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Caledonia Inv PLC (CLDN)

  Print      Mail a friend       Annual reports

Wednesday 19 May, 2004

Caledonia Inv PLC

Final Results

Caledonia Investments PLC
19 May 2004

Preliminary Results for the 12 months ended 31 March 2004

Key points

•         Substantial total return outperformance against FTSE All-Share Total

          •         90% outperformance over five years (77% vs -13%)

          •         44% outperformance over ten years (138% vs 94%)

•         13% outperformance of NAV per share against FTSE All-Share over 12

•         Top quartile TSR performance over one, three, five and ten years

•         Company total return for the year of £283m (392p per share)

•         4% increase in annual dividend to 27p marks 37th year of progressive
          annual dividends

•         £108m invested and £105m of divestments

•         Narrowing of share price discount to NAV from 30% to 20% over the year

•         Circular to shareholders for elective special dividend expected to be
          sent today

Tim Ingram, Chief Executive, commented:

'Following our conversion to an investment trust, we have made considerable
progress in enhancing NAV and our discount has substantially narrowed. We are
continuing to see a strong flow of good business opportunities where our long
term active approach is valued.'

                                                                     19 May 2004


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

College Hill
    Tony Friend                                   020 7457 2020
    Richard Pearson

Chairman's statement


The first year for Caledonia as an authorised investment trust has been highly
successful with significant outperformance recorded against its chosen
benchmark. Total shareholder returns of 77% and 138% over five and ten years
have outdistanced the FTSE All-Share Total Return index by 90% and 44%
respectively. This performance has been achieved by following our long
established strategy of taking significant stakes in businesses of which we have
a good understanding, with particular emphasis on identifying high calibre
management. We also take the longer term view.

We are particularly pleased that this continued outperformance is being
recognised in our share price, which over the financial year has increased by
58% from 642.5 pence to 1017 pence. This not only reflects the improved
underlying net asset value but, just as encouragingly, a narrowing of the share
price discount from 30% to 20%. Whilst it is always wise to acknowledge that we
cannot control our own share price, we have made determined efforts to explain
ourselves more widely to the retail investing community, which we believe has
contributed to increased investor interest and the marked reduction in the

Our good results have enabled us to recommend an increased final dividend of
18.6 pence per share, resulting in an increase in our annual dividend from 26
pence to 27 pence. This is in line with our stated aim of progressive dividend
increases, which has been unbroken for the past 37 years, and we are well
positioned for this with distributable reserves of £451m which is unusually high
for an investment trust.

Settlement proposals

In my interim statement I explained the proposals, put to us in June of last
year, which would have resulted in the liquidation of the assets of Caledonia
and destroyed a company that has produced outstanding long term performance for
its shareholders. These proposals were nevertheless carefully considered by your
board with advice from N M Rothschild & Sons and Cazenove & Co. With the benefit
of this advice, the board unanimously concluded that the proposals were not in
the best interests of shareholders. These proposals had been formulated by a
minority group of shareholders in The Cayzer Trust Company, a 38% shareholder in
Caledonia and wholly owned by members of the Cayzer family and related trusts.
The support of a majority in Cayzer Trust was needed for the proposals to
succeed, but in the event they were overwhelmingly rejected and formally
withdrawn on 17 October 2003.

Your board, as represented by all of its independent directors, was quite clear
that it was not in the interests of the shareholders of Caledonia, nor its
business, for this highly public dispute, which had lasted for several years, to
continue and urged the board of Cayzer Trust to continue to seek a solution.
This subsequently led to Caledonia's announcement, on 15 March this year, of a
proposed return of funds by way of an elective special dividend, on up to
two-ninths of all shareholdings, of an amount based on an 18% discount to the
company's net asset value per share. This net asset value per share will be
after making provision for the proposed final dividend, which will be paid to
all shareholders on all their shares, whether or not they elect to receive the
special dividend. All shares on which the special dividend is elected will be
cancelled for nil consideration through a Court approved reduction of capital.
If this proposal is approved, this net asset value will be struck shortly before
the elective dividend is due to be paid in early July and will result in an
enhanced net asset value per share for continuing shareholders of between 1.6%
and 4.7%, depending on the level of take up of the elective special dividend.
Cayzer Trust will elect to receive its dividend in full, which will enable it,
in conjunction with existing resources, to pay out its dissident minority group
of shareholders under the terms of an agreed settlement.

We expect to send to shareholders today a circular setting out full particulars
of the elective special dividend proposals and your board very much hopes that
these proposals will be successfully concluded and allow management to
concentrate fully on the development of the business.

The circular also sets out proposals for Caledonia to renew its authority to
make market purchases of its own shares and for approval of a waiver of the
mandatory offer provisions in the City Code that might otherwise apply to the
Cayzer concert party as a consequence of such purchases. Market purchases will
only be made if the board believes that purchases of ordinary shares are in the
best interests of Caledonia and its shareholders as a whole and will result in
an increase in its net asset value per ordinary share. In no circumstances will
Caledonia make market purchases that would result in the Cayzer concert party's
voting rights exceeding 49.9%. Following new regulations which came into force
on 1 December 2003, companies are enabled to hold shares acquired by market
purchase as treasury shares. These shares can subsequently be held for
cancellation or reissued for cash. The ability to do this would provide
Caledonia with additional flexibility in the management of its capital base.
Consequently, a minor amendment to the company's articles of association will be
proposed to shareholders that, if passed, will enable the board to reissue
shares on a non pre-emptive basis. These proposals are explained in detail in
the circular.


We were pleased to welcome John May, who joined the board as an executive
director on 1 September last year. His experience over 25 years of advising,
managing and investing in both listed and unlisted companies is well fitted to
Caledonia's business model and he has already made a significant contribution.
This appointment partly anticipated the retirement of Sir David Kinloch, who
reached the age of 62 in January this year, but who remains a non-executive
director until the conclusion of this year's AGM. David, who joined British &
Commonwealth shortly before the separation from Caledonia, was a founder
executive director of Caledonia when it took on its new life in 1988 and became
deputy chief executive in 1994. His shrewd judgement and overall contribution
during this time has been of great value to shareholders and I would like to
welcome him most warmly.


The difficult political and economic background, combined with instability in
the Middle East, make the climate for investment judgements, as ever, most
challenging. However, we continue to identify an encouraging number of
opportunities, which we have found over the years do not always conform with
world economic trends. Such opportunities can, if carefully chosen, still
deliver value against the trend and we shall endeavour to succeed in this

Peter Buckley


Chief executive's report

This is the first year we are reporting our results as an investment trust, as
we believe we have been meeting all the requirements for this status as from 1
April 2003. However, as for all investment trusts, this can only be confirmed by
the Inland Revenue at a time after the end of each financial year. In the
context of our new status, it is pleasing to note that we have been awarded the
'Brightest Newcomer' by the Investment Trusts magazine.


The year ended 31 March 2004 has seen strong growth in the value of our
investment portfolio. Net assets per share have grown from 915p at the beginning
of the year to 1278p at 31 March 2004 - a 40% growth. As the FTSE All-Share
index has grown by 27% over the same period, this represents outperformance in
net assets for the year of around 13%. Part of this outperformance can be
attributed to the extent to which our investments have been in sectors which
have grown at rates faster than the market as a whole, and nearly 8% of our
outperformance can be attributed to us having, in aggregate, invested in
companies that have themselves outperformed within their sectors. Table 1 shows
an attribution summary of our performance over the year.

One year performance attribution                                                 Table 1
Market (FTSE All-Share index)                                                      26.6
Stock selection                                                                    7.9
Sector allocation                                                                  7.0
Management and other expenses                                                      (1.8)
Caledonia's NAV per share                                                          39.7

Notwithstanding our good one year performance, we continue to believe that,
given our long term approach, our total shareholder return ('TSR') measured over
5 and 10 year periods, gives a better measure of how we are performing for our
shareholders. In this respect, as table 2 shows, for our TSR over 5 years we
have again produced good absolute returns when the market as a whole has been
negative, while we have also comfortably outperformed the market over 10 years.

