Final Results

Caledonia Investments PLC 29 May 2003 CALEDONIA INVESTMENTS PLC ('Caledonia') Preliminary Results for the 12 months ended 31 March 2003 • Successful conversion to investment trust status achieved on 1 April 2003; Caledonia classified in the AITC Global Growth sector • Substantial total shareholder return ('TSR') outperformance against FTSE All-Share Total Return - 62% outperformance over ten years (133% vs 71%) - 22% outperformance over five years (-7% vs -29%) • 13% outperformance of NAV per share against FTSE All-Share over twelve months • Top quartile performance over five and ten years (AITC Global Growth) • 4% increase in annual dividend to 26p, marks the 36th year of continuous annual dividend growth • £60m invested; £36m of investment realisations • Strong balance sheet positions Caledonia to take advantage of attractive opportunities Tim Ingram, Chief Executive, commented: 'This has been a milestone year for Caledonia and all of its shareholders with the successful conversion to investment trust status from April 2003. Once again, we have produced a strong investment performance, outperforming our benchmarks and maintaining our progressive dividend policy. With our new status and proven long term investment skills, we believe Caledonia's shares should have broader appeal to private investors.' 29 May 2003 ENQUIRIES: Caledonia Investments plc Tel: 020 7457 2020 (today) Tim Ingram, Chief Executive Tel: 020 7802 8080 (thereafter) Jonathan Cartwright, Finance Director College Hill Tel: 020 7457 2020 Tony Friend Tom Allison Chairman's statement Results Our year to 31 March 2003 has heralded a further significant milestone in the development of Caledonia Investments. The transition to investment trust status as of 1 April 2003 was the culmination of many months of careful planning to ensure that our successful long term approach to investment would not be jeopardised. We believe that this has been successfully accomplished and was effected at a time in the business cycle when values were subdued and the cost of the transition was low. As values recover, which we must all believe will happen, the benefit to shareholders from the company not paying tax on realised gains should be considerable. More importantly, our strategy of taking significant stakes in companies, both listed and unlisted, with a philosophy of working constructively with management to build value for the longer term, will remain the key feature of Caledonia's strategy and make it distinctive within the investment trust sector. The year under review, which has been a difficult one for investment markets, has seen a continuation of Caledonia's long term investment outperformance, though regrettably with a fall in the value of our shareholders' funds. Our total shareholder return over both five and ten years continues to show considerable outperformance with a cumulative change of -7% and +133% respectively, which compares very favourably with the FTSE All-Share total returns of -29% and +71%. We believe that this outperformance of 22% and 62% is due to the distinctive Caledonia investment style referred to above. Notwithstanding the good relative performance, our share price has declined over the year under review by 24% from 847.5 pence to 642.5 pence, although this is markedly less than the fall in the FTSE All-Share index of 32%. The share price discount to net assets at 31 March 2003 was around 30%, but it is encouraging to note that since announcing the achievement of our conversion to investment trust status on 1 April 2003, this discount has narrowed to about 23% at 30 April 2003, being the date of our most recently published net asset value per share. We hope that a broader understanding of Caledonia, the benefits of our new status and a number of initiatives to which the chief executive refers in his report may help further to narrow the discount. Dividend We are proposing a final dividend of 18 pence per share bringing the total for the year to 26 pence, compared with 25 pence for the previous year. This increase of 4% reflects our aim of seeking to grow our annual dividend to shareholders on a progressive basis, which we will have achieved for the past 36 years. This is a record of which we are very proud and, we believe, is almost unique amongst FTSE 250 companies. We believe strongly that the substantial shareholding in the company held by the Cayzer family over this period and longer, and its participation in management, has contributed through ownership stability to this creditable record. The board I now refer to a number of developments in relation to our board of directors. Tim Ingram joined as chief executive on 10 June 2002 and has made a significant contribution in his first year in this post. We have also been fortunate with the appointment of two new independent non-executive directors. Mark Davies was appointed in May last year and, more recently, David Thompson in March 2003. As I have previously advised, Joe Burnett-Stuart retired on 31 December 2002 after over 12 years as an independent non-executive director. His contribution has been invaluable - the wisest of words given sparingly but unstintingly and generously - and I thank him most warmly. Outlook Most commentaries on investment outlook refer at the present time to the difficulty of charting the way forward. Nevertheless, the opportunities in these more difficult times should prove more attractive than usual. Caledonia, with its developing management resource and strong balance sheet, is well placed to move forward. Chief executive's review Overview The main accomplishment during the year has been our transformation to investment trust status. It is pleasing to note that our latest estimate of the costs associated with conversion of £13.7m, most of which relates to tax, is significantly lower than the £20m we previously indicated to shareholders. This is referred to in more detail in the financial review. We believe we are meeting all the requirements of our new status as from 1 April 2003 but, as for all investment trusts, this can only be confirmed by the Inland Revenue after the end of each financial year. We have now commenced reporting our unaudited net asset value per share on a monthly basis and continue to look at further ways of improving the flow of information to our shareholders. In addition, we have now become a member of the Association of Investment Trust Companies ('AITC') and we are now included in the AITC Global Growth sector. The year ended 31 March 2003 has seen huge falls in share values, with the FTSE All-Share index dropping by over 32% in that period. Throughout the year, we have deliberately maintained a cautious and under-invested stance and ended the year with £49m of cash and deposits, including £9m of cash held by operating subsidiaries. Although net assets per share at 897 pence, after provision for contingent taxation and costs of investment trust conversion, showed a most unwelcome decline of 19%, this still represented an outperformance for the year of around 13% against the FTSE All-Share index, which demonstrates the resilience of our approach. This 19% decline in net assets per share has been caused both by lower market prices for quoted investments, which at 31 March 2003 comprised 61% of our portfolio, and a lower valuation of unquoted investments as a result of the market environment. Our key financial aim continues to be to achieve consistently over the longer term, using five and ten year measurements, a total shareholder return ('TSR') in excess of the FTSE All-Share Total Return. Our outperformance, of 22% and 62% respectively, is addressed in the chairman's statement. It is pleasing to note that in relative terms this outperformance means that, for both these five and ten year periods, Caledonia is in the top quartile of TSR performers when measured against the AITC Global Growth sector. I believe, in particular, that there are two distinctive characteristics inherent in Caledonia that lead to this marked outperformance. The first is the strong deal-flow of investment opportunities that are specifically presented to us as a result of our valuable reputation as a long term supportive and constructively active investor. This, coupled with our ability to assess a strong management team, enables us to invest in more attractive situations. The second characteristic is our hands-on constructive involvement with our investee companies. This, we believe, provides more value creation than a passive investment style. With our conversion to investment trust status, we consider that our shares should be more attractive to private investors. This is because our financial aims, and indeed track record, of consistent dividend increases and long term outperformance, should be in line with the financial aspirations of many retail investors. Furthermore, our policy of maintaining a spread of interests reduces our overall risk profile. In addition, our new status and more regular publication of our net asset values should make our business easier to understand. In this context, we have been making a number of company presentations to private client managers and brokers in order to broaden the market for our shares and plan to develop further these forms of new investor presentation and communication. There is in place a share savings plan suitable for individual investors and our shares can be treated as qualifying investments for the purpose of the PEP and ISA rules. We have also greatly improved our web site to provide fuller