Final Results

RNS Number : 9650Z

Caledonia Investments PLC

27 May 2021

 

Caledonia Investments plc

Final results for the year ended 31 March 2021

Financial highlights

	31 Mar 2021	31 Mar 2020	Change
Net asset value total return	25.9%	-8.1%
Net asset value	4000p	3236p	+23.6%
Net assets	£2,225m	£1,787m	+24.5%
Annual dividend per share	62.9p	61.1p	+2.9%

Hi ghlights

●	25.9% NAV total return for the year.
●	2.9% increase in the dividend to 62.9p per share, 54th consecutive year of increase.
●	Strong investment returns across whole portfolio.
●	Negative impact from exchange rates on NAV total return of 6%.
●	Strong balance sheet with £249m of available resources (£14m cash and £235m undrawn facilities).

Quoted Equity

●	Strong performance from Quoted Equity portfolios, up by 30.3% in the year reflecting significant rebound in global public equity markets and considered stock selection within both the Capital and Income portfolios.
●	Performance of US public equities was particularly notable.

Private Capital

●	Private Capital portfolio performed well, generating total return of 23.2%, despite loss on sale of holding in Buzz Bingo.
●	Two substantial strategic bolt-on acquisitions made by portfolio businesses during the year.
●	Portfolio companies recovering well from Covid-19 related disruption.

Funds

●	Funds portfolio generated total return of 34.8% for the year.
●	Good underlying performance from PE fund investments
●	Reversion to fund valuations based on managers' NAV, without £86m Covid-19 valuation adjustment applied last year.

Will Wyatt, Chief Executive , commented:

"Through what has been a challenging and uncertain period, our diversified holdings have continued to perform, supporting our strategy of growing net assets and dividends over the long term.

"We remain confident that the strength of our portfolio, invested in high-quality businesses across a range of geographies and sectors, combined with our strong balance sheet and long-term approach, will ensure that we can continue to deliver for our shareholders."

26 May 2021

Enquiries
Caledonia Investments plc	Tulchan Communications
Will Wyatt, Chief Executive	Tom Murray
Tim Livett, Chief Financial Officer	[phone]
[phone]

Chairman's statement

Results

The NAV total return ('NAVTR') for the year of 25.9% was strong and included positive returns from each part of our portfolio. The Quoted Equity pool delivered an annual return of 30.3%, aided by the rebound in global equity markets. Investee companies within the Private Capital portfolio, with the exception of Buzz Bingo, adapted well to the challenges presented by Covid-19 to produce a total return of 23.2%. The Funds portfolio delivered an annual return of 34.8%, buoyed by good underlying fund performance. We have retained a strong, largely ungeared balance sheet with total liquidity of 249m available at 31 March 2021.

Income and dividend

Total income was £ 45 m, a reduction of 16% from the previous year. This reflects the negative impact of the pandemic on economic activity in a small number of investee companies and the change in focus of the Quoted Equity Income portfolio towards higher quality businesses with slightly lower yields. The Board is recommending a final dividend of 45.9p per share, which represents a full year dividend of 62.9 p, an increase of 2.9% when compare to the previous year. While this payment is not covered by the income generated this year, the Board, cognisant of Caledonia's significant retained earnings, believes the dividend is a crucial element of the total return for our shareholders and that it is appropriate to utilise the company's available reserves.

It also should be noted that no dividends have been received during the year from The Liberation Group or Buzz Bingo, the only two beneficiaries of the UK Government's job retention scheme in our portfolio.

Covid-19

The pandemic has created uncertainty and financial hardship for many people in the UK and overseas.  Caledonia responded by establishing a fund focused on assisting those employees working for investee companies negatively impacted by Covid-19. The safety and well-being of our staff, together with those working for our investee companies, have been important priorities for the board throughout this challenging period. 

In response to the pandemic, central banks have provided additional liquidity to alleviate these effects which has benefitted the portfolio as a whole. As we look forward, The Liberation Group, our remaining consumer leisure focussed business is expected to benefit from pent up demand from customers, particularly as trading restrictions ease. 

The Caledonia team has excelled in adapting to remote working, with IT colleagues ensuring systems and controls continued to function seamlessly. We continue to believe that the office has an important role to play to facilitate training and development and to ensure that Caledonia's values and culture continue to permeate amongst new recruits. We are now working on plans, following official guidelines, to enable staff to return to the office via increased use of a hybrid working model which recognises that many have welcomed the flexibility that some home working has brought.

Board and staff

On behalf of the board I would like to thank all Caledonia staff for their outstanding response to the challenges faced over the past year. Our strong financial performance speaks for itself but this potentially understates the volatile market conditions experienced and the hard work which has been required to respond proactively to the many challenges faced.

The effectiveness of the board has been appraised in a recent external review . This review, alongside a skills analysis of current directors, will enable us to continue to refresh the board with new non-executive directors. Caledonia remains committed to increasing board diversity and this will be an important factor as we commence a search for a new audit chair to replace Stuart Bridges who is expected to retire during 2022.

Outlook

There are positive signs that vaccines will provide the answer to society being able to live with Covid-19. However, there remains a risk that new mutations of the disease will require further adaptations of both vaccines and governmental response in order to control their spread.

We continue to be confident that Caledonia's portfolio is invested in assets that are of sufficient quality to weather most storms and enable us to achieve our purpose of growing assets and dividends over the long term. We also believe that the strength of Caledonia's balance sheet will enable us to continue to take advantage of opportunities as they arise.

David Stewart

Chairman

Chief Executive's report

Purpose

Caledonia's purpose is to grow net assets and dividends paid to shareholders over the long term, whilst managing risk to avoid permanent loss of capital.

Results for the year

The rapid recovery of markets from the sharp falls witnessed towards the end of our previous financial year provided a supportive backdrop to these results. The NAV total return for the year was 25.9% which included positive results from each part of our portfolio. The strength derived from our diversified holdings in listed equities, directly owned private companies and funds, helped to mitigate the effect of the pandemic.  Overall, our investments responded positively to the impact of Covid-19 on the operating environment to deliver good growth in revenues and earnings. The companies with a technology or healthcare focus have witnessed particularly high levels of demand for their products and services, leading to marked uplifts in growth, profits and valuations.

