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Caledonia Inv PLC (CLDN)

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Thursday 21 November, 2002

Caledonia Inv PLC

Interim Results

Caledonia Investments PLC
21 November 2002

                                                                21 November 2002



                  Interim Results, Strategy Review Results and
                 Proposed Conversion to Investment Trust Status



Caledonia today announces:

•         Interim results for the six months ended 30 September 2002
•         Strategy review results
•         Proposal to convert to investment trust status


The key highlights are:

1.        Results for the six months to 30 September 2002

•         Strong outperformance of total shareholder return against FTSE
          All-Share Total Return

          •         70% over ten years (178% vs 108%)
          •         35% over five years (18% vs -17%)

•         10% outperformance of adjusted NAV per share against FTSE All-Share
          over six months 1

•         2.6% increase in interim dividend to 8.0 pence per share

•         Strong cash position


                                                            6 mths          6 mths            Year
                                                       30 Sep 2002     30 Sep 2001     31 Mar 2002
                                                                £m              £m              £m
Total operating profit                                        17.6            15.2            26.1
Profit before taxation                                        14.7             8.9             8.2
Shareholders' funds                                          664.7           732.0           737.9
                                                                 p               p               p
Basic earnings per ordinary share                             14.9             8.1             3.8
Adjusted basic earnings per ordinary share                    13.2             9.9            18.6
Dividends per ordinary share                                   8.0             7.8            25.0
Net asset value per ordinary share                             915             985            1010
Adjusted net asset value per ordinary share 1                  941            1014            1172



1.     At 30 September 2002, adjusted to include subsidiaries and associates at
valuation. Comparative figures adjusted to include listed associates at
valuation. Applying this latter basis of adjustment at 30 September would have
resulted in an adjusted NAV per share of 950 pence. All figures are stated
before contingent tax on investment revaluation.



2.      Strategy review results


•       Deliver total shareholder return outperformance against the FTSE
        All-Share Total Return index over five and ten years
•       Maintain progressive dividend policy
•       Focus on portfolio of 30 to 40 principal investments - both quoted and
        unquoted
•       Be a supportive, proactive long term investor with influential stakes
•       New investment size of, typically, £10m - £25m
•       Use of moderate gearing where appropriate
•       Tight cost control


3.      Proposal to convert to investment trust status

•       No liability for tax on chargeable gains
•       Enhanced appeal to retail investors
•       Potential for reduction in share price discount
•       New valuation methodology based on BVCA guidelines
•       Conversion to be effective from 1 April 2003 (subject to all necessary
        approvals)


Commenting on the announcement, Peter Buckley, Chairman of Caledonia, said:


'Caledonia has yet again produced a robust set of results with significant
outperformance over our benchmarks and an increased interim dividend. We have a
strong balance sheet and are well placed to take advantage of the opportunities
which we expect to emerge from the continuing difficulties in world markets.

We have kept the structure of Caledonia under consideration over the years and
following a review of our strategy by Tim Ingram, our new chief executive, we
have concluded that, given the substantially reduced costs of conversion to
investment trust status following the significant fall in equity markets, the
benefits of doing so now will outweigh the costs. Becoming an investment trust
should make Caledonia more attractive to investors, which will be to the benefit
of all existing and prospective shareholders.'



Enquiries:


Caledonia Investments plc              Tel: 020 7457 2020 (today)
Tim Ingram, Chief Executive            Tel: 020 7802 8080 (thereafter)


College Hill                           Tel: 020 7457 2020
Alex Sandberg
Tony Friend



Chairman's Statement

Results

As is well known, investment markets have been very difficult over the six month
period to 30 September 2002 and whilst the fall in the value of shareholder
funds is extremely unwelcome, we are pleased that Caledonia's long term strategy
has continued to deliver considerable outperformance. Our ten year benchmark of
total shareholder return ('TSR'), which is the share price movements with
dividends reinvested, to 30 September 2002 has amounted to 178%, which compares
with the FTSE All-Share Total Return of 108%. We are now introducing an
additional performance benchmark of five year TSR, which again shows substantial
outperformance of 35% to 30 September 2002. Over the five years, our TSR has
shown an 18% increase against a fall of 17% in the FTSE All-Share Total Return.
These outperformances against longer term benchmarks measure periods more
attuned to Caledonia's investment approach and strategy, which have recently
been reviewed by the Board and are referred to below.



The six months to 30 September 2002 has witnessed a fall of 30% in the FTSE
All-Share index which is one of the most significant declines since 1974.
Against this, the fall of 20% in Caledonia's adjusted net asset value per share
to 941 pence, before contingent tax on investment revaluation, represents a
marked outperformance of 10% although, as I have said, we acknowledge the fall
to be very unwelcome. However, the decline in our share price over the period
represented a lower outperformance of 2% against the FTSE All-Share index,
essentially due to a widening of the share price discount to adjusted net asset
value. Important proposals to help address this discount are referred to below.



Dividend



A key feature of Caledonia's strategy has been the maintenance of a progressive
dividend policy and the attractions of this become increasingly important to
shareholders as fewer equity investments offer such a prospect. Caledonia has a
35 year record of unbroken annual dividend increases and, for the half year
under review, the combination of a strong cash position and a robust balance
sheet has enabled the directors to declare an increase of 2.6% in the interim
dividend to 8.0 pence per share at a cost of £5.7m.



The Board



At the time of the last annual report, I was very pleased to announce the
appointment, in early June 2002, of Tim Ingram as chief executive following the
decision to separate the roles of chairman and chief executive. As I have
previously stated, Joe Burnett-Stuart intends to retire at the end of this
calendar year following twelve years of distinguished service as a non-executive
director. Caledonia's nomination committee is presently undertaking a search for
a successor independent non-executive director and I expect to announce an
appointment in due course. With the previously announced appointments of Charles
Allen-Jones in November 2001 and Mark Davies in May 2002, Caledonia continues to
benefit from a Board that contributes an immense resource of experience and
expertise to carry the company forward.