information on the company and plan to develop further these initiatives. It is also pleasing to note that during the year the number of market-makers trading in our shares increased from five to eight, which should also help to enhance the liquidity in our stock. As I have mentioned above, one of our key competitive advantages is the strong deal-flow of investment opportunities that are specifically presented to us as a result of our valuable reputation as a long term supportive and constructively active investor. We have estimated that during the past financial year, we have given careful consideration to over 40 potential new investment situations - this, of course, excludes the much higher number of investment opportunities that we have declined at an early stage as not meeting our criteria. During the year we made initial investments of £18m in 7 new situations, and we invested a further £42m in existing situations. We have, therefore, continued to benefit from a strong deal-flow of investment opportunities whilst maintaining a very selective approach. During the year, we reduced our holding in ICAP which raised £16m. Further cash inflows of £20m were generated by selling a number of our smaller shareholdings, enabling management to exercise a clearer focus on our principal investments. We believe that one of our core skills is the identification and assessment of management teams and, whilst we monitor the progress of all our investments on a regular basis, the level of our day-to-day involvement depends on the requirements of the investee company at each stage of its development. We consider that another key competitive advantage is our active but supportive approach. This demonstrates itself in many ways including provision of capital, access to a wide range of management experience and to our considerable network of contacts both to help to provide appropriate management resources and passing on suitable investment or business opportunities. We have direct board representation in most of our largest investments and maintain close contact with all our major investments. We believe that our long term approach, combined with our willingness to take a significant stake in investee companies, assists in providing the stable environment within which their managements can execute agreed business plans. Over time, this should enhance value to the benefit of shareholders. We believe that this management style has helped us both to obtain a strong deal-flow of good investment opportunities and to assist positively in their productive development. This in turn has enabled us to achieve our net asset value outperformance. Outlook We start the new financial year in a strong position having completed all of the necessary restructuring associated with our conversion to investment trust status and the refinement of our strategy, as detailed in our last interim report and the shareholder circular of 16 January 2003. We continue to have a very healthy flow of investment opportunities, and at prices that are significantly more attractive than in the recent past. We had cash resources of £49m at 31 March 2003, and a further £62m of committed bank facilities. We are, therefore, very well placed to take advantage of a good investment environment. Since the beginning of our new financial year we have increased our stake in Easybox, our Continental European self-storage business, to 99.8% at a cost of £8m, added 1.8% to our holding in Paladin Resources at a cost of £3.9m and taken a 3.8% stake in SVB, a UK listed Lloyds' underwriting business, for £6m. We will continue to be highly selective in our investment approach, and would only expect to draw on our credit facilities when we believe conditions are beneficial for us to adopt a modestly geared stance. We have started the year with over £460m of distributable reserves and, as an investment trust, this should enable us to maintain our progressive dividend policy for the benefit of shareholders for the foreseeable future, without needing to temper long term gains for the sake of short term yield. Objectives and strategy Objectives Caledonia's aim is to achieve consistently over the longer term, using five and ten year measurements, a total shareholder return in excess of the FTSE All-Share Total Return, through a combination of capital growth and the maintenance of a progressive dividend. Our strategy is to focus on investing in, and then managing, a number of significant stakes in companies and situations where we believe there to be good opportunities for building value. Disposals of investments will be made at a time and in a manner consistent with Caledonia's reputation as a supportive long term investor combined with the requirement to maximise shareholder value. Through holding a diversified portfolio, the company aims to maintain a medium overall risk position. Caledonia will remain alert to the changing opportunities in the market place and the board will, where appropriate, amend its investment strategy in order to build value for shareholders. Strategy New investments The guideline for the size of each new investment is £10m to £25m with a maximum for any new investment of £50m. Normally, Caledonia aims to have an influential minority stake but will, on occasion, be prepared to take a controlling interest when we believe that this will maximise shareholder value. New investments may be quoted or unquoted but with the policy that at least 50% of the total portfolio is held in quoted securities or other liquid assets. When considering an investment opportunity, particular care is spent in appraising the capabilities and commitment of the management team in the investee company. The anticipated total return from the investment, the strategy in relation to it, and the overall risks, are carefully analysed as part of the investment process. Caledonia is focused on a selected range of sectors. In those where it has in-house knowledge and can add value to management of the investee company, it will normally invest direct. However, where particular expertise is required, which it does not have in-house, it will normally invest through third party managed funds. Again, a core skill is the ability to assess the capabilities and commitment of the management team and, in these cases, Caledonia will often seek to obtain a significant stake in the management company itself, thereby potentially enhancing returns to shareholders. As mentioned above, Caledonia's policy also provides for investment in entities with significant overseas activities. In order to ensure that the company can effectively maintain active involvement with such investments, it has a preference for new direct investments to be in entities whose senior management are based in the United Kingdom. Whilst the source of funding for new investments generally comes from Caledonia's own resources, we may, at times, seek to enhance returns by taking on moderate levels of gearing. Management of investments Caledonia seeks to work closely and constructively with the management of companies that it has backed and to make available the considerable experience of its own investment team, often through board representation. Its experience in a range of sectors enables it to help management address the business issues. Where appropriate, Caledonia assists investee companies through access to its extensive network of business contacts and by working with management to pursue growth opportunities. To implement effectively its investment strategy, the company plans to focus on a portfolio of around 30 to 40 principal investments. Caledonia's management regularly reviews the progress and strategy for each investment, including the returns and the timing of eventual disposal and, in addition, all major investments are subject to a formal annual review by the board. Disposals are made when it is considered that the funds released can provide better returns through being invested elsewhere. In managing the timing and manner of disposals, particular care is taken to protect our reputation as a supportive long term investor. Costs Tight control is exercised over costs, notwithstanding Caledonia's active and participative management style. Cost containment is significantly aided by our policy of managing the large majority of our assets through our in-house management team. Competitive advantage The board believes that now operating as an investment trust, together with the strategy as outlined above, Caledonia has a number of significant competitive advantages in relation to other investment companies. These competitive advantages are considered to be as follows: Favoured access to investment opportunities Caledonia has a long established and valuable reputation as a supportive long term investor and is neither constrained by time limits dictating realisation policy nor by industry sector whims. Moreover, it has a strong track record for taking a proactive approach to growing the businesses in which it invests. These factors both attract a strong deal-flow of opportunities not always available to others and enable Caledonia to be more selective in its choice of investments. Experienced and stable management Caledonia has a stable management team with good experience in influencing constructively the management of investee companies. In addition, it works proactively with investee company management to identify and promote business growth opportunities. Although such an approach is common in the private equity arena, it is much less so in the quoted