Company Announcements

Caledonia Investments plc

Half-year results for the six months ended 30 September 2019

Financial highlights

Highlights

Will Wyatt, Chief Executive, commented:

"We remain focused on our mission of protecting and generating value over the long term. Our approach continues to be one of balancing patience with actively seeking opportunities, supported by our strong balance sheet.

"We are pleased with the performance of our Quoted and Funds pools and are encouraged by how the companies in the relatively young portfolio in our Private Capital business are trading. Markets remain volatile, but we are confident that we have invested in resilient businesses that will continue to add value for our shareholders."

26 November 2019

Enquiries

Management report

Results

Caledonia performed satisfactorily over the half-year, with a net asset value per share total return for the period of 4.9%. Investment income of £23.9m was marginally ahead of the comparable period last year and net cash at the half-year end was £6.3m, down from £112.3m at the end of March, reflecting net investments made during the period. The directors have declared an interim dividend of 16.6p per share, an increase of 3.1% compared with the previous year.

Total portfolio investments for the period were £189.0m. Caledonia Private Capital, which was rebranded from the Unquoted pool on 1 October, completed an investment of £89.3m for a 36.7% shareholding in Stonehage Fleming, one of the world's leading providers of family office services. The business operates in a fast-growing and cash generative segment of its market and we have been working with management and other shareholders on a new strategic plan to build on the company's success to date, which is now being executed. Follow-on investments during the period included £9.5m in Buzz Bingo, to enable the launch of an online bingo platform, and £5.5m in Liberation Group, to fund pub and hotel refurbishments. A new position in Croda International, the British speciality chemicals company, was established by the Quoted pool and £71.9m was invested in the Funds pool's private equity programme.

Portfolio realisations over the six months totalled £105.8m, with the Funds pool contributing £55.2m and sales of Quoted and Income pool holdings generating £46.5m, mainly from further profit taking on companies such as Microsoft, AG Barr and Spirax Sarco.

We retain significant unutilised bank facilities to enable us to take advantage of investment opportunities that may arise. We are wary of the large amounts of capital that have been raised by private equity funds that, together with the plentiful availability of debt, have driven prices to elevated levels. Caledonia Private Capital is active in these markets, but seeks opportunities that play to Caledonia's strengths, notably its permanent capital and situations where finding the right partner, with the right approach, is the most crucial factor.

Investment performance

Caledonia's strategic aims are to:

Our performance track record remains within our strategic aims and is healthy over all the periods shown below. However, we remain particularly aware of our third strategic aim of managing risk to avoid permanent loss of capital.

The table below shows our performance track record to 30 September 2019:

The portfolio has a significant exposure to foreign currencies, which provided a boost to performance of 2.8% in the six months. Since 31 March 2015, net assets have increased by some £150m through the weakness of sterling against, particularly, the US dollar and euro. Whilst this positioning has been beneficial to shareholders over the past four and a half years, it has come at the expense of a certain amount of volatility. We have therefore initiated a currency overlay through entering into forward sale contracts to reduce our exposure to movements in the dollar and, to a lesser extent, the euro, to protect some of the gains that we have made and to reduce future volatility.

Asset allocation

The portfolio is 33% invested in listed companies and 67% in unlisted companies, funds or other assets. This partially reflects the higher growth rates achieved by our unlisted holdings, but also the lack of opportunity to deploy capital in quoted markets over the past few years at what we consider to be attractive prices. The current weighting in listed assets is around the minimum level we would wish to hold, however we will not relax our investment disciplines to achieve short term aims. The investment in Stonehage Fleming has taken Caledonia Private Capital back to within its strategic allocation range and the continued strong performance of the Funds pool has resulted in it remaining above its allocation range, whilst still in the net investment phase of its private equity funds programme. We are therefore investigating whether we should take advantage of the secondary market to sell certain fund interests that are deemed non-core, to bring the weighting down towards its strategic allocation.

Pool performance

Quoted pool (£489m, 23% of net assets)

The Quoted pool is a concentrated global portfolio of listed entities. Our focus is on mature, long term businesses with strong balance sheets, significant presence in their marketplace and where assets consistently produce strong returns on capital.

The total return for the Quoted pool was 10.3% for the six-month period, with US holdings such as Microsoft, Watsco, Texas Instruments and Charter Communications having shown particularly strong share price growth. The further weakening of sterling against the US dollar contributed 3.8% to the pool's performance. Our holdings in the multi-national consumer groups Unilever and Nestlé performed well and we saw further gains from our holding in the UK engineering business, Spirax Sarco. AG Barr, the UK soft drinks producer, was the weakest performer as, following the announcement of a profits warning, its share price fell 28% over the period, although we had previously sold down part of our holding when its shares were more highly rated. The company however remains one of our core holdings and we anticipate a return to growth once certain one-off events have ceased to affect its results. We instigated a new holding in Croda International, the UK based speciality chemicals business, and added to our holding in Watsco.

