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Caledonia Inv PLC (CLDN)

  Print      Mail a friend       Annual reports

Wednesday 31 May, 2006

Caledonia Inv PLC

Final Results

Caledonia Investments PLC
31 May 2006

Caledonia Investments plc

Preliminary Results for the 12 months ended 31 March 2006

Key points

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

        •    152% outperformance over five years (184% vs 32%)

        •    179% outperformance over ten years (302% vs 123%)

•    10% outperformance of NAV per share against FTSE All-Share over 12 months

•    5.0% increase in annual dividend to 29.6p marks 39 years of progressive 

•    £155m invested and £307m realised

•    Narrowing of share price discount to NAV from 11% to 4% over the year

•    Details of proposed elective special dividend and capital reduction being 
     released today

Tim Ingram, Chief Executive, commented:

'Our longer term supportive investment style has again delivered outperformance
and shareholder value with significant realisations during the year.

Notwithstanding recent market volatility, we continue to see interesting
investment opportunities, particularly in the unquoted sector.

With substantial liquidity at present, and an expectation of some liquidity
otherwise remaining over the next 12 months, we are giving details of the
elective special dividend and associated capital reduction which is anticipated
to return up to approximately £128m to shareholders. These details are set out
in a separate Announcement and in a Circular to shareholders published today.'

                                                                     31 May 2006


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

College Hill
    Tony Friend                                 020 7457 2020
    Roddy Watt

Chairman's statement


Our third year as an investment trust company has seen a continuation of the
strong growth shown in the first two. Our total shareholder return over five and
ten years has outpaced our benchmark of the FTSE All-Share Total Return index by
152% and 179% respectively and both these measures show a further worthwhile
advance on the 133% and 111% shown a year ago. We believe that our long
established investment strategy of taking sizeable stakes, though usually
minority ones, in promising listed and unlisted companies at sensible prices,
and working closely with proven managements to achieve their goals over a longer
term, differentiates us from most other investment companies and has been a key
contributor to this good performance.

Share price

Our share price during the year has risen from £13.67 to £19.80, driven
principally by an increase in net assets per share of 34%, but also helped by
the further reduction in the discount of our share price to the underlying net
asset value per share. This reduced over the year from 11% to 4% and at times
moved to a nil discount or very small premium. Last year I cautioned that it
would prove challenging to maintain a continued reduction in this discount,
which had fallen during the previous year from 21% to 11%, but I am pleased that
this has not been the case. Whilst narrower discounts are not out of keeping
with other investment trusts with good track records, the recent market
volatility has seen our discount widen again and is a salutary reminder that our
share price is not within our control.


For the thirty-ninth year in succession, we are pleased to increase our annual
dividend by recommending a final dividend for the year of 20.5 pence per share.
This will bring the total dividend for the year to 29.6 pence, representing an
increase of 5% and costing £18.8m.

Elective special dividend

In 2004, we paid an elective special dividend to help resolve shareholder issues
within The Cayzer Trust Company, our largest shareholder, which were affecting
our stability and long term investment approach. I am happy to say that these
matters are now fully behind us. In March this year, we were pleased to announce
proposals for another elective special dividend to celebrate a long period of
good investment performance and to enable shareholders, if they so choose, to
participate in our resultant strong cash position. The special dividend is
intended to distribute around £128m depending, inter alia, on the level of take
up and the value of our net assets at the strike date. Payment is scheduled on
or about 13 July. The options offered to shareholders are summarised in a
separate announcement released today and a circular setting out the detailed
terms of the elective special dividend has today been posted to shareholders.


The year under review has seen considerable activity within our portfolio and
highlights are shown below. Markets moved strongly upwards during the year,
which was good for realisations. These totalled £307m, of which Paladin
Resources, the independent oil exploration company, was our largest, yielding
proceeds of £108m. Higher market prices suggested a less favourable climate for
making new investments, but we have nevertheless committed £155m to new and
follow on investments on sensible terms, with a continuing healthy flow of
proposals to review. Since the end of the year, Kerzner International has
announced that it has agreed to an offer from an investment group led by its
management to purchase the company. This offer is expected to be voted on by its
shareholders by early July and, if approved, will result in cash proceeds for
Caledonia of $237m, supplementing earlier realisation proceeds of $159m.

Economic and political background

The recent market downturn has not come as such a surprise to us for we had been
puzzled by the apparent strength of the UK and US economies following the very
significant rise in oil and commodity prices and have recently been holding
significant levels of liquidity. Our instincts are to remain cautious as there
are signs of inflation creeping in, which is leading to higher interest rates.
The US deficit remains worryingly high and UK government spending continues to
rise with seemingly little improvement from services delivered and an almost
daily dose of burdensome and costly legislation to hinder our efficiency in
world markets. In particular, the imposition of draconian measures on private
sector pension funds through the Pensions Regulator which, combined with the
earlier and mindless removal of the tax credit for pension funds, has wantonly
wrecked a jewel in this country's essential savings movements. The supreme irony
of what amounts to an irresponsible demolition of private sector pension
provision is the fact that the Government has utterly failed to curb the
excesses in public sector pensions. This will inevitably rebound in higher taxes
to fund the consequent financial black hole, which now exceeds the National
Debt. Hopefully the electorate of this country will wake up to the shortcomings
of this Government so devoid of competence or integrity, before more harm is

At the time of writing last year, we were on the eve of referenda in France and
Holland on the topic of the proposed new European constitution. Thankfully they
returned a firm 'Non' but this gave a welcome excuse to the Government in
Britain to duck the issue. Seemingly this message from the people of Europe has
gone unheeded by the politicians who seem to be turning a blind eye to the
continued scheming for new constitutions and legislation in Brussels to the
ultimate detriment of the economies across Europe. We shall continue to pay some
attention to the economies of India and beyond, where higher rates of growth
seem more likely.


