Interim Results - 6 Months to 30 September 1999

Caledonia Investments PLC 25 November 1999 INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999 Caledonia Investments plc, the diversified trading and investment company with a range of subsidiaries and associates and a portfolio of strategic and general investments, today announces its interim results for the six months ended 30 September 1999. GROUP RESULTS IN BRIEF 6 mths 6 mths Year 30 Sep 1999 30 Sep 1998 31 Mar 1999 £m £m £m Total operating profit 23.5 21.8 41.3 Non-operating items * 7.8 59.4 52.6 Profit before taxation 31.3 81.2 93.9 Shareholders' funds 801.8 719.5 793.3 Basic earnings per share 28.9p 69.6p 79.3p Adjusted basic earnings per share 18.2p 15.5p 34.7p Dividends per share 7.5p 7.0p 22.0p Net asset value per share 961p 863p 951p * For the six months ended 30 September 1999, non-operating items mainly reflect profit on the dilution of the shareholding in Close Brothers, and for the same period in 1998, the substantial profits which principally arose from the sale of Abacus and the reduction of the Close Brothers shareholding. Commenting on the results, Peter Buckley, Chairman, said: 'Adjusted earnings per share have advanced by 17%, aided by a boost from our trading operations. We have made a recommended offer for the 73% of Sterling Industries not already owned - the unwinding of the long standing cross-shareholding between Caledonia and Sterling should benefit all shareholders.' CHAIRMAN'S STATEMENT RESULTS Earnings per share for the six months to 30 September 1999, adjusted to exclude non-operating items and amortisation of goodwill, have risen from 15.5 pence to 18.2 pence. This improvement reflects an increase in trading profits from our subsidiaries, including a profit of £5.1m on the sale of development land in Oxford but no longer any contribution from Abacus, which was sold in August 1998. This increase is accompanied by lower investment income, partly due to changes in accounting for tax on dividends, and interest receipts. These, combined with reduced group overheads, result in an increased group operating profit of £11.1m compared with £9.2m. Our share of associated company profits amounting to £12.5m is virtually unchanged from last time. Non-operating items include a profit of £8.5m on the dilution of our stake in Close Brothers arising from its increased net asset value per share following its recent share placings, which have reduced our shareholding from 20.8% to 19.0%. The reported net asset value per share of 961 pence at 30 September compares with the figure at 31 March of 951 pence. Adjusted to reflect the market value of associates, these values amount to 1068 pence and 1070 pence respectively. Since 30 September, the overall market value of associates has shown a worthwhile increase. RECOMMENDED OFFER FOR STERLING INDUSTRIES PLC A separate announcement is being made today detailing a recommended offer to acquire the 73% of ordinary shares in Sterling Industries PLC which we do not already own. This offer is conditional upon the approval of the independent shareholders of Caledonia. Although there has been a long association between the companies, we consider that the small market float in Sterling shares and the 10% holding by Sterling in Caledonia has not helped the share price of either company and that the cross-shareholdings should be unwound. We believe that the engineering businesses within Sterling which hold interesting positions in niche global markets offer the prospect of improved returns in the medium term and that the scope to develop these businesses will be enhanced within the Caledonia group. Full particulars of the offer will be contained in a circular which will be posted to shareholders as soon as possible. SHARE BUY-BACK AUTHORITY In the circular to shareholders dealing with the offer for Sterling Industries we are proposing to seek approval, as now required by the Panel on Takeovers and Mergers, to enable us to buy-in our own shares. Given the large discount which currently applies to our share price in relation to underlying assets, we believe that the ability to buy-in our own shares should be one of the means at our disposal to improve this position for the benefit of all shareholders. REVIEW OF OPERATIONS Financial Close Brothers Group (19% associate) announced its 24th successive year of profit growth with a 10% advance to £76.3m despite the considerable expenditure on developing new operations within its chosen niche businesses. Its second half-year exceeded earlier indications with record profits and the group continues to make strong progress following the recent acquisitions of Rea Brothers, Warrior Finance and the property loan book of Granville Securities. Rathbone Brothers (13% investment) announced good figures for its latest six months to 30 June with both earnings per share and the interim dividend increased by 14%. Friends Ivory & Sime (8% investment) continues to make good progress and has recently announced improved interim profits and a welcome increase in its interim dividend. Funds under management