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Caledonia Inv PLC (CLDN)

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Thursday 19 May, 2005

Caledonia Inv PLC

Final Results

Caledonia Investments PLC
19 May 2005

Caledonia Investments plc



Preliminary Results for the 12 months ended 31 March 2005


Key points


•         Substantial total return outperformance against FTSE All-Share Total
Return


•         133% outperformance over five years (125% vs -8%)


•         111% outperformance over ten years (229% vs 118%)


•         9% outperformance of NAV per share against FTSE All-Share over 12
months


•         Company total return for the year of £173m (264p per share)


•         4.4% increase in annual dividend to 28.2p marks 38 years of
progressive dividends


•         £124m invested and £218m disinvested


•         Narrowing of share price discount to NAV from 21% to 12% over the year


•         Payment of elective special dividend of £88m and capital reduction




Tim Ingram, Chief Executive, commented:


'Through our consistent strategy, we have again delivered outperformance.  We
are continuing to see strong deal flow, but will be very discerning in our
investment choices.'




                                                                     19 May 2005



Enquiries:

Caledonia Investments plc                       020 7457 2020 (today)
    Tim Ingram, Chief Executive                 020 7802 8080 (thereafter)
    Jonathan Cartwright, Finance Director

College Hill                                    020 7457 2020
    Tony Friend
    Richard Pearson





Chairman's statement


Results

I am delighted to report that our second year as an investment trust has been
another successful one. We are pleased once again to have delivered excellent
results for shareholders with total shareholder return over five and ten years
outperforming our benchmark of the FTSE All-Share Total Return index by 133% and
111% respectively, which is considerably ahead of the outperformance recorded a
year ago. It has also been an eventful year in that we found a satisfactory
solution to the ill-considered attempts to liquidate Caledonia and destroy a
company with a proud record of delivering good value for its shareholders over a
long time frame. This is fully explained under 'Elective special dividend'
below.



Share price

We are pleased that our continued growth in net assets per share amounting to
some 21% over the year has been complemented by a further reduction in the
discount of our share price to our underlying assets. This discount has narrowed
from 30% two years ago to 21% a year ago and now to 12% at the close of the year
under review. The discount is slightly above the average of our global growth
sector peer group, and still well above some of the other top performers in this
sector with whom we can justifiably compare ourselves. We do well to remember
however that we do not control our share price, though we have worked diligently
to create greater awareness of our good long term performance, and particularly
with retail investors whom we believe to be natural owners of our shares. We
shall continue with this effort as Tim Ingram explains in his chief executive's
report, but the restoration of stability within our shareholder base is likely
also to have contributed to this lower discount so that it will prove much more
challenging to continue this trend from now onwards, which may in turn affect
our total return performance. Nonetheless, we believe that our long established
strategy of taking significant stakes in businesses of which we have a good
understanding, with particular emphasis on identifying sound managements, should
continue to deliver good long term net asset value performance.



Dividend

We are pleased to recommend a final dividend of 19.5 pence per share bringing
the total for the year to 28.2 pence. This amounts to an increase of 4.4% and
maintains our policy of seeking to achieve progressive annual dividend payments,
which we have now delivered for thirty-eight successive years.



Elective special dividend

In July 2004, the elective special dividend and reduction of capital that had
been proposed to resolve the long running dispute amongst the shareholders of
Caledonia's largest shareholder, The Cayzer Trust Company, in which two
institutional shareholders had also become involved, became effective. This
dispute had been damaging to Caledonia's business model, which is founded on
being a stable investor, willing and able to take the longer term view. Under
these proposals, all shareholders were offered the opportunity to receive an
elective special dividend, on up to two-ninths of their shareholdings, of an
amount based on an 18% discount to the company's net asset value per share, with
subsequent cancellation of those shares on which the dividend was paid through a
Court approved reduction of capital. I am pleased to report that, aside from The
Cayzer Trust Company, which had undertaken in advance to take up its full
entitlement in order to facilitate the buy-out of its dissident shareholders,
and Hermes, which we expected to participate given its previous publicly
expressed views in support of the liquidation of Caledonia, the shares cancelled
in respect of our other shareholders only amounted to some 1% of our overall
share capital. This outcome enabled us to put an end to the misplaced and
potentially destabilising attempts by a small handful of shareholders to
liquidate Caledonia by paying out £88m, or less than 10% of our shareholders'
funds. We were most encouraged by this support and I would like to thank our
many shareholders who believe in our long term approach and who chose to remain
with us. It is good to know that the £88m outflow of funds has been more than
made up by the subsequent increase in the value of our assets by the year end.



Portfolio

In my interim statement, I reported on the reduced weighting in our portfolio of
our two largest holdings, Close Brothers and Kerzner International ('KI'), where
disposals had netted proceeds of some £91m. These re-balancing issues are ones
of success given the strong share price performance of these companies over time
and we took advantage of an even higher price for KI shares in February of this
year and realised a further £28m. These investments still remain our two largest
holdings, at 14% and 12% of our portfolio respectively at the year end. The
chief executive's report gives a more detailed commentary on our portfolio.



Board

We have taken the opportunity to strengthen our board over the past six months.
I was pleased to welcome Richard Goblet d'Alviella, chief executive of Sofina,
the Belgium-based investment company, to our board as a non-executive director
in January and more recently, in April, Jamie Cayzer-Colvin and Will Wyatt as
executive directors. Given our interest in finding suitable investment
opportunities on the Continent, exemplified by our recent investment in Cobepa,
and Sofina's not dissimilar investment philosophy to our own, Richard Goblet's
wide investment experience of the continent of Europe is a valuable added
resource. Jamie Cayzer-Colvin and Will Wyatt, who have worked for Caledonia
since 1995 and 1997 respectively and who both became associate directors three
years ago, are responsible for a growing number of recent investment
initiatives. We now have a younger board which is positive, whilst maintaining
the experience which is crucial to our long term approach.



Sir David Kinloch retired as an executive director in January 2004 on reaching
the normal retirement age, but remained as a non-executive director until the
conclusion of last year's annual general meeting. Accordingly, he left the board
during the year under review and I would wish to repeat my thanks to him for his
valuable service to Caledonia since the company took to its new life in 1988.
Sadly, Michael Wyatt also decided to retire from the board at the close of the
financial year. His contribution over 30 years as a director has been huge and
his steady counsel through the enormous changes which have taken place with the
business over that period has stood the company in great stead. He was deputy
chairman from 1994 until 2001 and became a non-executive director in 2002. I
would wish to thank him most wholeheartedly on behalf of all our shareholders.



Outlook

It is normally difficult to interpret the crystal ball, but our view tends on
the cautious side. Deficits and consumer debt in the USA are high and the latter
is repeated in the UK with the added issue of rising Government spending.
However, growth over the medium to longer term in Asia and the Far East, where
we are inclined to seek some investment opportunities, looks interesting. We
shall bear these factors in mind as we move forward in the belief that our
philosophy should continue to deliver good value for shareholders.




Peter Buckley
Chairman


Chief executive's report


This is the second year that we are reporting our results as an investment
trust. Last year we reported that for 2003 we had been named the 'Brightest
Newcomer' by the Investment Trusts magazine and, this time, we can report that
for 2004 your company won an award as 'Best Global Growth Trust'.



Performance

The year ended 31 March 2005 has again seen strong growth in the value of our
investment portfolio. Net asset value ('NAV') per share, before accrued final
dividends, has grown from 1282p at the beginning of the year to 1554p at 31
March 2005 - a growth of 21%. As the FTSE All-Share index has grown by nearly
12% during this period, this represents a 9% outperformance. The table below
analyses this outperformance into its component parts.



One year performance attribution
                                                                                         Return
                                                                                              %
Market (FTSE All-Share index)                                                              11.9
Stock selection                                                                             7.6
Sector allocation                                                                           0.5
NAV per share enhancement (elective special dividend)                                       2.3
Management and other expenses                                                              (1.1)
Caledonia's NAV per share                                                                  21.2



Of particular note, given our style to back strong management teams, is that
over 7% of the outperformance can be attributed to our having, in aggregate,
invested in companies which have themselves outperformed within their sectors.
Also of note is the NAV per share enhancement of 2.3%, which resulted from the
elective special dividend and reduction of capital that was completed last July.
This exercise, which is mentioned more fully in the chairman's statement, both
resolved in full a potentially unstable situation within our largest
shareholder, The Cayzer Trust Company, and directly created additional value for
our remaining shareholders through the NAV per share enhancement.



Notwithstanding our good shorter term performance, our approach continues to be
long term and we believe that a more pertinent measure for our shareholders is
our total shareholder return ('TSR'), measured over five and ten year periods.
The table below shows this performance.



Five and ten year relative TSR performance
                                                      Caledonia   FTSE All-Share
                                                            TSR     Total Return   Outperformance
To 31 March 2005                                              %                %                %
5 years                                                   124.5            (8.2)            132.7
10 years                                                  229.7           118.4             111.3



We have significantly outperformed our benchmark and this performance again puts
us in the top quartile when measured against the global growth sector for all
investment trusts over these periods. The above table also shows that, as for
last year, we have been producing positive returns during the last five and ten
year periods, the former when our benchmark has been in negative territory. This
we will continue to strive to do. In order to enhance our ability to produce
positive returns in times when equity markets are flat or falling, as well as
being prepared to hold cash we also invest in other classes of assets such as
unquoted investments (22% of the portfolio at 31 March 2005), property (13%) and
hedge funds (3%). In all these cases, our business policy is the same: to back,
with long term capital, carefully selected management teams.



