Caledonia Regulatory News (CLDN)

Caledonia Investments plc

Half-year results for the six months ended 30 September 2017

Financial highlights

The decline in net assets of 2.7%, compared with the positive NAV total return of 1.1%, is principally due to the payment in August 2017 of a special dividend amounting to £55m.

Highlights

Will Wyatt, Chief Executive, commented:

"Our investment portfolio has delivered a 1.1% NAV per share total return in the six months, with positive contributions from the Unquoted and Funds pools. During the period, the US dollar weakened against sterling, creating a drag on our performance. We have maintained a robust flow of income, totalling £19.8m for the six months, supporting a 4.0% increase in our interim dividend.

"Stock markets and asset prices remain at levels which, for a value orientated investor such as Caledonia, offer few opportunities to deploy capital. We retain a healthy level of cash on our balance sheet, which was increased to over 12% of net assets by the sale of The Sloane Club. However, both quoted and unquoted markets remain fully priced and these conditions, aided by accommodative monetary policy, may remain for a considerable time."

23 November 2017

Enquiries

Management report

Results

Caledonia's net asset value per share total return ('NAVTR') was 1.1% over the six months ended 30 September 2017. The decline in net assets of 2.7%, compared with the positive NAVTR performance, is principally due to the payment in August 2017 of a special dividend amounting to £55m.

UK and European stock markets produced modest advances during the six months, with US and Asian markets producing strong returns. Conversely however, the US dollar weakened against sterling by 7.3%. Bond markets were weaker towards the end of September as markets anticipated somewhat tighter Central Bank monetary policy, demonstrated by the Federal Reserve raising US interest rates for the second time in June.

Our share price fell by 1.5% over the six months, partly reflecting the 100p and 39.9p per share special and ordinary dividends paid to shareholders in August. At 30 September the discount between NAV per share and the share price had narrowed to 17.8%, from 19.0% in March.

The board has declared an interim dividend of 15.5p, a rise of 4.0%.

Investment performance

We do not measure Caledonia's investment performance on a market-relative basis over the short term, partly due to the significant portion of our NAV which we commit to unlisted companies and private equity funds. These investments take time to accrue value and hence we believe short to medium term performance is best judged against an inflationary measure - we aim to achieve growth of between RPI +3% and +6%. Over the long term, which the board defines as ten years or more, this level of performance should lead to our NAVTR outperforming the FTSE All-Share Total Return index.

The table below shows our actual performance track record as at 30 September 2017:

Investment income in the six month period was £19.8m, a fall of 2.5% on the corresponding period last year. Management expenses attributed to revenue were £8.8m, down from £9.2m in 2016, reflecting cost reductions associated with our office refurbishment. We moved back into 30 Buckingham Gate in August 2017. Cash at 30 September was £143m, which, together with unutilised bank facilities of £250m, provided total liquidity of £393m.

Pool performance

Asset allocation

Quoted pool (£449m, 24% of net assets)

We invest in high quality companies that have compounding business models and barriers to entry and which make good use of capital. Experience shows that a concentrated and risk managed portfolio containing this type of company will deliver better risk adjusted returns than the market over the longer term.

The Quoted pool return was ‑0.3% for the period, including foreign exchange differences which were a ‑3.8% drag on performance. The pool's geographical exposure has changed little since 31 March 2017. Both the tobacco and oil and gas sectors were weak over the six months, which particularly affected our holdings in Bristow and British American Tobacco. However, strong performances by some of the consumer and industrial companies, such as Spirax Sarco, Waters Corporation and Thermo Fisher, offset these losses to produce a flat performance overall. We sold our holding in Colgate-Palmolive during the period under review.

We were net divestors during the period and the pool is now slightly below its target allocation range of 25‑40%. This reflects our cautious stance towards markets, which, at these levels, we believe offer low rates of return for new money invested.

Income pool (£221m, 12% of net assets)

A portfolio of global equities that produces a reliable and increasing income stream.

The total return for the Income pool was ‑2.7% for the period. Since its inception in 2011, the annualised performance of the pool has been 8%. The income yield is currently running slightly ahead of its target of 4.5%. The performance reflected the relative weakness of income stocks as investors favoured more cyclical growth sectors, such as miners and housebuilders. The pool's geographical exposure has changed little since 31 March 2017.

Unquoted pool (£551m, 30% of net assets)

We invest in unlisted businesses which require capital and an investor with a balance sheet who is able to provide a long term perspective. We invest in both majority and minority positions.

The total return for the Unquoted pool was 7.2% for the period. This was driven by strong performances from The Sloane Club, Cobepa and Seven Investment Management, the latter enjoying strong profit growth from increased assets under management. Gala Bingo witnessed a more difficult period, with admissions levels falling faster than anticipated and the impact of online competitors causing profitability to fall short of our expectations. This is being addressed through a new management team and online investment.

