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REG - Caledonia Investmnts - Unaudited net asset value and portfolio update

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RNS Number : 8590Y  Caledonia Investments PLC  08 January 2024

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 31 December 2023, calculated on a
cum-income basis, was 5180p.

 

The NAV total return ("NAVTR") for the nine months to 31 December 2023 was
3.6%. A final dividend of 49.2p per ordinary share for the year ended 31 March
2023 was paid to shareholders on 3 August 2023 and an interim dividend of
18.93p per ordinary share for the current year was paid on 4 January 2024,
amounting to payments of £26.7m and £10.3m respectively.

 

This announcement provides a further update on Caledonia's portfolio and
should be read in conjunction with the factsheet dated 31 December 2023 and
released on 8 January 2024, a copy of which is available at www.caledonia.com
(http://www.caledonia.com/) .

 

Summary

 

All three pools generated positive returns during the first nine months of the
year. This positive performance was despite the adverse impact of Sterling
strengthening against the US dollar in the period.

 

The Public Companies pool produced a return of 6.8%, reflecting strong
performance of a number of our holdings offset by the adverse foreign exchange
movement. The Private Capital portfolio produced a return of 6.1%, following
good performance from the majority of the investee companies and the
contractually agreed disposal of Seven Investment Management ("7IM"). The 7IM
transaction is expected to complete in January 2024, with anticipated cash
proceeds of c.£255m. The Funds pool returned 1.0% in the period, driven by
valuation growth of our North American funds, offset by adverse foreign
exchange movements. As previously reported, there has been a notable slowdown
in the level of fund distributions over the nine month period reflecting
reduced market transaction activity. Based on feedback from fund managers, an
improvement in distributions is anticipated over the next six to eighteen
months.

 

Performance for the nine month period to 31 December 2023 is summarised in the
table below.

 

Caledonia pool performance

Net asset value - nine months to 31 December 2023

 

 £m                NAV           Net           Capital    Other       NAV          Income    Total

                   31/3/23       investment    gains /                31/12/23               Return

                                 /(disposal)   (losses)

 Public Companies  836.9         33.6          39.4       -           909.9        17.7      6.8%
 Private Capital   824.0         159.3         37.6       3.0         1,023.9      20.2      6.1%
 Funds             873.8         59.0          5.5        -           938.3        3.8       1.0%
 Portfolio         2,534.7       251.9         82.5       3.0         2,872.1      41.7
 Net Cash/(Debt)   221.6         (251.9)       -          (23.5)      (53.8)
 Other assets      41.7          -             -          3.5         45.2

 Net assets        2,798.0       -             82.5       (17.0)      2,863.5      NAVTR     3.6%

 

Caledonia has continued to invest and dispose of assets, in line with our
active approach to portfolio management.

 

The movement in net debt in nine month period was £275m, 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 Public Companies pool made 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 £34m. The Funds pool net cash outflow was £55m in the period.

 

Net debt at 31 December 2023 is £54m. Total liquidity of £196m remains
healthy and will increase following the receipt of 7IM sales proceeds of
c.£255m in January 2024.  The £250m revolving credit facilities
include £137.5m expiring in November 2027, with the balance
of £112.5m expiring in July 2025.

 

Caledonia Public Companies - Capital and Income portfolios (32% of NAV)

 

The total return of the Public Companies pool was 6.8% over the first nine
months of the year. This outcome reflected strong performance of a number of
our holdings offset by the adverse foreign exchange movement.

 

The Capital portfolio delivered a return of 8.4%. Key performance contributors
included Hill & Smith, Microsoft, Oracle and Watsco, which delivered very
strong returns ranging from 15% to 45%. However, these gains were partially
offset by negative contribution from companies including Alibaba, Croda
International and Thermo Fisher Scientific.

 

The Income portfolio generated a return of 2.3%.  Strong returns from Watsco,
RELX (a new position in the portfolio), Sabre and Fastenal were offset by
weaker share price performances from Diageo, Reckitt, BAT and Texas
Instruments.

 

Trading activity remained targeted and opportunistic, in line with our
long-term investment approach, with increases in our holdings including Croda
International, Spirax Sarco, Symrise as well as the new position in RELX. We
sold down a portion of our holdings in Microsoft, Oracle and Watsco, following
a period of strong share price appreciation. In addition, the Income portfolio
moved closer to its target of £250m of invested cost.

 

Caledonia Private Capital (35% 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 6.1% in the nine-month period.

The five UK centric businesses are well-established and have strong market
positions. Of these five businesses four, excluding 7IM, 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 to
3 times earnings before interest, tax, depreciation and amortisation
("EBITDA").

In early September 2023, Caledonia announced the agreed sale of a majority
stake in 7IM, a vertically integrated retail wealth management business, to
Ontario Teachers' Pension Plan Board.  The transaction is expected to
complete in January 2024, with cash proceeds of c.£255m (net of transaction
expenses) expected. The valuation at the end of December of £249m, reflects
expected cash proceeds less a 3% discount to equity value in recognition of
the very limited degree of transaction execution risk.

 

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.

Stonehage Fleming, the international multi-family office, continues to deliver
good revenue and margin growth across each of the Family Office, Investment
Management and Financial Services businesses, driven by client wins and
increased activity levels.

AIR-serv Europe, 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 ahead of expectations, demonstrating good year on year growth. In
September 2023 the valuation was maintained at the equity purchase cost
of £143m. The position will be reviewed in March 2024 in line with our
valuation policy.

Liberation Group, an inns and drinks business with a pub estate stretching
from Southwest London to Bristol and the Channel Islands, continues to
deliver strong revenue growth and improving profitability. The integration of
the Cirrus Inns business, acquired in December 2022, is progressing well and
now largely complete.

 

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 both disputes now resolved,
demand for the company's products is recovering. The valuation as at 30
September 2023, reflected a 15% equity discount to reflect this matter. No
change has been made to this discount which will be reviewed in March 2024.

 

A more detailed update on the trading and valuation of all investee companies
within the Private Capital portfolio will be provided in Caledonia's full year
results announcement in May 2024.

 

Caledonia Funds (33% of NAV)

 

The total return on the Funds portfolio was 1.0% for the nine month period,
reflecting valuation growth of the North American holdings offset by the 3.1%
strengthening in Sterling versus the US Dollar.

 

During the nine month period, £90m was invested and distributions of £35m
were received. There has been a notable slow down in the level of
distributions, compared to the last two years, reflecting more challenging
market conditions. Based on feedback from fund managers, an improvement in
distributions is anticipated 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

8 January 2024

 

Notes

 

Valuation approach and methodology

 

The valuation approach utilised for each asset portfolio is summarised below.

 

Caledonia Public Companies: all listed companies are valued based on the
closing bid price on the relevant exchange as at 31 December 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 holdings in Cobehold, where fair value was derived from the external
valuation prepared by Cobepa, and 7IM, where the valuation was 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
(http://www.caledonia.com/) .

 

END

 

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