Income pool (£203m, 10% of net assets)

The Income pool comprises a portfolio of 19 investments in listed international businesses of global scale and market presence with strong income characteristics.

The Income pool returned 3.4% for the half-year, benefiting from a slight rebound in UK markets as, whilst this pool is invested in international businesses, the majority of them are UK listed. Following a period of sub-optimal performance, we have decided to bring the Income pool assets under the management of the Quoted pool. In future, the Income assets will be limited to companies that fall within the Quoted pool universe (that is, companies that meet our criteria for the Quoted pool), but we will look to build a separate portfolio of Income assets that offer the prospect of a growing dividend distribution rather than a high percentage yield, in order better to match Caledonia's needs. There will undoubtedly be an increase in companies that feature in both portfolios, though we do not intend any single holding to exceed 4% of Caledonia's net assets. During the past few months, several holdings that did not fit the requirements outlined above have been sold. The Income pool's asset allocation range will also be reconsidered as part of this strategic repositioning.

Caledonia Private Capital (£765m, 37% of net assets)

Caledonia Private Capital invests in UK mid-market companies with equity values in the £25m to £125m range. We partner with profitable businesses led by sound management teams with clear ambitions to grow.

The total return over the first half of the year was 1.1%, including £9.0m of income from portfolio companies. During this period, £105.5m was invested, including the purchase of a minority stake in Stonehage Fleming and follow-on investments into Buzz Bingo and Liberation Group. Of the portfolio of eight investments that were valued at over £20m (out of a total of 11), two were purchased in 2019 and two in 2018. With these recent new investments and the sale last year of Choice Care Group, the portfolio is relatively young and it takes time for growth initiatives to reach shareholders in the form of value creation, though we do expect to receive dividends in the meantime. Trading across the portfolio, including our more recent investments, has been in line with expectations. Of the more mature investments, Cobehold's return of 7.8% was helped by the successful sale of Staci, a French logistics business. Buzz Bingo's online platform has shown growth ahead of plan and its clubs have performed in line with expectations. New management teams have been appointed at Liberation Group, Seven Investment Management and Stonehage Fleming. Seven Investment Management has successfully integrated the Tcam business acquired last year and Liberation Group has improved its profitability. Sports Information Services fell in value, reflecting reduced profitability as the company reorganises and expands its business. Overall, we are confident that the portfolio is in a healthy position and that shareholders will benefit from this in due course.

Funds pool (£553m, 27% of net assets)

The Funds pool comprises investments in both private equity and quoted market funds. Our fund investments provide broad exposure to areas of the world where it would prove more difficult for us to invest directly and where we believe the risk/reward ratio is commensurate with Caledonia's overall strategic aims. This is predominantly in Asia and North America.

The Funds pool continued its strong run, returning 10.8% for the six-month period. More than 95% of the pool's assets are denominated in US dollars and favourable exchange rate movements contributed 5.8% of the overall return. The private equity portfolio, whilst still in a period of net investment, is maturing and starting to make sizeable cash returns. We made three new commitments to private equity funds in the US and Asia and received £16.1m from the partial redemption of our holding in Arlington AVM Ranger, a US quoted market fund. Whilst the strong growth produced by the pool over the past five years has been most welcome, we are seeking to address the resulting increase in exposure to private equity funds. We are therefore examining the possibility of selling certain assets in order to realise some of these gains, as well as to reduce the pool's capital allocation from the current 27% of net assets towards its intended range.

Dividend

The board has declared an interim dividend of 16.6p per share, an increase of 3.1% on last year's interim. This will be paid to shareholders on 9 January 2020.

Board

We were delighted to welcome Claire Fitzalan Howard to the board as an independent non-executive director in July. Claire's experience in financial services and her longstanding involvement in philanthropy and the charitable sector, as well as her understanding of family businesses, will be a valuable addition.

We were sad to say farewell to Charles Gregson, who retired from the board at the AGM in July. We are very grateful to him for his wise counsel over his nine years as a non-executive director, in particular as Senior Independent Director and Chairman of the Remuneration Committee. He has been succeeded in these respective roles by Guy Davison and Shonaid Jemmett-Page.

Outlook

Investors have witnessed ongoing pricing volatility over the past year in both fixed interest and equity markets. These swings are often instigated by the pronouncements of central bankers who, in the US, raised interest rates and then dropped them again, whilst the European Central Bank has continued to pump huge amounts of liquidity into markets in an attempt to stimulate life into a moribund economy. Prices remain at extended levels and great care needs to be taken when purchasing assets, especially in competition with those with seemingly bottomless pockets. When one reads reports of fixed interest investments being purchased at a price that guarantees a loss of capital at redemption, no further evidence of the misallocation of capital is required.