Strategy and Proposed Conversion to Investment Trust Status



Since joining the company, Tim Ingram has led a review of the group's strategy
and details of this are set out in the chief executive's report. Within this
process we have again examined the efficiency of the group's structure with
particular regard to taxation. One possible structure, which we have kept under
consideration over the years, is that of approved investment trust status,
whereby there is no corporation tax liability on chargeable gains arising from
investment disposals. To date, the restructuring of Caledonia to qualify for
this has been rejected on the grounds of cost. However, with the downward
movement in the equity markets, the estimated cost of conversion has fallen
significantly and is now considered by the Board to be acceptable, and it is
intended to establish approved investment trust status as from 1 April 2003.
This will require certain approvals and we anticipate sending a circular to
shareholders during January 2003, with the necessary meetings to follow. We
believe that over time we shall, as an investment trust, build greater value for
shareholders and this should, along with other factors flowing from our review
of strategy, contribute towards a lower discount of share price to net assets.



Outlook



Notwithstanding the continuing turmoil in world markets, Caledonia's measured
approach has enabled the company to continue to outperform. The company has
always been prepared to adapt to new circumstances in the context of a medium to
longer term approach. This is evident in the decision to seek approved
investment trust status at a time when it is estimated that the cost of
conversion is significantly lower following recent stock market movements.



It is too early to predict performance for the full year, particularly against
the background of volatile markets and the economic and world events which may
affect all of us. Nevertheless, Caledonia's approach has enabled it to maintain
a strong balance sheet and to declare an increased interim dividend and we
believe that we are well placed to take advantage of the opportunities that we
expect to emerge as a result of these difficult times.




Chief Executive's Report

Review of Operations



Introduction



As explained in the chairman's statement, at 30 September 2002 we have again
significantly outperformed our total shareholder return benchmark on both five
and ten year measurements, with outperformance of 35% and 70% respectively for
these periods. It should be further noted that, if we had been included in the
Association of Investment Trust Companies ('AITC') Global Growth sector, which
we believe represents a good comparator for Caledonia, this would put us in the
top quartile of performers for each of these periods on a total shareholder
return basis.



Although our adjusted earnings per share increased by 33% to 13.2 pence for the
six months under review, as stated in the past, we do not believe this measure
to be a particularly relevant indication of either the performance or inherent
value of an investment company like Caledonia. Rather, the adjusted net assets
per share gives a much better indication while, over the longer term, total
shareholder return measures the value creation for shareholders. In order to
give a clearer understanding of the valuation of our investment portfolio, we
have adopted a valuation methodology based on the British Venture Capital
Association ('BVCA') guidelines, which is discussed further in the financial
review. The aggregate value of our portfolio at 30 September 2002, using this
basis, is not materially different from the figure derived from our previous
methodology. We believe that this should make our accounts more comparable with
other investment companies and help promote a better understanding of our value.



In the six months to 30 September 2002, our adjusted net asset value per share,
before contingent tax on investment revaluation, reduced by 20% to 941 pence,
which nevertheless represents significant outperformance against the FTSE
All-Share index, which decreased by 30% over the same period. We believe that,
in the exceptionally difficult conditions of the period under review, this
demonstrates the strength of our investments.



The performance of Caledonia's largest investments is commented on, as in the
past, by considering each sector in turn. Our percentage holding and valuation
at 30 September 2002 is shown for each investment.



Financial



30% of our portfolio is invested in this sector, reflecting both our
understanding and expertise in this area, and its importance to the economy.



The six months under review have seen a continuation of difficult times for many
businesses, with further falls in most world stock markets. However, we are
reassured by the quality of our holdings in this sector.



Close Brothers (18% holding: £124m) saw a decline in its adjusted earnings per
share of 18% for the year to 31 July 2002 with falls in the contribution from
its market related activities of asset management, market making and corporate
finance. However, profits from banking, which include asset finance, showed
growth of 35% to record levels. Rod Kent who has presided over the remarkable
progress of this business for the past twenty five years, retired as managing
director in October. He will remain on the board and leaves behind a sound
management team with a distinctive culture and we wish to pay a warm tribute to
his outstanding record.



ICAP (4% holding: £32m), the world's leading interdealer broker, has bucked the
trend in the financial services sector with record results to 31 March 2002 and
continues to pursue an active acquisition policy to strengthen and widen the
scope of its business. Activity in its markets has remained buoyant in recent
months, which is reflected in its share price being at or near to an all time
high.



Rathbones (12% holding: £26m) reported a fall of 4.4% in adjusted earnings per
share for the six months to 30 June 2002 against the comparative period, which
is a robust performance in these difficult markets. Encouragingly, funds under
management have recorded an increase of 1.7% to £5.9bn, which must be counted as
a significant achievement. During the period, we added slightly to our holding
in Rathbones at a cost of £1.4m.



ISIS Asset Management (6% holding: £17m) ('ISIS') (formerly Friends Ivory &
Sime) announced lower earnings per share for its half year to 30 June 2002
against the background of weak global stock markets. However, the interim
dividend was maintained at last year's level. The previously announced
acquisition of the Royal & SunAlliance investment management business was
completed on 1 July 2002. This transformational transaction more than doubled
funds under management and placed ISIS in the top ten list of active fund
managers in the UK, where it is now a major industry participant in areas such
as fixed interest, active equity, property management, socially responsible
investment and insurance funds.



Leisure and Media



This sector comprises 19% of our portfolio and is a further area where we bring
particular management understanding and knowledge. Our holdings mainly comprise
the investments described below.



