CDN
28/11/2012 08:30
HALFYR
REL: 0830 HRS Caledonia Investments Plc
HALFYR: CDN: Half-year results for the six months to 30 September 2012
Caledonia announces its half-year results for the six months ended 30
September 2012. This condensed set of financial statements has been prepared
using accounting policies consistent with International Financial Reporting
Standards ('IFRSs') as adopted by the European Union and in accordance with
International Accounting Standard 34 'Interim Financial Reporting'. The
half-year condensed set of financial statements should be read in conjunction
with the annual financial statements for the year ended 31 March 2012, which
were prepared in accordance with IFRSs as adopted by the European Union. The
half-year report has been reviewed by KPMG Audit Plc and was approved by the
board on 27 November 2012.
KEY POINTS
- 3.8% NAV total return over the six months
- 1.9% total return outperformance of NAV against the FTSE All-Share over the
six months
- 10.3% increase in interim dividend reflecting continued growth in income
from portfolio
- 69m invested in the period, with the most significant transaction being the
provision of $42m of equity financing for the purchase of a portfolio of five
US engineering companies
- 130m realised, including 49m from the sale of remaining British Empire
Securities and continued realisation of smaller non-core investments
- Appointment of Stuart Bridges (Chief Financial Officer of Hiscox) as
non-executive director
MANAGEMENT REPORT
Backdrop to results
Equity and fixed interest markets have continued to be volatile during the
first half of our financial year, with investor concerns over the eurozone
debt crisis once again a destabilising influence. Such a backdrop is
undoubtedly unhealthy for the world economy and is a strong contributory
factor behind the lack of growth in developed markets. The poor state of the
European economy has a direct impact on the UK, which continues to show
little to no signs of life. The two largest world economies, the US and
China, are both growing slower than their long term average rates and policy
makers are struggling to return them to full health.
Performance
Against this unpromising backdrop, we are pleased to report that Caledonia's
net asset value total return per share was 3.8% over the six months to 30
September 2012, a 1.9% outperformance against the FTSE All-Share. This
performance was driven by the Quoted, Unquoted and Property pools, which
produced strong investment returns over the half-year.
The level of discount at which our shares traded compared with our net asset
value widened slightly to 27%, although fluctuated in a range between 23% and
34% during the six month period. At such high levels of discount, investing
in the existing portfolio through share buy-backs is accretive and represents
good value for all shareholders. We have therefore continued to buy-back
shares for cancellation, at a cost of 7.3m in the period under review.
Investment activity
We invested 69m during the period, the most significant transaction being the
provision of $42m of equity financing for the purchase of a portfolio of five
US engineering companies, structured through a limited partnership, Nova
Shell. The companies operate in a number of attractive industrial segments,
including plastic injection moulding, manufacture of mechanical controls and
orifice plates, fittings and gauging tools, and in the manufacture and
assembly of wires, harnesses and cables for the electronics and medical
industries. This transaction also gives us increased exposure to the US
economy through companies that operate in specialised niches. These
businesses have combined sales of $90m and a strong cash generating profile,
which will enable us to enjoy a healthy running yield whilst building capital
value for the future.
We realised 130m, including 49m from the sale of our remaining holding in
British Empire Securities ('BES'), which had been a core part of the
portfolio since 1991. BES returned nearly 9x the capital invested, producing
an IRR of 13.2% over our 21 year period of ownership, which is an outstanding
record. This completes the gradual transfer of certain externally managed
funds to our internally managed Income & Growth pool, in line with our
strategy to raise the overall income flowing from the portfolio. We have
continued to sell non-core investments, with a further six holdings either
partly or fully exited in the half-year. In addition, we sold 17m of our
holding in Close Brothers, as markets strengthened over the summer. This has
both added some liquidity to the portfolio, of which 7m was in cash at the
half-year, and reduced our significant exposure to the company, although it
remains our largest single investment.
Investment portfolio
Quoted (401m, 35% of portfolio)
The strong performance of the Quoted pool was most significantly driven by
Close Brothers, Avanti Communications, Bristow Group and AG Barr, which
represent our four largest holdings. Avanti successfully launched its second
satellite, which covers much of the Middle East and East Africa. The company
is now sharply focussed on selling bandwidth on its two operational
satellites as it moves from the start-up phase to a profitable and fast
maturing telecoms company. AG Barr has agreed terms of its merger with
Britvic. We can see the considerable industrial logic of such a move, which,
should it receive the necessary approvals, will result in the combined entity
being a very substantial player in the UK soft drinks market. There would
also be considerable industrial synergies to be gained from such a move, of
which shareholders would be the beneficiaries.