We are focused on ensuring that our portfolio is managed with a long term view and keeping risk in mind. Should markets fall or face a prolonged period of weakness, we are confident that we have invested in resilient businesses that will continue to add value for shareholders by investing internally generated capital into projects with high returns. In addition, our strong balance sheet enables us to provide the support our investee companies need to grow their businesses and to take advantage of pricing anomalies as they present themselves. We believe that the portfolio is in a good position to continue to produce our return objectives within acceptable risk parameters.

Portfolio summary

Holdings of 1% or more of net assets at 30 September 2019 were as follows:

Risks and uncertainties

Caledonia has a risk management framework that provides a structured process for identifying, assessing and managing risks associated with the company's business objectives and strategy.

The principal risks and uncertainties faced by the company are set out in the strategic report section of Caledonia's annual report 2019. External risks arise from political, legal, regulatory and economic changes. Strategic risks arise from the conception, design and implementation of the company's business model. Investment risks arise from specific investment and realisation decisions. Market risks arise from equity price volatility, foreign exchange rate movements and interest rate volatility. Treasury and funding risks arise from counterparties, uncertainty in market prices and rates and liquidity availability. Operational risks arise from potentially inadequate or failed controls, processes, people or systems. The company is also mindful of the uncertainties related to the effects of Brexit.

The principal risks and uncertainties identified in the annual report 2019, including uncertainties related to the effects of Brexit, remain unchanged and each of them has the potential to affect the company's results during the remainder of the year ending 31 March 2020.

Caledonia actively monitors key risk factors, including portfolio concentration, liquidity and volatility, and aims to manage risk by:

Going concern

The factors likely to affect the company's ability to continue as a going concern were set out in the annual report 2019. As at 30 September 2019, there have been no significant changes to these factors. Having reviewed the company's forecasts and other relevant evidence, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-year condensed financial statements.

Directors' responsibility statement

We confirm that to the best of our knowledge:

Signed on behalf of the board

Will Wyatt, Chief Executive

25 November 2019

Independent review report

to Caledonia Investments plc

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2019, which comprises the condensed group statement of comprehensive income, the condensed group and company statements of financial position, the condensed group and company statements of changes in equity and the condensed group and company statements of cash flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA').

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

The impact of uncertainties due to the UK exiting the European Union on our review

Uncertainties related to the effects of Brexit are relevant to understanding our review of the condensed financial statements. Brexit is one of the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown. An interim review cannot be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 2, the annual financial statements of the group and company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Thomas Brown

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square, London E14 5GL

25 November 2019

Condensed group statement of comprehensive income

for the six months ended 30 September 2019

The total column of the above statement represents the condensed group statement of comprehensive income, prepared in accordance with IFRSs as adopted by the European Union.

The revenue and capital columns are supplementary to the condensed group statement of comprehensive income and are prepared under guidance published by the Association of Investment Companies.

The profit for the period and total comprehensive income for the period is attributable to equity holders of the parent.

Condensed statements of financial position

at 30 September 2019

Condensed group statement of changes in equity

for the six months ended 30 September 2019

Condensed company statement of changes in equity

for the six months ended 30 September 2019

Condensed statements of cash flows

for the six months ended 30 September 2019

Notes to the condensed financial statements

1. General information

Caledonia Investments plc is an investment trust company registered in England and Wales with company number 00235481. The address of its registered office is Cayzer House, 30 Buckingham Gate, London SW1E 6NN. The ordinary shares of the company are premium listed on the London Stock Exchange.

This condensed set of financial statements was approved for issue on 25 November 2019 and is unaudited.

The information for the period ended 30 September 2019 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 March 2019 has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not draw attention to any matters by way of emphasis of matter and did not contain a statement under section 498(2) and (3) of the Companies Act 2006.

2. Accounting policies

Basis of accounting

This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the annual financial statements for the year ended 31 March 2019, which were prepared in accordance with IFRSs as adopted by the European Union.

This condensed set of financial statements has been prepared in accordance with the recommendations of the Statement of Recommended Practice issued by the Association of Investment Companies.

Adopted IFRSs

The accounting policies adopted in the preparation of the condensed consolidated financial statements are consistent with those followed in the preparation of the group's annual report for the year ended 31 March 2019, except for the mandatory standards and amendments that had an effective date prior to the start of the six-month period. None of the new mandatory standards, including IFRS 16 nor the amendments, had an impact on the reported financial position or performance of the group. The changes in accounting policies will also be reflected in the group's consolidated financial statements for the year ending 31 March 2020.

A number of new standards and amendments to standards and interpretations will be effective for periods beginning on or after 1 April 2020. These new standards are not applicable to these financial statements and they are not expected to have an impact when they become effective. The group plans to apply these standards and amendments in the reporting period in which they become effective.

