Financial highlights
| 6 months | Year | ||
| 30 Sep 2022 | 31 Mar 2022 | Change | |
| Net asset value per share total return* | 4.5% | 27.9% | |
| Net asset value per share | 5039p | 5041p | – |
| Net assets | £2,782m | £2,783m | – |
| Interim dividend per share | 18.2p | 17.5p | 4.0% |
*Alternative Performance Measure.
Highlights
| – | +4.5% NAV total return for the six months. |
| – | Caledonia Quoted Equity returned -9.5%, reflecting the broader trend in global equity markets, mitigated to some degree by favourable exchange rate movements. |
| – | Caledonia Private Capital returned 6.3%, with the majority of investee companies performing well. |
| – | Caledonia Funds returned 22.3%, with performance based on the favourable exchange rate position plus valuation growth for our US funds. |
| – | Progressive dividend maintained, with the interim increased by 4.0% to 18.2p per share. |
| – | Final and special dividends of £121m paid to shareholders in August 2022, in respect of the year ended 31 March 2022. |
| – | Portfolio transactions realised net proceeds totalling £13m, which included £16m from the Funds pool as the level of distributions was sustained. |
| – | Total liquidity position remains healthy, with £243m of cash plus undrawn facilities of £250m at 30 September 2022. |
Mat Masters, Chief Executive Officer, commented :
“The portfolio delivered a good return in the first half of the year, particularly compared to the broader market, demonstrating the benefits of our diversified investment approach. Our significant exposure to private assets and a weighting towards US dollar denominated assets were the key drivers of performance and more than offset the adverse impact of falling global public equity markets.
The global economic outlook has become more challenging during the period, leading to increased volatility across markets. This will influence the short-term performance of our portfolio but we believe our long-term outlook and ethos of investment in high quality, well-financed and managed companies, leaves us well-placed to withstand pressures and deliver long-term returns in line with our aims.”
22 November 2022
Enquiries
| Caledonia Investments plc | Tulchan Communications |
| Mat Masters (Chief Executive Officer), Tim Livett (Chief Financial Officer) | Tom Murray, Lisa Jarrett Kerr |
| +44 20 7802 8080 | +44 20 7353 4200 |
Management report
Results
Caledonia’s NAV total return (“NAVTR”) for the six months to 30 September 2022 was 4.5% with net assets at the period end totalling £2,781.5m. The NAVTR for the 12 months to 30 September 2022 was 15.1%. Revenue income for the half year decreased 26% to £25.4m largely due to a one-off pre-disposal dividend in the comparative period. Total liquidity remains healthy with cash at the period end of £243m (31 March 2022: £341m) plus undrawn bank facilities of £250m (31 March 2022: £250m). The net decrease in cash was driven by payment of final and special dividends in August totalling £121m in respect of the year ended 31 March 2022.
The directors have declared an interim dividend of 18.2p per share, an increase of 4.0% compared with the previous year.
The tables below show Caledonia’s performance track record and asset allocation to 30 September 2022:
Performance record
| 6 months | 1 year | 3 years | 5 years | 10 years | |
| % | % | % | % | % | |
| NAVTR | 4.5 | 15.1 | 47.3 | 71.4 | 217.2 |
| Annualised | |||||
| NAVTR | 15.1 | 13.8 | 11.4 | 12.2 | |
| Retail Prices Index | 11.2 | 5.6 | 4.5 | 3.5 | |
| NAVTR vs RPI | 3.9 | 8.2 | 6.9 | 8.7 | |
| FTSE All-Share Total Return | 2.2 | 6.0 | |||
| NAVTR vs FTSE All-Share Total Return | 9.2 | 6.2 |
The underlying performance of our private assets during the first half of the year, in both Private Capital and Funds, coupled with the significant positive impact of the 15% fall in the value of Sterling against the US dollar, has more than offset the volatility and weakness in global equity markets. We do not currently hedge our currency exposure, however we review our approach on a regular basis.
The Quoted Equity portfolio produced a return of -9.5%, reflecting the broader trend in public equity markets, mitigated to some degree by favourable exchange rate movements. The Private Capital portfolio produced a return of 6.3% following the biannual revaluation of our holdings, with the majority of our investee companies performing well. The Funds portfolio, which continues to generate cash, returned 22.3% based on the favourable exchange rate position plus valuation growth for our US funds. 100% of funds, by value, are valued as at 30 June 2022.
Asset allocation
| Net assets allocation | Return | |||
| Strategic | Sep 2022 | Mar 2022 | target | |
| % | % | % | % | |
| Quoted Equity | 30-40 | 27 | 30 | 9.0 |
| Private Capital* | 25-35 | 29 | 28 | 14.0 |
| Funds | 25-35 | 34 | 28 | 12.5 |
*Includes Cobepa.