Investment activity

Our investment style remains consistent. We only invest when we are confident
that we are backing management teams that should be able to create good medium
and long term value for their shareholders. We look to take significant
shareholdings in such situations, usually with a Caledonia executive taking a
position on the board of the investee company, and where we are aiming to be a
long term supportive and involved investor. This is a distinctive but unusual
style, particularly in relation to quoted companies, and one that brings us a
strong flow of investment opportunities. Considerable time is spent analysing
these opportunities and we are very discerning in our final selection,
especially in relation to the quality of the management. The entry price is
obviously a further major consideration, as we need to be confident that there
is room for good value creation over the medium term.



During the course of our financial year, our investment committee evaluated
around 150 potential new investment opportunities. These were short-listed down
to a more manageable number, which were then intensely evaluated and from which
we made seven new investments for a total amount of £60m. In addition, we
invested a further £64m as follow-on funding in existing investments. This is a
similar level to the previous year when a total of £108m was invested in new and
follow-on investments. Both new and follow-on investments for the year ended 31
March 2005 are shown below.



New and follow-on investments
                             Resultant
Investment            Cost     holding      Category             Country    Business
                        £m           %
New investments
Cobepa                22.8         9.4      Unquoted             Belgium    Investment company
Incisive Media        10.6         8.8      Quoted               UK         Business publishing
Omniport               6.0        39.2      Unquoted             UK         Regional airport owner
Indian securities      7.4                  Quoted               India      Portfolio of quoted Indian
                                                                            securities
Berkshire Capital      5.1        30.0      Unquoted             USA        Investment banking advisor
Terrace Hill           4.1         7.5      Quoted               UK         Commercial property
                                                                            developer
Seven Publishing       3.5        21.7      Unquoted             UK         Magazine publisher
                      59.5
Follow-on investments
General Practice      16.9        30.0      Unquoted             UK         Health care property
                                                                            developer and owner
Oval                  12.5        27.4      Unquoted             UK         Insurance broking
                                                                            consolidator
Polar Capital          9.3        24.6  1   Hedge fund           Cayman     Paragon and Asia ex-Japan
funds                                                                       hedge funds
Tribal Group           9.2         7.4      Quoted               UK         Support services for the UK
                                                                            public sector
Melrose Resources      0.9          6.7     Quoted               UK         Oil and gas exploration and
                                                                            production
Other                 15.5                                                  Includes private equity fund
                                                                            draw downs
                      64.3
                     123.8

1.  Holding in the management company was unchanged.


A second distinctive characteristic of our investment style is our hands-on
approach after we have made the investment. As stated above, it is our normal
policy for a Caledonia investment executive to join the board of the investee
company as a non-executive director, and considerable time is spent in working
supportively with management to achieve long term shareholder value creation. A
large portion of the investment executive's time is spent in this way, and we
believe that such an approach is a significant contributor to our performance.
During the year, we have had a Caledonia executive as a director on the boards
of 24 of our top 30 investments. Whether we have representation on the board or
not, efforts are made to influence constructively the operations and strategies
of each investee company.



Although we are a long term investor, we believe that there comes a time when it
is appropriate for us to disinvest, or partially sell down, from an investment.
In addition, there may be redemptions within funds in which we have invested
which give rise to capital flows back to Caledonia. During the year, we realised
some £218m through such events as listed in the table below.



Full and partial disinvestments
                                                                                              £m
Kerzner International                                                                        62.0
Close Brothers                                                                               57.1
Aberforth LP fund                                                                            23.8
Radio Investments                                                                            13.7
Polar Capital and funds                                                                      12.4
Distributions from private equity funds                                                       8.1
Redleaf II                                                                                    7.0
Paladin Resources                                                                             6.5
Hill & Smith Holdings                                                                         5.2
Active Capital Trust                                                                          5.1
Offshore Logistics/Bristow - capital reorganisation                                           3.7
Amerindo Internet Fund                                                                        3.0
Other                                                                                        10.1
                                                                                            217.7


As a general rule, we disinvest when we believe that, going forward, the funds
released can achieve a higher return for our shareholders through being employed
elsewhere, or when concentration of risk considerations mean it is prudent to
reduce our holding. However, when disinvesting, particular care is taken to
ensure that we do not damage our valuable reputation as a long term supportive
investor.



Treasury

We started the year with net liquid funds of £34m. Although some borrowings were
incurred during the year to finance the special dividend which was paid in July,
by the end of the year, as a result of our net disinvestment activity, we again
had net liquid funds of around £40m and, thus, no external borrowings,
reflecting our conservative approach in the present market conditions.



At our extraordinary general meeting in June last year, we sought and obtained
authority to buy our own shares on the open market, which we can now hold in
treasury, when we believe this is beneficial to our shareholders. During the
year, we bought into treasury 100,000 of our shares at a price of 1015p per
share. We will be seeking approval at our forthcoming annual general meeting to
extend this authority for a further year, as we believe there may be further
opportunities for us to enhance shareholder value in this way.



We have taken a cautious approach to our structural US dollar currency
exposures, which arise because some of our investments are denominated in US
dollars. During the year, we increased the extent of our dollar hedging so that
by the end of the financial year these structural dollar exposures were fully
hedged.



Costs

Keeping overhead costs down is an important objective for us. Every pound of
overhead cost is a pound reduction in our shareholders' net assets. We believe
that being a self-managed investment trust with direct control over costs
significantly helps this objective. Our overhead costs for the year were about
1% of our net assets, which compares favourably against a pre-tax weighted
industry average of 1.5% - particularly in view of the time-consuming hands-on
approach that we take with our investment portfolio.



Shareholders

We believe that putting our efforts into growing NAV per share is the best way
to achieve our financial objectives for our shareholders. However, we are aware
of the continuing desire of shareholders also to see a narrowing in the discount
of our share price when compared with NAV per share. We reported last year on
initiatives we were taking to create an environment which would encourage a
narrowing of this discount. These initiatives are bearing fruit in that our
discount, which was around 21% at 31 March 2004, had narrowed to around 12% at
31 March 2005. It is our belief that our shareholder objectives are in line with
the aspirations of many retail investors, and we are continuing to increase the
awareness of Caledonia as an investment trust amongst potential retail
shareholders. As part of this initiative, we arranged from 1 November 2004 for
our shares to be listed on the stock exchange in New Zealand, where UK
incorporated investment trusts currently offer a more tax efficient means of
investment for New Zealand resident individuals when compared with other
collective investment vehicles. As a result of this and other initiatives, we
estimate that, during the course of the year, the percentage of retail
shareholders has increased by around 7% to about 23% at 31 March 2005.



Recent activity

The only significant changes to our portfolio in the six weeks since our year
end have been the sale of all of our shares in F&C Asset Management for £20m and
the purchase for £18m of a 22% stake in Satellite Information Services, an
unquoted company specialising in the distribution of betting related media.



The future

Since our financial year end, stock markets have experienced some turbulence,
justifying our stance to be cautious and ungeared. We are confident that the
resilience of our long term approach should continue to prove to be of value in
these times. We are continuing to see a strong flow of good business
opportunities, and our approach to these remains cautious but consistent. Over
the last eighteen months, we have spent significant amounts of time looking at
the higher growth markets in Asia and the Far East, and during the last few
months have initiated a small portfolio of quoted Indian shares - these were
valued at £8.4m at 31 March 2005, which represents a 13.5% gain on cost. We
believe that the fast growing Indian economy offers good opportunities for our
long term approach and, although we would not expect this area to become a
particularly significant part of our portfolio in the short to medium term, we
are hoping to increase our investment activity in that country. We are also
looking at opportunities in China, but with added caution in view of the
linguistic, legal and cultural challenges for a financial investor in that area.
We are, of course, also continuing to look at opportunities in our traditional
markets.



By carefully selecting the right opportunities where there are strong management
teams, by continuing our active involvement in investee companies and through
disinvesting when appropriate, we seek to maintain our distinctive performance.





Tim Ingram
Chief executive


Objectives and strategy



Objectives

Caledonia aims to achieve a long term total shareholder return in excess of the
FTSE All-Share Total Return index, while maintaining a progressive annual
dividend, through a focused portfolio of significant stakes in companies where
it believes there to be good opportunities for building value.



Caledonia measures its performance over the long term by comparing its total
shareholder return against the FTSE All-Share Total Return index over five and
ten year periods.



Strategy

Caledonia's strategy is to invest in and actively manage significant stakes in
30 to 40 companies and situations where it believes there to be good
opportunities for building value. Active management will usually be achieved by
working closely and constructively with the investee management, often through
board representation, as a long term supportive shareholder. Risk is managed by
holding a diversified portfolio, with at least 50% of the portfolio in quoted
securities or liquid assets. Caledonia self-manages its portfolio, using
in-house expertise, as well as using third party managers who specialise in
particular asset classes or geographical areas.



Caledonia seeks new investments with a typical size of £10m to £25m. Although
Caledonia usually aims to have an influential minority stake it will, on
occasion, be prepared to take a controlling interest where it believes that this
will maximise shareholder value. When considering an investment opportunity,
particular care is taken in appraising the capabilities and commitment of the
management team of the prospective investee company. The anticipated total
return from the investment, the strategy in relation to it, and the overall
risks, are carefully analysed as part of the investment process.



Caledonia will invest part of its portfolio in third party managed funds. Again,
a core skill is its ability to assess the capabilities and commitment of the
fund management team and Caledonia will often seek to obtain a significant stake
in the management company, thereby potentially enhancing returns to
shareholders.



Caledonia seeks to work closely and constructively with the management of
companies that it has backed and to make available the considerable experience
of its own team to help the investee company's management to address the
business issues. The strategy for each investment, including the returns and the
timing of eventual disposal, is reviewed regularly. Investments are realised
when it is believed that the funds released can provide better long term
returns, but in a manner consistent with Caledonia's reputation as a supportive
long term investor.