There were two notable adverse impacts on investment returns for the year. Caledonia supported an initial financial restructure of one of the Private Capital portfolio businesses, Buzz Bingo, which was particularly affected by the Government-enforced shutdown in the summer of 2020, before choosing not to participate in a further fundraising in March 2021. This resulted in the sale of our interest for a nominal sum as previously announced, creating a write-down in the year of £69m. In addition, with approximately 45% of our assets denominated in US dollars, the strengthening of Sterling by some 11% over the year negatively impacted the annual return by more than six percentage points.

Investment income in the year fell by 16% to £45m.  This was the result of a reduction in dividends received from portfolio companies and from the Quoted Equity Income portfolio. The revenue account of our income statement reflected this fall in income, with the pre-tax profit for the year down by 34% to £22m. Total pre-tax profit of £456m was recorded for the year, dominated by net gains on investments of £437m (prior year £206m loss).

Maintaining a strong balance sheet remains a key component of strategy, providing us with the flexibility to support our portfolio (especially the illiquid assets) without being forced to sell at a time not of our choosing. Caledonia's balance sheet remains strong, with minimal gearing and access to bank facilities of £250m. At the year-end there was a net debt position of £1m, consisting of £15m of drawn facilities and a cash balance of £14m. New or follow-on investments of £246m were made during the year alongside divestments totalling £138m.

Investment performance

Caledonia aims to grow NAVTR by 3-6% ahead of inflation over the short-term, leading to results over the long-term that exceed the FTSE All-Share index. However, we incentivise the management and the investment teams in line with these objectives on an absolute, rather than a relative, return basis. The table below shows our investment performance over one, three, five and ten years. Performance of 8-9% per annum over three, five and ten year period is ahead of the short-term target and long-term performance remains satisfactory and within the target range, significantly outperforming the FTSE All-Share index.

Years to 31 March	1 year	3 years	5 years	10 years
	%	%	%	%
NAVTR	25.9	28.2	53.4	129.2
FTSE All-Share	26.7	9.9	35.7	79.0
NAVTR v FTSE All-Share TR	-0.8	+18.3	+17.7	+50.2
Annualised
NAVTR	25.9	8.6	8.9	8.6
RPI	1.6	2.2	2.6	2.5
NAVTR v RPI	+24.3	+6.4	+6.3	+6.1
FTSE All-Share TR			6.3	6.0
NAVTR v FTSE All-Share TR			+2.6	+2.6

Strategy and allocation

The investment portfolio consists of the following three pools of capital:

Pool name	2021	2020	Strategic allocation
	%	%	%
Quoted Equity	32.2	32.1	35-50
Private Capital	37.2	34.2	35-45
Funds	28.6	25.2	20-30
Cash and other	2.0	8.5	+/-10
Net assets	100	100

The strategic allocation ranges shown in the table above are a guide to ensure that the portfolio remains proportionately balanced. During the year, the top end of the allocation to funds was increased by 5% to 30%.

The table below summarises the pool targets and strategic allocation:

Pool name	Description	Return requirements	Strategic allocation
Caledonia Quoted Equity	Capital strategy Income strategy	10% total return, no yield target 7% total return, 3.5% yield (on cost)	30-50%
Caledonia Private Capital	Majority and minority investments predominantly in UK mid-market companies with equity values of between £25m and £125m	14% total return, 5% yield	35-45%
Caledonia Funds	US and Asian private equity funds and funds of funds	12.5% total return	20-30%

Pool performance

Years to 31 March	1 year	3 years	5 years	10 years
Pool name	%	%	%	%
Quoted Equity	30.3	48.9	76.7	139.7
Capital portfolio	35.9	66.6	108.2	178.3
Income portfolio	17.5	16.3	23.0	n/a
Private Capital	23.2	12.5	42.6	153.7
Funds	34.8	50.6	100.3	247.4
Portfolio	30.0	36.0	69.7	166.4

Caledonia Quoted Equity

The total return of the Quoted Equity portfolio was 30.3% for the year. This strong performance reflected the significant rebound in global public equity markets and considered stock selection within both the Capital and Income portfolios, which delivered total returns of 35.9% and 17.5% respectively. The performance of the US public equities in both portfolios was particularly notable and was responsible for the majority of the returns. As can be seen in the table above, the three and five year performance of the Capital portfolio has been outstanding, with comparative five year returns from the S+P500 of 116% and FTSE100 of 32%.

Trading activity over the year has been limited, in line with our long-term investment approach. In the Capital portfolio Waters Corporation, a laboratory and software company, was the single significant disposal, alongside reduced positions in a small number of other holdings. The evolution of the Income portfolio has included developing new positions in Fortis Inc, a North American utilities business, and in international consumer business Reckitt and the sale of our holdings in Direct Line and Tritax Big Box.

Caledonia Private Capital

Caledonia's Private Capital portfolio includes significant positions in five UK businesses and one private European investment company. These six investments represent over 90% of its value. The portfolio recovered strongly and generated a total return of 23.2% for the year, including the absorption of the write-down of 69m relating to the holding in Buzz Bingo. The industrial and financial services businesses have adapted well to the Covid-19 environment and have been trading strongly. The impact of the pandemic has been felt more acutely by Liberation Group and, prior to disposal, Buzz Bingo. The investment in Cobehold and its diverse portfolio continues to perform well.

The holding in Buzz Bingo, the UK's biggest omni-channel bingo business, was sold for a nominal sum in March 2021 after a very challenging year. In summer 2020, following a period of retail club closures caused by the Government's response to the Covid-19 pandemic, the business successfully completed a company voluntary arrangement. Retail trading post re-opening was good but renewed opening restrictions through the late autumn and winter periods resulted in further significant losses which led Buzz Bingo to review its funding options once again. Caledonia, having carefully assessed the available investment opportunity, chose not to participate in the resulting funding round and we disposed of our interest. Lessons have been learnt from this disappointing outcome particularly in regard to the scale of business that we invest in and the structuring of debt within investee companies.