The asset allocation model has been subject to refinement. The new bandings, shown in the above table, reflect a consideration of the risk return profile for each asset group. The most significant change is a reduction in the range for Private Capital; the revised banding will support a portfolio with 6 to 8 holdings at an average equity value of £100m, together with our holding in Cobepa. The increased funds allocation follows a move to increase our current exposure to US lower mid-market private equity funds, which have shown strong, reliable performance over recent years.
The movement in asset allocation recorded in the first half of the year reflects a combination of the relative performance of each pool, as explained below, together with the net impact of their investment and disposal activity.
Caledonia has continued to invest and dispose of assets, in line with our active approach to portfolio management. There was a net cash outflow of £98m in the first half of the year, principally due to the payment of final and special dividends of £121m paid out to shareholders in August. The Quoted Equity pool increased its holdings in three companies, refined positions in a number of others and completed the sale of our holdings in AG Barr and Imperial Brands, creating a net investment outflow of £4m. There was no material transaction activity in the Private Capital portfolio in the period. The Funds portfolio benefitted from a sustained level of fund distributions, resulting in a net cash inflow of £16m in the period.
Performance for the first half of the year is summarised in the table below.
Pool performance
| 31 Mar | Invest- | Realis- | Gains/ | Accrued | 30 Sep | |||
| 2022 | ments | ations | losses | income | 2022 | Income | Return | |
| £m | £m | £m | £m | £m | £m | £m | % | |
| Quoted Equity | 830.1 | 29.8 | (25.8) | (90.1) | – | 744.0 | 11.4 | -9.5 |
| Private Capital | 781.7 | – | (1.3) | 36.6 | 1.9 | 818.9 | 12.2 | 6.3 |
| Funds | 794.4 | 69.7 | (85.7) | 174.5 | – | 952.9 | 1.8 | 22.3 |
| Portfolio investments | 2,406.2 | 99.5 | (112.8) | 121.0 | 1.9 | 2,515.8 | 25.4 | |
| Other investments | (20.8) | 0.1 | – | (15.8) | – | (36.5) | – | |
| Total investments | 2,385.4 | 99.6 | (112.8) | 105.2 | 1.9 | 2,479.3 | 25.4 | |
| Cash and other | 397.3 | 302.2 | ||||||
| Net assets | 2,782.7 | 2,781.5 | NAVTR | 4.5 |
| 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 return is Caledonia’s NAVTR. |
| 3. | The Private Capital valuation at September 2022 includes £3.6m of accrued income (March 2022: £1.7m). |
Caledonia Quoted Equity – Capital and Income portfolios (27% of NAV)
The total return on the Quoted Equity pool was -9.5% over the first half of the year. This performance reflected volatile and challenging global public equity markets over the last six months. The impact of the notable rise in inflation and resulting interest rate increases, together with the uncertainty created by the ongoing conflict in Ukraine, has contributed to weakening market pricing across many sectors. Our portfolios have been directly impacted with most stocks registering price reductions over the period.
The Capital portfolio delivered a return of -9.9%. Microsoft, Oracle, Charter Communications and Hill & Smith have seen material price declines, although general underlying trading for these businesses remains strong. With 75% of the portfolio invested in US stocks, the decline in overall return for the period was significantly mitigated by the strength of the US dollar compared to Sterling.
The Income portfolio delivered a return of -8.5% with notable valuation falls for our property and insurance stocks, Big Yellow Group and London Metric, and for Sabre Insurance. These adverse returns were partially offset by stronger performance by tobacco and consumer products holdings. Our US stocks, representing around 25% of the portfolio, delivered a neutral return with any price declines offset by the movement in exchange rates.
Trading activity has been relatively limited, in line with our long-term investment approach. The main activity was to increase our holdings in Moody’s, Charter Communications and London Metric. We disposed of our remaining holdings in AG Barr and Imperial Brands. The AG Barr position was held for 45 years, generating a lifetime IRR of 17.4%. Other activity was restricted to refining positions in existing investments.
Caledonia Private Capital (29% of NAV)
Caledonia’s Private Capital portfolio is dominated by significant positions in four UK centric businesses and one private European investment company. These five investments represent over 90% of the portfolio value. Investee companies are revalued in March and September each year. The portfolio generated a total return of 6.3% in the first half of the year.
Seven Investment Management (“7IM”), a vertically integrated multi-asset class investment manager, continues to perform well. Whilst the volatility in public markets has impacted overall assets under management (“AUM”), the business has continued to see positive net investment flows and to grow earnings through the period aided by direct cost savings, higher interest income and a strong performance from recently acquired Partners Wealth Management. AUM was over £20bn at the end of August 2022, down from £21bn at the start of the calendar year, reflecting a mix of negative market movement and positive net fund inflows. The closing September valuation was £184.5m, a return of 8.0% for the first half of the year.