5 and 10 year relative TSR performance                                                       Table 2
                                               Caledonia FTSE All-Share      Outperformance
                                                TSR              TSR
To 31 March 2004
                                                  %                %               %
5 years                                         77.2             (12.7)           89.9
10 years                                        138.5            94.3             44.2

This again easily puts us in the top quartile for TSR performance when measured
against the Association of Investment Trust Companies global growth sector.

Investment activity

We believe that we have, in particular, two distinctive characteristics inherent
in our investment style that help produce this performance. The first is the
strong deal flow of investment opportunities that are specifically presented to
us as a result of our valuable reputation as a long term supportive and
constructively active investor. In this respect, during the course of last year
our investment committee evaluated over 170 potential and serious new investment
opportunities. We shortlist such opportunities down to a more manageable number
that are then intensively evaluated. Considerable time is spent making sure that
such investment opportunities are suitable for our approach, and indeed that the
entry price offers good value. The most intensive part of our appraisal is the
assessment of the calibre and capabilities of the management team. Out of all
these opportunities during the year, we invested in just 7 new investments for a
total amount of around £64m. In addition, we invested a further £44m as
follow-on funding in existing investments. Both new and follow-on investments
are shown in table 3.

New and follow-on investments                                                             Table 3

Investment       Amount   holding     Category   Business
                 £m       %
New investments
Eddington        15.8     50.0    1   Unquoted   Fund of hedge funds management company, plus
Capital                                          investment in fund
Marketform       15.1     26.8        Unquoted   Managing agent and insurance company
SVB Holdings     14.0     5.3         Quoted     Insurance company
Melrose          6.0      6.7         Quoted     Oil and gas company
MORI             5.8      16.0        Unquoted   Opinion poll and market research company
Oval             4.5      34.0        Unquoted   Commercial lines insurance broker
Tribal Group     2.3      1.6         Quoted     Support services company
Follow-on investments
Polar Capital    14.4     24.6    2   Unquoted   Investment in various new funds launched by
funds                                            Polar
Easybox          9.0      99.2        Unquoted   Self storage business in Spain and Italy
Paladin          4.1      11.1        Quoted     Oil and gas company
Savills          3.3      3.8         Quoted     Estate agency business
Other            13.5                            Includes drawdowns by various private equity
1.  Holding in the management company.
2.  Holding in the management company was unchanged.

The second significant distinctive characteristic in our investment style is our
hands on constructive involvement with each investee company, whether they are
quoted or unquoted. This, we believe, provides more value creation than a
passive investment style and has therefore significantly contributed to our
outperformance. In most of our major investments, we have representation on the
board - as evidenced by the fact that we have a Caledonia executive as a
director on the boards of 16 of our top 20 investments. Throughout the year we
have used these positions to influence constructively the operations and
strategies of each investee company and in all cases maintain a close contact
with the management of all of our major investee companies.

Although we are long term investors, we are not 'forever' investors and believe
that there comes a time when it is appropriate for us to divest. During the
year, we realised nearly £105m from such divestments, which are listed in the
table 4.

Divestments                                                                  Table 4

ICAP                                                                            26.4
Meinl European Land                                                             14.1
Offshore Logistics/Bristow 1                                                    12.9
Polar Capital funds                                                             11.9
Ionian fund                                                                     9.1
Bateman Chapman                                                                 6.0
Compco                                                                          3.7
Quintain Estates & Development                                                  2.3
Other                                                                           18.3
1.  Redemption of loan note on maturity plus receipt from capital reduction.

Naturally we seek to maximise returns when we realise an investment. However,
care is taken to ensure that we do not damage our valuable reputation as a long
term supportive investor.


The chairman's statement has explained the background and brief details of the
recent proposal to pay an elective special dividend. More details on this are
contained in our shareholder circular dated 19 May 2004. As the circular
explains, based on valuations at 30 April 2004, the maximum estimated cash
requirement for this proposal would be £158m. In this context, as at the same
date, Caledonia had committed term bank facilities of £200m. This means that,
notwithstanding the potential cash requirements of the proposal, we are well
placed to take advantage of new investment opportunities.


In line with my comments last year, we have been continuing to make company
presentations to private client fund managers and brokers in order to broaden
the market for our shares. As a result, the percentage of our shares held by
retail investors has increased.

Over the long term, our ability to increase the asset value per share should
provide the main component of shareholder returns. Nonetheless, we are fully
aware of the desire of our shareholders also to see a narrowing of the discount
of our share price compared with net assets per share. It is therefore pleasing
to note that whereas this discount was 30% at 31 March 2003, by 31 March 2004
the discount had narrowed to 20%, and has further narrowed since then. We plan
to continue our efforts to expand our appeal to retail investors during the
current year.

Recent activity

Since the year end, we have invested about £50m. Table 5 lists our most
significant recent investments.

Significant investments since the year end                                             Table 5

Investment       Amount  holding     Category   Business
                 £m      %
Cobepa           20.0    10.0        Unquoted   Belgium-based investment company
Oval             10.5    34.0        Unquoted   Commercial lines insurance broker (follow-on
Incisive Media   8.3     6.8         Quoted     Business publishing
Tribal Group     5.0     5.0         Quoted     Support services for the UK public sector
                                                (follow-on investment)

Our most significant divestment has been the sale of our stake in Radio
Investments, which should realise £14m.

The future

We are continuing to see a strong flow of good business opportunities where our
long term active approach is valued and can create outperformance. However, as
in the past, we will be highly selective in choosing in which companies to
invest and will be careful not to overpay.

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

Tim Ingram

Chief executive

Objectives and strategy


Caledonia aims to achieve a long term total shareholder return in excess of the
FTSE All-Share 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.


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

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

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

                                Country of                                               of total
Name                            incorporation   Nature of business             Total     assets
                                                                               £m        %
Close Brothers 1,2              UK              Merchant banking               203.2     21.8
Kerzner International 1,2       Bahamas         Resorts owner/operator         143.9     15.4
British Empire Securities 1,2   UK              Investment trust               76.6      8.2
Quintain Estates 
& Development 1                 UK              Property holding/development   38.3      4.1
Paladin Resources 1             UK              Oil and gas exploration        37.4      4.0
Rathbone Brothers 1,2           UK              Fund management                34.9      3.7
Aberforth Partnership fund 3    UK              Managed fund                   32.9      3.5
Polar Capital 2,4 and funds 3   UK/Ireland      Fund manager and funds         28.0      3.0
Offshore Logistics/Bristow 1,2  USA/UK          Helicopter services            20.9      2.3
ISIS Asset Management 1,2       UK              Fund manager                   19.2      2.0
Eddington Capital 2,5 
and fund 3                      UK/Ireland      Fund manager and funds         17.7      1.9
SVB Holdings 1,2                UK              Insurance                      15.5      1.7
Marketform 2                    UK              Insurance                      15.1      1.6
Edinmore 2                      UK              Property trading               12.8      1.4
Amber Industrial 2              UK              Specialty chemicals            12.7      1.4
A G Barr 1                      UK              Soft drinks                    12.0      1.3
Radio Investments 2             UK              Local radio                    11.3      1.2
Wallem 2                        Cayman          Shipping services              10.7      1.2
Easybox 2                       Luxembourg      Self-storage                   10.6      1.1
Savills 1,2                     UK              Property agency                10.0      1.1
Sterling Industries 2           UK              Engineering                    10.0      1.1
Melrose Resources 1             UK              Oil and gas exploration        9.7       1.0
The Sloane Club 2               UK              Residental club owner/operator 9.3       1.0
Buckingham Gate 2               UK              Property holding               9.3       1.0
Other investments                                                              87.7      9.4
Total investments                                                              889.7     95.4
Net liquid assets 6                                                            43.1      4.6
Total assets                                                                   932.8     100.0
Dividend accrual                                                               (13.4)
Loan notes                                                                     (4.8)
Shareholders' funds                                                            914.6

1.  Equity securities listed on the UK or overseas stock exchanges.
2.  Board representation.
3.  Advisory committee representation.
4.  Included £6.1m for the management company and £21.9m of funds.
5.  Included £0.7m for the management company and £17.0m of funds.
6.  Included £3.3m of net liquid assets held in subsidiary holding companies and £3.9m of own shares.