Kerzner International (21% holding: £85m) ('KI') changed its name from Sun
International Hotels in June 2002 as part of an agreement with its significant
South African shareholder, Kersaf, to reduce substantially its shareholding in
KI. Trading for the six months to 30 September 2002 improved over the comparable
period in the previous year, which included the immediate aftermath of 11
September 2001. Activity in the period included the completion of a 1200 room
hotel at the Mohegan Sun Casino in Connecticut, in which KI has a 2.5% revenue
participation, and the acquisition of a 50% interest in the luxury La Palmilla
resort and golf course in the Baja Peninsula in Mexico, which will be the
subject of further development. In October 2002, Kersaf reached a settlement
with KI to buy out an annual contribution payable by it to KI for a lump sum
payment of US$32m. KI continues to review a number of interesting proposals for
the further development of its business.



The Sloane Club (100% holding: £29m) maintained satisfactory occupancy levels
against a background of economic and political uncertainty and the valuable
property occupied by the Club underpins the quality of the business.



Radio Investments (39% holding: £12m) continued to grow its revenues strongly in
spite of a weak industry background during its year ended 30 September 2002. Its
portfolio concentration on small local radio stations has enabled it to record
strong revenue growth over each of the past two years and it anticipates that
its predominantly local radio advertising revenue will continue to grow in the
forthcoming year.



Property and General



17% of our portfolio is invested in this sector. Property is a long established
area of activity for Caledonia and over the years we have identified and
supported a number of small property management teams. We also hold a portfolio
of general investments.



Quintain Estates (7% holding: £21m) demonstrated a robust share price
performance, benefiting from its strategic land holdings on the Greenwich
Peninsula and adjacent to the Wembley Stadium development.



Buckingham Gate (100% holding: £20m) owns our head office property, which we
moved into in September 2001. We have now rented out most of the space not
occupied by ourselves.



Edinmore (100% holding: £11m), which seeks out land and property opportunities
in the UK, has enjoyed a higher level of activity generating increased profits.
Its holding of properties, which have good prospects for the future, has
increased by £7m over the period.



Paladin Resources (6% holding: £11m), the quoted oil and gas exploration and
production company has further increased its reserves through both acquisition
and exploration. We increased our holding in Paladin during the period by 1% at
a cost of £1.7m.



Industrial and Services



Our industrial subsidiaries are included in this sector, which in total
represents 16% of our portfolio.



Offshore Logistics/Bristow (6% holding: £30m) reported earnings of US$0.90 per
diluted share for the six months to 30 September 2002 compared with the result
for the comparative period of US$1.02. Notwithstanding uncertainties in future
oil field activity caused, in particular, by world political events, the company
is seeking to reinforce cost efficiencies to consolidate its position as the
pre-eminent provider of offshore helicopter services to the oil and gas industry
world wide. In addition, the company has seen some expansion of its services to
the UK Ministry of Defence in both training and offshore support roles.



Amber (100% holding: £22m) has enjoyed a strong performance overall from the
company's silicone division offset by a reduction in levels of activity in
industrial consumables. Development of new business, combined with cost control,
remains a priority.



Sterling Industries (100% holding: £18m) continued to experience difficult
trading conditions, though the results of a recent restructuring are beginning
to show through. The first half year's result compares favourably with a year
ago despite certain exceptional items relating to one-off closure and redundancy
costs.



Wallem (74% holding: £13m) recorded lower earnings during its year ended 30
September 2002. Conditions in the shipmanagement sector remained competitive and
weaker transpacific rates impacted agency revenues during the year.



Investment Funds



This 14% of the portfolio covers sector areas and activities in which we wish to
invest, but where we believe best value can be gained through using third party
asset managers.



British Empire Securities (20% holding: £51m) has recently announced another
year of strong relative performance, with a fall in NAV of 7% for the year to 30
September 2002, compared with a fall of 26% in its benchmark. Over the past
three financial years, NAV per share has risen 9% against a fall in its
benchmark index of 37%. British Empire was the top performing trust in the AITC
Global Growth sector over five years to 30 September 2002.



Aberforth Partners' fund (26% participation: £17m) has outperformed comparator
indices since its launch in April 2001. It continues to focus on value
situations in the listed smaller companies sector. At 30 September 2002, £5m of
Caledonia's £25m commitment to the fund remained to be called.



Technology



This sector represents only 3% of our portfolio. As this is not an area of
particular management expertise in Caledonia, future investment is more likely
to be through third party asset managers. The technology sector has continued to
be weak and we are not anticipating much significant improvement in the near
term.



Chief Executive's Report

Strategy and Investment Trust Conversion



Since joining Caledonia I have led a review of Caledonia's strategy and
structure. The conclusion of this process has not resulted in any major change
in the way in which the company will conduct its business, but rather a
refinement and clarification of its strategy. However, the review concluded that
Caledonia should convert to an investment trust. The key elements of the new
strategy and proposed investment trust conversion are summarised below.



Overall Aim



Caledonia's financial aim is to achieve consistently over the longer term, using
five and ten year measurements, a total shareholder return in excess of the FTSE
All-Share Total Return, through a combination of capital growth and the
maintenance of a progressive dividend.



Our investment strategy is to focus on taking, and then managing, a number of
significant stakes in companies and situations where we believe there to be good
opportunities for building value. It is our policy that disposals of investments
are made at the appropriate time and in a manner consistent with Caledonia's
reputation as a supportive long term investor. Through holding a diversified
portfolio we aim to maintain a medium overall risk position.



Caledonia intends to remain alert to the changing opportunities in the market
place and the Board will, where appropriate, amend its investment strategy in
order to build value for shareholders.



New Investments



Our guideline for the size of each new investment is £10m to £25m with a maximum
for any new investment of £50m. Normally, we aim to have an influential minority
stake but will, on occasion, be prepared to take a controlling interest when it
is believed that this will maximise shareholder value. New investments may be
quoted or unquoted but with the policy that at least 50% of Caledonia's total
portfolio should be in quoted securities or other liquid assets. When
considering an investment opportunity, particular care is spent in appraising
the capabilities and commitment of the management team in the investee company.
The anticipated total return from the investment, our strategy in relation to
it, and the overall risks, are carefully analysed as part of the investment
process.



