Caledonia says its investment portfolio has delivered a 6.7% NAV total return in the six months ended 30 September 2016. They benefited from holding dollar and euro denominated investments following the devaluation of sterling. Income totalled GBP20.3m for the half year. This is slightly lower than the comparable period in 2015, which included a one-off special dividend received on the sale of our holding in TGE Marine. The discount remained the same at the start and end of this period, at around 21%.
Quoted pool (GBP425m, 25% of net assets)
The total return for the Quoted pool was 9.3% over the period driven by several of the large dollar denominated international holdings, but also notably good performances by companies such as Hill & Smith and Spirax Sarco, both UK based engineering businesses. Weakness in the oil and gas markets continued to impact negatively on Bristow Group, the US helicopter services group, and they took the opportunity to sell the holding in Union Pacific, the US railroad operator, in light of difficult trading conditions. They also sold a holding in Real Estate Investors, the Birmingham based property company, and reduced their holding in Close Brothers, following another good set of results. The pool continues to be at the bottom of its asset allocation range reflecting the current paucity of attractive valuations and their decision to take profits as markets have risen.
Income & Growth pool (GBP202m, 12% of net assets)
The total return for the Income & Growth pool for the period was 8.6% and since inception five years ago 8.5% annualised. The pool produced GBP6.0m of income during the period and is currently running at a yield of 4.3%. This reflects the manager’s careful portfolio construction, aimed at striking the right balance between income and capital growth from this global portfolio. The lack of interest available from bank deposits and low bond yields has seen investors target high yielding equities to the extent that valuations of income stocks have been pushed to new highs. They remain cautious and aware of maintaining our investing discipline in a market that now offers much less attractive pricing than hitherto available.
Unquoted pool (GBP681m, 39% of net assets)
The total return for the Unquoted pool was 4.4% over the six months. This was underpinned by continued strong performances from Park Holidays and Cobehold, the latter being a euro denominated investment. During the period, they invested GBP71m in The Liberation Group, a brewery, restaurant and pub company based in the Channel Islands and South West England. The strategy is to expand the group by reinvesting profits into acquisitions of further sites on the UK mainland whilst continuing to support a strong dividend flow to Caledonia. The valuation of Sterling Industries was cut by half to GBP5m, as the oil and gas and steel industries, in which the majority of its businesses operate, continued to struggle. Seven Investment Management has seen assets under management grow to over GBP11bn (from GBP9.4bn on acquisition in 2015) and its profits have grown strongly during the first year of our ownership.
During the half-year, they sold the holding in Bowers & Wilkins (‘B&W’) for GBP24.0m, Park Holidays paid a special dividend of GBP26.7m following a refinancing earlier in the year and received a distribution of GBP10.6m from Latshaw Group in the US, following the sale of one of its divisions. B&W was sold to a US technology provider as it continued to grapple with the challenge of allying its speaker technology to the rapidly changing consumer markets and music delivery methods. The investment made a small but positive IRR over the four year period that they were minority owners. More positively, the Latshaw Group, in which they invested GBP27.2m in 2012, has already returned GBP34.5m in cash with the remaining business valued at GBP15.6m, an IRR of 22.1% to date.
Funds pool (GBP372m, 21% of net assets)
The Funds pool delivered a 13.9% return for the six month period, particularly benefiting from currency tailwinds, as it is predominantly invested in the US and Asia. However, this should not disguise a strong underlying performance from our investments in quoted market funds in Asia which, taken together, returned 24.3%. The private equity fund investment strategy continues to be implemented, with GBP235m of undrawn commitments at the end of the period. Liquidity has been largely generated within the pool, especially from returns of capital by the China Capital Today Growth fund, which has made such a huge success of its investment in JD.com. This individual fund is showing a net return of 11.3x invested capital and an IRR of 46% to date.
CLDN : Caledonia returns 6.7% in first half