Annual Report 2021
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Annual Report 2021 Year ended 31 March 2021 1 Introduction 1 Welcome to Caledonia 2 Group overview 3 Performance highlights 4 Chairman’s statement 6 Chief Executive’s report 10 Our business model 14 Section 172 statement 18 Covid-19 20 Business review 22 Investment review 26 Quoted Equity 30 Private Capital 34 Funds 38 Financial review 42 Valuation methodology 45 Going concern and viability 46 Risk management 50 Sustainability 56 Directors’ report 58 Board of directors 60 Corporate governance report 64 Nomination Committee report 65 Audit Committee report 69 Governance Committee report 70 Directors’ remuneration report 87 Other governance matters 91 Responsibility statements 92 Financial statements 94 Independent auditor’s report 102 Financial statements 106 Significant accounting policies 111 Notes to the financial statements 130 Other information 130 Company performance record 130 Glossary of terms and alternative performance measures 132 Information for investors Image theme Looking to the future and identifying new opportunities. Introduction Business review Directors’ report Financial statements Other information Welcome to Caledonia Caledonia is a self-managed investment trust company with net assets of £2.2bn. Our purpose is to grow net assets and dividends paid to shareholders over the long term, whilst managing risk to avoid permanent loss of capital. We achieve this by investing in proven well-managed businesses that combine long-term growth characteristics with, in many cases, an ability to deliver increasing levels of income. We hold investments in both listed and private markets, a range of sectors and, particularly through our fund investments, we have a global reach. The success of this strategy can be seen in the performance of Caledonia’s NAV per share total return measured against the FTSE All-Share since 1987 and a record of 54 years of increasing annual dividends. NAV total return growth since 1987 Caledonia NAV TR FTSE All-Share TR 1900 1600 1300 1000 700 400 100 1987 1996 2001 2006 2011 2016 2021 Find out more www.caledonia.com Sources: Caledonia Investments plc and FTSE International Limited (‘FTSE’) © FTSE 2021. ‘FTSE®’ is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/ or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. 1 Group overview Caledonia is a self- Group NAV £2,225m Top 10 investments (31 March 2020 £1,787m) managed investment 1 Deep Sea Electronics trust company with net 2 Liberation Group assets of £2.2bn. We hold 3 Seven Investment Management investments in both listed 4 Stonehage Fleming and private markets, 5 Cobehold covering a range of sectors 6 Cooke Optics 7 Aberdeen US PE funds and, particularly through 8 Axiom Asia funds our fund investments, Quoted Equity £716m 9 Texas Instruments we have global reach. Private Capital £827m Funds £637m 10 Watsco All data as at 31 March 2021. Other £45m Quoted Equity Private Capital Funds Further detail Further detail Further detail Turn to page 26 Turn to page 30 Turn to page 34 35-50% 35-45% 20-30% Strategic asset allocation Strategic asset allocation Strategic asset allocation Two concentrated portfolios of Private equity funds and fund of listed equities, pursuing capital holdings in private companies, funds providing a broad exposure and income strategies. focusingMajority principallyand significant on established minority to areas of the world where it would UK businesses, led by sound Capital portfolio: Mature, well- management teams, where our invest directly, predominantly target investment size of £25m inprove North more America difficult and for Asia. Caledonia to presence in their market space and to £125m provides a meaningful managed companies with significant where assets consistently produce presence and growth capital. Target 12.5% total return strong returns on capital. Target 14% total return and Target 10% total annual 5% yield return with no income constraint Income portfolio: Mature, long-term companies with business models that are both resilient and have the capacity and management culture to pay sustainable dividends. Target 7% total annual return and 3.5% yield 2 Caledonia Investments plc Annual Report 2021 Introduction Business review Directors’ report Financial statements Other information Performance highlights For the year ended 31 March 2021 » Net asset value per share total return of 25.9% » Annual dividend per share up 2.9% to 62.9p » 54th consecutive year of annual dividend increases Results summary 31 March 31 March Change 2021 2020 % NAV total return 25.9% -8.1% NAV per share 4000p 3236p 23.6 Net assets £2,225m £1,787m 24.5 Annual dividend per share 62.9p 61.1p 2.9 Performance summary 1 year 3 years 5 years 10 years % % % % NAV total return 25.9 28.2 53.4 129.2 Annualised: NAV total return 25.9 8.6 8.9 8.6 Total shareholder return 11.0 