Caledonia is focused on a selected range of sectors. In those where we have good
in-house knowledge and can add value to management of the investee company, we
will normally invest direct. However, where particular expertise is required,
which we do not have in-house, we will normally invest through third party
managed funds. Again, a core skill is the ability to assess the capabilities and
commitment of the asset management team and, in these cases, we will often seek
to obtain a significant stake in the management company itself, thereby
potentially enhancing the returns.



As mentioned above, Caledonia's policy also provides for investment in entities
with significant overseas activities. In order to ensure that we can effectively
maintain active involvement with our investments, Caledonia will have a
preference for new direct investments to be in entities whose senior management
are based in the United Kingdom.



Whilst the source of funding for new investments generally comes from
Caledonia's own resources, we may, at times, seek to enhance shareholder returns
by taking on moderate levels of gearing.



Management of Investments



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 investment team, often through board representation. Our experience
in a range of sectors enables us to help management address the business issues.
Where appropriate, we assist investee companies through access to our extensive
network of business contacts and by working with management to pursue growth
opportunities.



To implement effectively our investment strategy, we plan to focus on a
portfolio of around 30 to 40 principal investments to ensure that we can be
actively involved. Our management regularly reviews the progress and strategy
for each investment, including the returns and the timing of eventual disposal
and, in addition, all major investments are subject to a formal annual review by
the Board.



Disposals are made when we believe that the funds released can provide better
returns through being invested elsewhere. In managing the timing and manner of
disposals, particular care is taken to protect our reputation as a supportive
long term investor.



Cost Control



Tight control is exercised over costs, notwithstanding our active and
participative management style. Cost containment is significantly aided by our
policy of managing the large majority of our assets through our in-house
management team thereby reducing third party fees and also ensuring that
performance gains on these investments accrue to Caledonia's own shareholders.



Investment Trust Conversion



Providing the necessary approvals are obtained, we intend to convert to
investment trust status with effect from 1 April 2003. Further details on this
will be contained in a circular to shareholders which we intend to send out in
January 2003.



Rationale for Change



Despite Caledonia's long record of strong outperformance and unbroken annual
dividend increases, its shares have often traded at a substantial discount to
its adjusted net asset value. At 30 September 2002, this discount, after
contingent tax on investment revaluation, was 33%. This compares to a weighted
average discount as at 30 September 2002 for its investment trust peer group
within the AITC Global Growth sector of 12%.



We believe that this substantial discount is due to a number of factors,
including:

•     Caledonia's current liability for corporation tax on chargeable gains, 
      which is not the case with investment trusts;
•     Caledonia's current listing in the Speciality and Other
      Finance sector, where it has no real comparators;
•     an insufficient understanding by investors of Caledonia's
      investment strategy and valuation policy;
•     an absence of regular information on Caledonia's net asset
      value; and
•     the limited liquidity in Caledonia stock.


Conversion to investment trust status should directly address the first two
points. We are also planning to undertake a number of other measures consistent
with the conversion to investment trust status, which should improve the
understanding of Caledonia and highlight its strengths.


Benefits of change

We believe that there will be substantial benefits for our shareholders as:

•    investment trust status will bring a more efficient tax structure;
•    investment trust sector valuation yardsticks should enable
     a better understanding of net asset values;
•    monthly publication of net asset values (after investment
     trust conversion) will provide more regular information to shareholders; 
     and 
•    these changes should enhance Caledonia's appeal to retail investors.

It is hoped that the advantages of conversion will, over time, have a beneficial
effect on the discount of the company's share price to its net asset value.


Additional Information

We have been carefully examining the various implications of conversion and have
obtained extensive professional advice on this. Areas we have addressed include:


Conversion cost

As part of the process of converting to investment trust status, it will be
necessary for Caledonia to undertake certain group reorganisations, some of
which will give rise to tax charges at or around the time of conversion. The
precise amount will be dependent on agreement with the Inland Revenue on various
valuation issues. However, we have estimated that if conversion had taken place
at 30 September 2002, the overall costs, including tax, would have been
approximately £20m.

At this level of overall cost, we believe that the benefits of conversion will
significantly exceed the costs.


Distributable reserves

A key financial aim of Caledonia is to maintain a progressive annual dividend,
and we have a 35 year unbroken record in this respect. As investment trusts are
not permitted to distribute surpluses on investment realisations, it is of
particular importance that we have a high level of distributable reserves at
conversion to underpin this policy for the foreseeable future.



Providing there is no material change to our expected level of distributable
reserves prior to conversion, and subject to receiving the necessary approvals,
we believe that we should be able to structure our affairs so that post
conversion, we are able to start our new financial year on 1 April 2003 with at
least £400m of distributable reserves. This needs to be considered in the
context of a dividend cost for the financial year ending 31 March 2002 of
£18.2m.



Investment trust requirements

There are a number of ongoing requirements to be met if a company is to continue
to qualify for the benefits of investment trust status. These will be explained
in the forthcoming circular to shareholders. One such requirement is that the
company must not be a close company at any time during the financial year for
which investment trust status is sought. Whilst satisfying this requirement is
outside Caledonia's control, the Board believes that Caledonia is not a close
company and the Board considers that it is reasonable to expect that the company
will continue not to be a close company on an ongoing basis.



Business flexibility

Caledonia believes that conversion to investment trust status will not result in
any significant change to its investment approach nor restrict the
implementation of its investment strategy in any material way.