I would like to pay a fulsome tribute to all our staff for their efforts
throughout the year on behalf of shareholders. They do battle with an ever
growing jungle of legislation much of which is of questionable value. On the
accounting front, the task of dealing with the new IFRS rules has been time
consuming and expensive and the increasing requirements for more detailed and
ever lengthier reporting seem to be losing the respect of many senior
professionals and running the danger that shareholders will find it increasingly
difficult to identify the key issues. On the wider front, the concept of
responsibility is losing out to the cult of blaming others and this regrettably
seems to be increasingly the focus of the growing army of regulators who seek
comfort from the number of boxes ticked. All of this adds to the pressure on our
hard worked staff. I thank them all for the tremendous contribution which they
have made.


We have been fortunate to enjoy a long run of good performance, but market highs
have recently suffered an unsurprising check. We are not immune from these
market downturns, but our long held investment strategy described in my opening
paragraph is less susceptible to the market cycle. Therefore we believe that our
continuing strong deal flow, coupled with our investment philosophy, will
continue to stand us in good stead.

Peter Buckley

Chief Executive's statement

2005/06 has again been a good year for Caledonia's shareholders, with NAV per
share increasing by 33.6% to 2061p per share at 31 March 2006. This is 9.6% more
than the increase in the FTSE All-Share index over the same period.

Investment activity

The last year has seen strong increases generally in share prices across the
globe. This has inevitably meant that it has become an easier market in which to
achieve realisations and it has become more difficult to find new investments at
an entry price which we believe presents sufficient value creation potential for
our own shareholders: however, our distinctive style does still mean that we are
continuing to find some new opportunities at acceptable prices, although
recently this is tending more to be in the unquoted segment.

During the course of our financial year our investment committee evaluated
around 125 potential new investment opportunities. These were short listed down
to a more manageable number which were then intensely evaluated, and from which
we made eight new investments for a total amount of £70m. In addition, we
invested a further £85m as follow-on funding in existing investments, making a
total of £155m of investment during the year. This includes a further £34.5m
invested in India (including the UK listed India Capital Growth Fund) bringing
the total value of Indian investments to around £48m at 31 March 2006.

We have again been actively and constructively involved with all our investee
companies, which we believe continues to aid our outperformance. It is our
normal policy for a Caledonia investment executive to join the board of the
investee company as a non-executive director and considerable time is spent in
working supportively with management to achieve long-term shareholder value
creation. During the year, we have had a Caledonia executive as a director on
the board (or appropriate committee) of 17 of our top 20 investments. Whether we
have representation on the board or not, efforts are made to influence
constructively the operations and strategy of each investee company.

Although we are a long term investor, we believe there comes a time when it is
appropriate for us to disinvest or partially sell down from an investment. In
addition, there can be redemptions within funds in which we have invested, which
also give rise to capital flows back to Caledonia. With conditions in the last
year having been so favourable for realisations, full and partial disinvestments
totalled over £307m during the year, which was significantly up on the previous
year's figure of £218m.

As mentioned above, Kerzner International, the resorts owner and operator in
which we have an 8% stake, is recommending to its shareholders acceptance of a
bid at $81 per share by a management-led investor group. If the offer is
implemented, we will receive $237m and have put in place forward foreign
exchange contracts to hedge this.

As a result of the above activity, our net liquid funds increased to £180m at 31
March 2006, and we are proposing an optional return of funds of approximately
£128m by way of an elective special dividend.


Keeping the overhead costs down is an important objective for us as every pound
of costs is a pound reduction in our shareholders' net assets. Nonetheless, it
is vital that we have sufficient resources to be able to manage our portfolio
effectively in a hands-on fashion while also attracting and evaluating a good
deal flow of new opportunities. We believe that being a self-managed investment
trust company, with direct control over costs, significantly helps this
objective. Our total overhead costs for the year were about 0.9% of our net
assets, which compares favourably against a pre tax weighted investment trust
industry average of 1.4%.


It is, to say the least, very difficult to predict in advance when markets are
to reach their zenith in the cycle. Recent events suggest that this may now be
happening. At Caledonia, we do not deliberately take market positions. However,
we are careful not to overpay for new investments and, notwithstanding the
proposed elective special dividend, our present expectations, on the assumption
that the bid for Kerzner International completes, are that we are likely still
to be holding liquidity on our balance sheet at the end of the current financial

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

Tim Ingram
Chief executive

Business highlights

Caledonia has developed a distinctive and successful investment style and
philosophy. It is centred on our long term approach, our close supportive
relationship with the management teams we back and our determination to guard
our reputation as a good, reliable equity partner.

All this differentiates us, in the case of unquoted investments, from the
mainstream private equity and venture capital markets and, for our listed
investments, from more traditional fund managers. The business highlights of the
year under review illustrate our approach.

Satellite Information Services

We acquired a 22% stake for £18.0m in Satellite Information Services (SIS), the
provider of integrated information systems to the betting industry and outside
broadcast services. Our ability to take a long term view and acquire an existing
shareholding in a well established business, without requiring a shorter term
exit mechanism, meant that we could respond to the desire of an existing
investor to realise its minority stake at what we believe was a highly
attractive entry price.

Broadcasting remains a key area of expertise for SIS. It is one of the most
experienced television and production and outside broadcast companies in Europe,
and the leading supplier of television programming and sports data to licensed
betting offices. In 1987, SIS became the first broadcaster to create a dedicated
specialist sports channel for the UK betting market. Betting markets around the
globe now receive a service from SIS that includes live worldwide sports

Employing over 400 people across Europe, SIS operates a number of dedicated
television channels and is one of the small number of television companies in
the world able to cover and deliver live televised racing and provide a
continuous supply of support data.