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



Tight control is exercised over costs, notwithstanding Caledonia's active and
participative management style. Cost containment is significantly aided by
managing the large majority of investments through the in-house management team.



Competitive advantages

Caledonia believes that its history and strategy deliver the following key
competitive advantages:



Favoured access -- Caledonia's long established and valuable reputation as a
supportive long term investor attracts a strong deal flow of opportunities not
always available to others, which enables it to be highly selective in its
investments.



Long experience -- Caledonia's management team has long experience of
proactively working with the management teams of investee companies to identify
and promote business growth opportunities.



Self-management -- Caledonia's portfolio is largely self-managed, thereby
reducing third party fees and ensuring that performance gains accrue to
Caledonia's shareholders. Where investments are made in managed funds, Caledonia
seeks to secure a stake in the asset management business, to enhance further
potential returns.



Progressive dividends -- Caledonia has a substantial level of distributable
reserves to support its progressive dividend policy for the foreseeable future.



Investment analysis
Holdings of 1% or more of total assets




                             Equity    Country of                                     Proportion of
Name                        holding    incorporation  Nature of business         Total        total
                                                                                             assets
                                  %                                                 £m            %
Close Brothers 1,2            12.5     UK             Merchant banking           139.5         14.2
Kerzner International 1,2     10.1     Bahamas        Resorts owner and          117.4         11.9
                                                      operator
British Empire Securities     19.9     UK             Investment trust           104.9         10.7
1,2
Paladin Resources 1            9.0     UK             Oil and gas exploration     55.7          5.7
Quintain Estates &             7.0     UK             Property holding/           48.2          4.9
Development 1                                         development
Rathbone Brothers 1,2         11.3     UK             Fund management             37.4          3.8
Polar Capital and funds       24.6     UK/Cayman      Fund management and         27.4          2.8
2,3,4                                                 funds
Cobepa 2                       9.4     Belgium        Investment company          26.1          2.6
Offshore Logistics/Bristow     5.6     USA/UK         Helicopter services         23.8          2.4
1,2
Aberforth LP fund 3           25.5     UK             Managed fund                22.5          2.3
F&C Asset Management 1         1.9     UK             Fund management             21.1          2.1
General Practice 2            30.0     UK             Health care properties      19.9          2.0
Eddington Capital and         50.0     UK/Cayman      Fund management and         18.5          1.9
funds 2,3,5                                           funds
Oval 2                        27.4     UK             Insurance services          17.0          1.7
A G Barr 1                     9.4     UK             Soft drinks                 16.8          1.7
Wallem 2                      74.4     Cayman         Shipping services           15.7          1.6
Savills 1,2                    4.2     UK             Property agency             15.5          1.6
Marketform 2                  26.8     UK             Insurance services          15.1          1.5
Melrose Resources 1            6.7     UK             Oil and gas exploration     14.8          1.5
Incisive Media 1,2             8.8     UK             Publishing                  13.6          1.4
Easybox 2                     99.2     Luxembourg     Self storage                12.3          1.2
Edinmore 2                   100.0     UK             Property trading/           11.0          1.1
                                                      investment
Sterling Industries 2        100.0     UK             Engineering                 10.8          1.1
Amber Industrial 2           100.0     UK             Speciality chemicals        10.7          1.1
The Sloane Club 2            100.0     UK             Residental club owner/      10.1          1.0
                                                      operator
Buckingham Gate 2            100.0     UK             Property holding             9.9          1.0
SVB Holdings 1,2               5.3     UK             Insurance                    9.5          1.0
Other investments                                                                106.3         10.8
Total investments                                                                951.5         96.6
Net liquid assets                                                                 33.9          3.4
Net assets                                                                       985.4        100.0
Dividend accrual                                                                 (12.4)
Shareholders' funds                                                              973.0

1.  Equity securities listed on the UK or overseas stock exchanges.

2.  Board representation.

3.  Advisory committee representation.

4.  Included £7.3m for the management company and £20.1m of funds.

5.  Included £0.7m for the management company and £17.8m of funds.



Investment analysis
Asset distribution



Sector

                                                                                   £m         %
Financial                                                                        258.0      26.2
Leisure and media                                                                161.5      16.4
Industrial and services                                                          169.6      17.2
Property                                                                         123.3      12.5
Managed general funds                                                            228.5      23.2
Other                                                                             10.6       1.1
Net liquid assets                                                                 33.9       3.4
                                                                                 985.4     100.0



Category

                                                                                   £m         %
Equities -- quoted                                                               649.4      65.9
Equities -- unquoted                                                             131.0      13.3
Loans and fixed income                                                            78.9       8.0
Private equity LPs                                                                49.4       5.0
Hedge and other funds                                                             42.8       4.4
Net liquid assets                                                                 33.9       3.4
                                                                                 985.4     100.0



Geography

                                                                                   £m         %
United Kingdom                                                                   722.6      73.3
Continental Europe                                                                54.8       5.6
North America                                                                    172.5      17.5
Asia and Far East                                                                 33.1       3.4
Latin America                                                                      2.4       0.2
                                                                                 985.4     100.0

Based on country of domicile or underlying spread for funds.



Currency

                                                                                   £m         %
Pounds sterling                                                                  913.7      92.7
US dollar                                                                          4.3       0.4
Euro                                                                              43.2       4.4
Other                                                                             24.2       2.5
                                                                                 985.4     100.0

Based on currency of investment, net of currency hedges.

Investment analysis
Sector weighting



Caledonia organises its investments into sectors, based on groupings of the FTSE
industry sectors. UK listed securities are classified according to their
standard listing sector. Other securities are classified according to the FTSE
sector they would probably be included in, if they were listed. The Caledonia
sectors are as follows:


Financial                    Industrial and services          Other

Banks                        Aerospace and defence            Electricity

Insurance                    Automobiles and parts            Food and drug retailers

Life assurance               Chemicals                        Food producers and processors

Speciality and other finance Electronic and electrical        Gas distribution
                             equipment
                                                              
                             Engineering and machinery        General retailers

Leisure and media            Oil and gas                      Health
                             
Beverages                    Steel and other metals           Household goods and textiles

Leisure, entertainment and                                    
hotels                       Support services                 Information technology hardware
                                                              
Media and photography        Transport                        Mining

Tobacco                                                       Personal care and household
                                                              products
                                                       
                             Property                         Pharmaceuticals and biotech

Managed general funds        Construction and building        Software and computer services
                             materials

Investment companies         Forestry and paper               Telecommunication services
                                                              
                             Real estate                      Utilities other



The following table shows the weighting of Caledonia's portfolio by sector in
relation to the equivalent FTSE industry grouping:


                                                        Portfolio     Portfolio  FTSE All-Share

                                                               £m             %              %
Financial                                                    258.0          27.1           23.6
Leisure and media                                            161.5          17.0           11.8
Industrial and services                                      169.6          17.8           22.8
Property                                                     123.3          13.0            4.4
Managed general funds                                        228.5          24.0            2.6
Other                                                         10.6           1.1           34.8
                                                             951.5         100.0          100.0


Investment analysis
Holdings by sector


                                                                Private
                                                         Loans    equity   Hedge          Proportion
                            Equity  Equities  Equities     and  partner-     and            of total
                                                         fixed             other
                          interest    quoted  unquoted  income     ships   funds   Total      assets
Name                             %        £m        £m      £m        £m      £m      £m           %
Financial
Close Brothers                 12.5     139.5        --      --        --      --  139.5         14.2
Rathbone Brothers              11.3      37.4        --      --        --      --   37.4          3.8
F&C Asset Management            1.9      21.1        --      --        --      --   21.1          2.1
Oval                           27.4        --      10.0     7.0        --      --   17.0          1.7
Marketform                     26.8        --       7.6     7.5        --      --   15.1          1.5
SVB Holdings                    5.3       4.9        --     4.6        --      --    9.5          1.0
Polar Capital                  24.6        --       7.3      --        --      --    7.3          0.7
Eddington Capital              50.0        --       0.1     0.6        --      --    0.7          0.1
Other investments                         2.5       7.2     0.7        --      --   10.4          1.1
                                        205.4      32.2    20.4        --      --  258.0         26.2
Leisure and media
Kerzner International          10.1     117.4        --      --        --      --  117.4         11.9
A G Barr                        9.4      16.8        --      --        --      --   16.8          1.7
Incisive Media                  8.8      13.6        --      --        --      --   13.6          1.4
The Sloane Club               100.0        --      10.1      --        --      --   10.1          1.0
Other investments                          --       3.6      --        --      --    3.6          0.4
                                        147.8      13.7      --        --      --  161.5         16.4
Industrial and services
Paladin Resources               9.0      55.7        --      --        --      --   55.7          5.7
Offshore Logistics/             5.6      22.9       0.9      --        --      --   23.8          2.4
Bristow
Wallem                         74.4        --      15.7      --        --      --   15.7          1.6
Melrose Resources               6.7      14.8        --      --        --      --   14.8          1.5
Easybox                        99.2        --        --    12.3        --      --   12.3          1.2
Sterling Industries           100.0        --      10.5     0.3        --      --   10.8          1.1
Amber Industrial              100.0        --        --    10.7        --      --   10.7          1.1
Other investments                        10.2       6.7     6.5       2.4      --   25.8          2.6
                                        103.6      33.8    29.8       2.4      --  169.6         17.2
Property
Quintain Estates &              7.0      48.2        --      --        --      --   48.2          4.9
Development
General Practice               30.0        --       2.8    17.1        --      --   19.9          2.0
Savills                         4.2      15.5        --      --        --      --   15.5          1.6
Edinmore                      100.0        --       2.0     9.0        --      --   11.0          1.1
Buckingham Gate               100.0        --       9.9      --        --      --    9.9          1.0
Other investments                         5.7       8.1     0.1       4.9      --   18.8          1.9
                                         69.4      22.8    26.2       4.9      --  123.3         12.5
Managed general funds
British Empire Securities      19.9     104.9        --      --        --      --  104.9         10.7
Cobepa                          9.4        --      26.1      --        --      --   26.1          2.6
Aberforth LP fund              25.5        --        --      --      22.5      --   22.5          2.3
Polar Capital funds                        --        --      --        --    20.1   20.1          2.0
Eddington Capital fund                     --        --      --        --    17.8   17.8          1.8
Other investments                         7.9       2.4     2.3      19.6     4.9   37.1          3.8
                                        112.8      28.5     2.3      42.1    42.8  228.5         23.2
Other
Other investments                        10.4        --     0.2        --      --   10.6          1.1
Total investments                       649.4     131.0    78.9      49.4    42.8  951.5         96.6
Net liquid assets                                                                   33.9          3.4
Total assets                                                                       985.4        100.0
Dividend accrual                                                                   (12.4)
Shareholders' funds                                                                973.0