Basis of consolidation

In accordance with the IFRS 10/IAS 28 amendments to apply the investment entities exemption, the consolidated financial statements include the financial statements of the company and service entities controlled by the company made up to the reporting date. All other investments in controlled entities are accounted as held at fair value through profit or loss.

Going concern

The directors have assessed the risks facing the group and consider that it has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this half-yearly condensed set of financial statements.

Changes in accounting policies

As required by the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, this condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 March 2019.

Judgements and estimates

In preparing these interim financial statements, management has made judgements, estimates and assumptions that affected the application of accounting policies and the reported amounts of assets and liabilities, income and expense.

The significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 March 2019.

3. Dividends

Amounts recognised as distributions to owners of the company in the period were as follows:

The directors have declared an interim dividend for the year ending 31 March 2020 of 16.6p per share, totalling £9.1m, which has not been included as a liability in this condensed set of financial statements. This dividend will be payable on 9 January 2020 to holders of shares on the register on 6 December 2019. The ex-dividend date will be 5 December 2019.

The deadline for elections under the dividend reinvestment plan offered by Link Asset Services will be the close of business on 16 December 2019.

4. Share capital

During the period, The Caledonia Investments plc Employee Share Trust sold 90,844 shares for £nil and purchased 85,009 shares for £2.6m relating to the calling of performance share and deferred bonus awards. The Employee Share Trust also purchased 100,000 shares from The Cayzer Trust Company Ltd for £3.0m.

In the six months ended 30 September 2018, the Employee Share Trust sold 44,126 shares for £nil and purchased 43,126 shares for £1.2m relating to the calling of performance share and deferred bonus awards.

In the year ended 31 March 2019, the Employee Share Trust sold 232,830 shares for £nil and purchased 223,764 shares for £6.4m relating to the calling of performance share and deferred bonus awards.

5. Net asset value per share

The group's undiluted net asset value per share is based on the net assets of the group at the period end and on the number of shares in issue at the period end less shares held by The Caledonia Investments plc Employee Share Trust. The group's diluted net asset value per share assumes the calling of performance share and deferred bonus awards for nil consideration.

6. Operating segments

The chief operating decision maker has been identified as the Executive Committee, which reviews the company's internal reporting to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The performance of operating segments is assessed on a measure of group total revenue, principally comprising gains and losses on investments and investment income. Reportable profit or loss is after treasury income and 'Other items', which comprise management and other expenses. Reportable assets equate to the group's total assets. 'Cash' and 'Other items' are not identifiable operating segments.

'Non-portfolio investments' comprise subsidiaries and other investments not managed as part of the investment portfolio.

7. Related parties

Caledonia Group Services Ltd, a wholly-owned subsidiary of the company, provides management services to the company. During the six months ended 30 September 2019, £13.1m was charged to the company for these services (30 September 2018 - £13.0m and 31 March 2019 - £23.7m).

During the six months ended 30 September 2019, The Caledonia Investments plc Employee Share Trust purchased 100,000 shares in Caledonia from The Cayzer Trust Company Ltd at a price of 3012.63p per share, representing the volume-weighted average price for the company's shares at midday on the day of execution.

There were no other changes in the transactions or arrangements with related parties as described in the company's annual report for the year ended 31 March 2019 that have had a material effect on the results or the financial position of the company or of the group in the six months ended 30 September 2019.

8. Capital commitments

At 30 September 2019, the company had undrawn fund and other commitments totalling £405.8m (30 September 2018 - £317.9m and 31 March 2019 - £498.2m).

9. Fair value hierarchy

The table below analyses financial instruments held at fair value according to the subjectivity of the valuation method, using the following hierarchy:

The methods used to determine fair value investments are unchanged from those described in the annual report 2019. Listed investments are valued at bid price or the most recent transaction price. Unlisted companies are valued according to the International Private Equity and Venture Capital Valuation Guidelines (December 2015), using one of the following methods: price of recent investment, multiples or net assets. The valuation of fund interests is based on the latest fund managers' NAVs and other investments are valued using appropriate techniques.

Movement in Level 3 financial instruments was as follows:

10. Share-based payments

The company operates a performance share scheme and a deferred bonus plan. Details of these schemes were disclosed in the annual report 2019 and the basis of measuring fair value was consistent with those disclosures.

During the six months ended 30 September 2019, awards over 239,138 shares were issued under the performance share scheme (30 September 2018 and 31 March 2019 - 261,816 shares). Compulsory deferred bonus awards over 44,930 shares were granted (30 September 2018 and 31 March 2019 - 493 shares).

Expenses in respect of share-based payments in the period were £2.7m (30 September 2018 - £3.8m and 31 March 2019 - £6.6m).

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END

Copies of this statement are available at the company's registered office, Cayzer House, 30 Buckingham Gate, London SW1E 6NN, United Kingdom, or from its website at www.caledonia.com.