company arena. This active approach is designed further to improve shareholder return compared with the more passive role often employed by investment companies. Value creation The large majority, by value, of Caledonia's investments are managed in-house, thereby reducing third party fees and ensuring that performance gains on these investments accrue to Caledonia's shareholders. In addition, in the cases where assets are managed by third parties, it seeks to secure a stake in the asset management business as part of the overall arrangements. This should provide the opportunity for additional value creation from the management business itself, further enhancing the potential returns. Underpinning of dividends The substantial level of distributable reserves that were maintained at conversion to investment trust status should give Caledonia a very much greater ability to pursue a progressive dividend policy for the foreseeable future than is normally the case for investment trusts and without needing, in its selection of investments, to temper growth opportunities for the sake of short term yield. Investment analysis Holdings of 1% or more of total assets Proportion of total Country of assets incorporation Name Nature of business Total % £m Close Brothers 1,2 UK Merchant banking 123.8 18.9 Kerzner International 1,2 Bahamas Resorts owner/operator 83.4 12.7 British Empire Securities and General Trust 1,2 UK Investment trust 47.9 7.3 Offshore Logistics/Bristow 1,2 USA Helicopter services 30.2 4.6 The Sloane Club 2 UK Residental club owner/operator 24.7 3.8 Quintain Estates & Development 1 UK Property holding/development 22.1 3.3 Paladin Resources 1 UK Oil and gas 21.6 3.3 Rathbone Brothers 1,2 UK Fund management 20.7 3.1 ICAP 1 UK Interdealer broking 19.6 3.0 Aberforth Limited Partnership 1A 3 UK Investment fund 19.4 3.0 Polar Capital 2,4 and funds 3 UK/Ireland Fund management/funds 18.7 2.9 Buckingham Gate 2 UK Property holding 17.5 2.7 Amber Industrial 2 UK Specialty chemicals 14.7 2.3 ISIS Asset Management 1,2 UK Fund management 13.2 2.0 Edinmore 2 UK Property trading 12.9 2.0 Radio Investments 2 UK Local radio 10.9 1.7 Sterling Industries 2 UK Engineering 10.0 1.5 A G Barr 1 UK Soft drinks 8.8 1.3 Meinl European Land 1,2 Guernsey Property investment 8.6 1.3 Easybox 2 Luxembourg Self storage 7.5 1.1 Wallem 2 Cayman Shipping services 7.3 1.1 Ionian managed fund UK Managed fund 7.1 1.1 ISIS private equity funds UK Investment funds 6.9 1.1 Close Investment private equity funds UK Investment funds 6.8 1.0 Other investments 69.2 10.5 Total investments 633.5 96.6 Net liquid assets 5 22.5 3.4 Total assets 656.0 100.0 Loan notes (4.8) Shareholders' funds 651.2 1. Equity securities listed on the UK or overseas stock exchanges. 2. Board representation. 3. Investment committee representation. 4. Polar Capital and funds included £3.6m for the management company and £15.1m of funds. In the following sector distribution tables, the management company is included in the financial sector, £9.8m of the funds in the managed general funds sector and £5.3m of the funds in the technology sector. 5. Includes £19.4m of net liquid assets held in subsidiary holding companies and £3.5m of own shares. Asset distribution Sector £m % Financial 189.0 28.8 Leisure and media 127.8 19.5 Industrial and services 105.2 16.1 Property 80.9 12.3 Managed general funds 110.7 16.9 Technology 12.1 1.8 Other 7.8 1.2 Net liquid assets 22.5 3.4 656.0 100.0 Category £m % Equities - quoted 400.1 61.0 Equities - unquoted 104.9 16.0 Limited partnerships/funds 66.5 10.1 Loans/notes 62.0 9.5 Net liquid assets 22.5 3.4 656.0 100.0 Geographical £m % United Kingdom 486.0 74.1 Rest of Europe 37.6 5.7 North America 124.8 19.0 Rest of the world 7.6 1.2 656.0 100.0 Based on the country of incorporation of the investment. Currency £m % Pounds sterling 488.3 74.4 US dollar 139.6 21.3 Euro 20.8 3.2 Other 7.3 1.1 656.0 100.0 Based on the currency of the investment. Holdings by sector Partner- Proport- ship ion of interests Loans total Name Equities & funds & notes Total assets % £m £m £m £ % Financial Close Brothers 1 17.7 123.8 - - 123.8 18.9 Rathbone Brothers 1 11.7 20.7 - - 20.7 3.1 ICAP1 2.0 19.6 - - 19.6 3.0 ISIS Asset Management 1 6.3 13.2 - - 13.2 2.0 Other investments 10.0 - 1.7 11.7 1.8 187.3 - 1.7 189.0 28.8 Leisure and media Kerzner International 1 20.7 83.4 - - 83.4 12.7 The Sloane Club 100 23.9 - 0.8 24.7 3.8 Radio Investments 39.4 10.5 - 0.4 10.9 1.7 A G Barr 9.2 8.8 - - 8.8 1.3 126.6 - 1.2 127.8 19.5 Industrial and services Offshore Logistics/Bristow 1,2 5.9 14.9 - 15.3 30.2 4.6 Paladin Resources 1 9.3 21.6 - - 21.6 3.3 Amber Industrial 100 2.1 - 12.6 14.7 2.3 Sterling Industries 100 9.7 - 0.3 10.0 1.5 Easybox 49.9 1.6 - 5.9 7.5 1.1 Wallem 74.4 7.3 - - 7.3 1.1 Other investments 6.9 4.2 2.8 13.9 2.2 64.1 4.2 36.9 105.2 16.1 Property Quintain Estates & Development 1 7.6 22.1 - - 22.1 3.3 Buckingham Gate 100 11.0 - 6.5 17.5 2.7 Edinmore 100 3.9 - 9.0 12.9 2.0 Meinl European Land 1 30.1 8.6 - - 8.6 1.3 Other investments 13.0 5.4 1.4 19.8 3.0 58.6 5.4 16.9 80.9 12.3 Managed general funds British Empire Securities & General Trust 1 19.9 47.9 - - 47.9 7.3 Aberforth Limited Partnership1A 25.5 - 19.4 - 19.4 3.0 Polar Capital funds 4.8 5.0 - 9.8 1.5 Ionian managed fund - 7.1 - 7.1 1.1 ISIS private equity funds 6.7 - 6.9 - 6.9 1.1 Close Investment private equity funds 2.0 - 6.8 - 6.8 1.0 Other investments 8.8 4.0 - 12.8 1.9 61.5 49.2 - 110.7 16.9 Technology Other investments 2.1 7.7 2.3 12.1 1.8 Other Other investments 4.8 - 3.0 7.8 1.2 Total investments 505.0 66.5 62.0 633.5 96.6 Net liquid assets 22.5 3.4 Total assets 656.0 100.0 Loan notes (4.8) Shareholders' funds 651.2 1. Equity securities listed on the UK or overseas stock exchanges. 2. The holding in Offshore Logistics included £6.4m of convertible loan stock. Sector weighting against the FTSE All-Share index FTSE Portfolio All-Share weighting weighting £m % % Financial 189.0 29.8 23.0 Leisure and media 127.8 20.2 10.8 Industrial and services 105.2 16.6 22.2 Property 80.9 12.8 3.8 Managed general funds 110.7 17.5 2.3 Technology 12.1 1.9 10.3 Other 7.8 1.2 27.6 Total investments 633.5 100.0 100.0 Sector definitions Caledonia organises its investments into sector groups, based on the FTSE classification scheme. The following table shows how the FTSE sectors are allocated to the Caledonia sector groups. UK listed securities are classified according to their standard listing sector. Other securities are classified according to the FTSE sector they would probably be included in if they were listed. Managed funds, including listed investment companies, are allocated to the managed general funds sector if their investment strategy is not sector specific and allocated to appropriate sectors if it is. Financial Industrial & services Managed general funds Other Banks Aerospace & defence Investment companies Electronic & electrical Insurance Automobiles & parts equipment Life assurance Chemicals Technology Food & drug retailers Speciality & other Electricity Information technology Food producers & finance Engineering & machinery hardware processors Oil & gas Software & computer Gas distribution Leisure & media Steel & other metal services General retailers Beverages Support services Telecommunication Health Leisure, entertainment Transport services Household goods & & hotels textiles Media & photography Property Mining Tobacco Construction & building Personal care & materials household products Forestry & paper Pharmaceuticals & Real estate biotech Water Investment review Financial The management team at Caledonia has a history of success in financial services. Starting with our association with Gartmore Investment Management, the asset management business which is now owned by the US based Nationwide Mutual Insurance Company, the Caledonia team has been actively involved in the development of many financial services businesses and therefore has an extensive knowledge of the sector and its opportunities and understands well the key management requirements. As a result, the weighting of this sector in our investment portfolio is greater than that in the FTSE All-Share index and is our largest sector by value. Close Brothers valuation: £124m; holding: 17.7% Caledonia has been a supportive shareholder in Close Brothers for sixteen years. This highlights both Caledonia's long term investment approach and its ability to identify sound management. It is the success of this investment over time that has led it to become our largest holding by value. Given the difficult market conditions, Close Brothers' results for the year to 31 July 2002 and for the subsequent six months have demonstrated a robust performance. The continuing strong growth of the banking division almost offset the lower results from the asset management and corporate finance activities. However, the further reduction in contribution from market-making, which is still the second largest divisional contributor and earns a strong return on capital, led to a decrease in annual earnings per share for the year to 31 July 2002 of 26%. Despite this, Close Brothers maintained its dividend over the year at 26 pence per share. The recent six months results to 31 January 2003 are some 5% ahead of the comparable period, with banking continuing to grow and a steady performance from corporate finance and market-making. Rod Kent retired as managing director last October after 26 years of leadership and leaves in place an excellent management team imbued with the strong Close Brothers