Caledonia Investments : Half year results announcement

Caledonia Investments plc

Half-year results for the six months ended 30 September 2020

Caledonia Investments plc

Half-year results for the six months ended 30 September 2020

Financial highlights
	6 months	Year
	30 Sep 2020	31 Mar 2020	Change
Net asset value per share total return	+10.4%	-8.1%
Net asset value per share	3527p	3236p	+9.0%
Net assets	£1,960m	£1,787m	+9.6%
Interim dividend per share	17.0p	16.6p	+2.4%

Highlights

• +10.4% NAV total return for the six months.
• Caledonia Quoted Equity returned 22.2%, benefitting from a notable rebound in global equity markets and careful stock selection.
• Caledonia Private Capital returned 1.0%, with most investee businesses adapting well to the new Covid-19 environment and trading strongly. However, the resulting positive returns were largely offset by the adverse valuation impact resulting from the restructuring required for Buzz Bingo.
• Caledonia Funds returned 15.7%, with good underlying performance from the Asian funds. The valuations have reverted to manager NAVs, which now incorporate the impact of Covid-19, removing the need for adjustment that existed at the end of March.
• Progressive dividend maintained, with the interim increased by 2.4% to 17.0p per share.
• Portfolio investments totalling £125m: £58m into our Funds pool's private equity funds programme and £49m into Private Capital investments, including £27m of new equity in Buzz Bingo and £15m in Seven Investment Management to finance its acquisition of Partners Wealth Management.
• Portfolio realisations totalling £27m included £14m from fund distributions and redemptions.
• Good liquidity position, with £8m of cash plus undrawn facilities of £235m at 30 September 2020.

Will Wyatt, Chief Executive, commented:

"A diverse portfolio of high-quality investments is central to our long-term approach. The pressures of 2020 have shown the benefits of this strategy, which has helped to mitigate the worst effects of the Covid-19 pandemic and largely protected shareholders' capital from much of the volatility seen elsewhere. We remain active managers and over the last six months we have continued to make portfolio investments and to invest in our Private Capital companies.

"The environment clearly remains uncertain. However, our strong balance sheet and liquidity position will enable us to take advantage of the opportunities we see and support our strategy of growing net assets and dividends over the long-term."

24 November 2020
Enquiries
Caledonia Investments plc	Tulchan Communications
Will Wyatt (Chief Executive), Tim Livett (Chief Financial Officer)	Tom Murray
[phone]	[phone]

Caledonia Investments plc

Half-year results for the six months ended 30 September 2020

Management report

Results

Caledonia's NAV total return for the six months to 30 September 2020 was 10.4%. NAV per share increased 9.0% to 3527p and net assets at 30 September 2020 were £1,959.6m. Income for the half year fell by 34% to £15.7m and there was £7m of net debt at the period end, reflecting cash of £8m and a draw of £15m on the committed facilities of £250m. The directors remain committed to a progressive dividend and have declared an interim dividend of 17.0p per share, an increase of 2.4% compared with the previous year.

The NAV total return was driven by a 22.2% return from the Quoted Equity pool and a 15.7% return from the Funds pool. The performance of the Quoted Equity pool built on the previous year, where careful stock selection had protected shareholders from the steep falls in world stock markets, which subsequently recovered thanks to intervention by governments and central banks. The Quoted Equity portfolios captured these gains and, to the credit of the managers, now have a track record that has outperformed the S&P 500, but without as much volatility. The performance of the Funds pool reflected the reversion to using manager NAVs, compared with the application of an adjustment at March to reflect the potential Covid-19 impact. The Private Capital portfolio returned 1.0%, a creditable performance in the exceptional circumstances created by the Covid-19 pandemic and particularly considering the impact on the investee companies exposed to the consumer leisure sector. Income is likely to be below the levels of last year, as businesses limit pay-outs to protect liquidity. Further commentary on the performance of each pool and the assets therein, can be found below.