Planned Timetable



A circular will be sent to shareholders in January 2003. This will detail the
investment trust conversion proposal and the shareholder approvals necessary for
us to be able to convert to investment trust status in a way that we believe is
most beneficial to shareholders. This will be followed by the necessary
shareholder meetings in February 2003.



Providing the required approvals are forthcoming, we plan to implement the
changes necessary for us to enjoy investment trust status as from the beginning
of our new financial year on 1 April 2003. Investment trust status is granted
retrospectively by the Inland Revenue after the end of each relevant accounting
period, the first of which will end on 31 March 2004. It may, therefore, be some
time before formal approval is received.



Competitive Advantages



We believe that investment trust status, together with the strategy outlined
above, will further enhance Caledonia's existing competitive advantages in
relation to other investment companies. In particular, these are:



Favoured access to investment opportunities

Caledonia has a long established and valuable reputation as a supportive long
term constructive investor and is not constrained by time limits dictating
realisation policy nor by industry sector whims. Moreover, we have a strong
track record for taking a proactive approach to growing the businesses in which
we invest. These factors attract a strong deal flow of opportunities not always
available to others and therefore enable us to be more selective in our choice
of investments.



Experienced and stable management

Caledonia has a stable management team with good experience in influencing
constructively the management of investee companies. In addition, we work
proactively with investee company management to identify and promote business
growth opportunities. Although such an approach is common in the private equity
area, it is much less so in the quoted company arena.



Value creation

The large majority, by value, of Caledonia's investments are managed in-house,
thereby reducing third party fees and ensuring that performance gains on these
investments accrue to Caledonia's shareholders. In addition, in the cases where
assets are to be managed by third parties, we seek to secure a stake in the
asset management business as part of the overall arrangements. This should
provide the opportunity for additional value creation from the asset management
business itself, further enhancing the potential returns.



Underpinning of dividends

The proposal to maintain a high level of distributable reserves at conversion to
investment trust status should give Caledonia a very much greater ability to
pursue a progressive dividend policy for the foreseeable future than is normally
the case for investment trusts.



Conclusion



Our long term track record and performance for shareholders is excellent and has
been achieved without the benefit of investment trust status. We believe that
going forward we will be in an even better position to create value for our
shareholders.




Financial Review



Net Asset Value



During the six months ended 30 September 2002, net asset value ('NAV') shown in
the group balance sheet, which consolidates subsidiaries and equity accounts for
associates, decreased by £73.2m or 10% from £737.9m to £664.7m. Expressed on a
per share basis, the decrease amounted to 9%, from 1010 pence to 915 pence. The
decline in adjusted NAV per share (the basis of calculation of which is set out
below), was 20%, from 1172 pence to 941 pence.



The principal factor in the balance sheet NAV movement was the overall decrease
in the revaluation of investments of £56.3m, which came mainly from the
financial and technology sectors. Investment sales in the period realised net
gains of £7.2m.



Other factors affecting the balance sheet NAV movement included profit for the
six month period of £10.7m, offset by the interim dividend of £5.7m, exchange
losses on translation of overseas subsidiaries of £17.7m and the purchase of
446,000 of its own shares amounting to £3.4m.



Profit for the period of £10.7m, compared with £6.3m for the same period last
year. Significant factors in this increase were a £1.4m improvement in trading
profit, a small reduction in group overheads and a £2.8m profit on sale of
operations, which included a book profit on the dilution of our interest in
Close Brothers as a result of that company issuing shares to a new investor.



Adjusted NAV per share declined at a greater rate than balance sheet NAV per
share. The principal factor in this difference was that adjusted NAV per share
reflected a 34% drop in the market value of Close Brothers shares, whereas the
balance sheet NAV per share reflected a 12% increase in the group's share of
Close Brothers' net assets.



Dividends



The Board has declared an interim dividend of 8.0 pence per ordinary share, a
2.6% increase on last year, at a cost of £5.7m. The dividend will be paid on 9
January 2003 to shareholders registered on 6 December 2002.



Cash Flow



The group's net funds were £51.1m. at the half year end, compared with £67.1m at
the last year end, a decrease of £16.0m. Significant outflows were the purchase
of investments of £22.6m, notably in the Aberforth and Polar Capital Japan funds
for a total of £14.6m, and the dividend payments of £12.4m. The principal
inflows arose from investment sales, which totalled £18.9m.



Valuation of Investments



At 30 September 2002, the group applied a revised methodology to the valuation
of its unquoted investments, based on the BVCA guidelines. In addition, the
basis of calculation of adjusted NAV (which previously amended the balance sheet
to include listed associates at valuation) was revised to include all associates
and subsidiaries at market value in accordance with the new methodology.

At 30 September 2002, the overall difference in adjusted NAV from the old to new
method is a reduction of £6.7m, which represented less than 1% of the value of
the investment portfolio.



Valuation Methodology



Caledonia's revised methodology for valuing unquoted investments is based on the
BVCA guidelines. Quoted investments continue to be valued at their mid-market
price.



Unquoted equity securities are valued on a number of different bases depending
on the nature of the 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 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 IPO or realisation is imminent or the holding is more than
75%. 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 asset basis is applied. It may also be appropriate to use the net
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 valuation and may 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 NAV
of the fund, with an appropriate adjustment where the NAV has not been
calculated in accordance with BVCA guidelines.