now total £33bn. Industrial and services Amber Industrial Holdings, now a wholly owned subsidiary, reported an encouraging improvement at the operating profit level over the same period last year benefiting from first time contributions from recent acquisitions in the silicones field. Edinburgh Crystal (89% subsidiary) enjoyed improved performance and we have recently approved capital expenditure which will upgrade and modernise its production process. This will improve its competitive position ahead of anticipated consolidation in the sector. Sterling Industries (27% associate) has recorded lower profits due to a shortage of orders and one-off closure costs within the Thermal Process division. The Hydraulics division, with its growing market position, has broadly maintained profits. AHL Services Inc (9% investment) has continued its record of strong growth with earnings per share up by over 50% for the nine months to 30 September compared with the equivalent period in the previous year. Wallem (74% investment) has benefited from a gradual upturn in activity in South East Asia and is now reporting much improved results. Market conditions for Offshore Logistics (6% investment) which incorporates our interest in Bristow remain subdued following the recent mergers within the oil industry and offshore activity has only partially recovered following the period of low oil prices. Investment trusts English & Scottish Investors (28% associate) has maintained its recent improvement in performance. Powers taken to buy-in up to 15% of its equity have been judiciously exercised resulting in purchases of 5.3% to date. British Empire Securities and General Trust (17% associate) has completed a successful year. Its strategy of continuing to focus on undervalued asset situations, particularly in France and the investment trust sector, has resulted in performance well ahead of its benchmark. Leisure and media The Sloane Club (100% subsidiary) has enjoyed improved results. Radio Investments (49% associate) has made good progress in an active sector. During the period we increased our stake from 47% to 49% and we welcome an association with Guardian Media Group which has increased its shareholding to a similar size to our own. Sun International Hotels (17% investment) enjoyed a strong second quarter to 30 June benefiting from the highly successful Phase II Atlantis expansion in The Bahamas. The third quarter to 30 September has been affected by a disappointing debut from the refurbished property in Atlantic City and steps are being taken to improve this position. The Sun properties on Paradise Island were fortunate to receive no lasting damage from Hurricane Floyd and the tidy up has created the opportunity to enhance some of the facilities. Swallow Group (5% investment) has recently received a cash offer from Whitbread at 390 pence per share, which represents a 33% premium to the 30 September market price. Newscom (6% investment) has recently reported good results, including an increased dividend. Property and general Following the useful contribution to last year's profits from our land and residential property activities, we are pleased to report a £5.1m contribution to trading profits from a development land transaction in Oxford. We continue to look for opportunities in this field but it is not possible to predict the timing of such projects. DIVIDEND We continue to follow our policy of steadily increasing dividends and the directors have declared an increased interim dividend of 7.5 pence per share in respect of the year ending 31 March 2000 (1999 - 7.0 pence), at a cost of £6.2m (1999 - £5.8m). The dividend will be payable on 13 January 2000 to shareholders registered on 10 December 1999. OUTLOOK Given the weight of money seeking new investments and the volatility of markets, it has proved more difficult to find suitable opportunities at sensible prices. However, we still believe there is value to be found in some of the smaller companies unloved by the larger institutional investors and we have added to a number of positions in the period. We also believe that we should make a further commitment to the fast growing new technology sectors and are currently exploring increased involvement in this field. We believe that our measured approach remains the right course to follow. Enquiries: Peter Buckley, Chairman and Chief Executive Caledonia Investments plc Tel: 020 7481 4343 Issued by: Bill Trelawny / Charles Vivian Citigate Dewe Rogerson Limited Tel: 020 7638 9571 SUMMARY OF RESULTS BY CLASS OF BUSINESS Attributable Book value Valuation profits £m £m £m Financial 10.3 144.0 269.3 Industrial and services 2.3 109.6 107.6 Investment trusts 2.2 188.3 156.0 Leisure and media 1.1 157.1 154.3 Property and general 5.9 100.2 101.1 Cash and deposits 3.2 111.6 111.6 ------------------------------------ 25.0 810.8 899.9 Group overheads less other income (2.1) Minority interests 0.6 Unallocated net liabilities (9.0) (9.0) ------------------------------------ 23.5 801.8 890.9 ------------------------------------ The table above presents a summary of