SIS is an established and successful business, which is owned by a small group
of both strategic and financial investors. Through having a Caledonia executive
on the board, we look forward to supporting management and developing our
relationship with our fellow shareholders and we have been impressed with the
results to date of SIS. During the year, our holding has increased to 24%. We
believe that our long term investment approach is well suited to a business like
SIS, which will benefit from a stable and involved shareholder base.

Alok Industries

In 2003, Caledonia made a decision to build a portfolio of direct investments in
India, extending geographically the successful strategy of backing proven
management teams over the long term. Working with local advisory partners, we
initially gained experience through building a modest portfolio of small stakes
in a number of companies introduced to us. One of these businesses was Alok
Industries, a listed textile manufacturer based in Mumbai, and we were impressed
by their achievements and ambitions, not only in the domestic field but more
particularly in export markets. We were aware that they should be able to
benefit substantially from the imminent removal of WTO quotas on textile exports
and were preparing to raise capital to expand production for this purpose.

We initially acquired a small stake through a convertible bond issue in 2004 and
then in July 2005, once we had really got to know the major shareholding family,
we made a more substantial investment by participating in Alok's second
convertible bond issue. We have subsequently converted all our bonds into equity
and added to the investment at various times through market purchases, giving us
an 11.8% stake as at 31 March 2006 at a total cost of £13.9m. We have also
accepted the offer of a board seat.

The rapid expansion of Alok's already substantial manufacturing plants
represents a considerable management challenge which we think is being skilfully
met. Recent good results reflect the quality of the management team and the
longer term opportunities open to them.

Sterling Industries

Caledonia has been closely involved with Sterling Industries, specialising in
hydraulic valves and combustion heat transfer systems, since acquiring a 25%
stake in 1989. We acquired 100% ownership of the Sterling Group in 2000 in order
to be able to help management reposition and restructure the business. This was
achieved through recruitment both at board and management levels and we
supported operational management through some challenging market conditions.
During these, the cost base was reduced and a clearer market focus introduced,
capitalising especially on growth in China. Our efforts were rewarded in 2005,
when Sterling Industries took advantage of industry consolidation and sold its
hydraulic valves business to Parker Hannifin of the USA for £33.2m, realising a
book profit of £22.3m.

The remaining businesses in Sterling Industries are performing well. Bloom,
which designs and manufactures burners for the iron, steel and aluminium
industries, is expanding its market into China; PCC, a specialist in providing
thermal solutions for pollution control, is performing well in the US, and GCD,
an Australian business that designs and manufactures fibreglass ovens for a
range of customers and applications, is enjoying a strong market in its sector.

Paladin Resources

We realised our investment in Paladin Resources for £108.2m towards the end of
2005 by supporting a recommended offer from Talisman Energy Resources. To
achieve this, we worked closely with management, whom we had known from the
1990s when they had been responsible for the development and successful sale of
Clyde Petroleum.

We had originally invested in Paladin Resources in 1994 and then built up a 9%
stake, principally during 2002 and 2003, at a total cost of £19.8m.

Paladin Resources was one of the UK's most successful independent oil and gas
exploration and production companies. Its strategy was to position itself as a
natural partner for oil majors wanting to dispose of assets and to purchase
assets where further active investment would enhance production. Assets acquired
included a package of North Sea oil interests from BP and Amerada Hess and
various permits in the Timor Sea off the coast of Australia.

For the offer to proceed, the purchaser needed to minimise the transaction risk
from a potential competing offer. We helped achieve this through committing our
stake to the offeror - a good example of how our supportive relationship with
management can help to secure an outcome which benefits all the company's

Avanti Screenmedia

We invested £10.0m for a 17.9% stake in Avanti Screenmedia, the AIM listed
supplier of screen media systems, and now have a Caledonia executive on the
board. We were introduced to Avanti by the company's brokers who were well known
to us and recognised the benefit of Caledonia's investing philosophy. The
investment demonstrates how Caledonia is able to assist listed companies through
being able to cornerstone an issue of equity, such as an IPO or, as in this
case, a £25m equity placing to fund the growth of the business.

Avanti is the market-leading provider of screen media services for the retail,
leisure and shopping mall sectors in the UK, with a 30% market share. Their
screen media channels reach over 12m consumers per week, including a high
proportion of the highly desirable 18-34s market through its pub and bar

Avanti currently rents satellite space for relaying its services, but is keen to
own its own satellite as a more efficient way of securing long term revenues. It
was awarded a satellite licence by Ofcom, the UK communications regulator, in
August 2005 and plans to build and launch its £70m satellite by 2008, in
conjunction with the European Space Agency.

Having appraised the opportunity in a relatively short period through detailed
discussions with management and other due diligence, we decided that there was
considerable upside in the value of the business and look forward to working
with our Avanti board colleagues and management to realise this potential.


In the 1990s, we invested in a UK self storage business called Abacus. The early
days of the business required considerable input and some further investment
from Caledonia. Abacus became one of the largest European self storage companies
and was sold in 1998 for a substantial profit.

Some two years later we were asked by the former Abacus management to join in a
new venture establishing self storage sites in Italy and Spain. In 2000, Easybox
was created and quickly established itself with two sites in Spain and four in

It has proven much harder than expected to expand the business in Spain due to
high property prices, so we decided to sell this part of the company and
concentrate our efforts on Italy. The Spanish operations were sold for £13.5m, a
substantial profit on the cost of £6.9m. £7.0m was returned to Caledonia by way
of loan repayments.

All sites in Italy have been trading well, a new site in Rome will be opening
this autumn, and a number of new properties are being considered.

The Abacus/Easybox history demonstrates our principles of seeking out able
management, establishing a strong, long term relationship, and being a flexible
and supportive investor.