culture. The outstanding growth of the business over the period is a fitting tribute to his contribution. He remains a non-executive director. Our thorough understanding of this business and our appreciation of the quality and depth of its management justifies the size of our holding. In addition to our active involvement on the board, the long term relationship encourages an interflow of investment ideas and proposals. Rathbone Brothers valuation: £21m; holding: 11.7% Caledonia originally invested in Rathbones in 1995 as a result of our respect for the management. Following the development of our understanding of their business, we have actively supported their expansion. Rathbones is a leading UK private client fund management business. Against the background of substantial falls in equity markets, the 11% drop in pre-tax profits for the year ended 31 December 2002 was a creditable performance. The decline of 9% in funds under management to £5.3bn compared favourably with the fall of 25% in the FTSE All-Share index over the same period as a result of winning new clients. This reflects a culture which has enabled the company to continue to attract new client managers who thrive in the Rathbones' environment. The private client fund management sector as a whole has suffered considerably in recent times. However, Rathbones, with its strong management team, sound financial position and emphasis on good client relationships, is well placed to benefit from any sustained improvement in market conditions. ICAP valuation: £20m; holding: 2.0% Our 2% holding arises from our former much larger percentage shareholding in Exco, one of the predecessor companies of ICAP. ICAP has delivered highly successful results as the world's leading interdealer broker. This is a remarkable performance following the difficulties of 11 September 2001 and its aftermath, which severely impacted its New York operations. It has continued to develop the business with the recent announcement of the completion of the BrokerTec acquisition. ICAP has been one of our best performing large investments over the last year and we have taken advantage of the high share price to reduce our holding down from 3.8% to 2.0%, thereby realising some £16m. ISIS Asset Management valuation: £13m; holding: 6.3% Caledonia has been a significant shareholder in ISIS, formerly Ivory & Sime and Friends Ivory & Sime, since 1994 and during this period funds under management have increased from £3bn to £60bn. A Caledonia director has been the chairman since 1995 and we have thus been closely involved with the company's development. ISIS is today ranked among the top ten UK active fund managers. Although, as was to be expected during a period of declining markets, ISIS reported lower earnings during the year ended 31 December 2002, it has maintained its dividend payout. During 2002 it completed the acquisition of the Royal & SunAlliance investment management business. This transformational deal, which doubled funds under management, was followed by a rapid and successful integration of the two businesses. This has been widely acclaimed in the marketplace and leaves ISIS well placed for the future. Polar Capital valuation: £4m (£19m including Polar funds); holding: 24.6% Polar Capital is a specialist fund management group that was set up two and a half years ago with the specific support of Caledonia and illustrates our ability to play a constructive role in the formation of a business. Caledonia helped the founding managers in formulating the Polar Capital structure, recruitment and obtaining the required FSA approvals. Caledonia owns 24.6% of Polar Capital with management and staff owning the balance and is represented on both the board of the management company and on the supervisory committees of its funds. Funds under management of $0.9bn have been maintained at the same level as at last year end, strengthened by an inflow of funds for the Japanese and UK Market Neutral hedge funds launched at the end of 2001 with the active support of Caledonia, but offset by weakness in the technology funds. This is an encouraging overall performance given the weakness of the technology sector, with the Japanese and UK hedge funds providing excellent absolute returns of some 9% in the year to 31 March 2003. Polar continues to plan the launch of new funds and, whilst there continues to be heavy pressure on profit margins among large and mid-sized asset managers, the outlook for 'boutiques' which are highly focused, cost conscious and which have exposure to the hedge fund sector, remains very promising. Leisure and media This is a sector where Caledonia has had long experience with involvement in the hospitality industry, print and broadcasting. As a result of the knowledge and sector understanding gained over a number of years, this is also a sector where we have a weighting greater than that of the FTSE All-Share index. Kerzner International valuation: £83m; holding: 20.7% Caledonia has been involved with the Kerzner management since the 1980s and subsequently backed the management team when it set up Sun International Hotels (now Kerzner International) in 1994. The calendar year 2002 for Kerzner International ('KI') produced a sharp recovery in underlying earnings per share from $1.48 to $2.11 following the management's resourceful response to the events of 11 September 2001. This good performance has also been carried over into the first quarter to 31 March 2003, where underlying earnings have matched those of the corresponding quarter a year earlier, despite the war in Iraq. KI's successful flagship operation, Atlantis on Paradise Island, off Nassau in The Bahamas, has continued to be the mainstay of the business and very recently the signing of a heads of agreement with the Government of The Bahamas with respect to a $600m expansion was announced. During the year, KI decided to segregate and develop its smaller five star properties and launched a new brand - One&Only - to achieve this. A 50% interest in La Palmilla resort on the Baja peninsular in Mexico was added during the year and this resort will be approximately doubled in size to 175 rooms and relaunched as a One&Only property early in 2004. A second property in the Maldives will also join One&Only, bringing the total number of properties under this brand to seven, with two new additions in prospect. The year under review has seen the completion of the $1bn expansion by the Mohegan Tribe of the Mohegan Sun Casino in Connecticut with the addition of a 1200-room hotel, an entertainment arena, retail facilities and a doubling of the casino floor space. KI's 2.5% participation in revenues contributed $30m and should continue to grow over the term of this arrangement until 2014. Overall, the quality and geography of the KI operations have proved resilient in a challenging year and the group continues to review many interesting opportunities. The Sloane Club valuation: £25m; holding: 100% Caledonia bought The Sloane Club in 1993 on a long lease, both as a property investment and because of its trading potential. Having been enlarged and modernised, it has traded well and established a strong reputation with a following of some 3,700 members. More recently, The Sloane Club entered into an agreement with The Cadogan Estate to manage sixteen flats nearby on short to medium term lets. In common with London hotels, The Sloane Club has suffered from the lack of overseas visitors over the last year, but the continued support of the domestic membership has softened the impact and, unlike many hotels, it continues to trade profitably in a difficult market. Caledonia provides the chairman of The Sloane Club and is actively involved in the management. Radio Investments valuation: £11m; holding: 39.4% Caledonia has been a cornerstone investor in Radio Investments since 1989. Throughout this period Caledonia has had board representation and, since 1999, the chairmanship. Prior to investing in Radio Investments, Caledonia had identified the UK radio industry as having significant growth potential. Investing in Radio Investments provided Caledonia with an interest in an 11% holding in Capital Radio, the UK's largest commercial radio operation. In 1998, at a time when the larger UK radio stations were becoming very fully valued, Radio Investments placed its stake in Capital Radio, realising a profit on cost of over £40m, part of which was distributed to shareholders. Radio Investments has since developed interests in 23 smaller radio stations and has become a leader of the smaller station sector. It continued to grow revenues strongly in its year to 30 September 2002, and this growth has been maintained during the current year. The Government is planning further liberalisation of the commercial radio environment and our major stake in Radio Investments positions us well to benefit from these changes. A G Barr valuation: £9m; holding: 9.2% Caledonia has had a longstanding association with the management of A G Barr. The company manufactures and distributes Barr's IRN-BRU and other soft drinks. It increased sales volume by 6% in the year to January 2003, despite the adverse effect caused by the wet summer last year. Earnings per share rose 10%, helped by internally generated efficiencies and the benefit from past capital expenditure in labour saving equipment. A G Barr continues to produce growth by developing its brands. It has a strong position in the Scottish soft drinks market and has won the accolade of the Number One Scottish Grocery Brand. Its marketing