TIDMCLDN
RNS Number : 8978O
Caledonia Investments PLC
06 October 2023
Caledonia Investments plc
Unaudited net asset value and portfolio update
Caledonia Investments plc (" Caledonia ") announces that its
unaudited diluted net asset value per share (" NAV ") as at 30
September 2023, calculated on a cum-income basis, was 5203p. This
incorporates the biannual revaluation of the Private Capital
portfolio.
The NAV total return (" NAVTR ") for the six months to 30
September 2023 was 3.7%. A final dividend of 49.2p per ordinary
share for the year ended 31 March 2023 was paid to shareholders on
3 August 2023, amounting to a payment of GBP27m.
This announcement provides a further update on Caledonia's
portfolio and should be read in conjunction with the factsheet
dated 30 September 2023 and released on 6 October 2023, a copy of
which is available at www.caledonia.com .
Summary
All three pools generated good, positive returns in the first
half of the year. The impact of foreign exchange rate movements was
limited, with Sterling weakening by 1.3% against the US dollar and
strengthening by 1.3% against the Euro in the period.
The Quoted Equity pool produced a return of 2.8%, reflecting the
mixed performance of global public equity markets. The Private
Capital portfolio produced a return of 5.9% following the biannual
revaluation of our holdings, reflecting the contractually agreed
disposal of Seven Investment Management ("7IM") and that most of
the investee businesses are performing well. The Funds portfolio
returned 4.6% based on modest valuation growth across both our
Asian and North American funds, although there has been a notable
slowdown in the level of fund distributions in the period
reflecting reduced market transaction activity.
Performance for the first half is summarised in the table
below.
Caledonia pool per f o rmance
Net asset value - Half Year to 30 September 20 23
GBPm NAV Net Capital Other NAV Income Total
31/3/23 investment gains 30/9/23 Return
/(disposal) /
(losses)
Quoted Equity 836.9 16.5 11.5 - 864.9 12.0 2.8%
Private Capital 824.0 156.7 44.2 2.1 1,027.0 11.6 5.9%
Funds 873.8 49.7 39.6 - 963.1 1.6 4.6%
--------- ------------- ---------- ------- --------- ------- --------
Portfolio 2,534.7 222.9 95.3 2.1 2,855.0 25.2
-------
Net Cash/(Debt) 221.6 (222.9) - (18.8) (20.1)
Other assets 41.7 - - (1.4) 40.3
Net assets 2,798.0 - 95.3 (18.1) 2,875.2 NAVTR 3.7%
--------- ------------- ---------- ------- --------- --------
Caledonia has continued to invest and dispose of assets, in line
with our active approach to portfolio management. The movement in
net debt in the first half of the year was GBP243m, largely
reflecting net investments made by all three pools and, most
significantly, the acquisition of a majority stake in the European
division of AIR-serv in April 2023 by Private Capital. The Quoted
Equity pool made significant additions to its holdings in three
companies, refined positions in a number of others and reduced
positions in two high performing stocks, creating a net investment
outflow of GBP17m. The Funds pool has seen an increased level of
drawdowns, including the purchase of secondary positions in two
Decheng funds at attractive levels of discount, and only modest
fund distributions, resulting in a net cash outflow of GBP50m in
the period.
There was a notable reduction in cash in the first half of the
year to support investment activity. However, with the bulk of the
company's bank facilities undrawn and the c.GBP255m proceeds of the
7IM disposal likely to be received in the second half of the year,
the total liquidity position remains healthy. Caledonia's GBP250m
banking facilities include GBP137.5m expiring in November 2027,
with the balance of GBP112.5m expiring in July 2025.
Caledonia Quoted Equity - Capital and Income portfolios (30% of
NAV)
The total return on the Quoted Equity pool was 2.8% over the
first half of the year. This outcome reflected the mixed
performance of major markets during the period with technology
stocks being in favour and US indices moving more positively than
the UK, together with muted performance in Asia.
The Capital portfolio delivered a return of 4.6%. Key stocks
Hill & Smith, Charter Communications, Microsoft, Oracle and
Watsco delivered very strong returns ranging from 10% to 30%, in
contrast to the first half of the previous financial year. However,
these gains were partially offset by notable price reductions for
Croda International, Spirax Sarco, Texas Instruments and Thermo
Fisher Scientific.
