordinary share 226.9p 549.2p 176.9p 556.1p
Statement of recognised income and expense
for the year ended 31 March 2007
Company Group
2007 2006 2007 2006
£m £m £m £m
Exchange differences on translation of foreign operations - - (1.2) 0.7
Actuarial gains and losses on defined benefit pension schemes (0.3) (1.2) 0.2 (1.8)
Tax on items recognised directly in equity 1.9 0.3 1.7 0.3
Net income recognised directly in equity 1.6 (0.9) 0.7 (0.8)
Transferred to profit or loss on sale of available for sale - - - (0.3)
investments
Profit for the year 136.1 349.4 107.9 353.6
Total recognised income and expense 137.7 348.5 108.6 352.5
Attributable to
Equity holders of the parent 137.7 348.5 106.8 352.4
Minority interest - - 1.8 0.1
137.7 348.5 108.6 352.5
Balance sheet
as at 31 March 2007
Company Group
2007 2006 2007 2006
£m £m £m £m
Non-current assets
Investments held at fair value through profit or loss 1,228.1 1,145.2 1,125.9 1,049.0
Investments in subsidiaries held at cost 0.8 2.8 - -
Available for sale investments - - 0.5 0.5
Intangible assets - - 40.7 4.0
Property, plant and equipment - - 78.6 69.1
Investment property - - 5.8 5.8
Interests in joint ventures - - 11.6 9.6
Deferred tax assets 5.8 1.2 8.0 2.4
Non-current assets 1,234.7 1,149.2 1,271.1 1,140.4
Current assets
Inventories - - 19.5 30.2
Trade and other receivables 6.5 4.2 29.0 27.8
Current tax assets - - 0.2 0.5
Money market funds held at fair value through profit or loss - 75.8 0.3 75.8
Cash and cash equivalents 108.6 103.8 123.2 164.7
Current assets 115.1 183.8 172.2 299.0
Total assets 1,349.8 1,333.0 1,443.3 1,439.4
Current liabilities
Bank overdrafts - - (1.5) (8.2)
Interest-bearing loans and borrowings - - (1.3) (0.7)
Trade and other payables (4.8) (4.0) (27.1) (25.4)
Employee benefits - - (3.1) (9.9)
Current tax liabilities (5.2) (6.5) (6.6) (8.8)
Provisions (13.5) (13.5) (14.1) (11.0)
Current liabilities (23.5) (24.0) (53.7) (64.0)
Non-current liabilities
Interest-bearing loans and borrowings - - (64.7) (41.3)
Employee benefits (0.9) (1.4) (5.4) (8.0)
Deferred tax liabilities (2.2) (0.6) (3.6) (0.7)
Non-current liabilities (3.1) (2.0) (73.7) (50.0)
Total liabilities (26.6) (26.0) (127.4) (114.0)
Net assets 1,323.2 1,307.0 1,315.9 1,325.4
Equity
Share capital 3.3 3.6 3.3 3.6
Share premium 1.3 1.3 1.3 1.3
Capital redemption reserve 1.2 1.2 1.2 1.2
Capital reserve 1,048.6 947.5 - -
Retained earnings 268.8 353.4 1,305.9 1,317.9
Foreign exchange translation reserve - - (0.7) 0.5
Equity attributable to owners of the parent 1,323.2 1,307.0 1,311.0 1,324.5
Minority interest - - 4.9 0.9
Total equity 1,323.2 1,307.0 1,315.9 1,325.4
Net asset value per ordinary share (undiluted) 2283p 2061p
Net asset value per ordinary share (diluted) 2258p 2044p
Cash flow statement
for the year ended 31 March 2007
Company Group
2007 2006 2007 2006
£m £m £m £m
Cash flow from operating activities
Dividends received 29.7 18.6 12.8 17.4
Interest received 7.9 7.8 7.2 9.1
Cash received from customers - - 144.8 115.8
Cash paid to suppliers (10.1) (13.3) (130.5) (132.7)
Taxes paid - - (4.5) (3.2)
Group relief received 0.4 1.4 - -
Net cash flow from operating activities 27.9 14.5 29.8 6.4
Cash flow from investing activities
Purchases of property, plant and equipment - - (18.9) (4.1)
Proceeds from disposal of property, plant and - - 0.7 1.9
equipment
Purchases of investments held at fair value through (290.4) (160.2) (253.3) (149.2)
profit or loss
Purchases of money market funds held at fair value
through profit or loss - (85.0) - (85.0)
Proceeds on disposal of investments held at fair value
through profit or loss 309.5 323.0 255.0 274.4
Proceeds on disposal of money market funds held at
fair value through profit or loss 76.8 10.0 76.8 10.0
Net receipts from derivatives 4.4 (7.5) 5.1 (7.5)
Purchase of interest in joint venture - - - (1.1)
Purchase of subsidiary net of cash acquired - - (17.1) -
Proceeds on disposal of subsidiaries net of cash - - 3.0 80.3
disposed
Taxes received - - - 1.3
Net cash flow from investing activities 100.3 80.3 51.3 121.0
Cash flow from financing activities
Interest paid (0.3) (0.3) (2.7) (2.3)
Distributions paid to holders of equity shares (18.5) (18.2) (18.5) (18.2)
Dividends paid to minority interests - - (0.4) -
Elective special dividend paid (102.9) - (102.0) -
Proceeds from new borrowings 43.0 - 83.8 7.0
Repayment of borrowings from a subsidiary - (10.2) - -
Repayment of borrowings (43.0) - (73.9) (4.0)
Net purchase of own shares (1.7) (1.9) (1.7) (1.9)
Net cash flow from financing activities (123.4) (30.6) (115.4) (19.4)
Net increase/(decrease) in cash and cash equivalents 4.8 64.2 (34.3) 108.0
Cash and cash equivalents at year start 103.8 39.6 156.5 48.4
Exchange gains/(losses) on cash and cash equivalents - - (0.5) 0.1
Cash and cash equivalents at year end 108.6 103.8 121.7 156.5
Notes to the preliminary announcement
Note 1
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 2007 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.
Note 2
Subject to approval by shareholders at the annual general meeting to be held on
19 July 2007, the final dividend of 21.6p per share will be payable on 2 August
2007 to holders of shares on the register on 29 June 2007. The ex-dividend date
will be 27 June 2007.
Note 3
Whilst the financial information included in this preliminary announcement has
been computed in accordance with International Financial Reporting Standards ('
IFRSs'), this announcement does not itself contain sufficient information to
comply with IFRSs. The company expects to publish financial statements that
comply with IFRSs on 18 June 2007.
This information is provided by RNS
The company news service from the London Stock Exchange
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