Unaudited Group Profit and Loss 
for the six months ended 30 September 2002 
 

                                                                                                       
                                                          6 mths    6 mths      Year 
                                                          30 Sep    30 Sep    31 Mar 
                                                            2002      2001      2002 
                                                              £m        £m        £m 
Group turnover                                              63.2      56.0     114.1 
Trading profit                                               2.0       0.6     (1.3) 
Income from investments                                      4.9       6.0      10.8 
Interest net                                                 2.1     (0.3)     (1.4) 
Other income                                                 0.5       0.5       0.8 
Group overheads                                            (3.8)     (4.3)     (8.5) 
Exceptional item                                           (0.3)         -         - 
Total group overheads                                      (4.1)     (4.3)     (8.5) 
Group operating profit                                       5.4       2.5       0.4 
Share of operating profit of associates                     12.2      12.4      25.2 
Amortisation of goodwill on acquisition of associates          -       0.3       0.5 
Total operating profit                                      17.6      15.2      26.1 
Profit on sale of operations                                 2.8     (0.4)     (6.2) 
Interest payable                                           (5.7)     (5.9)    (11.7) 
Profit on ordinary activities before taxation               14.7       8.9       8.2 
Tax on profit on ordinary activities                       (3.8)     (2.6)     (5.1) 
Profit on ordinary activities after taxation                10.9       6.3       3.1 
Minority interests (equity)                                (0.2)         -     (0.2) 
Profit for the financial period                             10.7       6.3       2.9 
Dividends                                                  (5.7)     (5.8)    (18.2) 
Profit retained for the financial period                     5.0       0.5    (15.3) 
                                                                                                       
Earnings per ordinary share                                                          
Basic                                                      14.9p      8.1p      3.8p 
Diluted                                                    14.9p      8.1p      3.8p 
Adjusted basic                                             13.2p      9.9p     18.6p 
                                                                                                       
Dividends per ordinary share                                8.0p      7.8p     25.0p 

Unaudited Group Reserve Movements 
for the six months ended 30 September 2002 

TOTAL RECOGNISED GAINS AND LOSSES 

                                                                                                    
                                                          6 mths    6 mths      Year 
                                                          30 Sep    30 Sep    31 Mar 
                                                            2002      2001      2002 
                                                              £m        £m        £m 
Profit for the financial period                             10.7       6.3       2.9 
Realised gains and losses on sale of investments             7.7       0.8       7.9 
Provision against investments                             (34.7)     (1.1)    (11.5) 
Movement in revaluation reserve                           (18.1)    (60.8)    (24.9) 
Tax on sale of investments                                 (2.8)     (1.1)     (1.5) 
Exchange differences                                      (16.4)     (5.5)       0.1 
Minority interests (equity)                                  0.1     (0.1)     (0.1) 
Share of reserve movements of associates                                        
Realised gains and losses on sale of investments           (0.5)       1.1       1.4 
Movement in revaluation reserve                           (10.7)    (21.0)    (20.4) 
Exchange differences                                       (1.3)     (0.6)     (1.2) 
Other movements                                                -       0.7       0.5 
Total recognised gains and losses                         (66.0)    (81.3)    (46.8) 
 
RECONCILIATION OF SHAREHOLDERS' FUNDS 

                                                                                                 
                                                          6 mths    6 mths      Year 
                                                          30 Sep    30 Sep    31 Mar 
                                                            2002      2001      2002 
                                                              £m        £m        £m 
Total recognised gains and losses                         (66.0)    (81.3)    (46.8) 
Dividends                                                  (5.7)     (5.8)    (18.2) 
                                                          (71.7)    (87.1)    (65.0) 
Purchase of own shares                                     (3.4)    (36.0)    (47.1) 
Goodwill on disposals written back                           1.9     (0.5)     (5.5) 
Share of goodwill movements of associates                      -       0.8       0.7 
Net movement in shareholders' funds                       (73.2)   (122.8)   (116.9) 
Opening balance of shareholders' funds                     737.9     854.8     854.8 
Closing balance of shareholders' funds                     664.7     732.0     737.9 


Unaudited Group Balance Sheet 
At 30 September 2002 

                                                                                                   
                                                          30 Sep    30 Sep    31 Mar 
                                                            2002      2001      2002 
                                                              £m        £m        £m 
Fixed assets                                                                   
Intangible assets                                            7.2      11.0       7.5 
Tangible assets                                             66.2      68.7      68.0 
Investments                                                                    
Investment in associates                                   277.3      389.9     289.4 
Other investments                                          266.2      329.4     316.7 
                                                           616.9      799.0     681.6 
Current assets                                                                 
Stocks                                                      23.5       16.1      21.3 
Debtors                                                     26.7       31.6      31.2 
Short term deposits                                         45.4       10.6      61.0 
Cash at bank and in hand                                    24.1       21.8      20.2 
                                                           119.7       80.1     133.7 
Creditors falling due within one year                                          
Short term borrowings                                     (13.4)     (81.5)     (8.8) 
Other creditors                                           (26.9)     (30.8)    (33.4) 
                                                          (40.3)    (112.3)    (42.2) 

Net current assets                                          79.4     (32.2)      91.5 
Total assets less current liabilities                      696.3      766.8     773.1 

Creditors falling due after more than one year                                 
Long term borrowings                                       (5.0)      (5.4)     (5.3) 
Provision for liabilities and charges                                          
Deferred taxation                                         (25.8)     (28.0)    (29.0) 
                                                           665.5      733.4     738.8 
Minority interests (equity)                                (0.8)      (1.4)     (0.9) 
                                                           664.7      732.0     737.9 
                                                                                                   
Capital and reserves                                                           
Called up share capital                                      4.1        4.1       4.1 
Share premium account                                        1.3        1.3       1.3 
Capital redemption reserve                                   1.1        1.1       1.1 
Revaluation reserve                                         54.6       36.5      73.9 
Profit and loss account                                    603.6      689.0     657.5 
Shareholders' funds (equity)                               664.7      732.0     737.9 
                                                                                                   
Net asset value per ordinary share                          915p       985p     1010p 
Adjusted net asset value per ordinary share 1               941p      1014p     1172p 
 