The Liberation Group, a pub, restaurant and drinks business with operations predominantly in the Channel Islands and the South West of the UK has been heavily impacted by Covid-19 restrictions. While the business traded well through the summer and autumn periods, it has suffered further Government-enforced closures of its pubs and restaurants over recent months. However, the UK brewery has operated throughout the period, supporting trade and growing online sales. The wholesale businesses in Jersey and Guernsey also remained open and traded strongly. In November 2020, Caledonia invested 36m of new equity to support the acquisition of a substantial portfolio of pubs from Wadworth, complementing existing UK sites, and various value accretive capital projects across the enlarged estate. This investment, backed by the strong trading performance last summer, reflects our confidence in the long-term prospects for the business.

The financial services businesses, Seven Investment Management ('7IM') and Stonehage Fleming, have developed well during the year. Both businesses have seen strong growth in the level of assets under management achieved through a mix of fund performance, fund inflows and acquisitions which has resulted in good trading performances. 7IM acquired Partners Wealth Management, a high net worth financial planning business, at the end of September, and Stonehage Fleming acquired Cavendish Asset Management in July 2020.

Deep Sea Electronics ('DSE') and Cooke Optics ('Cooke'), our industrial businesses, have traded successfully through the year. The performance of DSE has been particularly strong, with good growth, product development and cash generation. The control technology developed by DSE should have wide applications in the development of mixed source power provision, providing further growth opportunities. Performance at Cooke improved in the second half of the year due to better operational planning and controls, new senior appointments and an uplift in demand as film related activity returned to more normal levels.

The market for private businesses remains buoyant, and we regularly receive offers for our businesses from interested parties there being three such approaches of note in the past year.  These conversations often lead nowhere but can develop into a process which might conclude in a sale of a business.  The insight gained from these indicative offers is incorporated into our valuation process and can lead to a situation where the range of reasonable fair value estimates for a given asset can be significant. The private equity industry has raised a substantial amount of capital to deploy and we anticipate further mergers and acquisitions in the future.

Caledonia Funds

The total return for the Funds portfolio was 34.8% for the year. This reflects good underlying fund performance, which reverted to valuations based on managers' NAV, without the need to reflect the potential Covid-19 impact as was the case in March 2020. Caledonia's valuation policy is to utilise the latest valuations reported by managers of the funds in which it is invested.

Our fund investments are principally in third party managed private equity funds operating in the US and Asia. The feedback from the fund managers is currently positive, with a clear majority of the investee businesses progressing in line with, or ahead of, internal plans. The level of transactional activity picked up strongly in the second half of the year with several successful exits delivered through trade sales or IPOs. Over the year, Sterling has strengthened by 11% compared to the US dollar, creating a significant headwind to the positive returns from this portfolio.

The strategy for the Funds portfolio involves committing around US$100m per annum to new fund opportunities. During the year, 109m was invested and distributions of 87m were received. As noted earlier, there was a notable pick up in distributions as we progressed through the year, with 84% of the distributions received in the second half of the year.

Covid-19

Covid-19 has had a major impact on our businesses and the people who work within them. We have made every effort to keep our staff safe, motivated and able to fulfil their roles effectively despite the challenges they have faced from lockdowns, social distancing and remote working. We have deployed technology to allow staff to work effectively from home with business meetings and events held virtually.

We have equally been aware of the impact on the employees of our investee companies. The Caledonia Fund was established in spring 2020 to support employees of these business suffering financial hardship due to the pandemic. This fund has supported staff particularly at Buzz Bingo and Liberation Group, the two businesses most adversely affected by lockdown regulations over the past year.

Responsible Investment

As a long-term investor our aim is to identify companies that can generate sustainable growth. We believe that responsible investment and business success go hand in hand. We also understand that environmental, social and governance ('ESG') factors are important to our shareholders and broader stakeholders. Historically our stewardship activities have focused primarily on governance matters. Our intent is to build on this approach by fully incorporating ESG matters into our investment decision making and monitoring processes; we aim to progress this area over the coming year.

Outlook

The outlook for our financial year ending 31 March 2022 is dependent on the continued management of the Covid-19 pandemic and its economic impact around the world. The response by central banks has been fulsome and timely, ensuring that there has been sufficient liquidity in the financial system to allow its continued operation. A consequence might be increased volatility on any signs that this largesse might be tempered. We also remain appropriately cautious that the valuations of assets remain elevated. There are also nascent risks associated with higher inflation as pent up demand potentially exceeds supply and the effects of broken global supply chains and increasing domestic protectionism become more prevalent.

The majority of our assets are in a good position to withstand this challenging period of continuing uncertainty. We will maintain our considered approach to new investment opportunities and protecting our strong balance sheet. We believe that the portfolio is well placed to achieve our aims of growing net assets and dividends paid to shareholders over the long-term.

Will Wyatt

Chief Executive

Investments summary

Holdings over 1% of net assets at 31 March 2021 were as follows:

					Net
				Value	assets
Name	Pool	Geography	Business	£m	%
Deep Sea Electronics	Private Capital	UK	Control systems	193.0	8.7
Liberation Group	Private Capital	Jersey	Pubs & restaurants	127.7	5.7
Seven Investment Management	Private Capital	Jersey	Investment management	126.4	5.7
Stonehage Fleming	Private Capital	Guernsey	Family office services	115.5	5.2
Cobehold	Private Capital	Belgium	Investment company	112.3	5.0
Aberdeen US PE funds	Funds	US	Funds of funds	98.2	4.4
Cooke Optics	Private Capital	UK	Cine lens manufacturer	95.6	4.3
Axiom Asia funds	Funds	Asia	Funds of funds	72.5	3.3
Texas Instruments	Quoted Equity	US	Semiconductors	54.0	2.4
Watsco	Quoted Equity	US	Ventilation products	50.8	2.3
Microsoft	Quoted Equity	US	Software	50.6	2.3
Oracle	Quoted Equity	US	Software	48.4	2.2
Charter Communications	Quoted Equity	US	Cable communications	40.7	1.8
Stonepeak funds	Funds	US	Private equity funds	39.8	1.8
Asia Alternatives funds	Funds	Asia	Funds of funds	39.1	1.8
British American Tobacco	Quoted Equity	UK	Tobacco & Vaping	36.2	1.6
Spirax-Sarco	Quoted Equity	UK	Steam engineering	34.0	1.5
Polar Capital	Quoted Equity	UK	Fund manager	33.6	1.5
Thermo Fisher Scientific	Quoted Equity	US	Pharma & life science services	33.2	1.5
Fastenal	Quoted Equity	US	Industrial supplies	32.8	1.5
Hill & Smith	Quoted Equity	UK	Infrastructure	31.6	1.4
JF Lehman funds	Funds	US	Private equity funds	30.8	1.4
Decheng funds	Funds	Asia/US	Private equity funds	30.3	1.4
LYFE fund	Funds	Asia	Private equity funds	28.4	1.3
Unilever	Quoted Equity	UK	Consumer goods	28.2	1.3
BioAgilytix	Private Capital	US	Bioanalytical testing	26.2	1.2
Becton Dickinson	Quoted Equity	US	Medical technology	25.7	1.2
PAG Asia fund	Funds	Asia	Private equity funds	25.6	1.2
AG Barr	Quoted Equity	UK	Drinks manufacturing	22.1	1.0
Croda International	Quoted Equity	UK	Chemicals	21.4	1.0
Other investments				475.3	21.1
Investment portfolio				2,180.0	98.0
Non-pool investments				14.0	0.6
Cash and other				31.3	1.4
Net assets				2,225.3	100.0

Geography is based on the country of listing, country of domicile for unlisted investments and underlying regional analysis for funds.

Risk management

Effective risk management is a key component of the company's business model and assists in ensuring that the different parts of the group operate within strategic risk parameters. The board has overall responsibility for setting and monitoring the company's risk appetite.

Principal risks	Mitigation	Key developments
Strategic
Risks in relation to the appropriateness of the business model to deliver long-term growth in capital and income. Strategic risks include the allocation of capital between public and private equity, and in relation to geography, sector, currency, yield, liquidity, ESG factors and climate change.	The company's business model and strategy are reviewed periodically, against market conditions and target returns. The performance of the company and its key risks are monitored regularly by management and the board.	Approach to ESG and climate change under development, with commitment to fully integrate into corporate strategy in the current financial year. Quoted Equity strategy for Income portfolio implemented with emphasis on yield quality; partially complete and continuing in the current financial year. Private Capital focus now on driving value creation from existing portfolio of businesses. Annual net cash requirement for Funds pool diminishes as the portfolio matures.
Investment
Risks in respect of specific investment and realisation decisions. Investment risks include the appropriate research and due diligence of new investments and the timely execution of both investments and realisations for optimising value.	Investment opportunities are subject to rigorous appraisal and a multi-stage approval process. Investment managers have well-developed networks through which they attract proprietary deal flow. Target entry and exit events and prices are monitored and updated regularly, in relation to market conditions and strategic aims.	Quoted Equity pool has developed a "quality matrix" to guide robust investment decision making and ongoing monitoring. ESG and climate change considerations will be factored explicitly into investment decision making and monitoring in the current financial year. Funds portfolio commitment level supports detailed due diligence of existing and potential managers, supporting robust manager selection
Market
Risk of losses in value of investments arising from sudden and significant movements in market prices, particularly in highly volatile markets. Caledonia's principal market risks are therefore equity price volatility, foreign exchange rate movements and interest rate volatility.	Market risks and sensitivities are reviewed weekly with actions taken, where appropriate, to balance risk and return. A regular review of market and portfolio volatility is conducted by the board. Reviews also consider investment concentration, currency exposure and portfolio liquidity.	Quoted Equity pool operates a structured approach to market price movements; purchases only made when target stocks are in the correct price range and systematic reductions made to holdings when prices rise above target levels. Foreign exchange exposure reduced using hedging contracts in the second half of the year, which were then closed in March 2020. Balance sheet currently fully exposed to foreign exchange movement with use of hedging under periodic review in line with market movements.
Liquidity
Risk that liabilities cannot be met or new investments made due to a lack of liquidity. Such risk can arise from not being able to sell an investment due to lack of a market or from not holding cash or being able to raise debt.	Detailed cash forecasting for six months ahead is updated and reviewed weekly, including the expected drawdown of capital commitments. Loan facilities are maintained to provide appropriate liquidity headroom. The liquidity of the portfolio is reviewed regularly.	Significantly improved three year financial planning in place providing a more robust liquidity outlook. Committed banking facilities of £250m in place. Overdraft facilities renewed with RBSI and HSBC renewal underway. Short term capital requirements for Private Capital pool largely removed following decision to focus on existing portfolio businesses. Strong performance of Quoted Equity portfolios provides increased level of highly liquid assets.
Operational
Risks arising from inadequate or failed processes, people and systems or from external factors. Operational risks arise from the recruitment, development and retention of staff, systems and procedures and business disruption	Systems and control procedures are developed and reviewed regularly. They are tested to ensure effective operation. Appropriate remuneration and other policies are in place to facilitate the retention of key staff. Business continuity plans are maintained and updated as the business evolves, and in response to emerging threats.	Full review of approach to cyber security and technology undertaken using third party expertise. Limited areas for further improvements identified and implemented to mitigate risk of malicious threats. Business cyber security group established to raise awareness and champion new processes to limit vulnerabilities. Enhanced cyber security training and testing regime deployed to all staff. Programme of work underway to upgrade / replace key back office business systems to provide enhanced functionality and management information. Successful recruitment of senior staff into the finance team.
Global pandemic (Covid-19)
Operational risk arising from staff sickness and other restrictions adversely impacting critical business operations. Investment risk due to limitations on earnings growth and NAV performance from key investments, coupled with erosion of market confidence.	Operational risk mitigated by robust IT contingency planning, secure remote working and careful adherence to the latest government guidance. Increased frequency of investment reviews, particularly Private Capital businesses, to identify, assess and address pandemic related risks.	Remote, secure working swiftly introduced, supported with effective technology. Staff welfare and ongoing communication prioritised. Additional operational and financial support provided, as needed, for Private Capital businesses. Liquidity further enhanced to provide increased flexibility to respond to market conditions.
Regulatory and legal
Risk arising from exposure to litigation or fraud or failure to adhere to the tax and regulatory environment. Caledonia operates across a number of jurisdictions and in an industry that has been subject to increasing regulatory oversight.	Caledonia has internal resources to consider regulatory and tax matters as they arise: with professional advisers engaged where necessary to supplement internal knowledge in specialised areas. Caledonia is a member of the Association of Investment Companies and operates in line with industry standards. Regular staff training	Approach to ESG and climate change, subject to ongoing development, to be integrated into corporate strategy in the current financial year. Health and safety protocols developed and implemented for Covid-19 working in line with evolving government guidance.
EU/UK trade
Risk arising from a failure to reach a trade agreement with the EU adds cost to UK trade and negatively impacts economic growth. Potential volatility to public equity and foreign exchange markets due to uncertainty surrounding a trade agreement and its potential impact.	Continued monitoring of performance of directly held unquoted investments and business model exposure to potential EU/UK trade arrangements. Continued monitoring of public equity and foreign exchange market in response to EU/UK trade negotiations.	Private Capital businesses have adapted supply chain activity successfully to address new trading arrangements, without any significant adverse impact. No change required to head office operations. Continued monitoring of the potential impact of further EU/UK trade negotiations on our public equities and our Private Capital businesses.