the results of the group by class of business. Attributable profits are the group's share of operating profit of subsidiaries and associates, and dividends and interest receivable from investments. The book value is the group's share of net assets of subsidiaries and associates, including capitalised goodwill, and investments at market value. The valuation column overlays the book value with the market value of associates, whilst unlisted subsidiaries are shown at book value throughout. UNAUDITED GROUP PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999 6 mths 6 mths Year 30 Sep 30 Sep 31 Mar 1999 1998 1999 £m £m £m Group turnover 42.3 28.0 58.2 ------------------------------------ Trading profit 6.9 3.0 5.0 Income from investments 3.9 4.9 8.5 Interest receivable 2.6 4.3 9.1 Other income 0.4 0.4 0.8 Group overheads (2.7) (3.4) (5.7) ------------------------------------ Group operating profit 11.1 9.2 17.7 Share of operating profit of associates 12.5 12.6 24.0 Amortisation of goodwill on acquisition of associates (0.1) - (0.4) ------------------------------------ Total operating profit 23.5 21.8 41.3 Profit on dilution of investment in associates 8.7 - - Profit on sale of operations 0.6 61.0 55.8 Interest payable (1.5) (1.6) (3.2) ------------------------------------ Profit on ordinary activities before taxation 31.3 81.2 93.9 Tax on profit on ordinary activities (6.6) (23.1) (27.6) ------------------------------------ Profit on ordinary activities after taxation 24.7 58.1 66.3 Minority interests (equity) (0.8) (0.5) (0.6) ------------------------------------ Profit for the financial period 23.9 57.6 65.7 Dividends (6.2) (5.8) (18.2) ------------------------------------ Profit retained for the financial period 17.7 51.8 47.5 ==================================== Earnings per share Basic 28.9p 69.6p 79.3p Diluted 28.8p 69.5p 79.2p Adjusted basic 18.2p 15.5p 34.7p Dividends per share 7.5p 7.0p 22.0p UNAUDITED GROUP BALANCE SHEET AT 30 SEPTEMBER 1999 30 Sep 30 Sep 31 Mar 1999 1998 1999 £m £m £m Fixed assets Intangible assets 7.2 1.3 6.5 Tangible assets 38.7 35.2 39.3 Investments Investment in associates 257.4 228.9 224.9 Other investments 397.4 318.6 408.0 ------------------------------------ 700.7 584.0 678.7 ------------------------------------ Current assets Stocks 12.3 15.2 11.8 Debtors 31.4 34.4 21.0 Short term deposits 117.1 153.2 147.8 Cash at bank and in hand 18.5 20.2 19.2 ------------------------------------ 179.3 223.0 199.8 ------------------------------------ Creditors falling due within one year Short term borrowings (9.6) (9.7) (12.1) Other creditors (33.0) (25.2) (42.2) ------------------------------------ (42.6) (34.9) (54.3) ------------------------------------ Net current assets 136.7 188.1 145.5 ------------------------------------ Total assets less current liabilities 837.4 772.1 824.2 ------------------------------------ Creditors falling due after more than one year Long term borrowings (0.6) (0.2) (0.7) Other creditors (3.9) (20.4) - ------------------------------------ (4.5) (20.6) (0.7) ------------------------------------ Provision for liabilities and charges Deferred taxation (29.4) (27.7) (29.1) ------------------------------------ 803.5 723.8 794.4 Minority interests (equity) (1.7) (4.3) (1.1) ------------------------------------ 801.8 719.5 793.3 ==================================== Capital and reserves Called up share capital 4.2 4.2 4.2 Share premium account 1.3 1.3 1.3 Capital redemption reserve 0.7 0.7 0.7 Revaluation reserve 181.9 153.3 205.2 Profit and loss account 613.7 560.0 581.9 ------------------------------------ Shareholders' funds (equity) 801.8 719.5 793.3 ==================================== Net asset value per share 961p 863p 951p UNAUDITED GROUP RESERVE MOVEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999 TOTAL RECOGNISED GAINS AND LOSSES 6 mths 6 mths Year 30 Sep 30 Sep 31 Mar 1999 1998 1999 £m £m £m Profit for the financial period 23.9 57.6 65.7 Realised gains and losses on sale of investments 5.3 11.8 18.3 Provision against investments 1.1 (4.3) (4.3) Movement in revaluation reserve (27.4) (125.0) (73.5) Tax on sale of investments (1.5) (0.4) 3.4 Exchange differences (3.4) (2.4) 7.0 Share of reserve movements of associates Realised gains and losses on sale of investments 7.7 25.3 30.5 Movement in revaluation reserve 5.6 (31.4) (35.7) Tax on sale of investments - (5.1) (5.4) Exchange differences (0.2) (0.5) (0.3) Other movements - (1.7) (3.6) -------------------------------------- Total recognised gains and losses 11.1 (76.1) 2.1 ====================================== RECONCILIATION OF SHAREHOLDERS' FUNDS 6 mths 6 mths Year 30 Sep 30 Sep 31 Mar 1999 1998 1999 £m £m £m Total recognised gains and losses 11.1 (76.1) 2.1 Dividends (6.2) (5.8) (18.2) -------------------------------------- 4.9 (81.9) (16.1) Goodwill on disposals written back 3.6 12.5 18.4 Goodwill capitalised into investments - - 3.0 Share of goodwill movements of associates - (0.4) (1.3) -------------------------------------- Net movement in shareholders' funds 8.5 (69.8) 4.0 Opening balance of shareholders' funds 