The table below shows Caledonia's performance track record to 30 September 2020:

	6 months	1 year	3 years	5 years	10 years
	%	%	%	%	%
NAV total return	10.4	(3.3)	12.6	43.7	107.8
Annualised
NAV total return		(3.3)	4.0	7.5	7.6
Retail Prices Index		1.1	2.3	2.5	2.7
NAVTR vs RPI		(4.4)	1.7	5.0	4.9
FTSE All-Share Total Return		(16.6)	(3.2)	3.5	5.1
NAVTR vs FTSE All-Share Total Return		13.3	7.2	4.0	2.5

The composition of the portfolio has helped to protect shareholder's capital from the volatility seen in public equity markets. The diversity of the portfolio has mitigated the worst effects of the pandemic to date, by providing shareholders with exposure to businesses in differing geographies and industries. However, the portfolio will not be immune to damage caused by further lockdowns, including those currently in force in the UK and Continental Europe.

Caledonia invested £125m during the six-month period, principally split between the Funds pool (£58m) and the Private Capital pool (£49m). £27m was realised and £16m of investment income was generated.

Asset allocation

	Net assets allocation	Return
	Strategic	Sep 2020	Mar 2020	target
	%	%	%	%
Quoted Equity	35-50	35.7	32.1	9.0
Private Capital	35-45	33.5	34.2	14.0
Funds	20-25	29.0	25.2	12.5
Cash and other	+/-10	1.8	8.5

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Caledonia Investments plc

Half-year results for the six months ended 30 September 2020

Pool performance

	31 Mar	Invest-	Realis-	Gains/ Accrued	30 Sep
	2020	ments	ations	losses	income	2020	Income	Return
	£m	£m	£m	£m	£m	£m	£m	%
Quoted Equity	574.0	18.3	(11.5)	118.0	-	698.8	9.2	22.2
Private Capital	611.3	48.5	(1.4)	(0.4)	(0.9)	657.1	6.4	1.0
Funds	450.1	57.8	(14.4)	74.5	-	568.0	0.1	15.7
Portfolio investments	1,635.4	124.6	(27.3)	192.1	(0.9)	1,923.9	15.7	12.7
Other investments	21.3	-	5.5	2.6	-	29.4	-
Total investments	1,656.7	124.6	(21.8)	194.7	(0.9)	1,953.3	15.7	12.7
Cash and other	130.6					6.3
Net assets	1,787.3					1,959.6		10.4

1. Other investments comprised legacy investments and cash and receivables in subsidiary investment entities.
2. Returns for investments are calculated using the Modified Dietz methodology and the overall return is
   Caledonia's NAVTR.
3. The Private Capital valuation at 30 September 2020 included £7.6m of accrued income (31 March 2020 - £8.5m).

Caledonia Quoted Equity - Capital and Income portfolios (36% of NAV)

The total return of the Quoted Equity portfolio was 22.2% over the first half of the year. This strong performance reflected a notable rebound in global public equity markets and careful stock selection within both the Capital and Income portfolios. The total returns were 26.2% and 11.1% respectively, building on the performance for the year to 31 March 2020 during which both portfolios proved resilient, falling by just 0.3% compared with the falls in the FTSE All-Share of 18.5% and the S&P 500 of 9.9%. The ability to protect capital in falling markets yet benefit from their rebound is what all fund managers aspire to. Credit must go to the team whose strategy has been tested in the most extreme circumstances and has proven to be market beating.

Trading activity during the period was limited. The development of the Income portfolio continued with the addition of a position in Fortis Inc, a North American utilities business, and the disposal of the holding in Tritax Big Box. Other activity was restricted to refining positions in existing investments, in line with Caledonia's strategy of owning high quality companies that compound their earnings over the long term.

Caledonia Private Capital (33% of NAV)

The diverse Private Capital portfolio includes significant positions in six UK based businesses and one private European investment company. These seven investments represent over 90% of its value. The portfolio generated a total return of 1.0% during the first half of the year. The industrial and financial services businesses have adapted nimbly to the new Covid-19 trading environment and the investment in Cobehold continues to perform well. The impact of the pandemic on the two consumer facing businesses, Buzz Bingo and Liberation Group, has been felt more acutely. The teams at both companies have worked tirelessly running their businesses under enormous pressure.