Group statement of comprehensive income
for the year ended 31 March 2021

		2021			2020
		Revenue	Capital	Total	Revenue	Capital	Total
		£m	£m	£m	£m	£m	£m
Revenue
Investment income		44.6	-	44.6	53.4	-	53.4
Other income		0.1	0.8	0.9	-	-	-
Net gains and losses on fair value investments		-	437.0	437.0	-	(206.3)	(206.3)
Net gains and losses on fair value property		-	3.2	3.2	-	-	-
Total revenue		44.7	441.0	485.7	53.4	(206.3)	(152.9)
Management expenses		(18.9)	(7.6)	(26.5)	(17.2)	0.6	(16.6)
Profit/(loss) before finance costs		25.8	433.4	459.2	36.2	(205.7)	(169.5)
Treasury interest receivable		0.1	-	0.1	0.6	-	0.6
Finance costs		(2.7)	-	(2.7)	(2.1)	-	(2.1)
Exchange movements		(0.8)	-	(0.8)	(0.9)	-	(0.9)
Profit/(loss) before tax		22.4	433.4	455.8	33.8	(205.7)	(171.9)
Taxation		7.4	2.8	10.2	0.8	(1.8)	(1.0)
Profit/(loss) for the year		29.8	436.2	466.0	34.6	(207.5)	(172.9)
Other comprehensive income items never to be reclassified to profit or loss
Re-measurements of defined benefit pension schemes		-	2.3	2.3	-	1.1	1.1
Tax on other comprehensive income		-	(0.7)	(0.7)	-	(0.7)	(0.7)
Total comprehensive income		29.8	437.8	467.6	34.6	(207.1)	(172.5)
Basic earnings per share		54.3p	795.0p	849.3p	63.1p	-378.1p	-315.0p
Diluted earnings per share		53.6p	784.2p	837.8p	62.6p	-378.1p	-315.0p

The total column of the above statement represents the group's statement of comprehensive income, prepared in accordance with IFRSs adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

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

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

Statement of financial position
at 31 March 2021

		Group		Company
		2021	2020	2021	2020
		£m	£m	£m	£m
Non-current assets
Investments held at fair value through profit or loss		2,194.0	1,656.7	2,198.9	1,658.1
Investments in subsidiaries held at cost		-	-	0.9	0.9
Investment property		13.3	8.7	-	-
Property, plant and equipment		29.0	28.0	-	-
Deferred tax assets		8.4	1.0	6.1	-
Employee benefits		4.0	5.1	-	-
Non-current assets		2,248.7	1,699.5	2,205.9	1,659.0
Current assets
Trade and other receivables		3.4	6.6	37.7	36.4
Current tax assets		7.3	2.6	7.3	2.6
Cash and cash equivalents		14.2	114.7	14.5	112.6
Current assets		24.9	123.9	59.5	151.6
Total assets		2,273.6	1,823.4	2,265.4	1,810.6
Current liabilities
Trade and other payables		(26.4)	(30.0)	(34.9)	(30.0)
Employee benefits		(2.6)	(0.9)	-	-
Current liabilities		(29.0)	(30.9)	(34.9)	(30.0)
Non-current liabilities
Interest bearing loans and borrowings		(15.0)	-	(15.0)	-
Employee benefits		(2.9)	(5.2)	-	-
Deferred tax liabilities		(1.4)	-	-	-
Non-current liabilities		(19.3)	(5.2)	(15.0)	-
Total liabilities		(48.3)	(36.1)	(49.9)	(30.0)
Net assets		2,225.3	1,787.3	2,215.5	1,780.6
Equity
Share capital		3.2	3.2	3.2	3.2
Share premium		1.3	1.3	1.3	1.3
Capital redemption reserve		1.3	1.3	1.3	1.3
Capital reserve		1,979.1	1,541.3	1,979.8	1,543.2
Retained earnings		254.3	255.5	243.8	246.9
Own shares		(13.9)	(15.3)	(13.9)	(15.3)
Total equity		2,225.3	1,787.3	2,215.5	1,780.6
Undiluted net asset value		4055p	3259p
Diluted net asset value		4000p	3236p

The Company profit for the year ended 31 March 2021 was £464.5m (2020: £175.3m loss)

The financial statements were approved by the board and authorised for issue on 26 May 2021 and were signed on its behalf by:

Will Wyatt	Tim Livett
Chief Executive	Chief Financial Officer

Statement of changes in equity
for the year ended 31 March 2021

			Capital
	Share	Share	redemption	Capital	Retained	Own	Total
	capital	premium	reserve	reserve	earnings	shares	equity
	£m	£m	£m	£m	£m	£m	£m
Group
Balance at 31 March 2019	3.2	1.3	1.3	1,748.4	292.4	(44.6)	2,002.0
Total comprehensive income
Loss for the year	-	-	-	(207.5)	34.6	-	(172.9)
Other comprehensive income	-	-	-	0.4	-	-	0.4
Total comprehensive income	-	-	-	(207.1)	34.6	-	(172.5)
Transactions with owners of the company
Contributions by and distributions to owners
Share-based payments	-	-	-	-	(1.5)	-	(1.5)
Transfer of shares to employees	-	-	-	-	(37.2)	37.2	-
Own shares purchased	-	-	-	-	-	(7.9)	(7.9)
Dividends paid	-	-	-	-	(32.8)	-	(32.8)
Total transactions with owners	-	-	-	-	(71.5)	29.3	(42.2)
Balance at 31 March 2020	3.2	1.3	1.3	1,541.3	255.5	(15.3)	1,787.3
Total comprehensive income
Profit for the year	-	-	-	436.2	29.8	-	466.0
Other comprehensive income	-	-	-	1.6	-	-	1.6
Total comprehensive income	-	-	-	437.8	29.8	-	467.6
Transactions with owners of the company
Contributions by and distributions to owners
Share-based payments	-	-	-	-	5.5	-	5.5
Transfer of shares to employees	-	-	-	-	(2.8)	2.8	-
Own shares purchased	-	-	-	-	-	(1.4)	(1.4)
Dividends paid	-	-	-	-	(33.7)	-	(33.7)
Total transactions with owners	-	-	-	-	(31.0)	1.4	(29.6)
Balance at 31 March 2021	3.2	1.3	1.3	1,979.1	254.3	(13.9)	2,225.3
Company
Balance at 31 March 2019	3.2	1.3	1.3	1,754.2	282.7	(44.6)	1,998.1
Loss and total comprehensive income	-	-	-	(211.0)	35.7	-	(175.3)
Transactions with owners of the company
Contributions by and distributions to owners
Share-based payments	-	-	-	-	(1.5)	-	(1.5)
Transfer of shares to employees	-	-	-	-	(37.2)	37.2	-
Own shares purchased	-	-	-	-	-	(7.9)	(7.9)
Dividends paid	-	-	-	-	(32.8)	-	(32.8)
Total transactions with owners	-	-	-	-	(71.5)	29.3	(42.2)
Balance at 31 March 2020	3.2	1.3	1.3	1,543.2	246.9	(15.3)	1,780.6
Profit and total comprehensive income	-	-	-	436.6	27.9	-	464.5
Transactions with owners of the company
Contributions by and distributions to owners
Share-based payments	-	-	-	-	5.5	-	5.5
Transfer of shares to employees	-	-	-	-	(2.8)	2.8	-
Own shares purchased	-	-	-	-	-	(1.4)	(1.4)
Dividends paid	-	-	-	-	(33.7)	-	(33.7)
Total transactions with owners	-	-	-	-	(31.0)	1.4	(29.6)
Balance at 31 March 2021	3.2	1.3	1.3	1,979.8	243.8	(13.9)	2,215.5

Statement of cash flows
for the year ended 31 March 2021

		Group		Company
		2021	2020	2021	2020
		£m	£m	£m	£m
Operating activities
Dividends received		42.3	48.8	42.3	48.8
Interest received		2.3	1.7	2.3	1.7
Cash received from customers		0.1	-	-	-
Cash paid to suppliers and employees		(17.8)	(23.3)	(14.4)	(28.7)
Taxes received		0.1	0.2	0.1	0.2
Taxes paid		(0.1)	(0.1)	(0.1)	(0.1)
Group tax relief received		0.9	3.7	0.7	3.7
Group tax relief paid		-	(0.1)	(0.2)	-
Net cash flow from operating activities		27.8	30.9	30.7	25.6
Investing activities
Purchases of investments		(240.2)	(383.1)	(240.2)	(383.1)
Proceeds from disposal of investments		142.7	397.2	142.2	399.6
Purchases of property, plant and equipment		(3.5)	(2.7)	-	-
Net cash flow from/(used in) investing activities		(101.0)	11.4	(98.0)	16.5
Financing activities
Interest paid		(3.1)	(1.7)	(2.9)	(1.6)
Dividends paid to owners of the company		(33.7)	(32.8)	(33.7)	(32.8)
Proceeds from bank borrowings		65.0	10.0	65.0	10.0
Repayment of bank borrowings		(50.0)	(10.0)	(50.0)	(10.0)
Loan receipts from subsidiaries		-	2.5	-	2.5
Loan payments to subsidiaries		(4.1)	-	(7.8)	(1.0)
Purchases of own shares		(1.4)	(7.9)	(1.4)	(7.9)
Net cash flow used in financing activities		(27.3)	(39.9)	(30.8)	(40.8)
Net increase/(decrease) in cash and cash equivalents		(100.5)	2.4	(98.1)	1.3
Cash and cash equivalents at year start		114.7	112.3	112.6	111.3
Cash and cash equivalents at year end		14.2	114.7	14.5	112.6

Notes to the final results announcement

1. General information and basis of preparation

Caledonia Investments plc is an investment trust company domiciled in the United Kingdom and incorporated in England in 1928, under number 235481. 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.

Under the UK Corporate Governance Code and applicable regulations, the directors are required to satisfy themselves that it is reasonable to presume that the company is a going concern. The group balance sheet shows net current liabilities of £4.1m, as a result of trade payables due within 12 months. As at 31 March 2021 the group holds £730m of liquid assets and has access to £235m of undrawn committed banking facilities, £97.5m of which expires in July 2022 and £137.5m of which expires in May 2025.  The directors therefore believe the group will be able to meet these current liabilities as they fall due for at least 12 months from the date of approval of the financial statements.