1. Refer to the financial review. 


Unaudited Group Cash Flow 
For the six months ended 30 September 2002 

                                                                                                  
                                                          6 mths     6 mths      Year 
                                                          30 Sep     30 Sep    31 Mar 
                                                            2002       2001      2002 
                                                              £m         £m        £m 
Net cash inflow from operating activities                    3.2        6.8      10.2 
Dividends from associates                                    4.1        3.8       9.5 
Servicing of finance                                                        
Interest paid                                                  -      (0.1)     (0.3) 
Dividends paid to minority shareholders                        -          -     (1.0) 
                                                               -      (0.1)     (1.3) 
Taxation                                                   (3.6)      (1.0)     (2.0) 
Capital expenditure and financial investment                                
Purchase of tangible fixed assets                          (1.8)      (3.2)     (5.1) 
Sale of tangible fixed assets                                0.1        0.1       0.4 
Purchase of investments                                   (22.6)     (27.8)    (39.6) 
Sale of investments                                         18.9       21.1      83.4 
                                                           (5.4)      (9.8)      39.1 
Acquisitions and disposals                                                  
Purchase of operations                                     (0.3)      (0.2)     (0.1) 
Sale of operations                                         (0.3)          -         - 
Investment in associates                                   (1.8)      (4.6)     (6.2) 
Sale of interests in associates                            (0.1)        0.5      92.0 
                                                           (2.5)      (4.3)      85.7 
                                                           (4.2)      (4.6)     141.2 
Equity dividends paid                                     (12.4)     (12.7)    (18.5) 
Management of liquid resources                              20.3      (1.7)    (52.0) 
Financing                                                  (0.3)       27.9    (22.3) 
Purchase of own shares                                     (3.4)     (28.5)    (47.1) 
Increase in cash in the period                                 -     (19.6)       1.3 
 

RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS 

                                                                                                    
                                                          6 mths     6 mths      Year 
                                                          30 Sep     30 Sep    31 Mar 
                                                            2002       2001      2002 
                                                              £m         £m        £m 
Group operating profit                                       5.4        2.5       0.4 
Depreciation and amortisation                                2.8        3.0       9.0 
Profit on sale and provision against own shares            (0.1)        0.1         - 
Profit on sale of fixed assets                                 -          -     (0.1) 
Investment income and interest accruals increase           (0.1)      (0.3)       0.4 
Stocks increase                                            (2.4)        0.4     (4.8) 
Debtors increase                                           (0.2)        6.8       6.4 
Creditors decrease                                         (2.2)      (5.7)     (1.1) 
Net cash inflow from operating activities                    3.2        6.8      10.2 



Supplementary Information 
 
Exceptional Item 
 
The exceptional item of £0.3m related to the accrued costs to date in respect of
the proposed conversion to an investment trust.

Taxation 
 
Taxation charged to the profit and loss account included £2.4m (2001 - £2.6m) in
respect of associated companies.
 
Earnings per Ordinary Share 

The calculation of basic earnings per ordinary share was based on the 72,246,000
(2001 - 77,542,000) weighted average number of ordinary shares in issue during
the period excluding shares held by the Caledonia Investments plc Employee Share
Trust and a subsidiary. Diluted earnings per ordinary share took into account
the 12,000 (2001 - 46,000) dilutive potential ordinary shares from employee
share option schemes.

Adjusted basic earnings per ordinary share excluded sale of operations,
amortisation of goodwill and other items, net of attributable tax.

Net asset value per Ordinary Share 
 
The calculation of net asset value per ordinary share was based on the
72,613,000 (March 2002 - 73,059,000) ordinary shares in issue at the end of the
period.

Adjusted net asset value per ordinary share included subsidiaries and associates
at valuation.

Net asset value per share and adjusted net asset value per share excluded
contingent tax on investment revaluation.

Analysis of Changes in Net Funds

                                                                                                               
                                                Opening       Exchange     Acquisition                 Closing 
                                                balance    differences    of operation    Cash flow    balance 
                                                     £m             £m              £m           £m         £m 
          Cash at bank and in hand                 20.2          (0.8)             0.1          4.6       24.1 
          Bank overdrafts                         (8.7)              -               -        (4.6)     (13.3) 
                                                   11.5          (0.8)             0.1            -       10.8 
          Short term deposits                      61.0              -             4.7       (20.3)       45.4 
          Debt due within one year                (0.1)              -               -            -      (0.1) 
          Debt due after more than one year       (5.3)              -               -          0.3      (5.0) 
                                                   67.1          (0.8)             4.8       (20.0)       51.1 

Basis of Preparation and Issue of Interim Report 

The interim report has been prepared on the basis of the accounting policies set
out in the 2002 group accounts and is unaudited.

The Board approved the interim report on 21 November 2002. The results for the
year ended 31 March 2002 do not constitute the company's statutory accounts. The
statutory accounts for that period, which received an unqualified audit report,
have been filed with the Registrar of Companies.

The interim report will be posted to shareholders and copies will be made
available at the registered office of the company at Cayzer House, 30 Buckingham
Gate, London SW1E 6NN.