The Income portfolio delivered a return of -2.2% with the
majority of holdings recording adverse share price movements. These
adverse returns were partially offset by stronger performance from
RELX, Watsco and Sabre. The performance of Sabre reflects premium
growth following a difficult trading period last year.
Trading activity remained limited, in line with our long-term
investment approach, with increases in our holdings in Symrise,
Croda International and RELX. We sold down a portion of our
holdings in Oracle and Watsco, following a period of strong share
price appreciation. Other activity was restricted to refining
positions in existing investments resulting in our Income portfolio
moving closer to its target of GBP250m of invested cost.
Caledonia Private Capital (36% of NAV)
Caledonia's Private Capital portfolio is dominated by
significant positions in five UK-centric businesses and one private
European investment company. These six investments represent over
90% of the pool's value. Investee companies are revalued in March
and September each year. The portfolio generated a total return of
5.9% in the first half of the year. The five UK centric businesses
are well-established and have strong market positions. With the
exception of Cooke Optics, as outlined below, all are growing,
profitable and cash generative. Excluding 7IM, the remaining four
businesses are valued on an earnings multiple basis, with multiples
in the range 9 to 14 times current year earnings. Gearing levels
are modest, with net debt of approximately 2 times earnings before
interest, tax, depreciation and amortisation ("EBITDA").
In early September 2023, Caledonia announced that we had agreed
terms for the sale of our majority stake in 7IM, a vertically
integrated retail wealth management business, to Ontario Teachers'
Pension Plan Board. The transaction is subject to change in control
approval by the Financial Conduct Authority and is expected to
complete in late 2023 or early 2024. Subject to the exact timing of
completion, we expect to receive cash proceeds of c.GBP255m, net of
transaction expenses, for the sale of our ordinary and preference
shares in 7IM. The valuation at the end of September of GBP248m,
reflects expected cash proceeds less a 3% discount to equity value
in recognition of the very limited degree of transaction execution
risk. 7IM generated a return of 28.0% in the first half of the
year.
Cobepa, the Belgian based investment company, owns a diverse
portfolio of private global investments. The majority of the
businesses within the Cobepa portfolio continue to develop well,
with many delivering strong performance and valuation progression.
Two significant disposals, one of which completed in the period,
have been agreed which, together with progress from portfolio
companies, supported the overall modest uplift in valuation. The
valuation of Caledonia's holding of Cobehold, the holding company
of Cobepa, was GBP179m at the end September, a return of 3.1% for
the first half of the year.
Stonehage Fleming, the international multi-family office,
continues to deliver good earnings growth across both the Family
Office and Investment Management businesses. The former has seen a
positive combination of new client wins and increased activity
levels with existing clients; the latter has felt the benefit of
recovering equity markets. Valuation at the end of September was
GBP157m, a return of 11.7% for the first half of the year.
AIR-serv, a leading designer and manufacturer of air, vacuum and
jet wash machines, which it provides to fuel station forecourt
operators across the UK and Western Europe, was acquired in April
2023. The business is trading well with earnings slightly ahead of
expectations and demonstrating good year on year growth. The
valuation has been maintained at the equity purchase cost of
GBP143m, generating no return for the period. The position will be
reviewed in March 2024.
Liberation Group, an inns and drinks business with a pub estate
stretching from Southwest London to Bristol and the Channel
Islands, has traded slightly below expectations through the spring
and summer. It has been adversely impacted by the cost of living
crisis reducing consumer discretionary incomes, sustained cost
inflation (particularly UK energy costs) and poor UK weather
affecting peak early-summer trading months. However, the
integration of the Cirrus Inns business, whilst not complete, has
been progressing well. The valuation at the end of September was
GBP135m, a return of 2.3% for the first half of the year.
Cooke Optics, a leading manufacturer of cinematography lenses,
has been heavily impacted by the Hollywood writers' strike which
started in early May 2023 and the subsequent actors' strike. With
film and TV production severely affected, Cooke has seen a
subsequent fall in sales and a resulting reduction in earnings. We
anticipate that these industrial disputes will be resolved, with
the writers' strike appearing to have concluded recently, and
product demand will return. However, the timing and nature of a
recovery in financial performance is uncertain. This is reflected
in our valuation at the end of September of GBP102m, which includes
a 15% equity discount to reflect this matter. The equity return is
-22.7% for the first half of the year.