The group has conducted a going concern assessment which considered future cash flows, the availability of liquid assets and debt facilities, banking covenant requirements and consideration of the risks arising from the Covid-19 pandemic over at least 12 months from the date of approval of these financial statements. In making this assessment a number of stress scenarios were developed. A severe but plausible scenario assumed: (a) reduction in income from quoted equities and privately held investments; (b) a significant fall in distributions from private equity funds; and (c) continued investment into private businesses. A stress scenario used the above assumptions and additionally assumed that (d) all outstanding private equity fund commitments are drawn.

Under these scenarios the group would have a range of mitigating actions available to it, including usage of banking facilities, disposal of some liquid assets and reduction in discretionary spend which would enable it to meet all of its liabilities as they fall due and still hold significant liquid assets over the assessment period. As a result of this assessment the directors are confident that the company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

2. Dividends

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

	2021		2020
	p/share	£m	p/share	£m
Final dividend for the year ended 31 March 2020 (2019)	44.5	24.4	43.2	23.7
Interim dividend for the year ended 31 March 2021 (2020)	17.0	9.3	16.6	9.1
	61.5	33.7	59.8	32.8

Amounts proposed after the year end and not recognised in the financial statements were as follows:

Proposed final dividend for the year ended 31 March 2021

45.9

25.2

The proposed final dividend for the year ended 31 March 2021 was not included as a liability in these financial statements. This dividend, if approved by shareholders at the annual general meeting to be held on 21 July 2021, will be payable on 5 August 2021 to holders of shares on the register on 2 July 2021. The ex-dividend date will be 1 July 2021. The deadline for elections under the dividend reinvestment plan offered by Link Group will be the close of business on 15 July 2021.

For the purposes of section 1158 of the Corporation Tax Act 2010 and associated regulations, the dividends payable for the year ended 31 March 2021 are the interim and final dividends for that year, amounting to £34.5m (2020 - £33.5m).

3. Earnings per share

Basic and diluted earnings per share

The calculation of basic earnings per share of the group was based on the profit/(loss) attributable to shareholders and the weighted average number of shares outstanding during the year. The calculation of diluted earnings per share included an adjustment for the effects of dilutive potential shares.

The profit/(loss) attributable to shareholders (basic and diluted) was as follows:

	2021	2020
	£m	£m
Revenue	29.8	34.6
Capital	436.2	(207.5)
Total	466.0	(172.9)

The weighted average number of shares was as follows:

	2021	2020
	000's	000's
Issued shares at the year start	55,374	55,374
Effect of shares held by the employee share trust	(507)	(490)
Basic weighted average number of shares in the year	54,867	54,884
Effect of performance shares, share options and deferred bonus awards	754	388
Diluted weighted average number of shares in the year	55,621	55,272

4. Operating segments

The following is an analysis of the profit/(loss) before tax for the year and assets analysed by primary operating segments:

	Profit/(loss) before tax		Total assets
	2021	2020	2021	2020
	£m	£m	£m	£m
Quoted Equity	174.0	(1.7)	716.1	574.0
Private Capital	150.0	(128.5)	826.8	611.3
Funds	165.9	(13.6)	637.1	450.1
Investment portfolio	489.9	(143.8)	2,180.0	1,635.4
Other investments	(4.2)	(9.1)	14.0	21.3
Total revenue/investments	485.7	(152.9)	2,194.0	1,656.7
Cash and cash equivalents	0.1	0.6	14.2	114.7
Other items	(30.0)	(19.6)	65.4	52.0
Reportable total	455.8	(171.9)	2,273.6	1,823.4

5. Share-based payments

In the year to 31 March 2021, participating employees in the performance share scheme were awarded options over 273,597 shares at nil-cost (2020 - 239,138 shares).

Also in the year to 31 March 2021, participating employees received deferred awards over 5,229 shares (2020 - 41,386 shares).

The IFRS 2 expense included in profit or loss for the year was £6.3m (2020 - £2.4m credit).

6. Net asset value

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

	2021			2020
	Net	Number		Net	Number
	assets	of shares1	NAV	assets	of shares1	NAV
	£m	000's	p/share	£m	000's	p/share
Undiluted	2,225.3	54,882	4055	1,787.3	54,839	3259
Share awards	-	754	(55)	-	388	(23)
Diluted	2,225.3	55,636	4000	1,787.3	55,227	3236

¹ . Number of shares in issue at the year-end is stated after the deduction of 491,716 (2020: 535,092) ordinary shares held by the Caledonia Investments plc Employee Share Trust.

Net asset value total return is calculated in accordance with AIC guidance, as the change in NAV from the start of the period, assuming that dividends paid to shareholders are reinvested at NAV at the time the shares are quoted ex-dividend.

	2021	2020
	p	p
Diluted NAV at year start	3236	3582
Diluted NAV at year end	4000	3236
Dividends payable in the year	62	60
Reinvestment adjustment2	11	(6)
	4073	3290
NAVTR over the year	25.9%	-8.1%

^{2 .} The reinvestment adjustment is the gain or loss resulting from reinvesting the dividends in NAV at the ex-dividend date.

7. Capital commitments

At the reporting date, the group and company had entered into unconditional commitments to limited partnerships, committed loan facility agreements and a conditional loan and purchase agreement, as follows:

	Group		Company
	2021	2020	2021	2020
	£m	£m	£m	£m
Investments
Contracted but not called	285.9	305.2	290.4	313.5
Conditionally contracted	75.6	75.6	75.6	75.6
	361.5	380.8	366.0	389.1

Amounts are callable within the next twelve months.  The group has conducted a going concern assessment which considered future cash flows, the availability of liquid assets and debt facilities, and consideration of the risks arising from the Covid-19 pandemic over the 12 month period required. In making this assessment a number of stress scenarios were developed. The most severe scenario included all outstanding private equity fund commitments being drawn. Under this severe scenario the group would have a range of mitigating actions available to it, including usage of banking facilities, disposal of some liquid assets and reduction in discretionary spend which would enable it to meet all of its liabilities and still hold significant liquid assets.

