The NAV total return (” NAVTR “) for the nine months to 31 December 2020 was
12.4%. A final dividend of 44.5p per ordinary share for year ended 31 March
2020 was paid to shareholders on 6 August 2020; an interim dividend of 17.0p
per ordinary share for the current year was paid on 7 January 2021.
This announcement provides an update on Caledonia's portfolio and should be
read in conjunction with the factsheet dated 31 December 2020 and released on
8 January 2021, a copy of which is available at www.caledonia.com .
Summary
As seen at the half year, the strong NAVTR performance continued to be driven
by the Quoted Equity and Funds pools, with year to date returns of 28.5% and
17.9% respectively despite the performance of both pools being adversely
affected by Sterling's recent strengthening against the US dollar. The Quoted
Equity pool continued to produce excellent returns benefitting from underlying
portfolio positioning and the recovery in global public equity markets. The
underlying performance of the Funds pool, particularly the Asian funds,
together with the reassessment of the Covid-19 impact based on updated
valuations from fund managers, generated strong gains. The performance of the
Private Capital portfolio was broadly flat: the businesses are revalued
biannually with the next review taking place on 31 March 2021. Performance for
the first nine months of the year is summarised in the table below.
Caledonia has continued to invest, in line with an active approach to
portfolio management, with a net cash outflow of £131m in the nine month
period. Businesses within the Private Capital pool have been supported with
£87m of capital for acquisitions and, in one case, as part of a
recapitalisation. The Funds pool experienced increased drawdowns in the first
half of the year as fund managers generated liquidity to address the potential
impact of Covid-19. However, fund distributions picked up markedly over the
last quarter reflecting an increase in merger and acquisition and IPO activity
resulting in net investment of £27m in the period.
Total liquidity remains satisfactory with £233m available as at 31 December
2020, comprising £17m of net debt and £190m of undrawn committed bank
facilities. Caledonia's £250m banking facilities include £137.5m expiring in
May 2025, with the balance of £112.5m expiring in July 2022.
Caledonia pool per f o rmance
Net asset value – nine months to 31 December 20 20
£m Opening Net Capital Other Closing Income Total
balance investment gains / balance Return
/(disposal) (losses)
Quoted Equity 574.0 (13.5) 146.0 – 706.5 13.9 28.5%
Private Capital 611.3 90.4 (9.7) – 692.0 12.7 0.5%
Funds 450.1 27.1 76.7 – 553.9 5.6 17.9%
Portfolio 1,635.4 104.0 213.0 – 1,952.4 32.2
Net Cash/(debt) 114.7 (104.0) – (27.2) (16.5)
Interim Dividend – – – (9.3) (9.3)
Other assets 37.2 – – 19.4 56.6
Net assets 1,787.3 – 213.0 (17.1) 1,983.2 NAVTR 12.4%
(Net Cash – Other: includes final dividend for the year ended 31 March 2020 of
£24.4m paid on 6 August 2020)
Caledonia's March 2020 NAV incorporated additional discounts within the
valuations of both the Private Capital and Funds portfolios to account for the
potential impact of Covid-19. As the operating environment and trading outlook
has become clearer, valuations have returned to a more standard approach. The
biannual valuation of the Private Capital businesses at end September 2020
reverted to a normalised earnings multiple basis for most investee companies.
The most recent managers' NAV were used for the valuation of the Funds
portfolio.
Caledonia Quoted Equity – Capital and Income portfolios (36% of NAV)
The total return on the Quoted Equity portfolio was 28.5% over the first nine
months of the year. This very strong performance reflected the notable rebound
in global equity markets and considered stock selection within both the
Capital and Income portfolios, delivering total returns of 33.7% and 14.7%
respectively. The performance of US public equities in both portfolios was
particularly important, driving a significant element of the returns over the
period. On a calendar year basis, the Capital portfolio returned 18.6% and the
Income portfolio 0%. In comparison, the total returns of the FTSE All-Share
and the MSCI World Index (GBP) were -13.2% and 12.3% respectively.
Trading activity has been relatively limited, in line with our long-term
investment approach. In the Capital portfolio, the position in Waters
Corporation, a laboratory instrument and software company, was sold in
December, having delivered good returns over a four year holding period. The
development of the Income portfolio has continued with new positions
established in consumer goods business Reckitt Benckiser and in Fortis Inc, a
North American utilities business, together with the disposal of holdings in
Direct Line and Tritax Big Box. Other activity was restricted to refining
positions in existing investments.