Investment review
Financial



Caledonia has a history of investing in financial services companies and we have
been actively involved in the development of many such businesses. Although we
sold part of our Close Brothers stake during the year, our weighting in this
sector of 27% is still greater than the FTSE All-Share weighting of 24% and
reflects our interest in an area where long term growth prospects should be
achievable. Over the year, the value of our holdings in financial services
companies has decreased by 2%, compared with an increase of 8% in this sector of
the FTSE All-Share.



Close Brothers

valuation: £139.5m; holding 12.5%

Close Brothers is the largest independent quoted merchant bank in the UK.
Caledonia has been a supportive shareholder since 1986, which highlights our
long term investment approach. One of Caledonia's directors is an independent
non-executive director of the company.



Close Brothers has been a very successful investment, due in no small part to
its sound management. At the start of the year, it represented over 21% of our
portfolio and, after careful consideration, we decided that it would be
appropriate to rebalance the holding. As a result, we sold 7.4m shares for just
over £57m in June last year. The remaining holding of 18m shares is still our
largest investment, representing 14% of our portfolio.



In March this year, Close Brothers released a very satisfactory set of interim
results for the six months ending January 2005. Operating profit on ordinary
activities before taxation and goodwill amortisation increased by 13% over the
same period a year earlier, to £65.1m. Earnings per share before goodwill
amortisation also grew by 13%, rising from 27.7p to 31.2p.



Investment banking profits increased by some 17% compared with the same period a
year earlier and contributed 51% to the group's operating result. Components of
these results include market-making, which performed well given the quiet
conditions in the early part of the period, and corporate finance, which
completed a pleasing number of transactions for clients. The key driver of
growth, however, was the asset management division, which saw profits more than
double with funds under management growing by 22% to £6.1bn, from £5.0bn a year
earlier.



Banking, which represents the remaining 49% of operating profits, saw profits
grow by 2% from the same period a year earlier. Close Brothers' loan book
increased to £2.0bn from £1.7bn, with an organic growth rate of some 6%.



Rathbone Brothers

valuation: £37.4m; holding 11.3%

Rathbones specialises in providing personalised investment management and wealth
management services for private clients and trustees, including discretionary
asset management, tax planning, trust and private company management and banking
services. It manages £7.7bn of funds, including over £800m managed by Rathbone
Unit Trust Management.



Rathbones' profit before tax (before exceptional gains and goodwill
amortisation) for its year ended 31 December 2004 increased by 32.0% to £26.0m
and earnings per share (before goodwill amortisation) increased by 22.8% to
46.8p. Total funds under management rose by 13.2% to £7.7bn and the dividend of
27.5p was a 5.8% increase over the previous year.



The first three months of 2005 saw Rathbones in discussion with Rensburg about a
possible merger. Rathbones continued to regard the strategic and financial case
for merging Rensburg and Rathbones as compelling but, in the absence of a
recommendation from the Rensburg board, decided not to proceed with an offer.



Rathbones will continue to pursue its existing strategy of developing its
investment management and wealth management businesses organically, as well as
by selective acquisitions and recruitments where culturally compatible and
demonstrably earnings enhancing to Rathbones' shareholders.



F&C Asset Management

valuation: £21.1m; holding 1.9%

F&C Asset Management is one of the five largest UK fund management businesses,
following the merger of ISIS Asset Management and F&C in the second half of
2004. Caledonia had been a long term and influential shareholder in ISIS and,
until the merger, had board representation. Our shareholding in the company,
which was renamed F&C Asset Management, was diluted to 1.9% as a result of this
merger.



The results of F&C for the year to 31 December 2004 are difficult to compare
with previous years as a result of the merger. However, earnings per share rose
from 12.0p to 14.0p and the dividend was maintained at 11.0p per share for the
year. F&C Asset Management was also able to confirm that it would deliver the
cost savings which were a significant driving factor behind the merger. Funds
under management were £125bn at 31 December 2004 and F&C Asset Management is
aiming to build these through delivering strong investment performance and
increased choice of investment alternatives for its institutional and retail
customers.



Since the year end, our holding in F&C has been sold for £20m.



Oval

valuation: £17.0m; holding 27.4%

Oval is a UK commercial insurance and financial services broking business with
annualised fee and commission turnover of about £36m. It was established in late
2003, with financial support from Caledonia, to acquire and integrate some of
the best regional broking businesses in this still fragmented industry. Our
investment, in the form of equity and a convertible loan, now totals £17m.



The Oval concept involves the use of its own equity as well as cash as
consideration for its acquisitions, which should provide incentives to vendors
and help to maintain the value of goodwill acquired. As it grows, Oval can take
advantage of economies of scale and the improved terms of trade available from
insurers.



Oval's experienced and energetic management team has now successfully completed
and begun integrating five acquisitions, RP Hodson, Bland Bankart, Beddis &
Partners, Halkett Associates and Barfield. This has resulted in rapid growth,
with original revenue targets achieved early. Profitability is broadly in line
with expectations and more acquisitions are planned.



Marketform

valuation: £15.1m; holding 26.8%

Marketform is an unquoted Lloyd's insurance business, with substantial
management ownership. It specialises in medical malpractice and general
liability business for insureds outside the USA. Marketform manages the business
of a consortium of medical malpractice underwriters on a fee and profit
commission basis and participates in the consortium through its own partially
aligned corporate syndicate, for which it also acts as managing agent.



Caledonia has been a minority shareholder since autumn 2003, through an
investment of £15.1m in equity and convertible loan capital. Profits after tax
for 2004 were broadly in line with expectations. The specialised nature of
Marketform's classes of business offers some protection from rate competition
and the outlook remains attractive.



SVB Holdings

valuation: £9.5m; holding 5.3%

SVB is a listed Lloyd's insurance business, focusing on longer tail speciality
lines, such as financial institutions cover, directors' and officers' liability
and professional indemnity, as well as shorter tail property insurance, aviation
re-insurance and some marine cover. It also has insurance distribution
businesses, which produce about a quarter of its premium income. In 2003,
Caledonia invested £9.1m in equity and £4.9m in convertible bonds to back a
vigorous new management team to take advantage of the sharply improved trading
conditions prevailing after 11 September 2001. However, as a result of severe
deterioration in earlier years' losses, SVB had a tough year in 2004.



At the time we invested, problems in SVB's US casualty treaty reinsurance and
other liability business (underwritten in 2001 and prior years) had surfaced,
but their full scale and severe toxicity were not then apparent to anyone. The
new management discontinued this area of the business, which is now being run
off in a separate unit.



Unexpectedly bad loss reviews began to disclose the full scale of the old year
problems in the first half of 2004 and further reserves of £37.8m were required.
In addition, at 30 June 2004, an exceptional loss provision of £103.6m was
established, of which £67.1m remains unused.



SVB's on-going business continues to be very profitable. We have confidence in
the management team and support their view that, in the course of time, the
continuing profitability of the on-going business should substantially outstrip
the old year losses.



Polar Capital

valuation: £7.3m (£27.4m including funds); holding 24.6%

In January 2001, Caledonia co-founded Polar Capital with a highly respected team
of fund managers. Our assistance in formulating the Polar Capital structure,
obtaining FSA approvals and recruitment of its key personnel, illustrates well
our ability to play a constructive role in the formation of a business that has
shown impressive growth. Funds under management at the year end stood in excess
of $2bn.



Polar Capital is a research driven fund management company, providing a highly
entrepreneurial environment for talented managers within a structure that offers
a level of marketing, administrative and operational support normally only found
in much larger organisations. With a staff of 38, Polar Capital manages $0.65bn
in hedge funds and $1.35bn in long-only funds.



Caledonia owns 24.6% of the management company, with the staff owning the
balance, and is represented on the board of the management company and the
boards of its funds. As a result of the success and profitability of the
business over the year, the value of our equity investment increased from £5.1m
to £7.3m. In addition, Polar Capital repaid £1.0m of subordinated loan notes,
initially provided by Caledonia for regulatory capital.



Eddington Capital

valuation: £0.7m (£18.5m including funds); holding 50.0%

Eddington Capital was established in 2003 and is another example of Caledonia
co-founding a business in the fund management arena. As a specialist in high
return fund of hedge funds, Eddington Capital launched its flagship Triple Alpha
Fund on 1 September 2003, which Caledonia seeded with £15m.