policy in England and Wales is proving to be successful and led to a 16% increase in sales south of the border in the year to January 2003. During the year we increased our shareholding from 9.0% to 9.2%, over which period the share price increased by 3%. Industrial and services Caledonia's experience in this sector dates back several decades through its involvement in Sterling Industries and Amber. As a result of this experience we are able to work and interface well with management teams in this sector. Offshore Logistics/Bristow valuation: £30m; holding: 5.9% Caledonia has been connected with the offshore helicopter industry for many years, starting with Bristow Helicopters, which itself has been associated with the US-based helicopter operator, Offshore Logistics, a NYSE listed company, since 1996. At that time, we made a profitable partial exit from Bristow and reinvested a portion of the proceeds into Offshore Logistics. In February of this year, Offshore Logistics reported diluted earnings per share of $1.39 for the three quarters to 31 December 2002, which was roughly in line with the comparative period. The worldwide reach of Offshore Logistics/Bristow enabled it to offset reduced activity levels in the Gulf of Mexico and the North Sea with an upturn in international operations principally associated with a new contract in Nigeria. Notwithstanding the recent consolidation of the offshore helicopter industry, Offshore Logistics/Bristow comprises the world's largest operator servicing that sector. Caledonia's strategic position as a major shareholder, with two directors on the board, should ensure that it is well positioned to influence events and benefit from further developments in the offshore oil and gas industry. Paladin Resources valuation: £22m; holding: 9.3% Paladin Resources is an oil and gas company specialising in the acquisition and development of existing oil and gas fields. Caledonia's investment in Paladin was the result of its association with the management team who had been successful in developing Clyde Petroleum (acquired by Gulf Canada in 1997), in which Caledonia had been a shareholder. As part of our strategy, Caledonia has increased its shareholding over the year from 5.5% to 9.3%, during which period the share price increased by 48%. In line with this strategy and our shareholder relationship, Caledonia underwrote £13m of Paladin's December 2002 £42m share placing and open offer at 66 pence per share, enabling us both to increase our stake and to earn underwriting fees. We have further increased our holding to 11.1% since the year end. 2002 was an excellent year with pre-tax profits growing by 75% from £38m to £66m. The business has been substantially increased in size through further acquisitions including the Montrose/Arbroath acquisition from BP/Amerada. Both reserves and production have grown healthily as has retained capital. Amber Industrial valuation: £15m; holding: 100% Amber is a long-standing investment of Caledonia. It is a specialty chemicals business focusing on silicone compounds, aerosol products and specialised industrial consumables. Overall profitability in Amber has been similar to the previous year at £2m (before goodwill amortisation). Amber's investment over the last five years in silicones is proving beneficial, with improved profitability in the UK and Italy and good growth in the US, and we are hoping for most future value creation to arise from the silicones side. As part of our investment trust conversion process, Amber paid to Caledonia a dividend of £3m. The reduction in value is due to both the cash dividend payment and a reflection of the reduced share prices of similar listed companies. Both the chairman and another non-executive director are Caledonia representatives. Sterling Industries valuation: £10m; holding: 100% Sterling is an engineering group specialising in hydraulic valves, burners for pollution control and thermal process engineering. The chairman and two other directors are Caledonia representatives, and we have been actively involved in implementing a number of restructuring and management changes, including the disposal of non-core businesses. These measures have led to a reduced cost base and a clearer focus. Despite difficult economic conditions, and a further fall in sales, the year under review has seen a welcome return to profitability following the actions taken to lower costs, including a significant reduction in head count. Demand remains subdued in the engineering sector generally and continuing measures are being taken to lower production costs and position the business for better market conditions, including the initiative of opening a small burner manufacturing unit in China through a joint venture with a local partner. As part of the investment trust conversion process, Sterling paid a dividend of £3m to Caledonia. The valuation has also been adversely affected by the deficits in its two final salary pension schemes largely caused by the fall in stock market values over the past year. Easybox valuation: £8m; holding: 49.9% Easybox is a self-storage business currently operating in Italy and Spain, established as a joint venture in 2000 with Orion Capital Managers. Our involvement with the company arose from our backing the successful management team who had previously developed the UK self-storage market under the successful Abacus brand, in which Caledonia had a majority shareholding, and which was sold at a substantial profit in 1998. Trading has been encouraging and in line with expectations. A new facility was opened in Barcelona in September 2002 and its initial trading has proved promising. A further facility was acquired in Milan, which should start trading this summer, bringing the total to two in Spain and three in Italy. We continue to look for additional sites in both of these countries. Since the year end we have bought out Orion's 49.9% holding, at a cost of £8m. This makes us the only shareholder alongside the management and will enable us to have a more direct and active role in the company going forward. Wallem valuation: £7m; holding: 74.4% Caledonia has held a 74.4% economic interest in Wallem, the Hong Kong-based shipping services group best known for its leading position in the shipmanagement industry, since 1992. During its year ended 30 September 2002, Wallem was affected by the downturn in world economic markets, particularly in South East Asia, and recorded lower revenues and profits, particularly from its shipmanagement division. Competition remains fierce in this sector and the valuation of this investment has been substantially reduced as a result of its lower earnings for the period. Efforts are being made to improve profitability through revenue growth and cost cutting. Property Caledonia has a long investment history in the property sector and benefits both from its own in-house property knowledge and its ability to identify successful management teams. We actively manage our interests by investing in quoted property companies, by direct ownership of assets and by investing in partnership with management. The percentage of our portfolio in the property sector appears significantly higher than for the FTSE All-Share index as, in common with many investors, most of our property interests are in direct and unlisted property situations. Quintain Estates & Development valuation: £22m; holding: 7.6% Quintain continues to hold a strongly reversionary portfolio and has a 49% interest in the consortium that has completed an agreement to develop 190 acres on the Greenwich peninsula. Subject to planning permission the consortium will also lease the 43 acres including the Millennium Dome and surrounding areas for use as a world class sports and leisure area. Quintain has also acquired Wembley (London) Ltd, which will own and manage the Wembley Conference Centre and Wembley Exhibition Halls, adjacent to the new Wembley Arena. We have modestly increased our holding during the year, over which period the share price increased by 4%. Buckingham Gate valuation: £18m; holding: 100% Caledonia acquired 30 Buckingham Gate, located in the West End of London, in 2001 for its headquarters as the scale of our activities had outgrown the former City office, which has now been sold. This property is considered a good long term investment, has aided the efficient running of Caledonia and allowed us to provide accommodation, and thereby close direct support, for some of our start-up investments. The building comprises seven floors, of which four are currently occupied by Caledonia and most of the remainder have now been let, some to investee companies. Despite the current weak London market, resulting in a fall in value on a mark-to-market basis, we believe that the Victoria area has suffered less than most and the general lack of good modern office space should result in renewed demand once the economy improves. Edinmore valuation: £13m; holding: 100% Edinmore is a wholly owned property trading company with a profit sharing arrangement with the management. The company produced good profits last year through identifying attractive market opportunities and generated profits of £2m on a turnover of £14m. Edinmore has established an excellent reputation which enables it to view opportunities not always available to others. Last year was active and successful, and second phase developments from previous years are expected to flow through to the current year. Caledonia provides loan funding where appropriate and is actively involved