8. Performance measures

Caledonia uses a number of performance measures to aid the understanding of its results. The performance measures are standard within the investment trust industry and Caledonia's use of such measures enhances comparability. Principal performance measures are as follows:

Net assets

Net assets provides a measure of the value of the company to shareholders and is taken from the IFRS group net assets.

Net asset value ('NAV')

NAV is a measure of the value of the company, being its assets - principally investments made in other companies and cash held - minus any liabilities. NAV per share is calculated by dividing net assets by the number of shares in issue, adjusted for shares held by the Employee Share Trust and for dilution by the exercise of outstanding share awards. NAV takes account of dividends payable on the ex-dividend date.

NAV total return ('NAVTR')

NAVTR is a measure of how the net asset value per share has performed over a period, considering both capital returns and dividends paid to shareholders. NAVTR is calculated as the increase in NAV between the beginning and end of the period, plus the accretion from assumed dividend reinvestment during the period. We use this measure as it enables comparisons to be drawn against an investment index in order to benchmark performance. The calculation follows the method prescribed by the Association of Investment Companies ('AIC').

Total shareholder return ('TSR')

TSR measures the return to shareholders through the movement in the share price and dividends paid during the measurement period.

9. Financial instruments - private asset valuation

Caledonia makes private equity investments in two forms: direct private equity investments (the Private Capital pool) and investments into externally managed unlisted private equity funds and fund of funds (the Funds pool). The directors have made two estimates which they deem to have a significant risk of resulting in a material adjustment to the amounts recognised in the financial statements within the next financial year, which relate to the valuation of assets within these two pools.

For directly owned private investments (Private Capital pool), totalling £826.8m (2020 - £611.3m) valuation techniques using a range of internally and externally developed unobservable inputs are used to estimate fair value. Valuation techniques make maximum use of market inputs, including reference to the current fair values of comparator businesses that are substantially the same (subject to appropriate adjustments). For each asset, a range of valuation methods are considered, and methods judged most appropriate are used, taking into consideration the quantity and quality of data points available. Methods include, inter alia, consideration of indicative offers from third parties, applying an earnings multiple to the maintainable earnings of a business, and net assets, sometimes employing third-party net asset valuations.

For private equity fund investments (unlisted Funds Pool), totalling £627.5m (2020 - £437.4 m) held through externally managed fund vehicles, the estimated fair value is based on the most recent valuation provided by the external manager, usually received within 3-6 months of the relevant valuation date. Where required, valuations are adjusted for investments and distributions between the valuation date and the reporting date. These valuations depend upon the reasonableness of the fair value estimation made by third-party managers, which are assumed to be reliable in the absence of contrary information.

The following table provides information on significant unobservable inputs used at 31 March 2021 in measuring financial instruments categorised as Level 3 in the fair value hierarchy. Private company (Private Capital) assets have been disaggregated into categories as follows:

●	Assets in the large, earnings based category have an Enterprise Value of >£150m, and benefit from a reasonable number of comparative data points, as well as having sufficient size to make their earnings reliable and predictable.
●	The asset in the medium, earnings based category has an Enterprise Value of £50-£100m and has a more limited universe of comparable businesses available.
●	Assets in the smaller, earnings based category have an Enterprise value of <£50m. Their smaller size results in fewer data points due to a lack of available listed comparators, and makes them generally more vulnerable than larger assets to changes in economic conditions.
●	The asset in the large, leisure category is Liberation Group, which operates in a sector subject to significant uncertainty as at 31 March 2021.
●	Manager valuations are used for assets where the net asset method is employed.

For private company assets we have chosen to sensitise and disclose EBITDA multiple or tangible asset multiple inputs because their derivation involves the most significant judgements when estimating valuation, including which data sets to consider and prioritise. Valuations also include other unobservable inputs, including earnings and tangible assets, which are based on historic and forecast data and are less judgmental. For each asset category, inputs were sensitised by a percentage deemed to reflect the relative degree of estimation uncertainty, and valuation calculations re-performed to identify the impact.

Private equity fund assets (unlisted Funds Pool investments) are each held in and managed by the same type of fund vehicle, valued using the same method of adjusted manager valuations, and subject to broadly the same economic risks. They are therefore subject to a similar degree of estimation uncertainty. They have been sensitised at an aggregated level by 5% to reflect a degree of uncertainty over managers' valuations which form the basis of their fair value.

Description/ valuation method	Fair value	Unobservable input	Weighted average input	Input sensitivity	Change in valuation
	£m			+/-	+/- £m
Internally developed
Private companies
Large, earnings	434.9	EBITDA multiple	13.3x	10.0%	42.9 / (45.8)
Medium, earnings	95.6	EBITDA multiple	13.0x	12.5%	10.2 / (11.4)
Small, earnings	21.9	EBITDA multiple	3.9x	15.0%	2.4 / (2.4)
Large, Leisure, tangible assets	127.7	Tangible assets multiple	1	17.5%	25.8 / (27.6)
Net assets / manager valuation	146.7	Multiple	1	0.1x	14.7 / (14.7)
	826.8				96.0 / (101.9)
Non-pool companies	14.0
Total internal	840.8
Externally developed
Private equity fund
Net asset value	627.5	Manager NAV	1	5%	31.4 / (31.4)
	1,468.3				127.4 / (133.3)

10. Financial information

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2021 or 2020 but is derived from those accounts. Statutory accounts for 31 March 2020 have been delivered to the Registrar of Companies, and those for 31 March 2021 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 March 2021 will be delivered to shareholders on 18 June 2021 and made available for download from the company's website on that date. Also, a copy will be delivered to the Registrar of Companies in accordance with section 441 of the Companies Act 2006, following approval by shareholders.

The statutory accounts for the year ended 31 March 2021 include a 'Directors' statement of responsibility' as follows:

We confirm that, to the best of our knowledge:

-	the group and parent company financial statements, which have been prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole
-	the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces.

Signed on behalf of the board by:

Will Wyatt Chief Executive 26 May 2021

Tim Livett Chief Financial Officer 26 May 2021

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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 .

 

END

 

 

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