Caledonia Private Capital (35% of NAV)
Caledonia's Private Capital portfolio includes significant positions in six UK
based businesses and one private European investment company. These seven
investments represent over 90% of the value of the Private Capital portfolio.
Investee companies are revalued in March and September each year.
The industrial and financial services businesses have adapted well to the new
Covid-19 trading and operating environment and continue to trade strongly. In
contrast, the two consumer facing businesses, Buzz Bingo and Liberation Group,
have been more directly impacted. The investment in Cobehold continues to
perform well. The total return on the portfolio was 0.5% for the first nine
months of the year. The positive return achieved across most of the portfolio
was largely offset by the capital loss of £46m sustained from the financial
restructuring of Buzz Bingo. The only notable movement from the valuations at
the end of September 2020 relates to an investment of £36m into Liberation
Group to facilitate an acquisition, as covered below.
As noted at the half year, Buzz Bingo, the UK's biggest omni-channel bingo
business, completed a company voluntary arrangement process and financial
restructuring in August 2020 to protect the long-term prospects of the
business. A phased reopening of its retail venues was completed in the summer,
with the business trading ahead of plan. However, the introduction of the
Covid-19 tier system led to a significant number of retail venues closing in
England and Scotland in the latter part of 2020. All venues closed in January
in response to national lockdowns. The online business ( www.buzzbingo.com ),
which expects to benefit from the latest restrictions, continues to grow
player numbers and operate on a break-even basis. The valuation of Buzz Bingo
at 31 December is £22m.
Liberation Group, a pub, restaurant and drinks business with operations in the
Channel Islands and the South West of the UK traded well through the summer
period as Covid-19 restrictions were eased. Weekly revenues picked up strongly
and were often in line with, or ahead of, the prior year. However, the
introduction of the English Covid-19 tier system caused some closures in the
UK estate and from early December and following a rise in cases on the island,
all pubs and restaurants in Jersey were closed. Venues in Guernsey remain open
and the distribution business in the Channel Islands continues to trade
strongly. The recently announced lockdown in England will have an adverse
impact although trading is generally weakest in January and February. The
business has significant cash resources and will manage the cost base tightly
over the next few months.
Caledonia invested an additional £36m of new equity into Liberation Group in
November to support the acquisition of a substantial portfolio of pubs from
Wadworth and various value accretive capital investment projects across the
enlarged estate. This reflects our confidence in the long-term prospects of
the business.
A more detailed update on trading and valuation of all investee companies
within the Private Capital portfolio will be provided in Caledonia's full year
results announcement in May 2021.
Caledonia Funds (28% of NAV)
The total return on the Funds portfolio was 17.9% for the first nine months of
the year. This reflects underlying fund performance, reverting to basing
valuations on managers' NAV, without the need to reflect the Covid-19 impact
as was the case in March 2020, and the impact of exchange on these US dollar
based assets. Updated valuations dated 30 September 2020, amounting to 83% of
the Funds' NAV have been included: the holdings in Aberdeen US private equity
funds (17% of Funds NAV) remain at the manager's 30 June 2020 valuation.
Caledonia's fund investments are principally in third party managed private
equity funds operating in the US and in Asia. The feedback from the fund
managers is one of gradual improvement since the end of March. The majority of
the underlying business investments are performing well, in line with, or
ahead of pre-Covid plans, with only a small number suffering a notable decline
in trading. In general, the Asian fund investments have performed well with
good underlying returns, most notably for businesses with a technology or
healthcare focus. In contrast, US funds show a more diverse performance mix.
Whilst there are some good performers, several funds show underlying valuation
reductions which reflect the impact of Covid-19 and the sector mix of the
investee businesses. All of US and Asian funds are denominated in US dollars.
Over the nine months to 31 December 2020, Sterling has strengthened by 10%
compared to the US dollar, creating a significant headwind to the positive
returns from this portfolio.
During the first nine months of the year, £86m was invested and distributions
of £59m were received. The recent pick up in distributions is notable, with
69% of the year to date distributions received in the last three months.