Since launch, while Eddington built up a track record, limited marketing of the
Triple Alpha Fund has taken place and it only grew from £15m to £23m. Eddington
has recently started active marketing of the fund and its investment approach is
seen as refreshingly different from that of other funds of funds. As potential
investors become more familiar with the fund, Eddington hopes to see assets
under management rise steadily later in the year. Improving the performance and
increasing the size of the Triple Alpha Fund should result in Eddington earning
increasing performance fees.



Investment review
Leisure and media



Caledonia has long experience of the leisure and media sector through its
involvement in the hospitality and publishing industries. Although we sold part
of our Kerzner International stake and our holding in Radio Investments during
the year, further investments in media companies have maintained a weighting
greater than the FTSE All-Share index, at 17% compared with 12%. Over the year,
our holdings have increased in value by 35%, compared with an increase in the
leisure and media companies in the FTSE All-Share index of 11%.



Kerzner International

valuation: £117.4m; holding 10.1%

Kerzner International ('KI') is a leading developer, owner and operator of
destination resorts, casinos and luxury hotels worldwide. Caledonia backed the
management team when Sun International Hotels (now KI) was founded in 1994.
Caledonia has had a non-executive director on KI's board from the outset.



In July 2004, Caledonia reduced its holding in KI by selling 1.3m shares at
$47.50 per share, as part of a transaction which allowed Istithmar, a company
owned by the Government of Dubai, to acquire a 13% holding in KI. Istithmar is
KI's partner in building a new $1.1bn 'Atlantis' resort on The Palm, Jumeirah in
Dubai. We reduced our stake further in February this year, when we sold 886,000
shares at $61.48 per share. Caledonia's remaining 3.62m shares represented 12%
of our portfolio at the year end and were valued at £117.4m.



Earlier this year, KI reported 2004 full year adjusted earnings per share of
$2.47, compared with $2.36 achieved in 2003. The company's flagship operation is
Atlantis, Paradise Island, a 2,317 room, ocean-themed destination resort off
Nassau in The Bahamas. The resort includes the world's largest open-air marine
habitat and is the home to the largest casino in the Caribbean. KI continues to
develop the resort and is currently constructing the Atlantis Marina Village,
comprising five new restaurants and retail space, together with further
timeshare developments at the Harborside at Atlantis. Plans are also in hand for
expanding the water park attractions and constructing a 600 room all-suite hotel
and a 500 room condominium hotel.



The company was also responsible for the development of, and receives income
derived from, Mohegan Sun in Uncasville, Connecticut, which has become one of
the premier casino destinations in the United States.



In its luxury resort hotel business, the company manages nine resort hotels
primarily under the One&Only brand. The resorts, featuring some of the top-rated
properties in the world, are located in The Bahamas, Mexico, Mauritius, the
Maldives and Dubai.



In addition to the Phase III expansion in The Bahamas, KI currently has a number
of new developments under construction or in an advanced stage of planning.
These include a 2,000 room Atlantis project on The Palm, Jumeirah in Dubai, a
600 room hotel and casino project in Morocco, a One&Only hotel in Cape Town,
South Africa, and a casino in Northampton, for which KI received its certificate
of consent from the UK Gaming Board in 2004.



A G Barr

valuation: £16.8m; holding 9.4%

Caledonia has been a long term shareholder and supporter of A G Barr, which
manufactures, markets and distributes a range of carbonated soft drinks,
including the well known brands of Irn-Bru and Tizer, as well as juice drinks
and mineral water.



A G Barr recently announced an excellent set of results for the year to 31
January 2005. Pre-tax profits rose 13.1% to £15.6m in a competitive market for
soft drinks as a result of improved margins and increased market share for its
core brands. Earnings per share rose by 13.3% to 56.6p and there was a 12.7%
increase in the dividend to 28.75p per share.



A G Barr has been improving and developing its manufacturing and distribution
operations and also announced a significant programme of capital investment of
£17m over three years to produce further efficiencies. This news was well
received by the market and the share price has continued to perform strongly
since 31 March 2005.



Incisive Media

valuation: £13.6m; holding 8.8%

Incisive Media is one of the UK's foremost specialist providers of business
information. Through leading magazines, consultancy, conferences and
exhibitions, websites and a variety of other platforms, it serves a number of
business sectors, especially in retail and wholesale financial markets.
Caledonia acquired a 6.4% stake in Incisive Media through supporting a
fundraising in April 2004, to finance the acquisition of a specialist private
equity publishing business, and further purchases of shares were made during the
period. Caledonia is represented on the board.



In its year to 31 December 2004, Incisive Media reported a 49% increase in
pre-tax profits to £7.7m on turnover which rose 31% to £46.5m - evidence of the
quality of the margins achieved by the management team. Diluted earnings per
share, adjusted for goodwill, rose 20% to 7.96p.



The current year has started well and Incisive Media is confident of producing
another year of strong earnings growth in 2005.



The Sloane Club

valuation: £10.1m; holding 100%

The Sloane Club is a residential members club, based in the heart of Chelsea.
Caledonia bought the Club in 1991 on a long lease, both as a property investment
and because of its trading potential. It has been enlarged and modernised, most
recently with the addition of air conditioning, flat screen TVs and broadband
internet service, and currently has a membership of around 3,500. Caledonia is
actively involved in the management of the business.



The Club enjoys the support of a loyal membership. However, the recruitment of
new members, together with the retention of existing members, is important to
its future prosperity. Overall profitability remained stable during the year, in
which the refurbishment of the rooms enabled the Club to achieve an 11% increase
in the average room rate, although this was offset by a fall in occupancy.



The business has continued to make progress with a number of successful sales
and marketing initiatives during the year. In addition, the Club is actively
engaged in the pursuit of hotel management opportunities. The Sloane Club
competes in the 4 star hotel sector and, for the foreseeable future, expects the
trading environment to remain challenging.



Investment review
Industrial and services



Caledonia's experience in the industrial and services sector dates back many
decades, giving us the expertise to work closely with management teams of
investee companies. During the year, we identified few attractive new
opportunities and, as a result, only 18% of our investments are in this sector,
compared with 23% for the FTSE All-Share index. However, we have made some
follow-on investments in activities where we see value opportunities. Over the
year, our holdings have increased in value by 32%, compared with an increase in
the industrial and services companies in the FTSE All-Share index of 19%.



Paladin Resources

valuation: £55.7m; holding 9.0%

Paladin is an independent oil and gas exploration and production company with
assets in the North Sea, Australia, Indonesia, Romania, Tunisia and Gabon.
During the year, we sold part of our holding in Paladin for £6.5m. Despite this,
the strength of Paladin's share price during the period has seen the value of
our residual stake rise to be the fourth largest in our portfolio.



Paladin reported strong financial results for 2004, on similar levels of
production to 2003. Operating cash flow was particularly impressive at £171.9m
and earnings per share increased 24% to 11.1p. The dividend was increased by 8%
to 1.7p and reserves showed a 5% increase.



Paladin entered new territory during the year with the purchase for $150m of an
interest in the Laminaria and Corallina permits in the Timor Sea off the coast
of Australia. This acquisition fits neatly with Paladin's strategy of purchasing
assets where further active investment enhances production.



The outlook for the coming year is favourable, with a strong oil price and a
heavy capital investment programme driving increased production.



Offshore Logistics/Bristow

valuation: £23.8m; holding 5.6%

Offshore Logistics, together with its affiliate company, Bristow Helicopters, is
a major provider of helicopter transportation services to the oil and gas
industry worldwide. During the year, £3.7m was received as a result of a capital
reorganisation of Offshore Logistics' affiliate, Bristow Helicopters.



In February 2005, Offshore Logistics reported substantially improved diluted
earnings per share of $1.82 for the nine months to 31 December 2004, compared
with $0.86 for the same period in 2003. Together with generally higher levels of
activity and improved margins, the benefits of restructuring the business to
improve efficiencies are coming through. This has been assisted by new fleet
introductions and customer and safety orientated initiatives.



Offshore Logistics is listed on the New York Stock Exchange and Caledonia is
represented on the board.



Wallem

valuation: £15.7m; holding 74.4%

Wallem is a maritime services group based in Hong Kong. Caledonia has been a
shareholder of Wallem for over 12 years and has board representation. Wallem's
activities encompass ship and cargo broking, ship management, shipping and air
cargo agency services and maritime software development.



In the period under review, which has been a period of strong growth in the
shipping sector, Wallem has increased the fleet of ships under management
substantially and seen higher activity and profit from its agency business.
Wallem reported significantly higher pre-tax profits for the year to 30
September 2004.



Wallem continues to perform strongly in its current financial year. It has also
established a number of new operations in Asia and Europe, which positions
Wallem well to take advantage of further growth in world shipping markets and
China in particular.



As a result of its strong performance, our valuation of Wallem has increased by
49% over the year to 31 March 2005.



Melrose Resources

valuation: £14.8m; holding 6.7%

Melrose Resources is an oil and gas exploration and production company listed in
London. The company has interests in Bulgaria, Egypt, the United States and
France.



The highlight of an eventful year for Melrose was the first production from the
Galata gas field in Bulgaria, which came on stream in June 2004. The seven month
contribution from Galata, allied with a 258% increase in production in Egypt,
helped overall production rise to over 8,000 barrels of oil equivalent per day
('boepd'), compared with 1,300 boepd in the previous year. Profits after tax for
the year rose by 174% to £7.7m, driving an increase of 70% in earnings per share
to 10.7p and a very welcome maiden dividend of 1.0p was declared.



During the period, Melrose raised £24.6m of new equity, in which Caledonia
participated with a further £1m investment, and agreed a syndicated debt
facility of $75m to help fund working capital requirements. Encouragingly, oil
and gas reserves increased by 14% compared with the previous year. A number of
new exploration licenses were secured in Egypt and Bulgaria, as well as a permit
to explore in the Rhone-Maritime concession off the southern Mediterranean coast
of France.