In June, we sold one-third of our holding in Cobehold (the holding company of Cobepa) for £51m, taking profit on the growth in value since we first invested in 2004. The business has achieved an IRR to Caledonia of 13.8% (a 3.2x multiple of money) over the 13 years since we purchased our original stake, ahead of the target that its management set for the business when they led its buy-out from BNP Paribas. This is an achievement to be proud of over such a long period of time and we remain very supportive of the team who continue to manage this business with such skill and dedication. Our residual holding, currently valued at £87m, continues to be a core part of the Unquoted pool and provides shareholders with diverse exposure to European, US and Asian unlisted businesses.

At 30 September, we were in discussions to sell our investment in The Sloane Club, the private members club located in Chelsea, London. The sale took place on 30 October 2017, delivering net proceeds to us of £80.2m. The Sloane Club has been a successful long term investment for Caledonia, having been acquired in 1991, and has delivered an IRR of 8.3% (a 3.2x multiple of money) over the 26 years of our ownership. In this half-year report, the investment has been revalued to the transaction price.

We made no new investments in the period, though deal flow remains healthy. However, we invested a further £5m in aggregate into three of our existing businesses, Liberation Group, Choice Care Group and Brookshire Capital.

Funds pool (£442m, 24% of net assets)

We invest in both private equity and quoted market funds, with an emphasis on providing exposure to areas of the world where we are less willing to invest directly.

The Funds pool produced a total return for the six months of 3.7%. Whilst some 85% of its holdings are dollar denominated and faced the same 7% currency headwind previously alluded to, there were some strong individual performances, most notably Capital Today China, whose holding in JD.com underpinned a 48% rise in value over the six month period. Some £50m was invested across the portfolio and £27m received back through distributions, with outstanding commitments of £295m. This included three new commitments totalling $67m to funds in the US. Over the medium term, our strategy is to rebalance the PE portfolio weighting to 75:25, US to Asia, reflecting the relative maturity of the PE markets in these regions. The quoted market fund portfolio currently represents some 40% of the pool's assets and provides a liquidity buffer for the outstanding PE commitments.

Dividend

The directors have declared an interim dividend of 15.5p per share. This represents a 4.0% increase over the equivalent dividend last year and will be paid to shareholders on 11 January 2018.

Outlook

Stock markets and asset prices remain at levels which, for a value orientated investor such as Caledonia, offer few opportunities to deploy capital. We retain a healthy level of cash on our balance sheet, which represented 7.7% of NAV at the half-year and has since been increased to 12.1% by the sale of The Sloane Club. We also have substantial borrowing capacity at our disposal. Current conditions, aided by accommodative monetary policy, may remain for a considerable time in the future. This has been discussed by our board, who are wholly supportive of our mildly defensive stance and our careful stewardship of shareholders' capital. We are not gazing into the future and predicting doom and gloom, but rather determining only to invest in appropriate assets at the right price. This may require some patience, but this is afforded by our balance sheet and long term horizon.

Portfolio summary

Holdings of 1% or more of net assets at 30 September 2017 were as follows:

Risks and uncertainties

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

The principal risks and uncertainties faced by the company are set out in the strategic report section of Caledonia's annual report 2017. External risks arise from political, legal, regulatory and economic changes. Strategic risks arise from the conception, design and implementation of the company's business model. Investment risks occur in relation to specific investment decisions, subsequent performance or concentration of exposure. Treasury and funding risks arise from counterparties, uncertainty in market prices and rates and liquidity availability. Operational risks arise from potentially inadequate or failed controls, processes, people or systems.

The principal risks and uncertainties identified in the annual report 2017 remain unchanged and each of them has the potential to affect the company's results during the remainder of the year ending 31 March 2018.

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

Going concern

The factors likely to affect the company's ability to continue as a going concern were set out in the annual report 2017. As at 30 September 2017, there have been no significant changes to these factors. Having reviewed the company's forecasts and other relevant evidence, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-year condensed financial statements.

Directors' responsibility statement

We confirm that to the best of our knowledge:

Signed on behalf of the board

Will Wyatt, Chief Executive

23 November 2017

Independent review report

to Caledonia Investments plc

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 which comprises the condensed group statement of comprehensive income, the condensed group and company statements of financial position, the condensed group and company statements of changes in equity, the condensed group and company statements of cash flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA').

Scope of review

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

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

Directors' responsibilities

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

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

Our responsibility

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

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

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

Tom Brown

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square, London E14 5GL

23 November 2017

Condensed group statement of comprehensive income

for the six months ended 30 September 2017

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

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

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

Condensed statements of financial position

at 30 September 2017

Condensed group statement of changes in equity

for the six months ended 30 September 2017

Condensed company statement of changes in equity

for the six months ended 30 September 2017

Condensed statements of cash flows

for the six months ended 30 September 2017

Notes to the condensed financial statements

1. General information

Caledonia Investments plc is an investment trust company domiciled in the United Kingdom. The address of its registered office is Cayzer House, 30 Buckingham Gate, London SW1E 6NN. The ordinary shares of the company are premium listed on the London Stock Exchange.