Investment analysis
Asset distribution


                                                                             £m             %
Financial                                                                    302.8          32.5
Leisure and media                                                            176.7          18.9
Industrial and services                                                      129.3          13.9
Property                                                                     84.8           9.1
Managed general funds                                                        188.7          20.2
Other                                                                        7.4            0.8
Net liquid assets                                                            43.1           4.6
                                                                             932.8          100.0


                                                                             £m             %
Equities - quoted                                                            640.4          68.7
Equities - unquoted                                                          87.7           9.4
Loans and fixed income                                                       59.2           6.3
Private equity LPs                                                           52.9           5.7
Hedge and other funds                                                        49.5           5.3
Net liquid assets                                                            43.1           4.6
                                                                             932.8          100.0


                                                                             £m             %
United Kingdom                                                               706.3          75.7
Continental Europe                                                           25.8           2.8
North America                                                                182.0          19.5
Asia and Far East                                                            17.4           1.9
Latin America                                                                1.3            0.1
                                                                             932.8          100.0

Based on country of domicile or underlying spread for funds.


                                                                             £m             %
Pounds sterling                                                              803.1          86.1
US dollar                                                                    97.2           10.4
Euro                                                                         17.3           1.9
Other                                                                        15.2           1.6
                                                                             932.8          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. The following table shows how the FTSE industry sectors are
allocated to the Caledonia 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

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
                                Engineering and machinery        General retailers
Leisure and media               Oil and gas                      Health
Beverages                       Steel and other metals           Household goods and textiles
Leisure, entertainment and      Support services                 Information technology hardware
Media and photography           Transport                        Mining
Tobacco                                                          Personal care and household
                                Property                         Pharmaceuticals and biotech
Managed general funds           Construction and building        Software and computer services
Investment companies            materials                        Telecommunication services
                                Forestry and paper               Utilities other
                                Real estate

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

                                                             Portfolio      Portfolio      All-Share
                                                             £m             %              %
Financial                                                    302.8          34.0           24.1
Leisure and media                                            176.7          19.9           11.7
Industrial and services                                      129.3          14.6           20.9
Property                                                     84.8           9.5            4.6
Managed general funds                                        188.7          21.2           2.5
Other                                                        7.4            0.8            36.2
                                                             889.7          100.0          100.0

Investment analysis
Holdings by sector

                                                        Loans    equity    Hedge             Proportion
                                                        and                and               of
                          Equity    Quoted    Unquoted  fixed    partner-  other             total
Name                      interest  equities  equities  income   ships     funds    Total    assets
                           %        £m        £m         £m      £m         £m      £m       %
Close Brothers            17.6      203.2     --        --       --        --       203.2    21.8
Rathbone Brothers         11.3      34.9      --        --       --        --       34.9     3.7
ISIS Asset Management     6.3       19.2      --        --       --        --       19.2     2.0
SVB Holdings              5.3       10.0      --        5.5      --        --       15.5     1.7
Marketform                26.8      --        7.6       7.5      --        --       15.1     1.6
Polar Capital             24.6      --        4.4       1.7      --        --       6.1      0.7
Oval                      34.0      --        3.0       1.5      --        --       4.5      0.5
Eddington Capital         50.0      --        0.1       0.6      --        --       0.7      0.1
Other investments                   --        3.6       --       --        --       3.6      0.4
                                    267.3     18.7      16.8     --        --       302.8    32.5
Leisure and media
Kerzner International 1   20.2      143.9     --        --       --        --       143.9    15.4
A G Barr                  9.4       12.0      --        --       --        --       12.0     1.3
Radio Investments         39.5      --        10.6      0.7      --        --       11.3     1.2
The Sloane Club           100.0     --        9.3       --       --        --       9.3      1.0
Other investments                   --        0.2       --       --        --       0.2      --
                                    155.9     20.1      0.7      --        --       176.7    18.9
Industrial and services
Paladin Resources         11.1      37.4      --        --       --        --       37.4     4.0
Offshore Logistics/       5.8       16.3      4.6       --       --        --       20.9     2.3
Amber Industrial          100.0     --        0.9       11.9     --        --       12.8     1.4
Wallem                    74.4      --        10.7      --       --        --       10.7     1.2
Easybox                   99.2      --        --        10.6     --        --       10.6     1.1
Sterling Industries       100.0     --        9.7       0.3      --        --       10.0     1.1
Melrose Resources         6.7       9.7       --        --       --        --       9.7      1.0
Other investments                   6.9       1.4       7.6      1.3       --       17.2     1.8
                                    70.3      27.3      30.4     1.3       --       129.3    13.9
Quintain Estates &        7.0       38.3      --        --       --        --       38.3     4.1
Edinmore                  100.0     --        3.7       9.0      --        --       12.7     1.4
Savills                   3.8       10.0      --        --       --        --       10.0     1.1
Buckingham Gate           100.0     --        8.5       0.8      --        --       9.3      1.0
Other investments                   --        8.1       1.5      --        4.9      14.5     1.5
                                    48.3      20.3      11.3     --        4.9      84.8     9.1
Managed general funds
British Empire Securities 19.7      76.6      --        --       --        --       76.6     8.2
Aberforth Partnership     25.5      --        --        --       32.9      --       32.9     3.5
Polar Capital funds                 --        --        --       --        21.9     21.9     2.3
Eddington Capital fund              --        --        --       --        17.0     17.0     1.8
Other investments                   14.6      1.3       --       18.7      5.7      40.3     4.4
                                    91.2      1.3       --       51.6      44.6     188.7    20.2
Non-categorised                     7.4       --        --       --        --       7.4      0.8
Total investments                   640.4     87.7      59.2     52.9      49.5     889.7    95.4
Net liquid assets                                                                   43.1     4.6
Total assets                                                                        932.8    100.0
Dividend accrual                                                                    (13.4)
Loan notes                                                                          (4.8)
Shareholders' funds                                                                 914.6
1.  Included £3.7m representing the value of hedges against $150m of currency exposure.

Investment review

Caledonia has a history of success with investments in financial services and
our active involvement in the development of many financial services businesses
has given us an extensive knowledge of this sector. Our weighting of 34% is
greater than the FTSE All-Share weighting of 24% and reflects our belief in the
sector's long term prospects. Over the year, the value of our holdings in
financial services companies has risen by 60%, compared with an increase of 27%
in this sector of the FTSE All-Share.

Close Brothers

valuation: £203.2; holding: 17.6%

Close Brothers is the largest independent quoted merchant bank in the UK.
Caledonia has been a supportive shareholder in Close Brothers since 1986, a fact
that highlights both our long term investment approach and our ability to
identify sound management. Caledonia plays an active role at Close Brothers with
a non-executive directorship. The success of this investment has resulted in it
becoming our largest holding by value. Over the year, the performance of the
shares has been strong, rising 64% and far outstripping the rise in the FTSE
All-Share index of 27%. In addition, Close Brothers paid a dividend of 26p per
share for its financial year to 31 July 2003 out of earnings per share before
goodwill amortisation of 41.0p.

Close Brothers released its interim results for 2004 at the beginning of March.
The results demonstrated the continued steady organic growth of its lending
activities and, following the end of the long bear market, the improved fortunes
and outlook for its investment banking operations. Overall, group operating
profits before taxation and goodwill amortisation rose by 46% to £57.8m and
earnings per share before amortisation of goodwill rose by 44% to 27.7p.