793.3 789.3 789.3 -------------------------------------- Closing balance of shareholders' funds 801.8 719.5 793.3 ====================================== UNAUDITED GROUP CASH FLOW FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999 6 mths 6 mths Year 30 Sep 30 Sep 31 Mar 1999 1998 1999 £m £m £m Net cash inflow from operating activities Group operating profit 11.1 9.2 17.7 Depreciation and amortisation 1.6 1.5 2.9 Loss and provision against own shares - 0.3 0.8 Profit on sale of fixed assets (0.1) - (0.1) Tax credits on franked investment income - (0.5) (0.7) Investment income and interest accruals decrease 1.2 (0.8) (2.3) Stocks increase (0.3) (2.5) 1.0 Debtors increase (14.2) 1.2 2.7 Creditors increase 5.4 (0.7) 1.1 -------------------------------------- 4.7 7.7 23.1 -------------------------------------- Dividends from associates 3.4 10.5 14.0 -------------------------------------- Servicing of finance Interest paid - - (0.1) Dividends paid to minority shareholders - (0.2) (0.2) -------------------------------------- - (0.2) (0.3) -------------------------------------- Taxation (5.6) (0.3) (7.6) -------------------------------------- Capital expenditure and financial investment Purchase of tangible fixed assets (0.8) (2.1) (2.9) Sale of tangible fixed assets 0.3 0.1 0.2 Purchase of investments (30.7) (27.3) (43.6) Sale of investments 17.4 32.0 60.8 Loans to associates - (0.1) (0.1) -------------------------------------- (13.8) 2.6 14.4 -------------------------------------- Acquisitions and disposals Purchase of operations (1.4) (1.5) (15.3) Net cash acquired with operations - - 0.5 Investment in associates (3.0) - (11.1) Sale of operations (0.7) 49.9 47.1 Sale of interests in associates - 56.4 56.6 -------------------------------------- (5.1) 104.8 77.8 -------------------------------------- (16.4) 125.1 121.4 Equity dividends paid (12.4) (11.6) (17.4) Management of liquid resources 30.7 (108.5) (102.8) Financing (0.1) 0.2 - -------------------------------------- Increase in cash in the period 1.8 5.2 1.2 -------------------------------------- SUPPLEMENTARY INFORMATION TAXATION Taxation charged to the profit and loss account includes £3.6m (1998 - £3.9m) in respect of associated companies. EARNINGS PER SHARE Earnings per share is calculated in accordance with FRS 14. Basic earnings per share are based on 82,804,000 (1998 - 82,767,000) weighted average shares in issue during the period and diluted earnings per share is based on 82,905,000 (1998 - 82,894,000) shares, after adjusting for the effects of dilutive potential shares from employee share option schemes. Adjusted basic earnings per share before non-operating items and amortisation of goodwill, are considered to provide a more consistent indication of underlying operating performance. ANALYSIS OF CHANGES IN NET FUNDS Opening Exchange Cash flow Closing balance differences balance £m £m £m £m Cash at bank and in hand 19.2 (0.1) (0.6) 18.5 Bank overdrafts (11.9) - 2.4 (9.5) ----------------------------------------------- 7.3 (0.1) 1.8 9.0 Short term deposits 147.8 - (30.7) 117.1 Debt due within one year (0.2) 0.1 - (0.1) Debt due after more than one year (0.7) - 0.1 (0.6) ----------------------------------------------- 154.2 - (28.8) 125.4 ----------------------------------------------- YEAR 2000 The company has addressed the impact of the Year 2000 on its business and operations by reviewing the major issues to assess exposure. Plans have been put in place to seek to ensure the elimination of these exposures prior to the Year 2000. In particular, the company has a plan in place to ensure that group companies are Year 2000 compliant in all material respects. The company has also undertaken a programme of monitoring the Year 2000 compliance status of its significant associates and other investments. The incremental costs of group companies achieving Year 2000 compliance are not material to the group. Given the complexity of the problem, it is not possible for any organisation to guarantee that no Year 2000 problems will remain, because at least some level of failure may still occur. However, the directors believe that the group will achieve an acceptable state of readiness and will provide resources to deal promptly with significant failures or issues that may arise. BASIS OF PREPARATION AND ISSUE OF INTERIM REPORT The interim report has been prepared on the basis of the accounting policies set out in the 1999 group accounts and is unaudited. The interim report was approved by the board on 25 November 1999. The results for the year ended 31 March 1999 do not constitute the company's statutory accounts. The statutory accounts for that period, which received an unqualified audit report and did not receive a statement under section 237 (2) or (3) of the Companies Act 1985, have been filed with the Registrar of Companies. The interim report will be posted to all shareholders and copies will be made available to the public at the registered office of the company, Cayzer House, 1 Thomas More Street, London E1W 1YB.

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