Caledonia Investments – NAV and Portfolio Update

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 2021, calculated on a cum-income basis, was 4592p. This incorporates the biannual revaluation of the Private Capital portfolio.

The NAV total return (“NAVTR“) for the six months to 30 September 2021 was 16.1%. A final dividend of 45.9p per ordinary share for the year ended 31 March 2021 was paid to shareholders on 5 August 2021, amounting to a payment of £25m.

This announcement provides a further update on Caledonia's portfolio and should be read in conjunction with the factsheet dated 30 September 2021 and released on 7 October 2021, a copy of which is available at www.caledonia.com. Caledonia will announce its half year results on 23 November 2021.

Summary

The first half of the year has seen healthy levels of return generated by all three investment pools. The Quoted Equity portfolio has benefited from the continued strength of public equity markets, producing a return of 13.5%. The Private Capital portfolio produced a return of 20.1% following the biannual revaluation of our holdings. All the principal investee companies are progressing well and together with the sale of Deep Sea Electronics (“DSE“) in early June, as previously announced, delivered healthy returns for the first half of the year. The Funds portfolio returned 24.3% based on strong valuation growth and turned net cash positive for the first time since the strategy was introduced.

Performance for the first half is summarised in the table below.    

Caledonia pool performance   

Net asset value – Half year to 30 September 2021

Caledonia has continued to invest and dispose of assets, in line with our active approach to portfolio management, with a net cash inflow of £269m in the first half of the year. As noted above, DSE was sold in June generating cash proceeds of £242m including a pre-disposal dividend. The Quoted Equity portfolio reduced its holdings in three companies and refined positions in a number of others, generating net investment proceeds of £21m. The Funds portfolio benefitted from elevated levels of fund distributions, particularly from US based funds. There was a net cash inflow of £33m, including £9m from the sale of an existing fund position in the period.

Total liquidity remains healthy with cash of £268m plus undrawn bank facilities of £250m as at 30 September 2021. Caledonia's £250m banking facilities include £137.5m expiring in May 2025, with the balance of £112.5m expiring in July 2022.

The Company has undertaken share buy-backs since early June. In the period to the end of September, around 512,000 shares were purchased for £16.8m at attractive levels of discount to NAV.

Caledonia Quoted Equity – Capital and Income portfolios (30% of NAV)

The total return on the Quoted Equity pool was 13.5% over the first half of the year. This strong performance reflected the positive movement in global public equity markets and our stock selection within both the Capital and Income portfolios, delivering total returns of 17.0% and 5.6% respectively. The performance was driven by good returns from a broad range of sectors and across both UK and US holdings; five holdings – Oracle, Thermo Fisher, Spirax Sarco, Croda and Big Yellow – delivered returns of over 25% during the period.

Trading activity has been relatively limited, in line with our long-term investment approach. The main activity was in the Capital portfolio, with an increase in our holding in Philip Morris International and a reduction in our holdings in A G Barr, Spirax Sarco and Polar Capital. Other activity was restricted to refining positions in existing investments.

Caledonia Private Capital (28% of NAV)

Caledonia's Private Capital portfolio is dominated by significant positions in four UK centric businesses, one US co-investment and one private European investment company. These six investments represent over 95% of the portfolio value. Investee companies are revalued in March and September each year. The portfolio generated a total return of 20.1% in the first half of the year.

On 1 June 2021, Caledonia announced that portfolio company DSE, a leading provider of backup power control systems, had been acquired by Generac Holdings Inc. (“Generac”). Generac is listed on the New York Stock Exchange (NYSE: GNRC) and is a leading global designer and manufacturer of energy technology solutions and other power products. DSE was acquired by Caledonia in October 2018 and had grown strongly. Caledonia received net proceeds of £242m in cash, net of fees, for the sale of its 84.2% fully diluted stake. This included a pre-disposal dividend of £12.6m. DSE was valued at £193m in Caledonia's accounts as at 31 March 2021.

Seven Investment Management (“7IM”), a vertically integrated multi-asset class investment manager continues to perform well. The successful integration of the Partners Wealth Management business has been a major contributor to performance, alongside growth in the Funds & Models business. 7IM's assets under management exceeded £20bn at the end of August 2021, up from £18bn as at 1 January 2021, reflecting a mix of positive investment performance and net fund inflows. Valuation at end September was £138.8m, a return of 8.7% for the first half of the year.    

Liberation Group, a pub, restaurant and drinks business with operations in the Channel Islands and the South West of the UK has traded well as Covid-19 restrictions have been gradually relaxed. Its portfolio, with a focus on destination pubs, a strong food offering, large outdoor spaces and, in some cases, quality accommodation, has been well positioned as demand has grown strongly through the late spring and summer, supported by the popularity of UK-based holidays. The pubs recently acquired from Wadworth are performing well following a programme of investment. Overall, the business is trading well ahead of internal plans and performance in July and August was particularly strong, with a return to pre Covid-19 trading levels. Valuation at end September was £135.1m, a return of 5.9% 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. This is reflected in the valuation of Cobehold (the holding company of Cobepa); the valuation of Caledonia's holding at end September was £127.4m, a return of 15.3% for the first half of its year.

Stonehage Fleming, the international multi-family office, continues to deliver good organic growth. This growth has been supplemented by the successful integration of Cavendish Asset Management, acquired in summer 2020. Valuation at end September was £121.8m, a return of 9.0% for the first half of the year.

Cooke Optics, a leading manufacturer of cinematography lenses, has traded well having maintained production despite the challenges created by Covid-19 constraints. 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 has plans to bring several innovative new products to the market. Valuation at the end September was £104.0m, an equity return of 13.3% for the first half of the year.

BioAgilytix, a co-investment with Cobepa, specialises in bioanalytical testing solutions for large molecule research and development. The business is a market leader in its sector and has grown strongly through a mix of acquisition and organic growth, and currently has further acquisitions in progress. The valuation is determined by Cobepa, as majority shareholder. At the end of September this was £51.0m, a return of 94.7% for the first half of the year.

Caledonia Funds (30% of NAV)

Caledonia Funds' investments are principally in third party managed private equity funds operating in the USA and in Asia. The total return on the Funds portfolio was 24.3% for the first half of the year. This reflects very strong valuation growth across the maturing portfolio of US and Asia based funds. Our investments with fund of funds managers – Aberdeen US private equity funds, Axiom Asia funds and Asia Alternatives funds – have shown particularly healthy returns. 100% of funds, by value, are valued as at 30 June 2021.

During the first half of the year, £53m was invested and £86m was received, comprising distributions of £77m and £9m from the sale of a fund position in the secondary market. The level of distributions remains positive, particularly from US funds, reflecting merger, acquisition and IPO activity in broader private equity markets.