Easybox

valuation: £12.3m; holding 99.2%

Easybox, a self storage business currently operating in Italy and Spain, was
established in 2000 by Caledonia and a joint venture partner. Caledonia bought
out its partner in early 2003. We have a longstanding relationship with the
management of Easybox, who had previously developed Abacus into a leading UK
self storage business. Abacus, a Caledonia-owned company, was sold in 1998 for a
substantial profit.



Finding new sites for operations continues to prove very difficult, particularly
in Spain. Whilst a number of these have been viewed during the year, none have
been found which meet Easybox's exacting requirements. The existing six
facilities are all trading well, particularly the highly visible store in Rome.
Total retail space let increased by 37% to 19,427 sq m and revenue is up 40% on
last year. The company's financial position continues to strengthen and
operating cash flow is positive.



Sterling Industries

valuation: £10.8m; holding 100%

Sterling Industries comprises three distinct businesses, all operating in the
engineering sector. Sterling Hydraulics is a specialist designer and
manufacturer of hydraulic valves primarily used in the construction machinery
industry. Bloom Engineering designs and builds burners for the iron and steel
and aluminium industries. Process Combustion Corporation ('PCC') designs,
manufactures, and supplies combustion heat transfer and pollution control
systems to various industries to meet environmental requirements.



Sterling Hydraulics is currently enjoying strong demand for its products, driven
by high commodity prices stimulating demand for construction and mining
machinery. The results for the year show a significant improvement on last
year's outturn and the Sterling board regards the prospects for the coming year
as most encouraging.



Bloom Engineering has operations in Europe, the USA and China. Whilst benefiting
from high steel prices in the USA, the European business has continued to find
the market challenging. Prospects in China are encouraging following Bloom's
first order from Bao Steel, which was delivered during the year.



PCC had a successful year in Europe and the USA, with prospects in the latter
looking better than for several years.



Amber Industrial

valuation: £10.7m; holding 100%

Amber is a speciality chemicals business with two significant parts, a global
silicones compounding division and an industrial consumables distribution
division operating in Germany, Austria, France and Switzerland. At the start of
the year, Amber sold its UK aerosols division and has subsequently relocated its
headquarters and UK silicones operation. Since Caledonia's year end, Amber has
also made a property disposal realising proceeds of around £1m.



Underlying operating profits, which exclude discontinued businesses and the
non-recurring costs associated with the disposal of the aerosols division, were
up 28% in the year to March 2005. This was due mainly to improved trading
conditions in the USA. As a result of the disposal of the aerosols division,
Amber's valuation has been reduced to £10.7m from £12.8m a year earlier.



Investment review
Property



Caledonia's history of property investment has gained us valuable knowledge of
this sector. We invest in both property assets and in property management
companies. We have made follow-on investments in General Practice and our
weighting in property companies has increased to 13%, compared with 4% in the
FTSE All-Share index. However, the FTSE All-Share represents quoted property
companies only and not properties held through other vehicles. Over the year,
our holdings have increased in value by 20%, compared with an increase in the
property companies in the FTSE All-Share index of 21%.



Quintain Estates & Development

valuation: £48.2m; holding 7.0%

Quintain is a property investment and development company, with a proven track
record, specialising in commercial properties. Over the year, the value of our
holding has grown by 25%, reflecting the continued outperformance of Quintain
against the FTSE All-Share index.



Quintain has now received planning consent for the first phase of the Wembley
development and completed all commercial contracts at the Greenwich Peninsula.
In addition to progress with these special projects, Quintain has completed a
successful programme of disposals and purchases within its main portfolio. In
July 2004, a new £475m corporate loan was syndicated that, combined with the
ongoing revenue stream from its investment assets, has ensured that Quintain is
in a strong financial position to acquire new assets and fund its special
projects.



Profit before tax decreased to £5.0m for the six months ended 30 September 2004,
compared with £7.3m in the corresponding period in 2003. This was due largely to
exceptional costs relating to the re-financing of the company's debt. However,
Quintain notes that the increasing value of the Wembley and Greenwich projects
signals that it is on track to deliver good net assets growth for the year to
March 2005.



General Practice

valuation: £19.9m; holding 30.0%

General Practice Group ('GPG') was formed over 10 years ago to develop and
invest in new surgeries for doctors in general practice and other associated
primary care premises. Caledonia initially invested in GPG in 2002 and has
recently made an additional investment of £16.9m to enable GPG to increase
substantially its portfolio of surgeries across the country. GPG now owns 108
properties, with over 40 new properties per annum being added to the portfolio
through its development programme.



In the NHS there are currently over 9,000 main surgeries and 2,500 branch
surgeries. The NHS's aim is to bring all general practice premises up to modern
standards, with over 3,000 new surgeries combining primary and community
services. GPG is a market leader in this expanding sector.



GPG's annualised rent roll for the year ended March 2005 was £8m and it is on
target to exceed £20m by 2008.



Savills

valuation: £15.5m; holding 4.2%

Savills is a listed property agency and advisory business operating in the UK,
Continental Europe and the Far East. Recognising the strength and calibre of the
management team, and the potential for value creation, Caledonia built up its
stake mainly in 2003. One of Caledonia's directors is a non-executive director
of Savills.



For the year to 31 December 2004, Savills showed strong performance with
turnover up 9% to £328m and group operating profit increasing 10% to £39m. As a
result, the share price also showed strong performance. As a major initiative,
Savills has launched its fund management arm, Cordea Savills, and had around
£1.4bn of funds under management at the end of December 2004.



Edinmore

valuation: £11.0m; holding 100%

Edinmore is a wholly owned property group specialising in rural estates and
commercial property. Caledonia provides the finance and is actively involved in
the management of the business.



Edinmore has had another solid year, achieving a number of substantial and
profitable disposals, mainly in the rural sector of its property portfolio.
Residential properties in rural areas and agricultural land have continued to
command good prices, normally above expectations.



Few substantial rural properties or portfolios have come to the market in the
past twelve months and opportunities have, therefore, been very limited. Land
has been kept back from the market due to continuing uncertainty with regard to
CAP reform, but it is anticipated that more land will become available within
the next year or two.



It has been a very busy year for Edinmore's commercial property activities, with
a number of substantial investments having been secured, mainly in joint
ventures with other property companies. Although good rental returns have been
achieved and there are few voids, Edinmore is working hard on asset management
to increase yields where possible and improve the quality of the properties,
with a view to achieving enhanced capital values on their disposal when market
conditions are perceived to be right.



Buckingham Gate

valuation: £9.9m; holding 100%

Caledonia acquired 30 Buckingham Gate, London, in December 2000 for its
headquarters, as the scale of our activities had outgrown our former City
office. The property is a seven floor office building in a prime West End
location. Caledonia occupies four floors, with the remaining space let out. As
well as being our head office, this allows us to let space, and thereby provide
easy access, to some of our investee companies.



Buckingham Gate has benefited from the gradual recovery of the West End
commercial property market, where there is less over supply than in the City.
The success of Polar Capital, the fund management company in which Caledonia has
a significant stake, caused it to vacate the one floor it occupied to move to
larger premises. The space vacated has already been partly re-let.



Investment review
Managed general funds



Caledonia has particular expertise in identifying and supporting asset
management teams, which we often back with an investment in the management
company as well as in the fund itself. Our weighting of 24% in managed general
funds is greater than the 3% of investment companies that make up the FTSE
All-Share index, as a substantial proportion of our interests are structured as
limited partnerships or offshore investment funds. Over the year, our holdings
have increased in value by 31%, compared with an increase in the investment
companies in the FTSE All-Share index of 15%.



British Empire Securities

valuation: £104.9m; holding 19.9%

British Empire is a UK investment trust whose objective is to achieve capital
growth from a focused portfolio of investments, particularly in companies whose
share prices stand at a discount to estimated underlying net asset value.
Caledonia has been a significant shareholder for over 14 years and is
represented on the board.



British Empire has continued to perform strongly, both outperforming its
benchmark indices and remaining as a top performer in the Association of
Investment Trust Companies' Global Growth sector. Over the year to March 2005,
net asset total return was 25.5% compared with a total return of 15.6% for the
FTSE All-Share index.



From the end of 2004 until recently, British Empire has been trading at a
premium to its stated net asset value, reflecting this strong performance. It
has also been taking profit and moving some of its portfolio onto a more
defensive footing, should current market levels not prove sustainable.



Cobepa

valuation: £26.1m; holding 9.4%

Compagnie Benelux Paribas SA ('Cobepa') is a Belgian investment company with an
attractive portfolio of listed and unlisted investments. Caledonia was part of a
consortium that backed the management team to purchase Cobepa from BNP Paribas
in April 2004 and is represented on Cobepa's board.



The portfolio is currently valued at €449m, the largest holding being Dicobel,
the parent company of Autoglass. Other investments of note include D'Ieteren and
NAVTEQ, the NYSE quoted supplier of in-car navigation systems. Cobepa seeks to
invest between €20m to €50m of equity in either minority shareholdings,
alongside families or other institutions, or majority positions where
transactions are structured as leveraged buyouts. Its sphere of investment
encompasses Belgium, France and Holland.



Aberforth LP fund

valuation: £22.5m; holding 25.5%

This limited partnership fund was launched in March 2001 with a remit to acquire
significant shareholdings in smaller UK listed companies and to work with those
companies to release latent value. Caledonia committed £25m to this fund, which
was fully drawn down by March 2003. By 31 March 2005, the £25m was fully repaid,
together with a further £4.5m from underlying realisations. The carrying value
of £22.5m at 31 March 2005 represents Caledonia's interest in the remaining
fund, which contains five underlying portfolio investments. As at that date, the
fund had generated an IRR of almost 33% per annum, based upon both realised and
unrealised gains, showing outperformance against the FTSE All-Share index and
demonstrating a significant achievement by the Aberforth team in both stock
selection and timing of investment and disinvestment. Caledonia is represented
on the advisory committee.