in investment decisions. Meinl European Land valuation: £9m; holding: 30.1% Meinl European Land (previously known as Central European Land) started in 1998 as a joint venture between Caledonia and Meinl Bank. Meinl European Land purchased a property portfolio primarily consisting of supermarkets in The Czech Republic and Hungary from Julius Meinl, the Austrian supermarket chain. Over the past few years the quality of the portfolio has been improved and profits have grown steadily. We are confident that the integration of both Hungary and The Czech Republic into the European Union in the next 2 to 3 years will have a positive effect on the company. During the financial year, Meinl European Land was successfully introduced to the Austrian Stock Exchange, via an IPO, raising cash for further development of its portfolio. Managed general funds Our involvement in this sector enables us to have investments in situations where we do not have appropriate resources in-house to maximise value for our shareholders. Caledonia's particular expertise is to identify, support and encourage the right asset management teams and often we seek to have a stake in the fund management business. Our apparent weighting in excess of the FTSE All-Share index arises as we have included in this sector our unlisted interests in managed funds. British Empire Securities and General Trust valuation: £48m; holding: 19.9% Caledonia has actively backed British Empire Securities ('BES') and its management since 1991 when it bought a significant interest in BES and control of its management company. At 31 March 2003 Caledonia held a 19.9% interest in BES and, through its board representation, it has been closely involved since 1991. Although BES has recently reported a slight underperformance against its benchmark during the six months to 31 March 2003, its record over the longer term has been outstanding. Over the past three years it has outperformed the MSCI World Index by 33.6%, and over a five-year period BES is top of its peer group of 26 Global Growth Trusts. Over the years, the management of BES has been highly successful at identifying undervalued asset situations, particularly in the UK investment trust sector and among European holding companies, and we believe that the specialist skills involved will continue to deliver superior returns. Aberforth Limited Partnership 1A valuation: £19m; holding: 25.5% Caledonia was approached to be an investor in a limited partnership fund launched by Aberforth Partners in March 2001. The fund's remit is to identify undervalued smaller UK listed companies across a number of sectors and seek to unlock value through influencing management in areas including business composition (i.e. acquisitions and disposals), financing (i.e. debt/equity balance) and public to private or other outright sale options. Caledonia committed £25m to this £165m, 60% geared fund, of which the full amount had been drawn down by 31 March 2003. During the year under review, £15m was drawn down and, as a result of realised net gains, £3m distributed, to leave a net investment of £22m. Caledonia is represented on the investment committee. As at 31 March 2003 the fund had investments in twelve companies and although, since launch, it had not achieved a positive absolute return, it outperformed the FTSE All-Share Total Return index. Aberforth Partners has a strong track record and reputation in the UK listed smaller companies sector and we believe that there is further value to be achieved through a judicious choice of investments which will benefit from Aberforth's approach. Ionian managed fund valuation: £7m; holding: n/a The Ionian portfolio, which was started in 1995, is a bespoke portfolio of shareholdings in UK listed smaller companies, which is actively managed by a fund manager at Ionian Bank, well known to Caledonia. This portfolio has, over the years, produced good returns, but is now being gradually liquidated in a manner to maximise receipts. Technology Caledonia has deliberately maintained a cautious stance to this sector and we are currently underweight compared with the FTSE All-Share index, with just 2% of our total investments in this sector. Our approach has been to back teams with experience in this area. Financial review During the year, Caledonia undertook a substantial restructuring to enable it to comply with the requirements for authorised investment trust status as from 1 April 2003. This review describes the current and future effect of Caledonia's conversion on the financial statements, in addition to reporting on the results for the year. Although the company was not an investment trust during the year under review, it will have been managed since 1 April 2003 in such a way as to enable it to meet the requirements of investment trust status. Therefore, the financial statements below have been augmented with information more commonly associated with the publications of investment trust companies. Presentation of the financial statements Investment trust companies generally report under the Statement of Recommended Practice - Financial Statements of Investment Trust Companies ('IT SORP'), as revised and published by the Association of Investment Trust Companies ('AITC'). The IT SORP assumes, however, that an investment trust is also an investment company and can take advantage of the special provisions given to investment companies under company law and accounting standards. Caledonia is not an investment company and in these circumstances the IT SORP states that an investment trust should prepare its financial statements in accordance with the normal rules contained in Schedule 4 to the Companies Act 1985 and accounting standards. Caledonia recognises, however, that presenting information that is comparable with other investment trusts is important to investors. It therefore intends to augment its financial statements with the information and disclosures required by the IT SORP in respect of the performance of the holding company. This is because the holding company balance sheet (unlike that of the group) can reflect full net asset value and the movement in this figure is a key measure of Caledonia's performance. A statement of total return on an IT SORP basis will be presented to explain this movement. In order to achieve this new presentation, a number of changes are necessary. The company's accounting policy in respect of subsidiaries was changed during the year, from carrying them at cost to carrying them at valuation, so that the company balance sheet can reflect all the investments, including subsidiaries, at valuation. A statement of total return for the company will be presented to explain movements in the company's net asset value. Since Caledonia was not an investment trust during 2003, the company statement of total return has been prepared on a pro forma basis for this year and is not included in the audited part of the 2003 financial statements. The company balance sheet and, from 2004, statement of total return will be presented first in the financial statements, as Caledonia believes that net asset value and its movement is the key accounting measure by which the company should be assessed. In order to reduce the difference between the company and consolidated balance sheets, Caledonia changed its accounting policy in respect of associates from equity to investment accounting, but was only able to do so on 1 April 2003, from which date it became an investment trust company. Finally, the format of the consolidated profit and loss account and consolidated statement of total recognised gains and losses will be revised to make them more consistent with the publications of other investment trusts required to prepare consolidated financial statements. As Caledonia was not an investment trust company during the period under review, the following sections of the financial review are presented as for former periods. Profit before tax Overall, profit before tax for the year to 31 March 2003 totalled £23.6m, compared with £8.2m reported last year. The operating loss for the year, which comprised the results of trading subsidiaries as well as the costs of managing the group's investment operations, was £9.4m, compared with £9.0m last year. The results of trading subsidiaries rose to a £3.6m profit compared with a £1.3m loss in 2002. Significant contributors to this movement were Sterling Industries, which reported a £0.7m profit compared with a £0.4m loss last year, and Edinmore, which made a £2.0m profit compared with £0.1m last year as a result of increased property trading activity. In addition, the 2002 results were adversely affected by the write off of £3.5m of capitalised goodwill relating to the acquisition of Sterling Industries, compared with £1.7m of goodwill written off in 2003 relating to an acquisition within the Amber group. The cost of managing the group's investment operations, excluding an exceptional amount of £4.0m related to the reorganisation of the group to enable Caledonia to meet the requirements for investment trust status, amounted to £9.0m compared with £7.7m last year. The reorganisation costs are discussed further below. Depreciation rose to £0.9m from £0.4m last year as a result of a full year's depreciation on Buckingham Gate. Employment costs rose marginally over the year and £0.6m of exceptional irrecoverable VAT was written off. The group's share of operating profit from associates rose slightly to £26.1m from £25.2m last year. Last year's contribution of £3.1m from English & Scottish