Banking profits, which represented around 52% of group operating profits, rose
by 10% compared with the same period a year earlier. The loan book grew by 11%
and bad debt charges remained stable. Meanwhile, investment banking profits more
than doubled compared with the first half of 2003. The asset management division
saw funds under management grow to £5.0bn at the end of January 2004, with net
new funds totalling £300m. Within corporate finance, activity improved in
mergers and acquisitions, and market making profits doubled, reflecting the
strong rise in the equity market and increased private client confidence.

Rathbone Brothers

valuation: £34.9m; holding: 11.3%

This has been a good year for Rathbones, one of the UK's leading private client
discretionary fund management businesses. Over our year to 31 March 2004, the
share price rose by 68%, making it one of our best performing investments. The
company announced an unchanged dividend of 26p per share for its year ending 31
December 2003. Caledonia originally identified Rathbones as an investment
opportunity, because of its strong and highly regarded management, and in 1995
we bought a stake of 8%. We have a representative on the board.

In the year ending 31 December 2003, Rathbones' funds under management grew by
28% to £6.8bn. This compared with a rise in the FTSE 100 index of 13.6% over the
same period. During the year, the company had particular success in attracting
mandates from charities and its excellent investment performance has continued
to attract funds into its unit trust business, where funds under management at
its year end stood at over £500m. These encouraging trends, together with a
focus on managing costs in the business, led to a 12.4% increase in earnings per
share before goodwill amortisation to 38.1p.

ISIS Asset Management

valuation: £19.2m; holding: 6.3%

ISIS is one of the ten largest UK fund management businesses and aims to be one
of the top five by 2007. Caledonia has been a significant investor in ISIS and
its forerunners - Ivory & Sime and Friends, Ivory & Sime - since 1994. A
Caledonia director has been the chairman since 1995. Funds under management have
grown from £3.0bn in 1994 to £63.5bn at the end of December 2003. Like many
asset management companies, the shares have risen strongly since the stock
market bottomed in March 2003, increasing in value by 45% during the year to 31
March 2004. The company paid an unchanged dividend for its 2003 financial year
of 11p per share.

During 2003, ISIS saw a significant improvement in its financial performance,
with earnings per share before amortisation of goodwill and exceptional items
increasing by over 15% to 12p. Operating margins increased from 28.2% to 32.7%,
reflecting in part the company's focus on cost control as well as the successful
integration of Royal & SunAlliance Investments, which it acquired in 2002.

2003 saw a number of initiatives to grow the business. A combination of improved
investment performance, underpinned by focused advertising and significant
profile building exercises in the media, has resulted in a number of ISIS's
retail funds being added to the recommendation lists of leading independent
financial advisers. ISIS also successfully launched a new listed investment
company, the ISIS Property Trust, which invests directly in UK commercial
properties. More recently, the company has signed heads of agreement to acquire
an equity stake in Cardinal Capital Partners, which is a new business focused on
the rapidly growing sector of alternative investments.

SVB Holdings

valuation: £15.5m; holding: 5.3%

SVB is a 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 risks. Its shares are listed on the London Stock
Exchange, but have traded at a discount to net tangible assets since the events
of 11 September 2001. Premium rates turned up sharply after those losses and SVB
has benefited from this.

Before May 2003, Caledonia had no exposure to the insurance underwriting sector,
but believed that there were good opportunities available. We agreed to act as a
cornerstone investor in SVB's placing and open offer in May 2003, and following
a further strengthening of its management team last summer, bought further
shares in the market, taking the total cost to £9.1m. In November 2003, we
subscribed £4.9m towards its £50m sterling convertible bond issue.

SVB announced its results for 2003 in mid March, which were in line with market
expectations, in spite of making substantial further additions to underwriting
reserves for 2001 and prior years. Caledonia has had board representation since
January 2004.


valuation: £15.1m; holding: 26.8%

Established in the 1980s, Marketform is an unquoted Lloyd's insurance business
with substantial management ownership.  It specialises in medical malpractice
and other specialist classes of liability underwriting business for clients
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 Syndicate 2468, for which it is also the managing
agent.  Premium rates for Marketform's classes of business hardened after 11
September 2001.

In autumn 2003, Caledonia became a minority shareholder through an investment of
£15m in equity and loan capital designed to enable Marketform to take additional
underwriting capacity in advantageous market conditions. Caledonia has two
representatives on the board. Results for 2003 have been in line with
expectations and the outlook for premium rates remains attractive.

Polar Capital

valuation: £6.1m (£28.0m including funds); holding: 24.6%

In January 2001, Caledonia co-founded Polar Capital with three highly respected
fund managers. Our ability to help them 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 have grown
substantially over the year and totalled US$2.2bn at the year end.

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 29 investment professionals on the staff,
Polar Capital manages US$0.7bn in hedge funds and the balance in long-only
funds. Polar Capital's funds under management can be broken down as follows:
US$1.0bn in technology funds, US$0.8bn in the Japanese portfolio and US$0.4bn in
various European and UK products.

Caledonia owns 24.6% of the 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, the value of our
investment increased from £3.6m to £6.1m during the year. The cost of our
investment in Polar Capital was £2.4m.


valuation: £4.5m; holding: 34.0%

UK commercial insurance broking is a fragmented industry with many participants.
Oval is a company formed to bring together the best of these, buying regional
broking businesses for a mixture of cash and its own shares, whilst retaining
the value of local relationships. A growing market share should enable the group
to benefit from economies of scale and better terms of trade from insurers.

RP Hodson, a substantial commercial broking and financial services business
based in Wakefield, was Oval's first acquisition, completed in October 2003.
Oval's second acquisition, signed in April 2004, is Bland Bankart, a leading
commercial broker with offices in Leicester, Nottingham, Birmingham, Luton and

Caledonia has participated in Oval by subscribing a total of £15m for ordinary
shares and convertible loan stock, 30% of which was called up at 31 March 2004.
Caledonia has two representatives on the Oval board.

Eddington Capital

valuation: £0.7m (£17.7m 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. So far, the
performance of the Triple Alpha Fund has been promising, increasing by 13.5%,
net of all fees, in the first seven months.

Eddington Capital, based in London, is a joint venture between its management
and Caledonia. Caledonia is represented on its board.

Investment review
Leisure and media

Caledonia has experience of the leisure and media sector through its involvement
in the hospitality, print and broadcasting industries. Our confidence in the
long term prospects of this sector has led to a weighting greater than the FTSE
All-Share index, at 20% compared with 12%. Over the year, our holdings have
increased in value by 49%, compared with an increase in the leisure and media
companies in the FTSE All-Share index of 40%.

Kerzner International

valuation: £143.9m; holding: 20.2%

Kerzner International ('KI') is a leading developer, owner and operator of
luxury resort hotels worldwide. Caledonia backed the management team when Sun
International Hotels (now KI) was founded in 1994. Over the year, the shares
have risen by 95% in dollar terms and, during the year, we have offset some of
the negative impact of a weaker dollar by partially hedging our exposure.
Caledonia has had board representation since the outset.

KI recently reported a strong set of results for the year ended 31 December
2003. Adjusted earnings per share were US$2.36, an increase of 15% over the
previous year, due primarily to Paradise Island, Mohegan Sun and a lower
interest expense. At Paradise Island in the Bahamas, the company's flagship
operation, KI achieved record gross revenue and EBITDA for the second
consecutive year.

KI owns 50% of Trading Cove Associates, which receives a 5% participation in the
gross revenues of the recently expanded Mohegan Sun Casino complex in
Connecticut, USA, owned by the Mohegan Tribe. Gross revenues grew strongly in
2003, rising by 14%. KI's share of the fees was US$35.7m.

In February 2004, KI announced the official opening of the One&Only Palmilla,
which is its latest addition to the One&Only brand. The company has transformed
one of the best-known properties in the Los Cabos region of Mexico into an
unparalleled six-star destination.