Polar Capital funds

valuation: £20.1m

Caledonia has an investment in both Polar Capital and a number of its funds. Our
investment in the management company is reviewed in the financial section.



The majority of our Polar Capital fund investments are in hedge funds, which aim
to generate a positive return substantially above the market risk free rate,
irrespective of market conditions. These funds have performed well, returning
between -1% and 21% over 2004.



During the year, Caledonia moved between various Polar Capital funds. We
redeemed our investments in the Paragon and Japan funds for £11.4m and invested
a total of £9.3m in the new Asia ex-Japan fund, launched at the end of 2004, and
the Paragon fund.



Eddington Capital fund

valuation: £17.8m

The Triple Alpha Fund is the first investment vehicle of Eddington Capital
Management, reviewed in the financial section. The fund is a multi-strategy fund
of hedge funds, which seeks to deliver two and a half times the returns of the
mainstream hedge fund universe. In the 18 months since launch, the fund has
performed in line with that target, delivering an 18% return.



Performance to date is in excess of the returns earned by comparable indices,
but hedge fund performance in general fell short of the long term outperformance
we would have liked. An abnormally high correlation between strategies, fickle
market sentiment and an absence of volatility have all reduced returns from
hedge funds and the gain in value of the Triple Alpha Fund, although positive
for the year, was lower than we had hoped for.



Financial review



Caledonia became an investment trust company as from 1 April 2003 and, as such,
we believe that the company statement of total return and company balance sheet
are the most appropriate statements for reporting our performance. Therefore,
this review discusses the financial results of the company.



Basis of presentation of accounts

Caledonia is an investment trust company, but we are relatively unusual in
holding trading subsidiaries as part of our investment portfolio. Our ownership
of subsidiaries requires us to prepare consolidated accounts, but the accounting
rules prevent us from including subsidiaries in the consolidated accounts at
valuation. The consolidated balance sheet would not, therefore, give a
presentation of our investment portfolio consistent with other investment
trusts. However, the company balance sheet does allow us to show the entire
portfolio (including subsidiaries) at valuation and is, therefore, considered to
be the most relevant statement in presenting our financial position. Consistent
with the presentation of other investment trusts, we also present a company
statement of total return. Actual proceeds from the disposal of any individual
investment will inevitably depend on market and economic conditions prevailing
at the time.



Company total return

Company total return for the year was £173.2m, or 263.6p per share, compared
with £282.8m, or 391.5p per share last year.



Gains on investments over the year totalled £165.8m. This included gains of
£39.2m on Kerzner International, £28.3m on British Empire, £24.8m on Paladin
Resources and £13.5m on the Aberforth LP fund. As a result of investment sales
during the year, historic gains of £98.4m were realised, notably £45.8m and
£43.3m on the sales of part of our stakes in Kerzner International and Close
Brothers respectively.



Income from investments of £18.9m fell from last year's figure of £21.5m. The
dividends from most of our principal investments were maintained or increased
over the year. However, the dividend from Close Brothers reduced by £1.7m as a
result of the sale of part of our stake and a dividend of £1.3m from Wallem in
2004 was not repeated.



Management costs rose to £10.0m from £9.1m last year. This movement included
increased pension contributions of £0.6m as part of a programme to address the
company's defined benefit scheme's deficit.



Other corporate costs of £0.4m comprised the costs associated with the elective
special dividend and reduction of capital, which was completed in July 2004. The
cost last year of £2.5m arose principally from the liquidation proposals
promoted by a minority group of shareholders in The Cayzer Trust Company, which
were subsequently withdrawn.



Interest payable of £1.0m, the same as last year, arose principally on amounts
due to a subsidiary undertaking.



The total taxation charge (revenue and capital) for the year amounted to £0.1m,
compared with £0.4m last year.



Dividend

An interim dividend of 8.7p per share has been paid and the directors have
recommended a final dividend of 19.5p per share, making a total of 28.2p per
share for the year at a cost of £17.9m. This is a 4.4% increase over the total
dividend for 2004 of 27.0p per share.



International Financial Reporting Standards

The requirement for Caledonia to adopt International Financial Reporting
Standards ('IFRS'), commencing with the year beginning 1 April 2005, is a
process of major change, for which we have established a project team working in
conjunction with the external auditors and other technical advisers. The key
differences between IFRS and UK GAAP for Caledonia are the requirements to:



- mark listed portfolio investments from mid-market prices to bid prices (IAS
39);



- incorporate the difference between the balance sheet value of pension fund
assets and discounted liabilities (IAS 19).



These adjustments are not expected to result in a material change in reported
net asset values.



In addition, under IFRS 2 'Share-based payments', it will be necessary to
expense benefits conferred on employees through the granting of share options.
This entry will be debited through the company's income statement, but will have
no effect on NAV per share.



The first accounts to reflect the adoption of IFRS will be the interim report
for the six months to 30 September 2005. This interim report will include
comparative figures adjusted in accordance with IFRS, together with the required
restatement of the 31 March 2005 balance sheet.



We are committed to ensuring compliance with all material aspects of IFRS and
action is being taken to establish the accounting policies, systems and
reporting changes that will be required to be implemented.





Jonathan Cartwright

Finance director

Company statement of total return
For the year ended 31 March 2005


                                          Revenue  Capital    Total  Revenue  Capital    Total
                                             2005     2005     2005     2004     2004     2004
                                               £m       £m       £m       £m       £m       £m
Gains on investments
    Realised                                   --    99.2     99.2        --    20.1     20.1
    Unrealised                                 --    66.6     66.6        --   254.2    254.2
                                               --   165.8    165.8        --   274.3    274.3
Income                                      18.9        --    18.9     21.5        --    21.5
Administrative expenses                    (10.0)       --   (10.0)    (9.1)       --    (9.1)
Costs of settlement proposals               (0.4)       --    (0.4)    (2.5)       --    (2.5)
Return before finance costs and tax          8.5    165.8    174.3      9.9    274.3    284.2
Interest payable                            (1.0)       --    (1.0)    (1.0)       --    (1.0)
Return before tax                            7.5    165.8    173.3      8.9    274.3    283.2
Tax on ordinary activities                   1.8     (1.9)    (0.1)       --    (0.4)    (0.4)
Return attributable to shareholders          9.3    163.9    173.2      8.9    273.9    282.8

Return per ordinary share
    Basic                                   14.2p   249.4p   263.6p    12.3p   379.2p   391.5p
    Diluted                                 14.1p   248.6p   262.7p    12.3p   378.4p   390.7p







Company reconciliation of movement in shareholders' funds

                                                                                      Restated
                                                                            2005          2004
                                                                              £m            £m
Revenue return                                                               9.3           8.9
Capital return                                                             163.9         273.9
Total return                                                               173.2         282.8
Dividends                                                                  (17.9)        (19.4)
Elective special dividend                                                  (88.0)            --
Employee share trust                                                        (4.3)         (0.1)
Purchase of own shares                                                      (1.0)            --
Movement in the year                                                        62.0         263.3
Opening balance                                                            911.0         647.7
Closing balance                                                            973.0         911.0

Dividends per ordinary share                                               28.2p         27.0p





The proposed final dividend of 19.5p per ordinary share will be paid on 28 July
2005 to shareholders on the register at the close of business on 1 July 2005.



Company balance sheet
At 31 March 2005


                                                                                       Restated
                                                                             2005          2004
                                                                               £m            £m
Fixed assets
Investments                                                                 951.4         893.0
Current assets
Debtors                                                                       9.4          12.7
Short term deposits                                                          36.4          32.8
Cash at bank and in hand                                                      3.2           6.0
                                                                             49.0          51.5
Creditors falling due within one year                                       (27.4)        (18.5)
Net current assets                                                           21.6          33.0
Total assets less current liabilities                                       973.0         926.0
Creditors falling due after more than one year
Long term borrowings                                                            --         (4.8)
Amounts due to subsidiary undertaking                                           --        (10.2)
                                                                                --        (15.0)
Net assets                                                                  973.0         911.0

Capital and reserves
Called up share capital                                                       3.6           4.0
Share premium account                                                         1.3           1.3
Non-distributable reserves                                                  621.9         458.0
Distributable reserves                                                      355.3         451.9
Own shares                                                                   (9.1)         (4.2)
Total shareholders' funds                                                   973.0         911.0

Net asset value per ordinary share
    After accrued final dividend                                            1535p         1264p
    Before accrued final dividend                                           1554p         1282p



Key accounting policies



Basis of preparation

The accounts have been prepared under the historical cost convention, modified
to include the revaluation of investments, and in accordance with applicable
accounting standards.



Investment trust companies generally report under the Statement of Recommended
Practice - Financial Statements of Investment Trust Companies ('IT SORP'), dated
January 2003 and published by the Association of Investment Trust Companies. The
IT SORP assumes, however, that an investment trust is also an investment company
and can take advantage of the special provisions given to investment companies
under company law and accounting standards. Caledonia is not an investment
company and, in these circumstances, the IT SORP states that an investment trust
company should prepare its financial statements in accordance with the normal
rules contained in Schedule 4 to the Companies Act 1985 and accounting
standards.