In 1992, Caledonia became a significant shareholder with a 74% economic interest
in Wallem, a Hong Kong-based group, best known for its leading position in the
ship management industry. There had been strong links with Wallem since the
1970s through the involvement of one of Caledonia's directors in Wallem's
business, but the opportunity then arose for us to acquire the stake of the
major shareholder. So, in 1992, we invested alongside the chairman of Wallem,
who had then been working in the business for some 30 years. It was this close
relationship and knowledge of the business which gave us the confidence to
invest in a company with its headquarters in Hong Kong. The presence of Wallem
at the gateway to China and its success in servicing burgeoning Chinese trade
have both helped us to develop an investment presence in that part of the world.

Wallem performed very well in the mid-1990s, generating cash which it paid out
as dividends, but suffered a significant downturn during the Asian crisis of the
late-1990s. In response to this, Wallem restructured its operations, selling its
shipping investments, and has subsequently seen a substantial improvement in its

Then, an unsolicited approach from an interested purchaser, closely connected
with the founding Wallem family, coincided with discussions we were holding in
2005 with our shareholding partner about how we might help him realise his
interests in Wallem. Consequently we were able, over the course of almost a
year, to work with our co-investor, Wallem's management, advisers and the
potential purchaser to achieve a successful exit at the end of our financial
year. We are satisfied that this sale, to knowledgeable trade investors with
sound financial backing, was both at an attractive value and ensured that the
excellent reputation Wallem enjoyed with its clients remained in good hands, so
that the business and its people should continue to prosper.

Cash received for our stake totalled some £35m.

We believe the Wallem story is an excellent example of how Caledonia's flexible
response to market opportunities works well through the economic cycle for
shareholding partners and management teams and generates value for our

Treasury management

Over the year, Caledonia's liquidity increased from £40m to £180m. The principal
role of Group Treasury is to ensure that we have the cash available to meet our
investment commitments and also to maximise the return from surplus liquidity
consistent with maintaining an approved level of risk. Traditionally, Caledonia
has mainly held surplus cash in term deposits, but we have recently invested
£75m in a range of money market funds that aim to deliver a return above bank
deposits, whilst protecting our capital.

Business review

Caledonia is an investment trust company, but is unusual in holding trading
subsidiaries as part of its investment portfolio. The ownership of subsidiaries
requires Caledonia to prepare consolidated financial statements, but Caledonia
views and manages these holdings as part of its investment portfolio. This
business review reflects management's view that subsidiaries are part of its
investment portfolio.


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

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

In addition, Caledonia aims to achieve a positive total return over rolling five
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, and usually
with 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, the company 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 managements of
companies that it has backed and to make available the considerable experience
of its own team to help the investee companies' managements 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.

Financial review

Profit for the year

Caledonia achieved a profit of £349m for the financial year, which equates to
35.7% on restated opening shareholders' funds. This compares with a 24.0% return
on the FTSE All-Share Total Return index. The components of the profit for the
year are shown in table below:

                                                                                 2006      2005
                                                                                   £m        £m
Investment and other income                                                      26.2      18.9
Gains and losses on investments                                                 352.7     159.0
Gains on money market funds                                                       0.8        --
Gains and losses on derivatives                                                  (9.0)      5.8
Provisions                                                                      (10.0)       --
                                                                                360.7     183.7
Management expenses                                                             (10.8)    (10.6)
Other expenses                                                                   (1.1)     (0.6)
                                                                                348.8     172.5
Finance costs                                                                    (0.8)     (1.0)
Taxation                                                                          1.4      (0.1)
Profit for the year                                                             349.4     171.4

The main drivers of the profit were the level of profitable realisations, strong
levels of income and overall growth in the value of the net assets.

The table below summarises the changes in the investment portfolio:

                                                                                 2006      2005
                                                                                   £m        £m
Opening portfolio                                                               947.1     886.1
Investments                                                                     155.2     123.8
Realisation proceeds                                                           (307.0)   (217.8)
Capital distributions                                                              --      (4.0)
Gains and losses on investments                                                 352.7     159.0
Closing portfolio                                                             1,148.0     947.1


Caledonia invested a total of £155.2m, compared with £123.8m in 2005.

A summary of the principal investments, analysed between new and follow-on
investments, is given in the table below:

                             holding                                                       Cost
Investment                         %   Category   Country  Business                          £m
New investments
Satellite Information           24.3   Equity     UK       Data distribution to betting    18.1
Services                                                   offices
India Capital Growth Fund       22.0   Equity     UK       Closed-end Indian equity        16.5
(1)                                                        fund
Avanti Screenmedia (1)          17.9   Equity     UK       Media distribution              10.0
Dewan Housing Finance (1)       14.0   Equity     India    Indian mortgage company          7.1
CF AVI Global Fund                     Prefs      UK       Equity fund                      7.0
Cleveland London Investments           Loans      UK       Property development             4.4
BIA Pacific Fund                       Fund       Cayman   Investment fund                  3.5
Kingdom Group Holdings          15.0   Equity     China    Linen yarn manufacturer          3.4
Follow-on investments
Polar funds                            Prefs      Cayman   Hedge funds                     18.4
Alok Industries (1)             11.8   Equity     India    Textile manufacturer            10.7
Edinmore                         100   Loans      UK       Property trading                10.5
Oval                            32.3   Loans      UK       Insurance broking                5.2
Incisive Media (1)              10.5   Equity     UK       Business publisher               4.0
Melrose Resources (1)            7.5   Equity     UK       Oil and gas exploration          2.7
Redleaf VI                             Unit trust UK       Property fund                    2.3
Other investments                                                                          31.4
Total                                                                                     155.2

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

During the year, 125 potential new investments were considered and eight were
selected with an aggregate cost of £70.0m. Of these new investments, one was
made directly in India and one in China. In addition, the company supported the
raising of a £75m fund for investment in India  and also made a follow-on
investment during the year in Alok Industries, the Indian quoted textiles


Caledonia made full and partial realisations of certain holdings during the year
with total proceeds of £307.0m (2005 - £217.8m), reflecting a gain over cost of
£180.5m (143%), compared with £105.4m (94%) in the prior year. The increased
uplift percentage relative to last year was significantly enhanced by the rise
in the value of Paladin Resources, as a result of the successful offer from
Talisman Energy Resources.

