Return of funds

Caledonia Investments PLC
15 March 2004


                           Caledonia Investments plc

            Proposals for a return of funds to ordinary shareholders

The Board of Caledonia Investments plc ('Caledonia') is pleased to announce:

•  proposals for an elective return of funds to ordinary shareholders in
respect of part of their shareholdings; and

•  that it has been informed that a conditional agreement has been
reached by The Cayzer Trust Company Limited ('CTC'), a 37.7% shareholder in
Caledonia, to buy out a minority group of CTC shareholders who have for some
time been seeking a restructuring of CTC and Caledonia.


Under the terms of the proposed return of funds, which will only proceed if a
number of conditions are met, all Caledonia ordinary shareholders will be
offered the opportunity to receive a special dividend on terms that they give up
part of their shareholdings. The special dividend will be set at a fixed
discount of 18% to Caledonia's net asset value per share and therefore this
proposed return of funds is expected to enhance Caledonia's net asset value per
share.


There will be no obligation on shareholders (other than CTC) to elect to
participate in the return of funds.  Shareholders will want to consider both the
potential increase in net asset value per share which would result from the
return and Caledonia's investment strategy which has delivered significant
outperformance.  There will also be tax considerations to be assessed.


Tim Ingram, Chief Executive of Caledonia, comments:

 'I greatly welcome these proposals and believe that they will strengthen our
stability without affecting our business model which has delivered significant
outperformance for all Caledonia shareholders.'

                                                                   15 March 2004


ENQUIRIES:

Caledonia                                      Tel: [phone] (today)

Tim Ingram, Chief Executive               Tel: [phone] (thereafter)

College Hill                                            Tel: [phone]

Tony Friend

Alex Sandberg


                           CALEDONIA INVESTMENTS PLC

            Proposals for a return of funds to ordinary shareholders


A minority group of shareholders ('Minority Group') in The Cayzer Trust Company
Limited ('CTC'), a 37.7% shareholder in Caledonia Investments plc ('Caledonia'),
have for some time been seeking to restructure  CTC and Caledonia in order to
realise their shareholdings in CTC.  This situation has had a destabilising
impact on Caledonia and the Board of Caledonia has been encouraging CTC to find
a satisfactory solution.


Following discussions between CTC and the Minority Group on ways of resolving
the situation, CTC has informed Caledonia that it has reached a conditional
agreement on terms to buy out the Minority Group.  CTC has requested Caledonia's
support through a return of funds to Caledonia's shareholders, the proceeds from
which CTC would in turn use as a contribution to the funding of the buy-out.


Those members of the Caledonia Board who have no connections with CTC, and  who
include independent non-executive Directors, (the 'Independent Directors'), with
the benefit of advice from N M Rothschild & Sons Limited and Cazenove & Co. Ltd,
believe that it is in the interests of Caledonia to support CTC in this respect.
In forming this view, the Independent Directors have taken into account the
following considerations:

•  any return of funds should only be made if it would not have any
material adverse impact upon the strategic objectives of Caledonia or its
financial robustness;

•  any return of funds should be enhancing to Caledonia's net asset value
per share;

•  any return of funds should be made available on identical terms to all
ordinary shareholders of Caledonia and on an elective basis only; and

•  any proposal should be expected to resolve the destabilising effects
on Caledonia of the Minority Group's actions as significant shareholders in CTC.


CTC has informed Caledonia that the implementation of its agreement to buy out
the Minority Group's interest in CTC would involve a scheme of arrangement of
CTC and an elective capital reduction offered to all CTC shareholders.  The
Minority Group hold approximately 23% by value of the total ordinary and
preferred ordinary share capital of CTC. In order to buy out the Minority Group
and other shareholders in CTC who may also elect to realise all or part of their
investment in CTC on the same basis as the Minority Group, CTC estimates that it
would, based on valuations as at 29 February 2004 and the expected level of
acceptance by its shareholders, require an additional amount of around £64
million, which it is proposing to raise through the proposed return of funds
from Caledonia.  CTC's scheme of arrangement and elective capital reduction
would therefore be conditional, inter alia, upon Caledonia's support.


The Board of Caledonia welcomes the prospect of a resolution of the shareholder
issues in CTC and believes that this should enhance the stability of the
shareholder base of Caledonia which, in the opinion of the Board of Caledonia,
would be to the benefit of all Caledonia's shareholders.