Buzz Bingo, the UK's biggest omni-channel bingo business, completed a company voluntary arrangement ("CVA") process in August 2020 to protect the long-term prospects of the business, leading to the closure of 26 clubs and, regrettably, associated redundancies. Caledonia participated in the CVA process with the provision of £22m in new equity, having contributed an initial £5m in the spring. The business commenced the phased reopening of its retail venues from early August, with trading post reopening ahead of expectations. The online business (www.buzzbingo.com) has remained profitable on a monthly basis and continues to grow player numbers. All bingo clubs, except for a small number in Scotland, have closed for the duration of the second lockdown, which commenced on 5 November 2020. The valuation at 30 September of £22.0m was down 46% from 31 March 2020.

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Caledonia Investments plc

Half-year results for the six months ended 30 September 2020

Liberation Group, a pub, restaurant and drinks business with operations in the Channel Islands and South West England, gradually reopened its pub estate from the middle of June. Out of 104 pubs, 95 were opened and have traded well through the summer, with weekly revenues building to levels close to, or in some cases ahead of, those achieved in 2019. The UK brewery operated throughout the period, supporting trade and growing online sales. The wholesale businesses in Jersey and Guernsey remained open and traded strongly. Although Liberation's 32 UK mainland pubs were required to close again on 4 November for the duration of the recent second lockdown, the Channel Islands' pub estate, as well as both breweries and distribution businesses, remain open for business as usual. The valuation at 30 September of £59.8m was up 18% from March 2020. In November 2020, Caledonia committed up to £36.5m of new equity to support Liberation's acquisition of a substantial portfolio of pubs from Wadworth and various value accretive capital projects across the enlarged estate.

Seven Investment Management ("7IM"), the retail investment manager, has traded well during the period. Assets under management ("AUM") have grown to £14.8bn, ahead of the January 2020 position, due to market performance and positive fund inflows. 7IM's range of funds continue to perform strongly, with core funds in the first and second quartiles over one and three years compared to their peers. At the end of September, 7IM completed the acquisition of Partners Wealth Management, a high net worth financial planning business. The valuation at 30 September of £104.1m was up 23% from March 2020.

Deep Sea Electronics ("DSE"), the industry-leading manufacturer of genset and ATS control modules, battery chargers and power supplies, has remained operational throughout the period. DSE has traded well, continuing to be strongly cash generative. Opportunities for organic growth and bolt-on acquisitions are being actively explored. The valuation at 30 September of £131.6m was up 7% from March 2020.

Cooke Optics, a leading manufacturer of cinematography lenses, has been adversely impacted by the Covid-19 pandemic. In April, Cooke temporarily closed its facilities to develop a safe working environment for employees, before quickly returning to full capacity. Filming activity has been restricted across most geographies. However, the business remains profitable with a healthy order book and, with long-term demand for high quality content expected to remain strong, is well placed to respond as demand recovers. The valuation at 30 September of £78.5m was up 4% from March 2020.

Stonehage Fleming, the international family office, continues to trade strongly, adhering to local working practices across the jurisdictions in which it operates. Activity levels remain high along with AUM increasing by 11% since March 2020 to £12.5bn. In July 2020, Stonehage Fleming successfully acquired Cavendish Asset Management in an all-share transaction, adding a further £1bn of AUM. The valuation at 30 September of £101.7m was up 14% from March 2020.

Cobepa, the Belgian based investment company, owns a diverse portfolio of private global investments. The trading results of the businesses in its high-quality portfolio have proven resilient during the pandemic. The valuation of Cobehold, the holding company of Cobepa, reflected this more positive outlook and a review of the impact of Covid-19 resulted in a valuation at 30 September of £105.5m, up 8% from March 2020.

Caledonia Funds (29% of NAV)

The total return from the Funds pool was 15.7% over the first half of the year. This reflected underlying fund performance and reassessment of valuations. Fund valuations amounting to 84% of the pool's total value were based on manager NAVs at 30 June 2020 and the remaining 16% comprised the Aberdeen US private equity funds of funds, for which the manager's NAVs at 31 March 2020 were the latest available. All fund valuations showed evidence that the impact of the Covid-19 pandemic had been considered.

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