A summary of full and partial realisations of our holdings is given in the table

                                                       Full or partial sale Proceeds  (losses)
                                                       of holding                 £m        £m
Paladin Resources                                      Full                    108.2      91.2
Wallem                                                 Full                     31.0      22.8
General Practice                                       Partial                  25.5       7.0
Kerzner International                                  Partial                  22.5      17.3
F&C Asset Management                                   Full                     20.4      (1.0)
Aberforth LP fund                                      Distribution             15.7      15.7
Polar funds                                            Redemptions              14.5       0.8
MORI                                                   Full                     10.3       4.6
Discovery Trust                                        Full                      8.5       4.0
British Empire Securities                              Partial                   8.4       7.1
Redleaf V                                              Full                      8.3       3.5
Easybox                                                Partial                   7.0        --
Savills                                                Partial                   4.1       2.9
Landsdown                                              Full                      2.7       2.0
Other realisations                                                              19.9       2.6
Total                                                                          307.0     180.5

Gains and losses on investments

Net gains and losses on investments during the year was £352.7m (2005 -
£159.0m). An analysis of the principal contributors is given in the table below.

Close Brothers                                                                              52.6
Paladin Resources                                                                           52.5
British Empire Securities                                                                   46.5
Kerzner International                                                                       36.6
Sterling Industries                                                                         22.3
Rathbone Brothers                                                                           16.7
Wallem                                                                                      15.0
Quintain Estates and Development                                                            13.5
Savills                                                                                     12.8
Other net gains and losses                                                                  84.2
Total                                                                                      352.7

Income and costs

Investment and other income was £26.2m (2005 - £18.9m). The increase when
compared with the prior year is due mainly to the receipt of a £2.4m dividend
from Satellite Information Services.

Management expenses of £10.8m (2005 - £10.6m) comprised the costs of managing
the company's investment operations.

Other expenses included transaction costs of £1.1m (2005 - £0.2m), which
comprised the due diligence costs incurred in successfully making investments
during the year, together with costs where investment opportunities were not
followed through to a specific investment being made. The increase over the
prior year reflects the increased activity during the year.

The provision of £10.0m (2005 - £nil) was in respect of matters related to the
mandated disposal of investments.

Finance costs of £0.8m (2005 - £1.0m) were lower than in the prior year as the
company had minimal borrowings during this year.

Accounting policies

Basis of preparation

Caledonia is an investment trust company. However, because it holds majority
stakes in certain investments, it is required to prepare group accounts that
consolidate the results of such investments. In addition, in order to present
information that is comparable with other investment trust companies, Caledonia
publishes company financial statements, which include these investments in
subsidiaries at fair value.


Investments have been valued by the directors in accordance with IAS 39 and
based on the principles of the International Private Equity and Venture Capital
Valuation Guidelines.

Introduction of International Financial Reporting Standards ('IFRS')

These financial statements have been prepared for the first time in accordance
with IFRS as adopted by the EU. The principal elements impacting Caledonia's
results on transition to IFRS were as follows:

- The requirement under IAS 39 'Financial Instruments: Recognition and
Measurement' to value quoted investments at bid price. Under UK GAAP, quoted
investments were reported at mid-market price.

- Under IAS 19 'Employee Benefits', the pension scheme deficits should be
included in the balance sheet.

- Deferred tax has been recalculated in accordance with IAS 12. This adjustment
includes deferred tax calculated on the unrealised gains on investments and a
deferred tax asset in respect of the pension deficit recognised under IAS 19.

- Under IAS 10, dividends declared after the balance sheet date are not accrued
at the balance sheet date.

Proposal to return capital to shareholders

As indicated in the Chairman's statement, it is intended that around £128m will
be returned to shareholders through an elective special dividend and associated
capital reduction.

Under the proposal, Caledonia shareholders will be offered the opportunity to
receive a special dividend on one out of every ten shares held. Shares on which
a shareholder elects to receive the special dividend will be cancelled for no
consideration, pursuant to a Court approved reduction of capital. The total
number of ordinary shares on which the special dividend will be paid is limited
to 6,410,579 ordinary shares based on the 64,105,796 ordinary shares in issue,
(excluding ordinary shares held in treasury) as at 26 May 2006. The special
dividend payable in relation to each share to be cancelled will be an amount
equal to the net asset value per share at a specified date, expected to be 7
July 2006, discounted by 3%. Actual payment of the dividend is expected to be on
or around 13 July 2006.

Under the terms of the special dividend offer, all shareholders have the
following choices:

- to do nothing and therefore continue to hold all of their ordinary shares

- to elect to receive the special dividend in respect of one out of ten shares
held (the 'basic entitlement')

- to elect to receive the special dividend on a number of ordinary shares less
than their basic entitlement (the 'under election option')

- to elect to receive the special dividend on a number of shares greater than
their basic entitlement, with such elections only being accepted to the extent
that other ordinary shareholders elect to receive the under election option or
do not elect to receive the special dividend at all (the 'over election option')

- to elect to receive the special dividend on such number of ordinary shares as
to maintain, after taking into account other shareholders' elections, their
proportionate interests in Caledonia at the same level as prior to the special
dividend (the 'pro rata option').