                          CALEDONIA INVESTMENTS PLC

            Proposals for a return of funds to ordinary shareholders


The proposed return of funds by Caledonia would take the form of an elective
special dividend and capital reduction. It is expected that each shareholder of
Caledonia would be offered the opportunity to receive a special dividend on up
to two out of every nine shares held. The special dividend per share would be an
amount equal to Caledonia's net asset value per share calculated on a date
immediately after completion of the election period in accordance with a
specified formula, less a discount of 18%.  Shares on which a shareholder elects
to receive the special dividend would then be cancelled for no consideration
pursuant to a Court approved reduction of capital.


The Board of Caledonia has received undertakings from the holders of 6.7% of
Caledonia's share capital, who are also members of the Cayzer family concert
party, confirming that they would not take up such an elective special dividend
by Caledonia. Based on valuations as at 29 February 2004 and taking into account
the undertakings referred to above, a two for nine elective special dividend
would result in a maximum return of funds of approximately £157 million,
assuming that all other shareholders of Caledonia were to elect to receive the
special dividend.  However, the Board of Caledonia would expect the level of
elections to be less than this.


The elective special dividend would be financed from the internal cash resources
of Caledonia supplemented by additional borrowings and, to this end, Caledonia
has recently increased its committed bank facilities to £200 million. The return
of funds, if implemented, would be at a significant discount to net asset value
and therefore the net asset value per share after the elective special dividend
and capital reduction is expected to be enhanced. On a two for nine basis and
based on valuations as at 29 February 2004, the enhancement of net asset value
per share would be between 1.5% (if only CTC were to take up the special
dividend) and 4.6% (if all Caledonia's shareholders, other than the holders of
6.7% of Caledonia's share capital referred to above, were to take up the special
dividend).


There is no certainty that these matters will proceed to a successful
conclusion.  Caledonia's proposed elective special dividend and reduction of
capital would be subject to the passing of special resolutions at an
Extraordinary General Meeting and a Class Meeting of Caledonia's ordinary
shareholders, the approval of the Court to Caledonia's reduction of capital and
CTC's offer to CTC shareholders being successful.  CTC has undertaken to vote in
favour of the necessary resolutions and to elect to receive its maximum allowed
special dividend, subject to its own shareholders' approval to the CTC scheme of
arrangement.  The buy-out of the Minority Group in CTC is subject to CTC's offer
to its shareholders being successful, the receipt of necessary approvals from
CTC shareholders and approvals of the Court.


The timescale of satisfying these conditions is such that no return of funds to
Caledonia shareholders will occur before June 2004.  A circular detailing the
proposals will be sent to Caledonia's shareholders in due course, but in any
case not before late April 2004, by which time the outcome of CTC's offer to its
shareholders is expected to be known.


                           CALEDONIA INVESTMENTS PLC

            Proposals for a return of funds to ordinary shareholders

There will be no obligation on shareholders (other than CTC) to elect to
participate in the return of funds.  Shareholders will want to consider both the
potential increase in net asset value per share which would result from the
return and Caledonia's investment strategy which has delivered significant
outperformance.  There will also be tax considerations to be assessed.


The Board of Caledonia is also pleased to report that the Total Shareholder
Return ('TSR') on Caledonia shares continues to show strong outperformance
against the FTSE All Share Total Return index as the table below demonstrates.


Total Shareholder Return to 29 February 2004 #+


                                  Caledonia          FTSE All Share        Outperformance

Short Term (1 year)                +66.6%                +31.9%                +34.7%

Medium Term (5 years)              +82.9%                 -8.8%                +91.7%

Long Term (10 years)               +146.3%               +84.8%                +61.5%

# Source data prepared by Fundamental Data Limited on behalf of AITC Services
Limited.

+ The price of shares and the income from them may go down as well as up.  Past
performance is no guarantee of future performance. Under no circumstances should
this information be considered as an offer, or solicitation to deal in
investments.


N M Rothschild & Sons Limited ('Rothschild'), which is authorised and regulated
in the United Kingdom by the Financial Services Authority, is acting for
Caledonia in connection with the proposals for a return of funds and no one else
and will not be responsible to anyone other than Caledonia for providing the
protections offered to clients of Rothschild nor for providing advice in
relation to the proposals for a return of funds.

Cazenove & Co. Ltd, which is authorised and regulated in the United Kingdom by
the Financial Services Authority, is acting exclusively for Caledonia and no-one
else in connection with the proposals for a return of funds by Caledonia and
will not be responsible to anyone other than Caledonia for providing the
protections offered to clients of Cazenove & Co. Ltd nor for providing advice in
relation the proposals for a return of funds by Caledonia.