Portfolio Analysis

Major Investments by Sector

                                                                                                                      
                                                                           Valuation 5              Book value          
  Name                             Business                   Holding    Sep 2002    Mar 2002    Sep 2002    Mar 2002 
                                                                   %          £m          £m          £m          £m  
  Financial                                                                                                           
  Close Brothers Group plc1        Merchant banking             17.7       124.0       189.2        89.5        80.0  
  ICAP plc1                        Interdealer broking           3.8        31.8        31.0        31.8        31.0  
  Rathbone Brothers Plc1           Fund management              11.7        26.4        36.3        26.4        36.3  
  ISIS Asset Management plc1       Fund management               6.2        16.9        20.0        16.9        20.0  
  Other                                                                      5.7         8.7         5.6         8.8  
                                                                           204.8       285.2       170.2       176.1  
  Leisure and media                                                                                                   
  Kerzner International Ltd1       Resort operator              20.6        84.9       111.4        96.3       105.4  
  The Sloane Club Group Ltd        Residential club              100        29.0        16.1        16.8        16.1  
  Radio Investments Ltd            Local radio                  39.4        12.4        15.5        12.3        13.8  
  Other                                                                      4.9         5.0         4.9         5.5  
                                                                           131.2       148.0       130.3       140.8  
  Property and general                                                                                                
  Quintain Estates and             Property investment           7.1        20.7        19.8        20.7        19.8  
  Development PLC1                                                                   
  Buckingham Gate Ltd              Property investment           100        19.9        20.8        22.0        20.8  
  Edinmore Holdings Ltd            Property trading              100        11.2         3.4        10.9         3.4  
  Paladin Resources plc1           Oil and gas                   6.4        11.1         6.5        11.1         6.5  
  Other                                                                     54.8        72.0        51.6        72.5  
                                                                           117.7       122.5       116.3       123.0  
  Industrial and services                                                                                             
  Offshore Logistics               Helicopter operator           5.9        29.9        32.4        29.9        32.4  
  Inc1,2/Bristow                                                                                                      
  Amber Industrial Holdings PLC    Specialty chemicals           100        22.2        34.1        31.6        34.1  
  Sterling Industries PLC          Engineering                   100        17.8        23.1        21.9        23.1  
  Wallem Group Ltd3                Shipping services            74.4        12.7        13.2        12.7        13.2  
  Other                                                                     28.3        37.4        30.9        31.8  
                                                                           110.9       140.2       127.0       134.6  
  Investment funds                                                                                                    
  British Empire Securities and    Investment trust             19.8        51.3        62.3        54.6        65.7  
  General Trust plc1                                                                 
  Aberforth Ltd Partnership 1A     Investment fund              25.5        17.3        10.0        17.3        10.0  
  Other                                                                     29.7        34.9        29.7        34.9  
                                                                            98.3       107.2       101.6       110.6  
  Technology                                                                                                          
  Other                                                                     19.8        32.0        18.9        31.3  
                                                                            19.8        32.0        18.9        31.3  
  Sector total                                                             682.7       835.1       664.3       716.4  
  Cash and deposits4                                                        24.3        51.2        24.3        51.2  
  Other items                                                             (23.9)      (29.7)      (23.9)      (29.7) 
                                                                           683.1       856.6       664.7       737.9  
                                                                                                                      
  Net asset value per share                                                 941p       1172p        915p       1010p 
 
 
1.     Listed on the UK or overseas stock exchanges. 
2.     The holding in Offshore Logistics Inc includes £6.6m (Mar 2002 - £7.3m)
       of loan stock. 
3.     The holding in Wallem Group Ltd comprises 26% of voting ordinary shares
       and 91.2% of non-voting ordinary shares. 
4.     Excludes cash and deposits in subsidiaries treated as part of the
       investment portfolio. 
5.     Valuation basis is the same as that used for the adjusted net asset value
       per share in the financial review, in particular subsidiaries are stated 
       at share of net assets at March 2002 rather than market value. 

After providing for contingent tax on investment revaluation of £20.0m (March
2002 - £46.0m), the adjusted net asset value per share (based on the portfolio
at valuation) was 913p (March 2002 - 1109p).

Currency Profile of Adjusted Net Asset Value
 

                                                                                 
Currency                        £m         
Sterling                     511.2     75% 
US Dollar                    142.1     21% 
Euro                          16.8      2% 
Hong Kong Dollar              12.7      2% 
Other                          0.3       - 
Adjusted net asset value     683.1    100% 
 

The exposure of the portfolio is based on the currency in which the shares or
other financial instruments held are denominated. It does not take account of
currency exposures arising within the investments themselves. 

Twenty Largest Investments

                                                                                                         
              Name                                                Business                   £m         
              Close Brothers Group plc1                           Merchant banking        124.0      18% 
              Kerzner International Ltd1                          Resort operator          84.9      12% 
              British Empire Securities and General Trust plc1    Investment trust         51.3       7% 
              ICAP plc1                                           Interdealer broking      31.8       5% 
              Offshore Logistics Inc1 / Bristow                   Helicopter operator      29.9       4% 
              The Sloane Club Group Ltd                           Residential club         29.0       4% 
              Rathbone Brothers Plc1                              Fund management          26.4       4% 
              Amber Industrial Holdings PLC                       Specialty chemicals      22.2       3% 
              Quintain Estates and Development PLC1               Property investment      20.7       3% 
              Buckingham Gate Ltd                                 Property investment      19.9       3% 
              Sterling Industries PLC                             Engineering              17.8       3% 
              Aberforth Ltd Partnership 1A                        Investment fund          17.3       3% 
              ISIS Asset Management plc1                          Fund management          16.9       2% 
              Wallem Group Ltd                                    Shipping services        12.7       2% 
              Radio Investments Ltd                               Local radio              12.4       2% 
              Edinmore Holdings Ltd                               Property trading         11.2       2% 
              Paladin Resources plc1                              Oil and gas              11.1       2% 
              A G Barr plc1                                       Beverages                 7.4       1% 
              Central European Land Ltd                           Property investment       7.2       1% 
              Scudder Latin American Power II                     Investment fund           5.0       1% 
              Other                                                                       123.6      18% 
              Portfolio total                                                             682.7     100% 


1.  Listed on the UK or overseas stock exchanges.



Independent Review Report by KPMG Audit plc to Caledonia Investments plc



Introduction



We have been instructed by the company to review the financial information set
out between the heading 'Unaudited group profit and loss' to the end of the
section 'Basis of preparation' and we have read the other information contained
in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.



Directors' Responsibilities



The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where they
are to be changed in the next annual accounts in which case any changes, and the
reasons for them, are to be disclosed.



Review Work Performed



We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of Interim Financial Information issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.



Review Conclusion



On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2002.

KPMG Audit Plc
Chartered Accountants
London

21 November 2002




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