In addition to good trading results with continued growth shown by the first
quarter's figures, KI has a number of important developments in the pipeline. A
further US$800m expansion is planned for Paradise Island and in Dubai, where the
One&Only Royal Mirage management contract continues to perform well, a new
Atlantis, The Palm, Jumeirah, is planned in conjunction with a local partner.
This new Atlantis would comprise a 1,000 room hotel together with an extensive
water theme park.

In the UK, KI was recently granted a gaming licence to enable it to move forward
with its first casino, in Northampton. It also holds a 37.5% interest in the BLB
consortium which has bid for Wembley plc.

A G Barr

valuation: £12.0m; holding: 9.4%

A G Barr is a Scottish-based manufacturer, marketer and distributor of soft
drinks, which includes well known brands such as Irn-Bru, Tizer and Orangina.
Profits for its year to 31 January 2004 improved by a satisfactory 13% to
£13.8m, due to the good summer and tighter cost control. Earnings per share rose
by 14.0% to 49.9p and the dividend increased by 10.4% to 25.5p. Cash increased
substantially to £25m during the year, reflecting not only excellent trading,
but lower investment than usual, although the company anticipates increasing
capital expenditure to provide efficiencies for the future. The share price rose
34% over our year to 31 March.

Caledonia has a long association with the management, where a number of changes
have recently taken place. Robin Barr, chairman and chief executive for 26
years, has divided these roles, remaining chairman and appointing a new chief

Radio Investments

valuation: £11.3m; holding: 39.5%

Caledonia has been a cornerstone investor in Radio Investments since 1989 and
throughout this period has had board representation. Caledonia currently
provides Radio Investments' non-executive chairman. Investing in Radio
Investments provided Caledonia with an indirect interest in Capital Radio, the
UK's largest commercial radio operation. In 1998, Radio Investments placed its
stake in Capital Radio, realising a profit on cost of over £40m, part of which
was distributed to shareholders.

Radio Investments currently has interests in 22 smaller radio stations and has
become a market leader in the independent local radio sector. Recent trading has
been healthy with Radio Investments returning to profitability in the 18 month
period to March 2004. This was driven by a combination of cost containment and
good revenue growth in an improving advertising environment. In the near term,
Radio Investments should benefit from further increases in advertising spending
and it is well positioned to take part in any consolidation in the radio sector.

Since the year end, the sale of Radio Investments has been announced, by means
of an accelerated IPO. Following completion, Caledonia expects to receive about
£13.6m net of costs for its shareholding in the company.

The Sloane Club

valuation: £9.3m; holding: 100%

The Sloane Club is a residential members club, based in the heart of Chelsea.
Caledonia bought the Club in 1993 on a long lease, both as a property investment
and because of its trading potential. It has been enlarged and modernised and
currently has a membership of around 3,750. In January of this year, a £1m
programme to upgrade the rooms and install air conditioning was commenced, with
completion planned for the summer season. Caledonia provides the chairman of The
Sloane Club and is actively involved in its management.

Towards the end of the year, the financing structure of The Sloane Club was
changed, with the Club taking on bank borrowing of £14.0m and returning funds to
Caledonia, thereby reducing our equity value by this amount. In addition, there
was a small reduction in valuation reflecting the downturn in activity.

Whilst membership has remained stable, profitability has been adversely affected
by a slowdown in the number of overseas visitors. In common with many clubs, The
Sloane Club has reciprocal arrangements with overseas clubs, however, their
members are being deterred from visiting London by a combination of the strength
of sterling and the perceived risk of terrorist activity.

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. Despite
this, good opportunities in this sector have been difficult to find and, as a
result, only 15% of our investments are in this sector, compared with 21% for
the FTSE All-Share index. However, we have made follow-on investments in
activities where we see value opportunities. Over the year, our holdings have
increased in value by 12%, compared with an increase in the industrial and
services companies in the FTSE All-Share index of 22%.

Paladin Resources

valuation: £37.4m; holding: 11.1%

Paladin is an independent oil and gas producer with assets in the UK, Norwegian
and Danish sectors of North Sea, Indonesia and Tunisia. Caledonia developed an
association with the management of Paladin in the early 1990s when they
successfully developed, and eventually sold, Clyde Petroleum.

The management have set demanding targets for both production and reserves and
have strategically positioned the company as the natural partner for oil majors
wanting to dispose of assets. A targeted exploration programme supplements this

Paladin completed another highly successful year with pre-tax profit rising from
£66.0m to £84.8m. This translated into a 15% rise in earnings per share to
8.92p. Caledonia took the opportunity to increase its shareholding to 11.1% by
participating in Paladin's placing and open offer in January 2004, the proceeds
of which contributed towards the US$153m purchase of a package of North Sea
interests from BP and Amerada Hess.

Paladin's share price has risen by 46% during our year to 31 March 2004 and the
company recently increased its full year dividend by 5% to 1.575p per share for
its financial year ended 31 December 2003.

Offshore Logistics/Bristow

valuation: £20.9m; holding: 5.8%

Offshore Logistics/Bristow is the world's largest provider of helicopter
transportation services to the oil and gas industry. Caledonia has been
connected with this industry for many years, initially through Bristow
Helicopters, which, since 1996, has been associated with Offshore Logistics, the
NYSE listed helicopter operator. During the year to 31 March 2004, the company's
shares rose by 28%. Caledonia has board representation.

In February this year, Offshore Logistics reported diluted earnings per share of
US$0.86 for the three quarters to 31 December 2003, compared with US$1.39 for
the comparative period, after charging US$0.28 per share of reorganisation and
recapitalisation costs and after US dollar weakness on non-dollar denominated
revenues. In an extremely competitive industry, with powerful and demanding
customers, the company is taking further steps to maintain its pre-eminent
position through new fleet introductions, customer and safety orientated
initiatives and a drive for increased efficiencies.

Also during the year, loan stock of £6.5m was repaid and we received a further
£6.4m following a capital reorganisation of Bristow. These repayments reduced
the net carrying value of our investment.

Amber Industrial

valuation: £12.8m; holding: 100%

Amber is a specialty chemicals business, traditionally focussing on silicone
compounding, aerosol products and specialist industrial consumables. However,
Amber is currently in discussions to sell its aerosol division and this sale
should be concluded by the early part of the summer. There has also been further
expansion within the silicone division, with the acquisition of Engineered
Polymers Inc, and the building of a new facility in Richmond, Virginia.

Trading profits were down by 40%, however this included some significant one-off
costs related to stock write-offs, the expansion of the silicones division and
the potential sale of the aerosol division. As a result, Amber's valuation has
been reduced to £12.8m.


valuation: £10.7m; holding: 74.4%

Wallem is a leading diversified shipping services business based in Hong Kong.
Its activities encompass ship and cargo broking, ship management and ship agency
services. Caledonia's investment in Wallem was made in 1992, following a long
association with the Wallem management. The valuation of this investment has
risen by over £3m during the year, reflecting its strong operating performance
in buoyant markets.

Wallem is geographically well positioned to take advantage of the rapid growth
in Chinese trade. The company produced good results in its last financial year
ended 30 September 2003 and against a background of a very active shipping
sector, it is producing strong results in its current financial year. The
continued global economic recovery, coupled with Wallem's long-standing presence
in Asia, augurs well for the company.


valuation: £10.6m; holding: 99.2%

Easybox is a self-storage business currently operating in Italy and Spain, which
was established by Caledonia in 2000 with a 49.6% joint venture partner. The
management team had previously successfully developed Abacus Self Storage, a
Caledonia subsidiary which was sold in 1998 for a substantial profit. During the
year, Caledonia bought out the joint venture partner.

Whilst individual sites are trading well, Easybox itself has yet to reach
critical mass and is seeking further sites, which is continuing to prove
difficult. During the year, it added one site in Milan, taking the total number
of facilities to six, and is currently appraising a further site in Rome.