All ordinary shares on which ordinary shareholders validly elect to receive the
special dividend will be cancelled for no further consideration pursuant to a
reduction of capital.

Cash flows

The key cash flows during the year were the aggregate proceeds of £314.0m (2005
- £218.5m) from the realisation of investments and outflow of £160.2m (2005 -
£127.4m) for the purchase of investments. In addition, in the prior year, there
was a cash outflow of £88.0m in respect of the elective special dividend paid on
2 July 2004.


With cash equivalents and money market funds totalling £179.6m, Caledonia has a
high level of liquidity. Successful completion of the bid for Kerzner
International would yield around a further £131m in cash during August.

Investment analysis
Holdings of 1% or more of net assets

                                            Equity      Country of                                     of net
Name                                       holding   incorporation  Nature of business       Total     assets
                                                 %                                              £m          %
Close Brothers (1,2)                          12.3   UK             Merchant banking         191.9       14.7
British Empire Securities (1,2)               18.3   UK             Investment trust         141.7       10.8
Kerzner International (1,2)                    8.0   Bahamas        Resorts owner/operator   131.1       10.0
Quintain Estates & Development (1)             7.0   UK             Property holding/         61.0        4.7
Rathbone Brothers (1,2)                       11.1   UK             Fund management           53.6        4.1
Sterling Industries (2)                        100   UK             Engineering               33.1        2.5
Polar funds (2)                                      Ireland/       Hedge and long-only       30.2        2.3
                                                     Cayman         funds
Cobepa (2)                                     9.4   Belgium        Investment company        30.1        2.3
Savills (1,2)                                  2.9   UK             Property agency           24.1        1.8
Bristow Group (1,2)                            5.6   US/UK          Helicopter services       24.0        1.8
Oval Financial (2)                            32.3   UK             Insurance services        23.8        1.8
Edinmore (2)                                   100   UK             Property trading/         21.5        1.6
Melrose Resources (1)                          7.5   UK             Oil and gas               21.4        1.6
Eddington Triple Alpha Fund (2)                      Cayman         Fund of hedge funds       20.5        1.6
India Capital Growth Fund (1,2)               22.0   Guernsey       Investment company        18.0        1.4
Satellite Information Services (2)            24.3   UK             Betting information       18.0        1.4
Incisive Media (1,2)                          10.5   UK             Publishing                18.0        1.4
Alok Industries (1,2)                         11.8   India          Textiles                  17.7        1.4
A G Barr (1)                                   9.4   UK             Soft drinks               17.7        1.4
Polar Capital Partners (2)                    24.6   UK             Fund management           15.2        1.2
Buckingham Gate (2)                            100   UK             Property holding          13.5        1.0
Other investments                                                                            221.9       17.0
Total investments                                                                          1,148.0       87.8
Net liquid assets                                                                            159.0       12.2
Net assets                                                                                 1,307.0      100.0

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

2.  Board representation.

Investment analysis
Asset distribution

FTSE sector

                                                                                    £m         %
Oil and gas                                                                       21.4       1.6
Basic materials                                                                    3.5       0.3
Industrials                                                                       55.3       4.2
Consumer goods                                                                    40.4       3.1
Health care                                                                        6.1       0.5
Consumer services                                                                192.3      14.7
Financial (ex inv co)                                                            514.5      39.4
Investment companies                                                             314.5      24.0
Net liquid assets                                                                159.0      12.2
                                                                               1,307.0     100.0


                                                                                    £m         %
Equities quoted                                                                  773.4      59.2
Equities unquoted                                                                183.3      14.0
Loans and fixed income                                                            66.3       5.0
Hedge and other funds                                                            125.0       9.6
Net liquid assets                                                                159.0      12.2
                                                                               1,307.0     100.0


                                                                                    £m         %
United Kingdom                                                                 1,006.6      77.0
Continental Europe                                                                51.6       3.9
North America                                                                    196.7      15.1
Asia and Far East                                                                 48.6       3.7
Latin America                                                                      3.5       0.3
                                                                               1,307.0     100.0

Based on country of domicile or underlying spread for funds.


                                                                                    £m         %
Pounds sterling                                                                1,038.5      79.4
US dollar                                                                        189.1      14.5
Euro                                                                              42.7       3.3
Indian rupee                                                                      29.7       2.3
Other                                                                              7.0       0.5
                                                                               1,307.0     100.0

Based on currency of investment, net of currency hedges.

Company income statement
for the year ended 31 March 2006

                                                                                 2006      2005
                                                                                   £m        £m
Investment and other income                                                      26.2      18.9
Gains and losses on investments held at fair value through profit or loss       352.7     159.0
Gains on money market funds held at fair value through profit or loss             0.8        --
Gains and losses on derivatives                                                  (9.0)      5.8
Provisions                                                                      (10.0)       --
                                                                                360.7     183.7
Management expenses                                                             (10.8)    (10.6)
Other expenses                                                                   (1.1)     (0.6)
Profit before finance costs                                                     348.8     172.5
Finance costs                                                                    (0.8)     (1.0)
Profit before tax                                                               348.0     171.5
Taxation                                                                          1.4      (0.1)
Profit for the year                                                             349.4     171.4

Basic earnings per ordinary share                                              551.4p    260.9p
Diluted earnings per ordinary share                                            549.2p    260.3p

Company statement of recognised income and expense
for the year ended 31 March 2006

                                                                                 2006      2005
                                                                                   £m        £m
Actuarial gains and losses on defined benefit pension schemes                    (1.2)      1.3
Tax on items recognised directly in equity                                        0.3      (0.3)
Net income recognised directly in equity                                         (0.9)      1.0
Profit for the year                                                             349.4     171.4
Total recognised income and expense                                             348.5     172.4