2.0 5.5 7.1 FTSE All-Share total return 26.7 3.2 6.3 6.0 Pools – annualised returns Value 1 year 3 years 5 years £m return % return % return % Quoted Equity 716 30.3 14.2 12.1 Private Capital 827 23.2 4.0 7.4 Funds 637 34.8 14.6 14.9 Cash and other 45 Net assets 2,225 25.9 8.6 8.9 3 Chairman’s statement Results The NAV total return for the year of 25.9% was strong and included positive returns from each part of our portfolio. The Quoted Equity pool delivered an annual return of 30.3%, aided by the rebound in global equity markets. Investee companies within the Private Capital portfolio, with the exception of Buzz Bingo, adapted well to the challenges presented by Covid-19 to produce a total return of 23.2%. The Funds portfolio delivered an annual return of 34.8%, buoyed by good underlying fund performance. We have retained a strong, largely ungeared balance sheet with total liquidity of £249m available at 31 March 2021. Income and dividend Total income was £45m which is a reduction of 16% David Stewart from the previous year. This reflects the negative impact Chairman of the pandemic on economic activity in a small number of investee companies and the change in focus of the Quoted Equity Income portfolio towards higher quality businesses with slightly lower yields. The board is Caledonia’s long-term approach recommending a final dividend of 45.9p per share, which represents a full year dividend of 62.9p, an increase to investment has produced strong of 2.9% when compared to the previous year. While this returns this year from each part of payment is not covered by the income generated this year, the board, cognisant of Caledonia’s significant retained the portfolio. These results support earnings, believes the dividend is a crucial element of the our commitment to a progressive total return for our shareholders and that it is appropriate approach to the dividend. to utilise the company’s available reserves. It should also be noted that no dividends have been received from Liberation Group or Buzz Bingo, both beneficiaries of the UK Government’s job retention scheme during the year. 4 Caledonia Investments plc Annual Report 2021 Introduction Business review Directors’ report Financial statements Other information Covid-19 AGM The pandemic has created uncertainty and financial The AGM is an important part of our shareholder hardship for many people in the UK and overseas. communications programme and our intention is to always Caledonia responded by establishing a fund focused hold a physical meeting where we are able to and when on assisting those employees working for investee it is considered safe to do so for members of the board, companies negatively impacted by Covid-19. The safety shareholders and staff. At the time of writing, we are and well-being of our staff, together with those working unsure if UK Government restrictions related to the for our investee companies, have been important priorities Covid-19 pandemic will be lifted after 21 June. It is possible for the board throughout this challenging period. that some restrictions may remain after this date. We are also aware that some shareholders will be understandably In response to the pandemic, central banks have provided wary of travelling to our office for the meeting, assuming additional liquidity to alleviate these effects which has that attendance is permitted. In light of this uncertainty, benefitted the portfolio as a whole. As we look forward, we have made arrangements for shareholders to be able Liberation Group, our remaining consumer leisure to follow this year’s AGM proceedings remotely, online. focussed business, is expected to benefit from pent Further details regarding the final arrangements will be up demand from customers, particularly as trading communicated to shareholders separately. restrictions ease. The Caledonia team has excelled in adapting to remote Outlook working, with IT colleagues ensuring systems and controls There are positive signs that vaccines will provide the continued to function seamlessly. We continue to believe answer to society being able to live with Covid-19. that the office has an important role to play to facilitate However, there remains a risk that new variants of the training and development and to ensure that Caledonia’s virus will require further adaptations of both vaccines and values and culture continue to permeate amongst new governmental response in order to control their spread. recruits. We are now working on plans, following official We continue to be confident that Caledonia’s portfolio guidelines, to enable staff to return to the office via is invested in assets that are of sufficient quality to weather increased use of a hybrid working model which recognises most storms to enable us to achieve our purpose of that many have welcomed the flexibility that some home growing assets and dividends over the long term.