Sterling Industries

valuation: £10.0m; holding: 100%

Sterling Industries is the holding company for three core businesses. Sterling
Hydraulics is a manufacturer of hydraulic valves primarily used in construction
and off-road machinery, Process Combustion Corporation is a specialist thermal
engineering company providing thermal solutions for pollution control and Bloom
Burners is a manufacturer of burners for the iron, steel and aluminium

Trading has been stronger at Sterling Hydraulics with the beginnings of a
recovery in demand. Process Combustion has also had a successful year,
incorporating two small but strategic acquisitions and winning further projects
for the current year. Bloom has had a difficult year with the steel industry
starting off in a very depressed state, but now with strong steel prices, mills
are working flat out, which bodes well for the current year. The investment in a
new facility in China is on course and Bloom China recently won its first local

Melrose Resources

valuation: £9.7m; holding: 6.7%

During the year, we have built up a shareholding in this oil and gas exploration
and production company. Melrose operates principally in Bulgaria and Egypt, but
also owns stakes in US oil fields.

Over the past 12 months, Melrose announced significant exploration successes in
Egypt, which have been rapidly brought on stream. An aggressive drilling
programme is in place for 2004 to take advantage of these successes and expand
the Egyptian operations. In Bulgaria, where the company has interests in three
100% owned concessions, work has recently finished on a pipeline and onshore
process plant with first production expected in April 2004. Further exploration
will be undertaken in Bulgaria throughout the year. In the US, Melrose is
concentrating on developing its working interests with an eye to a step change
in production over the next two to three years.

For 2003, Melrose announced a small profit on turnover of £7m and earnings per
share of 6.3p, compared with a loss of 13.6p in 2002. Production during the year
increased 127% to 2,600 barrels of oil equivalent per day at year end and there
was a 46% increase in reserves to 42m barrels of oil equivalent.

Investment review

Caledonia's history of property investment has gained us valuable knowledge of
this sector. We invest in both property assets and in property management teams.
Our weighting in property companies is 9%, compared with 5% in the FTSE
All-Share index, which represents quoted property companies only and not
properties held through unquoted vehicles. Over the year, our holdings have
increased in value by 40%, compared with an increase in the property companies
in the FTSE All-Share index of 56%.

Quintain Estates & Development

valuation: £38.3m; holding: 7.0%

Quintain is a property investment and development company with a proven track
record. It specialises in commercial properties with challenging financial
characteristics. The shares have performed strongly during the year, rising by
87% and outperforming both the FTSE All-Share index and the FTSE property sector

Two of Quintain's special projects are at the Greenwich Peninsula and Wembley,
which, combined, make one of the largest urban regeneration programmes in the
UK. At Wembley, Quintain owns 55 acres surrounding, but not including, the new
National Stadium and at the Greenwich Peninsula it owns 18.5 acres of land as
well as a 49% stake in Meridian Delta, which has rights to develop the 190 acre


valuation: £12.7m; holding: 100%

Edinmore is a wholly owned property trading company with a profit sharing
arrangement with the management. Edinmore has established an excellent
reputation, which brings opportunities not always available to others. Caledonia
provides loan funding and is actively involved in investment decisions.

During the year, Edinmore bought £19m of new properties and resold £18m which,
net of costs and management fees, generated a pre-tax return to Caledonia of
£1.6m. The bulk of the remaining trading stock is expected to be sold in the
second half of the current year.


valuation: £10.0m; holding: 3.8%

Savills is a property agency and advisory company. Recognising the strength and
calibre of the management team, and the potential for value creation, Caledonia
built up its stake mainly in early 2003. During our financial year, the shares
performed very strongly, rising by 213%.

Savills' results for its financial year to 31 December 2003 showed a strong
growth in the business, with operating profits of £36.5m up 25% on the previous

One of Caledonia's directors is a non-executive director of Savills.

Buckingham Gate

valuation: £9.3m; holding: 100%

Caledonia acquired 30 Buckingham Gate in 2001 for its headquarters as the scale
of our activities had outgrown the former City office. The property is a seven
floor office building and is 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.

During the year, external loan finance of £6.5m was put in place for this
investment, to repay a loan from Caledonia, thereby reducing the valuation of
our investment. In addition, an external valuation of the building caused a
further small reduction in value.

Investment review
Managed general funds

Caledonia has particular expertise in identifying, supporting and encouraging
asset management teams, which we often back with an investment in the management
company as well as in the managed fund. Our weighting of 21% in managed general
funds is greater than the 2% of investment companies that make up the FTSE
All-Share index, as a substantial proportion of our interests in managed funds
are structured as limited partnerships or offshore investment funds. Over the
year, our holdings have increased in value by 53%, compared with an increase in
the managed general funds companies in the FTSE All-Share index of 40%.

British Empire Securities

valuation: £76.6m; holding: 19.7%

British Empire Securities is a UK investment trust whose objective is to achieve
capital growth through a focused portfolio of investments, particularly in
companies whose share prices stand at a discount to estimated underlying asset
value. Caledonia has actively backed British Empire Securities and its
management since 1991, when we took a significant stake in the company. Since
that date we have had board representation.

British Empire Securities is the best performing investment trust over five
years, in terms of share price total return, in the AITC global growth sector.
The trust trades on a very low discount to its net asset value, which at the end
of March 2004 was 4.8% compared with 15.2% for the global growth sector as a
whole. The net asset value of British Empire Securities rose by 50.8% and its
total shareholder return was 61.3% for the year ended 31 March 2004. This
compared with a total shareholder return of 31.0% for the FTSE All-Share index.

The company recently announced that it had won two industry awards. It achieved
first place in Investment Week's Investment Trust of the Year Awards - Global
including US category and it also achieved first place in the Global category of
the Moneywise investment trust awards 2004.

Aberforth Partnership fund

valuation: £32.9m; holding: 25.5%

This limited partnership has a remit to acquire significant shareholdings in
smaller UK listed companies and to work with boards and managements to release
latent value. At launch in March 2001, Caledonia committed £25m to this £163m
geared fund and the full commitment was drawn down by 31 March 2003. The net
cost of our original investment was reduced to £19m by March 2004 as a result of
realisations by the partnership and distributions to the limited partners.

As at 31 March 2004, the fund had investments in twelve companies and, based on
realised and unrealised gains, had generated an IRR of some 26% since launch,
significantly outperforming the FTSE All-Share index. Caledonia is represented
on the advisory committee.

Polar Capital funds

valuation: £21.9m (£28.0m including holding in manager)

Caledonia has an investment in both Polar Capital and a number of its investment
funds. Our investment in the management company is described above and our
investments in the Polar Capital funds are described below.

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 12% and 24% over the year. During the year, and in anticipation of a
weakening dollar, we have moved out of US dollar and into sterling denominated
funds. We also invested an additional £2.7m in the new European hedge fund.

We also hold a £5.9m investment in the long-only Global Technology Fund, which
increased in value by 106% over the year, substantially outperforming the NASDAQ

Eddington Capital fund

valuation: £17.0m (£17.7m including holding in manager)

Caledonia has an investment in both Eddington Capital and in its Triple Alpha
Fund. Our investment in the management company is described above and our £15.0m
investment in the Triple Alpha Fund is described below.

The Eddington Capital Triple Alpha Fund uses a multi-strategy fund of hedge
funds approach and seeks to return 20% per annum net to investors. Fund
selection is both qualitative and quantitative and aims to combine exceptional
fund managers with intelligent portfolio construction.

The performance of the Triple Alpha Fund has been promising, increasing net
asset value by 13.5%, net of all fees, in the first seven months.

Financial review

As at 1 April 2003, Caledonia had completed the substantial restructuring needed
to enable the company to be managed in accordance with the requirements for
authorised investment trust status. However, as with all investment trusts,
compliance can only be confirmed by the Inland Revenue after the end of each
financial year. In order to provide financial information that is comparable
with other investment trusts, presentation and accounting policy changes have
been made. Some of these changes took effect in the last annual report, and some
appear this year for the first time.

For the reasons discussed below, we believe that the company statement of total
return and company balance sheet are the most relevant statements for reporting
our performance as an investment trust company. Therefore, this statement
discusses the financial results of the company.