Company balance sheet
at 31 March 2006

                                                                                 2006      2005
                                                                                   £m        £m
Non-current assets
Investments held at fair value through profit or loss                         1,145.2     944.3
Investments in subsidiaries                                                       2.8       2.8
Deferred tax asset                                                                1.2         -
Non-current assets                                                            1,149.2     947.1
Current assets
Operating and other receivables                                                   4.2       5.9
Current tax assets                                                                  -       3.5
Investments held at fair value through profit or loss                            75.8         -
Cash and cash equivalents                                                       103.8      39.6
Current assets                                                                  183.8      49.0
Total assets                                                                  1,333.0     996.1
Current liabilities
Interest-bearing loans and borrowings                                               -     (10.2)
Operating and other payables                                                     (4.0)     (4.8)
Current tax liabilities                                                          (6.5)        -
Provisions                                                                      (13.5)        -
Current liabilities                                                             (24.0)    (15.0)
Non-current liabilities
Employee benefits                                                                (1.4)     (2.3)
Deferred tax liabilities                                                         (0.6)     (0.5)
Non-current liabilities                                                          (2.0)     (2.8)
Total liabilities                                                               (26.0)    (17.8)
Net assets                                                                    1,307.0     978.3

Share capital                                                                     3.6       3.6
Share premium                                                                     1.3       1.3
Capital redemption reserve                                                        1.2       1.2
Capital reserve (non-distributable)                                             947.5     607.3
Retained earnings (distributable)                                               353.4     364.9
Total equity                                                                  1,307.0     978.3

Company cash flow statement
for the year ended 31 March 2006

                                                                                 2006      2005
                                                                                   £m        £m
Cash flow from operating activities
Dividends received                                                               18.6      15.7
Interest received                                                                 7.8       4.3
Management and other expenses paid                                              (13.3)    (11.4)
Group relief received                                                             1.4       1.5
Net cash flow from operations                                                    14.5      10.1
Cash flow from investing activities
Purchase of non-current investments                                            (160.2)   (127.4)
Purchase of current investments                                                 (85.0)       --
Proceeds from disposal of non-current investments                               314.0     218.5
Proceeds from disposal of current investments                                    10.0        --
Net receipts from derivatives                                                    (7.5)      8.8
Capital distributions from investments                                            9.0       8.8
Net cash flow from investing activities                                          80.3     108.7
Cash flow from financing activities
Interest paid                                                                    (0.3)     (1.0)
Distributions paid to holders of equity shares                                  (18.2)    (18.9)
Elective special dividend paid                                                     --     (88.0)
Repayment of borrowings from a subsidiary                                       (10.2)     (4.8)
Net purchase of own shares                                                       (1.9)     (5.3)
Net cash flow from financing activities                                         (30.6)   (118.0)
Net increase in cash and cash equivalents                                        64.2       0.8
Cash and cash equivalents at period start                                        39.6      38.8
Cash and cash equivalents at period end                                         103.8      39.6

Key accounting policies

Basis of preparation

These financial statements have been prepared for the first time in accordance
with International Financial Reporting Standards ('IFRS') as adopted for use in
the EU. IFRSs comprise accounting standards issued by the International
Accounting Standards Board ('IASB') and its predecessor body as well as
interpretations issued by the International Financial Reporting Interpretations
Committee ('IFRIC') and its predecessor body.

In preparing these consolidated financial statements, Caledonia has elected to
take advantage of certain transitional provisions within IFRS 1 'First-time
Adoption of International Financial Reporting Standards', which offer exemption
from applying IFRSs retrospectively. The exemptions that the company has relied
on are:

- IAS 21 'The Effects of Changes in Foreign Exchange Rates' where the cumulative
translation differences for foreign operations were accounted for prospectively
from the date of transition to IFRS.

- IFRS 3 'Business Combinations' where business combinations that occurred
before the date of transition to IFRS have not been restated to comply with the
requirements of the standard.

In addition, Caledonia has adopted the Amendment to IAS 39 'The Fair Value
Option' and Amendment to IAS 19 'Employee Benefits' with effect from 1 April
2004, ahead of their effective date, being 1 April 2006.

The company will be required to comply with IFRS 7 'Financial Instruments:
Disclosure' and IAS 1 'Presentation of Financial Statements: Capital
Disclosures' in its financial statements next year. Management has not yet
assessed the impact of these disclosure requirements on the financial

Caledonia is an investment trust company. However, because it holds majority
stakes in certain investments, it is required to prepare group accounts that
consolidate the results of such investments. In order to present information
that is comparable with other investment trust companies, Caledonia also
publishes separate financial statements of the company, which include
investments in subsidiaries regarded as part of the company's investing business
at fair value.

Valuation of investments

Quoted investments are valued at bid price or the last traded price when a bid
price is not available. Unquoted investments are valued using recognised
valuation methodologies, based on the International Private Equity and Venture
Capital Guidelines, which reflect the amount for which an asset could be
exchanged between knowledgeable, willing parties on an arm's length basis.