Investors was not replaced, as our interest was sold in March 2002, losses of £1.5m in 2002 from Artsworld Channels did not affect the year under review as the operations of this business were wound down at the beginning of the year, and Kerzner International's contribution increased by £2.5m. Amortisation of goodwill on acquisition of associates was a charge of £0.4m this year compared with a credit of £0.5m last year, due to the absence this year of £0.9m of negative goodwill relating to English & Scottish Investors. The book profit on sale of operations of £4.9m resulted mainly from £4.0m and £2.5m profits on deemed disposals arising from dilution of our equity accounted interests in Close Brothers and Meinl European Land respectively, as each investee company issued new shares at a premium to net asset value in connection with their own corporate activities. Investment income of £8.7m compared with £10.8m in 2002, reflecting a £0.8m reduction in Wallem's distribution this year, absence of the £0.9m income from the JP Morgan Chase & Co loan notes sold in 2002 and £0.5m of rental income from a property sold in 2002. Interest receivable on short term deposits less interest payable on short term funding was net £3.2m receivable this year, compared with £1.4m payable last year. The company maintained net funds of some £40m during the year, compared with the utilisation of debt facilities for most of 2002. The swing from net short term debt in 2002 to net funding in 2003 was precipitated principally by the cash receipts of £88.2m from the disposal of the company's interest in English & Scottish Investors in March 2002. The group's share of associates' interest payable dropped to £9.3m from £11.5m last year, also principally due to the disposal of our interest in English & Scottish Investors, which was previously equity accounted. Other gains and losses Realised gains net of losses for the year amounted to £17.1m. Realised gains included £10.8m on the disposal of part of our ICAP stake, £4.7m on the sale of our holding in Shell and £3.0m on the disposal of Northgate, partially offset by a £2.6m loss on the redemption of our holding in the Amerindo Technology Growth Fund. The overall movement in unrealised losses for the year of £75.7m reflected the change in the equity markets over the year. Currency exchange differences over the year of £15.9m reflected the 11% fall in value of the US dollar against sterling, which affected the group's assets held in US dollar denominated subsidiaries. Taxation The total taxation credit (revenue and capital) for the year amounted to £2.8m, compared with a £6.6m charge last year. The principal movements were a release of the provision against unrecognised losses amounting to £17.9m and a £5.5m charge associated with restructuring to enable the company to achieve investment trust status, discussed further below. The £17.9m movement refers to the satisfactory resolution of the use of bought-in capital losses, dating from a prior period, against realised chargeable gains. This issue has now been settled. Of the £27.1m provision previously booked in respect of this item, £17.9m has been released and the balance transferred to creditors as at the year end. Dividend An interim dividend of 8 pence per share has been paid and the directors have recommended a final dividend of 18 pence per share, making a total of 26 pence per share for the year at a cost of £18.8m. This is a 4.0% increase over the total dividend for 2002 of 25 pence per share. As part of the group restructuring to enable the company to qualify for investment trust status, and after accruing £13.1m for the proposed final dividend, distributable reserves of some £462m are included in the company balance sheet at 31 March 2003. Cash flow The group's net funds at the year end were £43.2m compared with £67.1m at the start of the year, a decrease of £23.9m. Significant outflows were incurred in respect of investment and associate purchases totalling £60.1m and dividend payments of £18.1m. Investment and associate purchases included £12.5m in the Aberforth fund, £11.1m in Paladin Resources and £8.1m in Polar funds. Significant inflows arose from investment and associate sales of £36.5m and operating activities (including dividends from associates) of £21.5m. Investment and associate sale proceeds included £15.8m from ICAP, £6.0m from Structural Polymers and £4.9m from Shell. Conversion costs During the year, the group undertook a substantial reorganisation to enable the company to comply with the requirements for investment trust status. Part of the reorganisation entailed transferring ownership of investments to the company. To preserve the company's distributable reserves, there was a capitalisation issue of new deferred shares, followed by a Court approved reduction to cancel the new shares issued. The cost of conversion to investment trust status is estimated at £9.5m, consisting of £4.0m in revenue costs and an estimated tax liability of £5.5m. These costs are best estimates, subject to uncertainty centred principally upon the outcome, to be determined, of discussions with the appropriate authorities on certain aspects of the reorganisation. The chief executive's report refers to conversion costs of £13.7m. This figure is directly comparable with the estimate of £20.0m previously published. Subsequently, part of the ICAP stake was sold and the estimated tax liability on this disposal is £4.2m. The original £20.0m assumed that the whole of the ICAP stake remained within the group and that the equivalent tax liability arising on its transfer to Caledonia would be part of the conversion costs. For accounting purposes, however, the tax on disposal of part of the ICAP stake is regarded as tax on normal activities, not part of the conversion cost. Pro forma company total return for the year ended 31 March 2003 As explained in the financial review, Caledonia has augmented its financial statements as an investment trust by including a statement of total return for the holding company. Although not an investment trust for the year ended 31 March 2003, the following statement of total return illustrates how such a statement might have looked had Caledonia been an investment trust for the whole year. Year ended 31 March 2003 Revenue Capital Total £m £m £m Gains/(losses) on investments Realised - 17.1 17.1 Unrealised - (221.8) (221.8) - (204.7) (204.7) Income from investments 20.0 - 20.0 Expenses Management costs (8.3) - (8.3) Restructuring costs (4.0) - (4.0) Return before finance costs and tax 7.7 (204.7) (197.0) Interest payable and similar charges (0.2) - (0.2) Return before tax 7.5 (204.7) (197.2) Tax on ordinary activities 1.5 12.5 14.0 Return attributable to shareholders 9.0 (192.2) (183.2) Dividends (18.8) - (18.8) Transfer to reserves (9.8) (192.2) (202.0) Return per ordinary share Basic 12.5p -266.5p -254.0p Adjusted 18.0p -256.9p -238.9p Dividend per ordinary share 26.0p - 26.0p The company statement of total return is derived from a combination of the company profit and loss account and the company statement of total recognised gains and losses, adjusted to reflect the estimated position if the company had been an investment trust company throughout the year. In particular, investments that were held by subsidiary undertakings for most of the year and transferred to the company before the year end (or would have been so transferred if they had not been realised during the year) are imputed to the company for the whole of the year. Therefore, any investment income arising from those investments and movements in valuation have been imputed to the company. Likewise, any costs incurred by subsidiary investment holding companies, which are no longer operating as such at the year end, have been imputed to the company. The effect of the reorganisation carried out during the year in order to enable the company to achieve investment trust status has been eliminated, except for the net costs associated with undertaking the reorganisation. Company balance sheet at 31 March 2003 Restated 2003 2002 £m £m Fixed assets Investments 656.4 1,031.0 Current assets Debtors 5.5 37.1 Short term deposits 38.9 56.9 Cash at bank and in hand 1.4 0.2 45.8 94.2 Creditors falling due within one year Short term borrowings (8.6) (22.5) Other creditors (28.1) (44.2) (36.7) (66.7) Net current assets 9.1 27.5 Total assets less current liabilities 665.5 1,058.5 Creditors falling due after more than one year Long term borrowings (4.8) (4.8) Amounts due to subsidiary undertakings (9.5) (170.0) (14.3) (174.8) Provision for liabilities and charges Deferred taxation - (27.1) 651.2 856.6 Capital and reserves Share capital and premium 5.3 5.4 Non-distributable reserves 184.1 364.3 Distributable reserves 461.8 486.9 Total shareholders' funds 651.2 856.6 Net asset value per ordinary share 1 897p 1172p 1. The 2002 net asset value per share figure is stated before deducting £46m, or 63 pence per share, being the tax calculated as becoming payable had the group realised its portfolio at 31 March 2002. This contingent tax has not been provided in the accounts of the company. After deducting the calculated tax, the net asset value per share was 1109 pence. Consolidated profit and loss account for the year ended 31 March 2003 2003 2002 £m £m Turnover 132.1 114.1 Operating loss (9.4) (9.0) Share of operating profit of associates 26.1 25.2 Amortisation of goodwill on acquisition of associates (0.4) 0.5 Total operating profit 16.3 16.7 Profit on sale of operations 4.9 (6.2) Profit on