                           CALEDONIA INVESTMENTS PLC

            Proposals for a return of funds to ordinary shareholders


NOTES TO EDITORS


Caledonia


Caledonia is a long established investment company with international scope
listed on the London Stock Exchange.  Since April 2003 Caledonia has been
classified in the AITC Global Growth sector of investment trusts where its
investment performance puts it in the top decile over 1, 3 and 5 years and the
top quartile over 10 years (to 29 February 2004 - the most recent date for which
AITC data is available).  Caledonia has a policy of delivering progressive
annual dividends with a 36-year record of unbroken annual dividend increases.
Through holding a diversified portfolio, Caledonia aims to maintain a medium
overall risk position.


At 29 February 2004, Caledonia had an unaudited Net Asset Value of 1272p per
ordinary share.  Based on the share price as at the end of February 2004 the
discount to its Net Asset Value per share was 16.2%.


Caledonia's strategy is to focus on a portfolio of around 30 to 40 principal
investments, where it has significant and influential stakes with a policy that
at least 50% of the total portfolio should be in quoted securities or other
liquid assets.  New investments will typically be in the range of £10 million to
£25 million.  Careful control is exercised over costs, notwithstanding
Caledonia's active and participative management style.  The Board believes that
Caledonia has a long established and valuable reputation for being a supportive
long term investor, which brings a strong deal flow of opportunities not always
available to others.


Caledonia's investments are focused on a selected range of sectors where it has
good in-house knowledge that can add value to management of investee companies.
Where particular expertise is not held in-house, investments may be made through
third party managed funds where Caledonia will often seek a significant stake in
the management company.


Caledonia's selected sectors are Financial: comprising 35% of total assets,
including holdings in Close Brothers, Rathbone Brothers and ISIS Asset
Management; Leisure and Media: comprising 18% of the total assets, including
holdings in Kerzner International and The Sloane Club; Managed General Funds:
comprising 18% of the total assets including holdings in British Empire
Securities and a fund managed by Aberforth Partners; Industrial and Services:
comprising 14% of the total assets, including investments in Offshore Logistics
and Paladin Resources; Property: comprising 9% of the total assets, including a
holding in Quintain Estates; and Other: comprising 6% of the total assets.   The
percentages of the total assets quoted are as at 29 February 2004.


Caledonia is managing its affairs with a view to qualifying as an investment
trust.  As such it is not subject to liability for corporation tax on chargeable
gains.  As a result, Caledonia believes it will be able to build greater value
for shareholders and be more appealing to retail shareholders which ultimately
should contribute towards a lower discount of Caledonia share price to Net Asset
Value per share.


Shown below is a table# illustrating how the value of £100 invested in Caledonia
over a period of 1 year, 3 years, 5 years and 10 years to 29 February 2004+ (the
latest date for which all comparative data is available) compares with an
equivalent theoretical investment in:



(i)    The Association of Investment Trust Companies ('AITC') Global Growth 
       weighted average index

(ii)   The FTSE All-Share Total Return Index, and

(iii)  UK Savings 25,000*


Period invested to 29 February 2004


                                                              1yr           3yr           5yr          10yr

                                                                £             £             £             £

Caledonia                                                   166.6         136.7         182.9         246.3

AITC Global Growth                                          133.2          81.5         103.9         160.7

FTSE All-Share Index                                        131.9          85.7          91.2         184.8

UK Savings 25,000*                                          101.9         107.2         115.3         144.2



As can be seen in the table above, £100 invested in Caledonia shares would have
generated a significantly higher return over 1 year, 3 years, 5 years and 10
years than alternative investments in either the overall AITC Global Growth
Investment Trust sector, the FTSE All-Share Index or an index representative of
the building society industry.


# Source data prepared by Fundamental Data Limited on behalf of AITC Services
Limited.

+ The price of shares and the income from them may go down as well as up.  Past
performance is no guarantee of future performance. Under no circumstances should
this information be considered as an offer, or solicitation to deal in
investments.


* UK Savings 25,000 is an index compiled from an aggregate of 20 bank building
society rates to represent the industry, for a deposit of £25,000 up to 90-day
notice accounts.


Caledonia is a member of the Association of Investment Trust Companies (AITC).


For further information please visit www.caledonia.com


                      This information is provided by RNS
            The company news service from the London Stock Exchange