Presentation of the financial statements

Caledonia is an investment trust company, but we are relatively unusual among
our peers because we hold trading subsidiaries as part of our investment
portfolio. Our ownership of subsidiaries requires us to prepare consolidated
financial statements, but the accounting rules prevent us from including
subsidiaries in those statements 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. Actual proceeds from the disposal of any individual
investment will inevitably depend on market and economic conditions prevailing
at the time.

The company statement of total return is presented as part of the audited
financial statements for the first time. Comparatives for the year to 31 March
2003 have been presented, but on a pro forma basis only, as Caledonia was not an
investment trust company during 2003. The comparatives show the position had
Caledonia been an investment trust company during that period, but exclude the
effect of the restructuring.

A further change in presentation has been made this year. In previous years,
Caledonia, as a trading and investment company, took the view that entities over
which it exercised significant influence were associated undertakings and were
accounted for using the equity method. On its conversion to an investment trust
company on 1 April 2003, we reviewed this treatment. Only those entities through
which the company carries out its own business and over which the company
exercises significant influence are regarded as associated undertakings.
Caledonia now views all other entities that were previously classed as
associated undertakings as part of the investment portfolio. As required by FRS
9, these investments are not accounted for by the equity method, but held at

Company total return

Company total return for the year was £282.8m, or 391.5p per share, compared
with a pro forma loss of £183.2m, or -254.0p per share, last year.

Realised capital profits of £20.1m included profits of £21.0m and £8.2m on the
sale of ICAP and of Meinl European Land respectively. This was offset by losses
of £5.1m and £3.5m on the sale of London Forfaiting and the Ionian fund
investments, as the portfolio was rationalised following the strategic review
that took place in 2002. Unrealised capital gains of £254.2m reflected
substantial rises in the value of investments. Of particular note, the valuation
of Close Brothers rose by £79.4m and Kerzner International by £60.5m, the latter
after taking account of US$150m of forward currency contracts. These were taken
out to enable us to hedge part of our US dollar investment in Kerzner
International against the expected weakening of the US dollar.

Income from investments of £21.5m rose marginally from last year's figure of
£20.0m. This reflected maintained or increased dividends from our principal

Management costs rose to £9.1m from £8.3m last year. This movement included
increased bonuses, reflecting the company's substantial outperformance.

Other corporate costs of £2.5m comprised the costs incurred in relation to the
liquidation proposals promoted by a minority of shareholders in The Cayzer Trust
Company, which were subsequently withdrawn, and also the costs of a proposed
elective special dividend, details of which are contained in a circular being
sent to shareholders. These matters are referred to in the chairman's statement.

The total taxation charge (revenue and capital) for the year amounted to £0.4m,
compared with a £14.0m credit last year. Last year's credit included the release
of the provision against unrecognised losses amounting to £17.9m and a £5.5m
charge associated with the restructuring.


An interim dividend of 8.4p per share has been paid and the directors have
recommended a final dividend of 18.6p per share, making a total of 27.0p per
share for the year at a cost of £19.4m. This is a 3.8% increase over the total
dividend for 2003 of 26.0p per share. The final dividend will be paid to all
shareholders on all of their shares, whether or not they elect to receive the
special dividend referred to in the chairman's statement.

Jonathan Cartwright

Finance director

Company statement of total return
For the year ended 31 March 2004

                                                                     Pro        Pro        Pro
                                                                     forma      forma      forma
                                    Revenue    Capital    Total      Revenue    Capital    Total
                                    2004       2004       2004       2003       2003       2003
                                    £m         £m         £m         £m         £m         £m
Gains/(losses) on investments
    Realised                        --         20.1       20.1       --         17.1       17.1
    Unrealised                      --         254.2      254.2      --         (221.8)    (221.8)
                                    --         274.3      274.3      --         (204.7)    (204.7)
Income                              21.5       --         21.5       20.0       --         20.0
Administrative expenses             (9.1)      --         (9.1)      (8.3)      --         (8.3)
Costs of liquidation and
settlement proposals                (2.5)      --         (2.5)      --         --         --
Restructuring costs                 --         --         --         (4.0)      --         (4.0)
Return before finance
costs and tax                       9.9        274.3      284.2      7.7        (204.7)    (197.0)
Interest payable                    (1.0)      --         (1.0)      (0.2)      --         (0.2)
Return before tax                   8.9        274.3      283.2      7.5        (204.7)    (197.2)
Tax on ordinary activities          --         (0.4)      (0.4)      1.5        12.5       14.0
Return attributable to
shareholders                        8.9        273.9      282.8      9.0        (192.2)    (183.2)

Return per ordinary share
    Basic                           12.3p      379.2p     391.5p     12.5p      -266.5p    -254.0p
    Diluted                         12.3p      378.4p     390.7p     12.5p      -266.5p    -254.0p

Company reconciliation of movement in shareholders' funds

                                                                           2004           2003
                                                                           £m             £m
Revenue return                                                             8.9            9.0
Capital return                                                             273.9          (192.2)
Total return                                                               282.8          (183.2)
Dividends                                                                  (19.4)         (18.8)
Purchase of own shares                                                     --             (3.4)
Movement in the year                                                       263.4          (205.4)
Opening balance                                                            651.2          856.6
Closing balance                                                            914.6          651.2

Dividends per ordinary share                                               27.0p          26.0p

The proposed final dividend of 18.6p per ordinary share will be paid on 29 July
2004 to shareholders on the register at the close of business on 25 June 2004.

Company balance sheet
At 31 March 2004

                                                                           2004           2003
                                                                           £m             £m
Fixed assets
Investments                                                                896.9          656.4
Current assets
Debtors                                                                    12.4           5.5
Short term deposits                                                        32.8           38.9
Cash at bank and in hand                                                   6.0            1.4
                                                                           51.2           45.8
Creditors falling due within one year
Short term borrowings                                                      --             (8.6)
Other creditors                                                            (18.5)         (28.1)
                                                                           (18.5)         (36.7)
Net current assets                                                         32.7           9.1
Total assets less current liabilities                                      929.6          665.5
Creditors falling due after more than one year
Long term borrowings                                                       (4.8)          (4.8)
Amounts due to subsidiary undertaking                                      (10.2)         (9.5)
                                                                           (15.0)         (14.3)
Net assets                                                                 914.6          651.2

Capital and reserves
Called up share capital                                                    4.0            4.0
Share premium account                                                      1.3            1.3
Non-distributable reserves                                                 458.0          184.1
Distributable reserves                                                     451.3          461.8
Total shareholders' funds                                                  914.6          651.2

Net asset value per ordinary share
    After accrued final dividend                                           1260p          897p
    Before accrued final dividend                                          1278p          915p

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

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 holding company. This is because the
holding 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 company converted to an investment trust company on 1 April 2003. The
comparative figures in the company's statement of total return have been
prepared on a pro forma basis to reflect the estimated results of the company
had it been an investment trust company throughout the previous year. These are
derived from a combination of the company profit and loss account and the
company statement of total recognised gains and losses, adjusted to reflect the
estimated position if the company had been an investment trust company
throughout the previous year. In particular, investments that were held by
subsidiary undertakings for most of the year and transferred to the company
before the year end (or would have been so transferred if they had not been
realised during the year) are imputed to the company for the whole of the
previous year (or up to the date of sale). Therefore, any investment income
arising from those investments and movements in valuation have been imputed to
the company. Likewise, any costs incurred by subsidiary investment holding
companies, which were no longer operating as such at the previous year end, have
been imputed to the company. The effect of the reorganisation carried out during
the previous year in order to enable the company to achieve investment trust
status has been eliminated, except for the net costs associated with undertaking
the reorganisation.