ordinary activities before investment income 21.2 10.5 Income from investments 8.7 10.8 Interest receivable 3.2 0.7 Interest payable (9.5) (13.8) Profit on ordinary activities before tax 23.6 8.2 Tax on profit on ordinary activities (5.7) (5.1) Profit on ordinary activities after tax 17.9 3.1 Minority interests (equity) (0.4) (0.2) Profit for the financial year 17.5 2.9 Dividends (18.8) (18.2) Loss charged for the financial year (1.3) (15.3) Earnings per ordinary share Basic and diluted 24.2p 3.8p Adjusted 28.3p 18.6p Dividends per ordinary share 26.0p 25.0p Consolidated statement of total recognised gains and losses for the year ended 31 March 2003 2003 2002 £m £m Gains/(losses) on investments Realised 17.1 7.9 Unrealised (75.7) (36.4) Exchange differences (15.9) 0.1 Share of results of associates (13.7) (19.7) Tax on gains on investments 8.5 (1.5) Minority interests (equity) 0.1 (0.1) Other recognised gains and losses (79.6) (49.7) Profit for the financial year 17.5 2.9 Total recognised gains and losses (62.1) (46.8) Consolidated balance sheet at 31 March 2003 2003 2002 £m £m Fixed assets Intangible assets 5.3 7.4 Tangible assets 59.4 68.1 Investments in associates 288.5 289.4 Investments other 255.5 316.7 608.7 681.6 Current assets Stocks 20.4 21.3 Debtors 32.7 31.2 Short term deposits 43.9 61.0 Cash at bank and in hand 4.6 20.2 101.6 133.7 Creditors falling due within one year Short term borrowings (0.4) (8.8) Other creditors (47.2) (33.4) (47.6) (42.2) Net current assets 54.0 91.5 Total assets less current liabilities 662.7 773.1 Creditors falling due after more than one year Long term borrowings (4.9) (5.3) Provision for liabilities and charges Deferred taxation (1.4) (29.0) 656.4 738.8 Minority interests Equity (0.6) (0.9) Non-equity (0.3) - 655.5 737.9 Capital and reserves Called up share capital 4.0 4.1 Share premium account 1.3 1.3 Capital redemption reserve 1.2 1.1 Revaluation reserve 21.2 73.9 Profit and loss account 627.8 657.5 Shareholders' funds 655.5 737.9 Consolidated cash flow statement for the year ended 31 March 2003 2003 2002 £m £m Net cash inflow from operating activities 12.4 12.3 Dividends from associates 9.2 9.5 Servicing of finance Interest paid (0.2) (2.4) Dividends paid to minority shareholders (0.2) (1.0) (0.4) (3.4) Taxation UK tax paid (5.8) (1.3) Overseas tax paid (0.8) (0.7) (6.6) (2.0) Capital expenditure and financial investment Purchase of tangible fixed assets (3.3) (5.1) Sale of tangible fixed assets 0.3 0.4 Purchase of investments (47.7) (39.6) Sale of investments 35.4 83.4 (15.3) 39.1 Acquisitions and disposals Purchase of operations (0.2) (0.1) Sale of operations 7.0 - Investment in associates (12.4) (6.2) Sale of interests in associates 1.1 92.0 (4.5) 85.7 Equity dividends paid (18.1) (18.5) Net cash outflow before management of liquid resources (23.3) 122.7 Management of liquid resources 21.5 (52.0) Financing Repayment of short term loans - (22.1) Repayment of long term loans (0.4) (0.2) Purchase of own shares (3.4) (47.1) Issue of shares by subsidiary undertakings 0.3 - (3.5) (69.4) Decrease in cash in the year (5.3) 1.3 Reconciliation of net cash flows to movement in net funds for the year ended 31 March 2003 2003 2002 £m £m Decrease in cash in the year (5.3) 1.3 Cash outflow from decrease in debt 0.4 22.3 Cash inflow from decrease in deposits (21.5) 52.0 Change in net funds resulting from cash flows (26.4) 75.6 Acquisitions 4.6 - Exchange differences (2.1) - Movement in net funds in the year (23.9) 75.6 Opening balance of net funds 67.1 (8.5) Closing balance of net funds 43.2 67.1 Notes 1. Basis of consolidation The consolidated financial statements consolidate the results of the company and all of its subsidiary undertakings drawn up to 31 March each year. The results of subsidiary undertakings acquired or sold during the year are included in the financial statements from the date of acquisition or to the date of sale. In the company financial statements, investments in subsidiary undertakings are stated in accordance with the 'valuation of investments' and 'income' policies outlined below. Subsidiary undertakings include equity and loan interest elements. Comparative figures also include subsidiary undertakings at market value, together with loans. Associated undertakings In the consolidated financial statements, investments in associated undertakings are accounted for using the equity method. The group's share of the profits and losses of associated undertakings is included in the group profit and loss account and the group's share of their net assets is included in the group balance sheet. Associates are undertakings in which the group has a long term interest and over whose operating and financial policies the group exercises significant influence. In the company financial statements, investments in associated undertakings are stated in accordance with the 'valuation of investments' and 'income' policies outlined below. Valuation of investments Investments are included according to the following guidelines, which have been drawn up having regard to the British Venture Capital Association ('BVCA') guidelines: Quoted investments, for which an active market exists, are valued at mid-market price. Unquoted equity investments are valued by the directors on a number of bases depending on the nature of each investment. Early-stage investments will generally be valued at cost, less a provision if performance is substantially below expectations, for one year or until the investments start to earn significant maintainable profits. Investments earning significant maintainable profits are generally valued using an earnings muliple, based on current year profit after tax and an earnings multiple for a comparable quoted company or sector average. A discount will be applied to recognise the absence of a ready market on which the holding can be sold. The liquidity discount will normally be 30%, but may be reduced to 10% if an initial public offering or realisation is imminent. For some asset-backed businesses, such as where there is a significant property element, the earnings multiple method of valuation is inappropriate, and a net realisable asset basis is applied. If may also be appropriate to use the net realisable asset basis of valuation if this results in a higher valuation than the earnings method, or the company is incurring losses. A third party valuation, such as an independent valuation report or a material arm's length transaction, will provide prima facie evidence of fair value and will usually take precedence over other methods. Unquoted fixed income shares and loan investments are valued at the lower of cost or recoverable amount. Investments in unquoted funds are valued at the net aset value of the fund, with an appropriate adjustment where the net asset value has not been calculated in accordance with BVCA guidelines. Realised surpluses or deficits on the disposal of investments are taken to the realised capital reserve, and unrealised surpluses and deficits on the revaluation of investments are taken to the unrealised capital reserve as explained further below. 2. Change in accounting policy With effect from 31 March 2003, the company changed its accounting policy such that it now holds equity and loan investments in subsidiary undertakings at valuation in the company financial statements. The effect of this change in accounting policy was to increase investments and non-distributable reserves by £267.5m. 3. Dividends 2003 2002 2003 2002 pence pence £m £m Interim paid 8.0 7.8 5.7 5.8 Final proposed 18.0 17.2 13.1 12.4 26.0 25.0 18.8 18.2 The proposed final dividend will be paid on 31 July 2003 to shareholders on the register at the close of business on 4 July 2003. 4. Earnings per ordinary share Basic earnings per ordinary share was based on the profit for the financial year of £17.5m (2002 - £2.9m) and the 72,133,756 (2002 - 75,400,648) weighted average number of ordinary shares in issue during the year, after excluding shares held during the year by the Caledonia Investments plc Employee Share Trust and a subsidiary company. The dilution in the return to ordinary shareholders arising from the dilutive potential ordinary shares under the company's share option schemes in respect of the current and prior years is insignificant. Adjusted earnings per ordinary share was calculated as a measure of earnings excluding sale of operations, amortisation of goodwill and other items, net of related taxation. The directors consider that this provides a more consistent indication of underlying performance. The adjusted company and consolidated earnings per ordinary share were reconciled as follows: 2003 2002 pence pence Basic earnings per ordinary share 24.2 3.8 Adjustments: Profit on sale of operations (6.8) 8.2 Restructuring costs 5.5 - Share of associates' non-operating items (2.5) - Amortisation and impairment of goodwill 7.9 7.4 Related taxation - (0.8) Adjusted earnings per ordinary share 28.3 18.6 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 2003 will be delivered to the Registrar of Companies in England and Wales in accordance with Section 242 of the Act. The auditor has reported on those accounts; the report was unqualified and did not contain a statement under Section 237(2) or (3) of the Act. Copies of this statement are available at the company's registered office, Cayzer House, 30 Buckingham Gate, London SW1E 6NN. This information is provided by RNS The company news service from the London Stock Exchange
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