Caledonia Funds (33% of NAV)
The total return on the Funds portfolio was 4.6% for the first
half of the year, including a 1% favourable impact from exchange
rate movements. Underlying performance reflects modest valuation
growth from holdings across the pool in both North America and
Asia, with local currency returns of around 4% and 1%
respectively.
Caledonia's fund investments are principally in third party
managed private equity funds operating in North America and in
Asia. The North American based funds invest into the lower-mid
market, with a focus on small to medium sized, often owner-managed,
established businesses. These funds normally provide the first
institutional investment into these businesses, and support their
professionalisation and growth, both organically and through
M&A activity. The entry pricing levels are relatively modest
and there is a deep, robust market for future divestment, either
via trade sales or to other, larger private equity funds. The
portfolio is a combination of directly owned funds (45% of Funds
NAV), with a broad range of managers generally managing funds in
the range of US$250m to US$500m. The balance is in fund of funds
investments (13% of Funds NAV) with HighVista Strategies (formerly
Aberdeen) US private equity funds, our largest single manager
exposure, over five separate funds.
In contrast, our Asian based funds invest across a wide range of
sectors with a focus on businesses in the early years of
significant growth, having successfully developed their business
model. Whilst focused on local markets, a number, particularly
those with a healthcare focus, also invest into the US. The market
is less developed than in North America with divestments, in the
absence of a mature buyout market, mainly through an IPO or trade
sale. The portfolio is a combination of directly owned funds (24%
of Funds NAV), with a broad range of managers, some sourced through
our fund of funds relationships but mostly through our own
knowledge and contacts in the region. The balance (18% of Funds
NAV) is invested with Asia Alternatives, Axiom and Unicorn, all
fund of funds providers.
During the first half of the year, GBP52m was invested via
drawdowns, GBP13m was invested in the secondary purchase of two
Decheng funds positions and distributions of GBP15m, evenly
balanced between North America and Asia, were received. The level
of distributions has declined compared to the last two years,
reflecting more challenging market conditions. We anticipate, based
on feedback from our managers, something of a recovery in
distributions over the next six to eighteen months.
Company contacts
Caledonia Investments plc +44 20 7802 8080
Mat Masters
Chief Executive Officer
Rob Memmott
Chief Financial Officer
Media contacts
Teneo +44 20 7353 4200
Tom Murray
Robert Yates
caledonia@teneo.com
6 October 2023
Notes
Valuation approach and methodology
The valuation approach utilised for each asset portfolio is
summarised below.
Caledonia Quoted Equity : all listed companies are valued based
on the closing bid price on the relevant exchange as at 30
September 2023.
Caledonia Private Capital : the holdings are valued biannually,
principally on a normalised EBITDA x market multiple basis (in line
with the latest IPEV guidelines). This approach was applied to the
majority of significant assets in the portfolio on 30 September
2023. The exceptions to this approach were our holding in Cobehold,
where fair value was derived from the external valuation prepared
by Cobepa, and 7IM, where the valuation is derived from the
contractually agreed disposal announced in early September 2023. In
the case of Liberation Group, the earnings derived valuation was
supported by the underlying value of the principally freehold pub
estate plus the value of the drink production and distribution
business.
Caledonia Funds : the fund valuations are based on the most
recent valuations provided by the fund managers, subject to cash
movements from the valuation date. Valuations are received 60 to
180 days from the valuation date.
Caledonia Investments plc
Caledonia is a self-managed investment trust company. Our aim is
to grow net assets and dividends paid to shareholders, whilst
managing risk to avoid the permanent loss of capital. This is
achieved by investing in proven, well-managed businesses that
combine long-term growth characteristics with an ability to deliver
increasing levels of income. We hold investments in both listed and
private markets, covering a range of sectors and, particularly
through the listed and fund investments, have a global reach.
For additional information on Caledonia, please visit
www.caledonia.com .
END
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