On its conversion to an investment trust company on 1 April 2003, the company
reviewed the treatment of investments over which it had significant influence or
joint control. Only those entities through which the group carried out its own
business were regarded as associated undertakings or joint ventures. Where
investments were held as part of a portfolio, the value of which was through
their marketable value as part of a basket of investments, they were not
regarded as associated undertakings or joint ventures, but were stated in
accordance with all other investments at valuation. On 1 April 2003, therefore,
former associated undertakings that were no longer regarded as associated
undertakings were transferred to other investments, based on the share of net
assets retained, including any related goodwill, and revalued to market value at
that date.

Joint ventures and associated undertakings

Entities through which the group carries out its own business, in which the
holdings are intended to be held for the long term and over whose operating and
financial policies it exerts significant influence, are treated as joint
ventures or associated undertakings and accounted for using the gross equity
method or equity method as appropriate.

Investments in which the group has a long term interest and over whose operating
and financial policies it exerts significant influence, but which are held as
part of an investment portfolio, the value of which is through their marketable
value as part of a basket of investments, are not regarded as joint ventures or
associated undertakings. The directors believe that equity accounting for such
investments, which may come within the Companies Act definition of associated
undertakings, would not give a true and fair view of the income from investment
activities of the group, since this is better measured by the inclusion of
dividends and interest income. It is impracticable to quantify the effects of
this departure. The treatment adopted is in accordance with FRS 9: Associates
and Joint Ventures.

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')

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

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 2004

                                                                           2004           2003
                                                                           £m             £m
Turnover                                                                   125.8          132.1
Operating loss                                                             (11.5)         (9.4)
Share of operating profit of associates                                    --             26.1
Amortisation of goodwill on acquisition of associates                      --             (0.4)
Total operating loss                                                       (11.5)         16.3
Profit on sale of operations                                               --             4.9
Loss on ordinary activities before investment income                       (11.5)         21.2
Income from investments                                                    17.3           8.7
Interest receivable                                                        1.1            3.2
Interest payable                                                           (0.8)          (9.5)
Profit on ordinary activities before tax                                   6.1            23.6
Tax on profit on ordinary activities                                       (2.2)          (5.7)
Profit on ordinary activities after tax                                    3.9            17.9
Minority interests (equity)                                                (0.1)          (0.4)
Profit for the financial year                                              3.8            17.5
Dividends                                                                  (19.4)         (18.8)
Loss charged for the financial year                                        (15.6)         (1.3)

Earnings per ordinary share
    Basic                                                                  5.3p           24.2p
    Diluted                                                                5.3p           24.2p
Dividends per ordinary share                                               27.0p          26.0p

Consolidated statement of total recognised gains and losses
For the year ended 31 March 2004

                                                                           2004           2003
                                                                           £m             £m
Gains/(losses) on investments
    Realised                                                               21.3           17.1
    Unrealised                                                             270.4          (75.7)
    Revaluation of former associates transferred to investments            (21.3)         --
Exchange differences                                                       (3.7)          (15.9)
Share of results of associates                                             --             (13.7)
Tax on sales of investments                                                (0.4)          8.5
Minority interests (equity)                                                (0.1)          0.1
Other recognised gains and losses                                          266.2          (79.6)
Profit for the financial year                                              3.8            17.5
Total recognised gains and losses                                          270.0          (62.1)

Consolidated balance sheet
At 31 March 2004

                                                                           2004           2003
                                                                           £m             £m
Fixed assets
Intangible assets                                                          4.9            5.3
Tangible assets                                                            84.1           59.4
Investments in associates                                                  --             288.5
Investments other                                                          834.9          255.5
                                                                           923.9          608.7
Current assets
Stocks                                                                     26.4           20.4
Debtors                                                                    36.6           32.7
Short term deposits                                                        40.2           43.9
Cash at bank and in hand                                                   14.6           4.6
                                                                           117.8          101.6
Creditors falling due within one year
Short term borrowings                                                      (4.3)          (0.4)
Other creditors                                                            (50.0)         (47.2)
                                                                           (54.3)         (47.6)
Net current assets                                                         63.5           54.0
Total assets less current liabilities                                      987.4          662.7
Creditors falling due after more than one year
Long term borrowings                                                       (42.3)         (4.9)
Provision for liabilities and charges
Deferred taxation                                                          (1.5)          (1.4)
                                                                           943.6          656.4
Minority interests
Equity                                                                     (0.8)          (0.6)
Non-equity                                                                 (0.3)          (0.3)
                                                                           942.5          655.5

Capital and reserves
Called up share capital                                                    4.0            4.0
Share premium account                                                      1.3            1.3
Capital redemption reserve                                                 1.2            1.2
Revaluation reserve                                                        270.7          21.2
Profit and loss account                                                    665.3          627.8
Total shareholders' funds                                                  942.5          655.5

Company and consolidated cash flows
For the year ended 31 March 2004

                                                            Company                Group
                                                        2004       2003       2004       2003
                                                        £m         £m         £m         £m
Net cash inflow from operating activities               3.1        34.5       (0.2)      12.4
Dividends from associates                               --         --         --         9.2
Servicing of finance
    Interest paid                                       (1.0)      (5.3)      (0.7)      (0.2)
    Dividends paid to minority shareholders             --         --         (0.1)      (0.2)
                                                        (1.0)      (5.3)      (0.8)      (0.4)
    UK tax paid                                         (1.3)      (1.8)      (1.3)      (5.8)
    Overseas tax paid                                   --         --         (0.5)      (0.8)
                                                        (1.3)      (1.8)      (1.8)      (6.6)
Capital expenditure and financial investment
    Purchase of investments                             (107.3)    (27.3)     (96.7)     (47.7)
    Sale of investments                                 125.8      2.6        109.2      35.4
    Liquidation of subsidiary undertakings              6.9        15.9       --         --
    Purchase of tangible fixed assets                   --         --         (6.6)      (3.3)
    Sale of tangible fixed assets                       --         --         0.4        0.3
                                                        25.4       (8.8)      6.3        (15.3)
Acquisitions and disposals
    Purchase of subsidiary undertakings                 --         --         (9.2)      (0.2)
    Cash acquired with subsidiary undertakings          --         --         0.6        --
    Sale of subsidiary undertakings                     --         --         --         7.0
    Acquisition of associated undertakings              --         --         --         (12.4)
    Sale of associated undertakings                     --         --         --         1.1
                                                        --         --         (8.6)      (4.5)
Equity dividends paid                                   (19.1)     (18.1)     (19.1)     (18.1)
Net cash inflow before management
of liquid resources and financing                       7.1        0.5        (24.2)     (23.3)
Management of liquid resources                          6.1        18.0       3.7        21.5
    Repayment of short term loans                       --         --         (0.3)      --
    Repayment of long term loans                        --         --         --         (0.4)
    Issue of long term loans                            --         --         27.4       --
    Purchase of own shares                              --         (3.4)      --         (3.4)
    Issue of shares by subsidiary undertakings          --         --         0.1        0.3
                                                        --         (3.4)      27.2       (3.5)
Increase in cash in the year                            13.2       15.1       6.7        (5.3)

Reconciliation of net cash flows to movement in net funds

                                                            Company                Group
                                                        2004       2003       2004       2003
                                                        £m         £m         £m         £m
Increase in cash in the year                            13.2       15.1       6.7        (5.3)
Cash inflow from increase in debt                       --         --         (27.1)     0.4
Cash inflow from decrease in deposits                   (6.1)      (18.0)     (3.7)      (21.5)
Change in net funds resulting
from cash flows                                         7.1        (2.9)      (24.1)     (26.4)
Acquisitions                                            --         --         (10.4)     4.6
Exchange differences                                    --         --         (0.5)      (2.1)
Movement in net funds in the year                       7.1        (2.9)      (35.0)     (23.9)
Opening balance of net funds                            26.9       29.8       43.2       67.1
Closing balance of net funds                            34.0       26.9       8.2        43.2

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 2004 will be delivered to the
Registrar of Companies in England and Wales in accordance with Section 242 of
the Act. The auditor has reported on those accounts; the report was unqualified
and did not contain a statement under Section 237(2) or (3) of the Act.

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

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

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