Consolidated income statement
for the year ended 31 March 2006

                                                                                 2006      2005
                                                                                   £m        £m
Investing operations
Investment and other income                                                      26.0      16.7
Gains and losses on investments held at fair value through profit or loss       321.6     160.2
Gains on money market funds held at fair value through profit or loss             0.8        --
Gains and losses on derivatives                                                  (9.0)      5.8
Provisions                                                                       (6.9)        -
                                                                                332.5     182.7
Management expenses                                                             (10.8)    (10.6)
Other expenses                                                                   (1.1)     (0.6)
Profit from investing operations                                                320.6     171.5
Trading operations
Revenue from sales of goods and services                                        109.1     123.7
Operating expenses                                                             (106.9)   (122.8)
Gain on disposal of available for sale investment                                 0.3        --
Gain on disposal of operations                                                   31.4        --
Gains on investment property                                                      1.7       1.1
Share of results of joint ventures                                                1.0       0.6
Profit from trading operations                                                   36.6       2.6
Profit before finance costs                                                     357.2     174.1
Finance costs                                                                    (3.2)     (2.4)
Profit before tax                                                               354.0     171.7
Taxation                                                                         (0.4)     (3.6)
Profit for the year                                                             353.6     168.1

Attributable to
Equity holders of the parent                                                    353.5     167.9
Minority interests                                                                0.1       0.2
                                                                                353.6     168.1

Basic earnings per ordinary share                                              558.3p    255.7p
Diluted earnings per ordinary share                                            556.1p    255.2p

Consolidated statement of recognised income and expense
for the year ended 31 March 2006

                                                                                 2006      2005
                                                                                   £m        £m
Gains and losses on revaluation of available for sale investments                  --       0.3
Gains on disposal of available for sale investment
    transferred to income statement                                              (0.3)       --
Exchange differences on translation of foreign operations                         0.7      (0.2)
Actuarial gains and losses on defined benefit pension schemes                    (1.8)      1.0
Tax on items recognised directly in equity                                        0.3         -
Net income recognised directly in equity                                         (1.1)      1.1
Profit for the year                                                             353.6     168.1
Total recognised income and expense                                             352.5     169.2

Attributable to
Equity holders of the parent                                                    352.4     169.0
Minority interests                                                                0.1       0.2
                                                                                352.5     169.2

Consolidated balance sheet
at 31 March 2006

                                                                                 2006      2005
                                                                                   £m        £m
Non-current assets
Property, plant and equipment                                                    69.1      79.2
Intangible assets                                                                 4.0       3.6
Investment property                                                               5.8       4.1
Investments held at fair value through profit or loss                         1,049.0     881.2
Available for sale investments                                                    0.5       3.9
Interests in joint ventures                                                       9.6       7.5
Deferred tax assets                                                               2.4       0.8
Non-current assets                                                            1,140.4     980.3
Current assets
Inventories                                                                      30.2      23.3
Operating and other receivables                                                  27.8      32.7
Current tax assets                                                                0.5       1.9
Investments held at fair value through profit or loss                            75.8         -
Cash and cash equivalents                                                       164.7      51.3
Current assets                                                                  299.0     109.2
Total assets                                                                  1,439.4   1,089.5
Current liabilities
Bank overdrafts                                                                  (8.2)     (2.9)
Interest-bearing loans and borrowings                                            (0.7)     (0.1)
Operating and other payables                                                    (25.4)    (27.8)
Employee benefits                                                                (9.9)     (1.3)
Provisions                                                                      (11.0)     (0.6)
Current tax liabilities                                                          (8.8)    (10.0)
Current liabilities                                                             (64.0)    (42.7)
Non-current liabilities
Interest-bearing loans and borrowings                                           (41.3)    (38.1)
Employee benefits                                                                (8.0)    (14.5)
Deferred tax liabilities                                                         (0.7)     (1.4)
Non-current liabilities                                                         (50.0)    (54.0)
Total liabilities                                                              (114.0)    (96.7)
Net assets                                                                    1,325.4      992.8

Share capital                                                                     3.6       3.6
Share premium                                                                     1.3       1.3
Capital redemption reserve                                                        1.2       1.2
Foreign exchange translation reserve                                              0.5      (0.2)
Fair value reserve for available for sale investments                               -       0.3
Retained earnings                                                             1,317.9     985.7
Equity attributable to owners of the parent                                   1,324.5     991.9
Minority interest                                                                 0.9       0.9
Total equity                                                                  1,325.4     992.8

Consolidated cash flow statement
for the year ended 31 March 2006

                                                                                 2006      2005
                                                                                   £m        £m
Cash flow from operating activities
Dividends received                                                               17.4      13.5
Interest received                                                                 9.1       3.7
Management expenses paid                                                        (13.3)    (11.4)
Cash received from trade customers                                              115.8     123.1
Cash paid to trade suppliers                                                   (119.4)   (109.2)
Taxes paid                                                                       (3.2)     (2.0)
Net cash flow from operations                                                     6.4      17.7
Cash flow from investing activities
Purchases of property, plant and equipment                                       (4.1)     (3.7)
Proceeds from disposal of property, plant and equipment                           1.9       1.6
Purchases of non-current investments                                           (149.2)   (121.4)
Purchases of current investments                                                (85.0)       --
Proceeds from disposal of non-current investments                               274.4     217.6
Proceeds from disposal of current investments                                    10.0        --
Net receipts from derivatives                                                    (7.5)      8.8
Purchase of interest in joint venture                                            (1.1)     (4.6)
Purchase of subsidiary net of cash acquired                                         -      (2.2)
Proceeds from disposal of subsidiaries net of cash disposed                      80.3       3.3
Taxes paid                                                                        1.3         -
Net cash flow from investing activities                                         121.0      99.4
Cash flow from financing activities
Interest paid                                                                    (2.3)     (2.2)
Distributions paid to holders of equity shares                                  (18.2)    (18.9)
Dividends paid to minority interests                                                -      (0.1)
Elective special dividend paid                                                      -     (88.0)
Proceeds from new borrowings                                                      7.0         -
Repayment of borrowings                                                          (4.0)     (4.9)
Net purchase of own shares                                                       (1.9)     (5.3)
Net cash flow from financing activities                                         (19.4)   (119.4)
Net increase/(decrease) in cash and cash equivalents                            108.0      (2.3)
Cash and cash equivalents at period start                                        48.4      50.7
Exchange gains/(losses) on cash and cash equivalents                              0.1         -
Cash and cash equivalents at period end                                         156.5      48.4

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 2006 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                                                                                                              

a d v e r t i s e m e n t