Unquoted (311m, 27% of portfolio)
Several of our industrial holdings within the Unquoted pool have produced
pleasing performances, with strong operational growth at Amber Chemicals and
TGE Marine. Oval Group, the insurance broking business, looks well set to
deliver a year of strong growth and, in Europe, Cobehold, the largest
unquoted holding, is continuing to experience strong profits and dividend
growth from its high quality portfolio of businesses. We are experiencing a
satisfactory level of deal flow in a market that is notable for the
difficulty of execution of deals, as sellers still have high price
expectations and purchasers remain nervous. This, along with more sensible
levels of bank debt being deployed, should help keep valuation levels in
check, though companies with high quality earnings still attract premium
prices.
Asia (121m, 10% of portfolio)
The total return for the Asia pool was a disappointing -9%. This was to a
large extent driven by a fall in the share price of Dewan Housing Finance,
despite continued strong growth in its mortgage financing business. Its
merger with First Blue is on track to be completed by mid-2013, which is
later than originally hoped, due to a delay in the Indian court approvals
procedure. As part of our strategy to gain exposure to Asia via well run
holding companies and funds, we increased our holding in Jardine Matheson and
subscribed for a $20m commitment to Asia Alternatives Capital Partners III,
an Asian fund of private equity funds.
Property (106m, 9% of portfolio)
The strong investment performance in the Property pool was mostly
attributable to a 36% rise in the share price of Quintain Estates over the
past six months. Quintain has attracted a strong Hong Kong based JV partner
for the previously unfunded Greenwich development site. The company was
trading on a very wide discount to its intrinsic net asset value, which has
started to narrow as a result of this and other positive news flow. More
recently, London & Stamford has announced its intention to merge with Metric
Property Investments.
Funds (103m, 9% of portfolio)
The main change in the period was the sale of the BES holding, as previously
mentioned. The performance of the Funds pool was broadly flat over the six
months.
Income & Growth (116m, 10% of portfolio)
This pool performed well during the period, producing a 3% total return. This
is 2% ahead of its benchmark and builds on the good track record since
inception.
The Income & Growth pool gives Caledonia a level of exposure to large
international companies with good dividend track records and good growth
prospects. It has a prospective dividend yield of 5% and we expect to
increase the size of the pool over time towards 15-20% of our NAV, in line
with our stated strategy.
Board
As announced in May with the full year results, Mark Davies will be retiring
at the end of the calendar year, after ten years' invaluable service. As
previously indicated, Charles Cayzer will move from an executive to a
non-executive director role with effect from 4 December 2012, the date on
which he becomes Chairman of The Cayzer Trust Company. As part of our
on-going board refreshment process, we are delighted to announce the
appointment of Stuart Bridges as an independent non-executive director with
effect from 1 January 2013. Stuart is a chartered accountant and has been
Chief Financial Officer of Hiscox, the international specialist insurer,
since 1999, prior to which he held positions in various financial services
companies in the UK and US, including Henderson Global Investors. He brings
with him a wealth of experience in both the insurance and investment markets,
which should be of great benefit to Caledonia.
Dividend
The directors have declared an interim dividend of 12.9p per share. This
represents an increase of 10% over last year's equivalent and will be paid on
10 January 2013.
Outlook
We will continue to execute our strategic plan, evidenced by the disposal of
non-core assets, a reduction in the number of core investments and a strong
increase in the level of income flowing from the portfolio. The underlying
performance of our portfolio is satisfactory considering the difficult
economic times. Our proprietorial deal flow, enhanced by our strong balance
sheet and flexible approach, is delivering a good level of investment
opportunities. We are confident that our investment model and the companies
and management teams in which we have invested will deliver superior returns
for shareholders over the medium term.
Rod Kent, Chairman
Will Wyatt, Chief Executive
Company profit for six months ended 30 September 2012: 43.9m
Group profit for six months ended 30 September 2011: 46.1m
End CA:00230302 For:CDN Type:HALFYR Time:2012-11-28 08:30:18