Caledonia recognises, however, that presenting information that is comparable
with other investment trusts is important to investors. It therefore augments
its financial statements with the information and disclosures required by the IT
SORP in respect of the performance of the company. This is because the company
balance sheet (unlike that of the group) can reflect full net asset value, and
the movement in this figure is a key measure of Caledonia's performance. A
statement of total return on an IT SORP basis is also presented to explain this
movement.



The group has implemented UITF 37 'Purchases and Sales of Own Shares' and UITF
38 'Accounting for ESOP Trusts', which require the cost of shares in the company
held by the group to be shown as deductions from shareholders' funds.
Previously, own shares were shown as fixed asset investments. This change has
not materially affected previously reported profits and losses, but comparative
figures have been restated in the balance sheet.



The group has also implemented UITF 17 (Revised 2003) 'Employee Share Schemes',
which requires the minimum profit and loss charge for share options granted to
be determined as the intrinsic value. Previously, the charge was based on either
intrinsic value or, where purchases of shares were made by an ESOP trust at fair
value, by reference to the cost of shares available for the award less any
contributions payable by the employees. The implementation of the revised UITF
17 had no material impact on the group's previously reported profits and losses.



Valuation of investments

Investments are included according to the following guidelines, which have been
drawn up having regard to the British Venture Capital Association ('BVCA')
guidelines.



Quoted investments, for which an active market exists, are valued at mid-market
price.



Unquoted equity investments are valued by the directors on a number of bases
depending on the nature of each investment. Early-stage investments will
generally be valued at cost, less a provision if performance is substantially
below expectations, for one year or until the investment starts to earn
significant maintainable profits. Investments earning significant maintainable
profits are generally valued using an earnings multiple, based on current year
profit after tax and an earnings multiple for a comparable quoted company or
sector average. A discount will be applied to recognise the absence of a ready
market on which the holding can be sold. The liquidity discount will normally be
30%, but may be reduced to 10% if an initial public offering or realisation is
imminent. For some asset-backed businesses, such as where there is a significant
property element, the earnings multiple method of valuation is inappropriate,
and a net realisable asset basis is applied. It may also be appropriate to use
the net realisable asset basis of valuation if this results in a higher
valuation than the earnings method, or the company is incurring losses. A third
party valuation, such as an independent valuation report or a material arm's
length transaction, will provide prima facie evidence of fair value and will
usually take precedence over other methods.



Unquoted fixed income shares and loan investments are valued at the lower of
cost or recoverable amount. Investments in unquoted funds are valued at the net
asset value of the fund, with an appropriate adjustment where the net asset
value has not been calculated in accordance with BVCA guidelines.



Realised surpluses or deficits on the disposal of investments are taken to the
realised capital reserve of the company, and unrealised surpluses and deficits
on the revaluation of investments are taken to the unrealised capital reserve.



Consolidated profit and loss account
For the year ended 31 March 2005


                                                                            2005          2004
                                                                              £m            £m
Turnover                                                                   122.7         125.8
Operating loss                                                              (9.0)        (11.5)
Loss on sale of operations                                                  (0.6)            --
Profit on sale of properties                                                 1.1             --
Loss on ordinary activities before investment income                        (8.5)        (11.5)
Income from investments                                                     16.5          17.3
Interest receivable                                                          0.9           1.1
Interest payable                                                            (2.3)         (0.8)
Profit on ordinary activities before tax                                     6.6           6.1
Tax on profit on ordinary activities                                        (0.7)         (2.2)
Profit on ordinary activities after tax                                      5.9           3.9
Minority interests (equity)                                                 (0.1)         (0.1)
Profit for the financial year                                                5.8           3.8
Dividends                                                                  (17.9)        (19.4)
Loss charged for the financial year                                        (12.1)        (15.6)

Earnings per ordinary share
    Basic                                                                   8.8p          5.3p
    Diluted                                                                 8.8p          5.3p
Dividends per ordinary share                                               28.2p         27.0p





Consolidated statement of total recognised gains and losses
For the year ended 31 March 2005


                                                                            2005          2004
                                                                              £m            £m
Gains/(losses) on investments
    Realised                                                                99.1          21.3
    Unrealised                                                              68.4         270.4
    Revaluation of former associates transferred to investments                --        (21.3)
Exchange differences                                                        (0.2)         (3.7)
Tax on sales of investments                                                 (2.2)         (0.4)
Minority interests (equity)                                                 (0.2)         (0.1)
Other recognised gains and losses                                          164.9         266.2
Profit for the financial year                                                5.8           3.8
Total recognised gains and losses                                          170.7         270.0



Consolidated balance sheet
At 31 March 2005


                                                                                       Restated
                                                                             2005          2004
                                                                               £m            £m
Fixed assets
Intangible assets                                                             3.2           4.9
Tangible assets                                                              82.0          84.1
Investments                                                                 898.5         830.5
                                                                            983.7         919.5
Current assets
Stocks                                                                       23.3          26.4
Debtors                                                                      34.6          36.6
Short term deposits                                                          38.2          40.2
Cash at bank and in hand                                                     13.1          14.6
                                                                            109.2         117.8
Creditors falling due within one year
Short term borrowings                                                        (3.0)         (4.3)
Other creditors                                                             (52.1)        (50.0)
                                                                            (55.1)        (54.3)
Net current assets                                                           54.1          63.5
Total assets less current liabilities                                     1,037.8         983.0
Creditors falling due after more than one year
Long term borrowings                                                        (37.9)        (42.3)
Provision for liabilities and charges
Deferred taxation                                                            (0.7)         (1.5)
                                                                            999.2         939.2
Minority interests
Equity                                                                       (0.9)         (0.8)
Non-equity                                                                   (0.2)         (0.3)
                                                                            998.1         938.1

Capital and reserves
Called up share capital                                                       3.6           4.0
Share premium account                                                         1.3           1.3
Capital redemption reserve                                                    1.2           1.2
Revaluation reserve                                                         325.4         270.6
Profit and loss account                                                     676.1         665.6
Own shares                                                                   (9.5)         (4.6)
Total shareholders' funds                                                   998.1         938.1



Company and consolidated cash flows
For the year ended 31 March 2005


                                                      Company                  Group
                                                    2005        2004         2005         2004
                                                      £m          £m           £m           £m
Net cash inflow from operating activities            8.6         3.1         19.7        (0.2)
Servicing of finance
Interest paid                                       (1.0)       (1.0)        (2.2)       (0.7)
Dividends paid to minority shareholders                --          --        (0.1)       (0.1)
                                                    (1.0)       (1.0)        (2.3)       (0.8)
Taxation
Group relief received                                1.5           --           --          --
UK tax paid                                            --       (1.3)        (1.3)       (1.3)
Overseas tax paid                                      --          --        (0.7)       (0.5)
                                                     1.5        (1.3)        (2.0)       (1.8)
Capital expenditure and financial investment
Purchase of investments                           (127.4)     (107.3)      (126.0)      (96.7)
Sale of investments                                218.5       125.8        217.6       109.2
Dividends received                                   8.8           --           --          --
Liquidation of subsidiary undertakings                 --        6.9            --          --
Purchase of tangible fixed assets                      --          --        (4.7)       (6.6)
Sale of tangible fixed assets                          --          --         2.6         0.4
                                                    99.9        25.4         89.5         6.3
Acquisitions and disposals
Purchase of subsidiary undertakings                    --          --        (2.4)       (9.2)
Cash acquired with subsidiary undertakings             --          --           --        0.6
Sale of subsidiary undertakings                        --          --         3.3           --
                                                       --          --         0.9        (8.6)
Equity dividends paid                              (18.9)      (19.1)       (18.9)      (19.1)
Net cash inflow before management
    of liquid resources                             90.1         7.1         86.9       (24.2)
Management of liquid resources                      (3.6)        6.1          2.0         3.7
Financing
Repayment of short term loans                          --          --        (0.1)       (0.3)
Repayment of long term loans                        (4.8)          --        (4.8)          --
Issue of long term loans                               --          --           --       27.4
Purchase of own shares                              (1.0)          --        (1.0)          --
Elective special dividend                          (88.0)          --       (88.0)          --
Sale of forward currency contracts                   8.8           --         8.8           --
Employee share trust                                (4.3)          --        (4.3)          --
Issue of shares by subsidiary undertakings             --          --           --        0.1
                                                   (89.3)          --       (89.4)       27.2
Decrease in cash in the year                        (2.8)       13.2         (0.5)        6.7





Reconciliation of net cash flows to movement in net funds


                                                      Company                  Group
                                                    2005        2004        2005         2004
                                                      £m          £m          £m           £m
Decrease in cash in the year                        (2.8)       13.2        (0.5)         6.7
Cash outflow from decrease in debt                   4.8           --        4.9        (27.1)
Cash outflow from increase in deposits               3.6        (6.1)       (2.0)        (3.7)
Change in net funds resulting
    from cash flows                                  5.6         7.1         2.4        (24.1)
Acquisitions                                           --          --        0.2        (10.4)
Exchange differences                                   --          --       (0.4)        (0.5)
Movement in net funds in the year                    5.6         7.1         2.2        (35.0)
Opening balance of net funds                        34.0        26.9         8.2         43.2
Closing balance of net funds                        39.6        34.0        10.4          8.2









The information in this news release does not constitute statutory accounts
within the meaning of Schedule 240 of the Companies Act 1985 (the Act). The
statutory accounts for the year ended 31 March 2005 will be delivered to the
Registrar of Companies in England and Wales in accordance with Section 242 of
the Act. The auditor has reported on those accounts; the report was unqualified
and did not contain a statement under Section 237(2) or (3) of the Act.



Copies of this statement are available at the company's registered office,
Cayzer House, 30 Buckingham Gate, London SW1E 6NN.


                      This information is provided by RNS
            The company news service from the London Stock Exchange