Cobepa, the Belgian based investment company, owns a diverse portfolio of private global investments. The businesses within the Cobepa portfolio continue to develop well, with many delivering strong performance and valuation progression. Recent disposals of significant individual assets, most notably Hillebrand and BioAgilytix, have boosted returns and provided liquidity to support new investment opportunities. These factors are reflected in the valuation of Cobehold (the holding company of Cobepa); the closing valuation of Caledonia’s holding in September was £174.2m, a return of 11.1% for the first half of its year.
Stonehage Fleming, the international multi-family office, continues to deliver good earnings growth. The integration of the Maitland private client business, acquired on 31 January 2022, is progressing well. The Family Office division has been delivering good results on the back of new client wins. In contrast, the Investment Management division has been somewhat adversely impacted by the volatility in global public equity markets. The closing September valuation was £141.2m, a total return including distributions of 3.7% for the first half of the year.
Cooke Optics, a leading manufacturer of cinematography lenses, has traded well in recent months following the successful launch of a series of new lenses and delivered strong earnings growth in its most recent financial year to 30 June 2022. The market is strong as global demand for both streaming and cinema content remains elevated. The business has invested in capacity to fulfil this demand and is developing plans to bring several innovative new products to the market. The closing September valuation was £137.1m, an equity return of 22.0% for the first half of the year.
Liberation Group, a pub, restaurant and drinks business with operations in the South West of the UK and Channel Islands, has traded well through the spring and summer. Its portfolio is well positioned with a focus on destination pubs, a strong food offering, large outdoor spaces and, in some cases, quality accommodation. The business has been delivering strong earnings growth as it emerged from the Covid-19 period but is now facing the headwinds of weaker consumer confidence, as cost of living issues dominate the news, and cost pressures, particularly from energy contracts. In mitigation, the cost base is well managed and there remains further upside from the Wadworth estate pubs acquired in December 2020 and other site acquisitions. The closing September valuation was £124.4m, a return of -8.3% for the first half of the year.
Caledonia Funds (34% of NAV)
Caledonia’s Funds investments are principally in third party managed private equity funds operating in North America and in Asia. The total return on the Funds portfolio was 22.3% for the first half of the year. This reflects ongoing valuation growth across the maturing portfolio of US and Asia based funds, plus a significant positive exchange impact given that the majority of these holdings are US dollar denominated. A number of our general partners, particularly Boyne, KLH, CenterOak and New Heritage, produced very strong gains in the period alongside our US fund of funds manager, Aberdeen US private equity funds. 100% of funds, by value, are valued as at 30 June 2022. Price movements in public-equity markets in the quarter ended 30 September 2022 were reviewed and determined to be in line with historic precedent. This, combined with our knowledge of the underlying valuation methodologies adopted by our fund managers, satisfies us of the appropriateness of June valuations.
During the first half of the year, £70m was invested and distributions of £86m were received. The level of distributions remains positive in both the US and Asia, reflecting merger, acquisition and IPO activity in the broader private equity markets.
| Fund investments | ||||||
| Geography | Category | |||||
| North America | 55% | Private equity | 63% | |||
| Asia | 44% | Funds of private equity funds | 36% | |||
| United Kingdom | 1% | Quoted market | 1% |
Management and Board
Tim Livett, Chief Financial Officer, has advised the board of his intention to retire and leave the Company to develop a portfolio of non-executive roles once his successor joins. The search process for a new Chief Financial Officer has commenced and the market will be updated on progress as appropriate.
Dividend
The board has declared an interim dividend of 18.2p per share, an increase of 4.0% on last year’s interim, at a total value of £9.9m. This will be paid to shareholders on 5 January 2023.
The board has historically aimed for the annual dividend to be fully covered by net revenue for the relevant financial year in a period of normal trading. However, in light of the growing scale of the private equity funds portfolio and lower yields for Private Capital businesses, the board has determined that the approach should be modified to reduce the strategic level of net revenue cover to around 0.5x and factor in net cash inflow from the maturing funds portfolio. The expectation is that this will provide an aggregate cashflow cover for the dividend of at least 1x.
Outlook
The global economic outlook has become more challenging with the impact of high rates of inflation, rising interest rates, central bank debt reduction and the conflict in Ukraine leading to increased volatility across global markets. These factors will influence the short-term performance of our portfolio but Caledonia’s long-term outlook and ethos of investment in high quality, well-financed and managed companies, leaves it well-placed to withstand these pressures and deliver long-term returns in line with our aims.