This condensed set of financial statements was approved for issue on 23 November 2017 and is unaudited.

The information for the period ended 30 September 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 March 2017 has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not draw attention to any matters by way of emphasis of matter and did not contain a statement under section 498(2) and (3) of the Companies Act 2006.

2. Accounting policies

Basis of accounting

This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the annual financial statements for the year ended 31 March 2017, which were prepared in accordance with IFRSs as adopted by the European Union.

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

Basis of consolidation

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

Going concern

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

Changes in accounting policies

As required by the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, this condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 March 2017.

Judgements and estimates

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

The significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 March 2017.

3. Dividends

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

The directors have declared an interim dividend for the year ending 31 March 2018 of 15.5p per share, totalling £8.5m, which has not been included as a liability in this condensed set of financial statements. This dividend will be payable on 11 January 2018 to holders of shares on the register on 1 December 2017. The ex-dividend date will be 30 November 2017.

The deadline for elections under the dividend reinvestment plan offered by Link Asset Services will be the close of business on 17 December 2017.

4. Provisions

During the prior period ended 30 September 2016 and the year ended 31 March 2017, the group and company provided an additional £0.1m of solvency guarantee provision.

5. Share capital

During the period, the company's Employee Share Trust sold 206,440 shares for £0.3m and purchased 181,497 shares for £5.4m in connection with the exercise of share options and calling of performance share and deferred bonus awards.

In the six months ended 30 September 2016, the company's Employee Share Trust sold 205,851 shares for £0.2m and purchased 147,971 shares for £3.5m in connection with the exercise of share options and calling of performance share and deferred bonus awards. The Employee Share Trust also purchased 300,000 shares from The Cayzer Trust Company Ltd for £7.3m.

In the year ended 31 March 2017, the company's Employee Share Trust sold 209,426 shares for £0.2m and purchased 151,546 shares for £3.6m in connection with the exercise of share options and calling of performance share awards. The Employee Share Trust also purchased 300,000 shares from The Cayzer Trust Company Ltd for £7.3m.

6. Net asset value per share

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

7. Operating segments

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

The performance of operating segments is assessed against group total revenue, which principally comprises gains and losses on investments and investment income. Reportable profit or loss is after 'Treasury income' and 'Other items', which comprise management and other expenses and provisions. Reportable assets equate to the group's total assets. Cash and cash equivalents, net of bank overdrafts, and other items are not identifiable operating segments.

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

8. Related parties

Other than noted below, the nature of related party transactions has not changed significantly from those described in the company's annual report for the year ended 31 March 2017. There were no transactions with related parties during the six months ended 30 September 2017 which had a material effect on the results or the financial position of the company or of the group.

Caledonia Group Services Ltd, a wholly-owned subsidiary of the company, provides management services to the company. During the period, £10.1m was charged to the company (30 September 2016 - £11.1m and 31 March 2017 - £22.9m).

During the prior period, the company's Employee Share Trust purchased 300,000 shares from The Cayzer Trust Company Ltd, which held 35.5% of the company's voting rights, at the prevailing market price, for £7.3m.

9. Capital commitments

At 30 September 2017, the company had undrawn fund and other commitments totalling £332.5m (30 September 2016 - £268.3m and 31 March 2017 - £329.0m).

10. Fair value hierarchy

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

Movement in Level 3 financial instruments was as follows:

The methods used to determine fair value investments are unchanged from those described in the annual report 2017. Listed investments are valued at bid price or the most recent transaction price. Unlisted companies are valued according to the International Private Equity and Venture Capital Valuation Guidelines (December 2015), using one of the following methods: price of recent investment, multiples or net assets. The valuation of fund interests is based on the latest fund managers' NAVs and other investments are valued using appropriate techniques.

11. Share-based payments

The company operates a performance share scheme and a deferred bonus plan. Details of these schemes were disclosed in the annual report 2017 and the basis of measuring fair value was consistent with those disclosures.

During the six months ended 30 September 2017, 226,176 awards were issued under the performance share scheme (30 September 2016 and 31 March 2017 - 220,825 awards). Compulsory deferred bonus awards over 52,664 shares were granted (30 September 2016 and 31 March 2017 - compulsory, voluntary and matching deferred bonus awards over 8,568, 2,087 and 10,655 shares respectively).

Expenses in respect of share-based payments in the period were £2.6m (30 September 2016 - £3.3m and 31 March 2017 - £6.4m).

12. Subsequent events

On 30 October 2017, the company sold its investment in The Sloane Club for £80.2m, after costs.

The fair value of The Sloane Club included in this condensed set of financial statements was stated at the net transaction price.

FTSE International Limited ('FTSE') © FTSE 2017. 'FTSE®' is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

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. Neither the contents of the company's website, nor the contents of any website accessible from hyperlinks on the company's website (or any other website) is incorporated into, or forms part of, this announcement.