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Strong performance and a special dividend from Caledonia

Over the year to end March 2022, Caledonia Investments produced an NAV return of 27.9%. The dividend was increased by 3% to 64.8p (55th consecutive year of dividend increases), but on top of that the board is proposing a special dividend of 175p. The special dividend is being funded from the profits of two large private equity sales (see below) and will cost the fund about £95m.

Will Wyatt retires as chief executive at the company’s annual general meeting in July 2022, but will remain on the board as a non-executive director. Will is to be succeeded by Mathew Masters, currently head of Caledonia Quoted Equity, who was appointed to the board as chief executive officer designate on 1 April 2022.

Looking at the three core parts of the portfolio, quoted equities returned 14.1%, private capital returned 54.7%, and funds generated 38.3%.

Extract from the manager’s report

Caledonia Quoted Equity 

The total return for the Quoted Equity pool was 14.1% over 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 14.6% and 13.7% respectively. Performance was driven by good returns from a broad range of sectors and across markets in the UK, Continental Europe and North America. Six holdings – Microsoft, Thermo Fisher, National Grid, Diageo, London Metric and Big Yellow – delivered returns of over 30% during the period.

Trading activity was relatively limited in the first half of the year, in line with our long-term investment approach. However, the more volatile market backdrop arising during the second half of the year created some buying opportunities, though portfolio performance was pared back. Positions in Alibaba, the prominent Chinese e-commerce and cloud-computing company, and in Moody’s, a leading global provider of credit ratings, financial data and analytics, have been added to the Capital portfolio. Over the year there has been an increase in our holding in Philip Morris International and a reduction in our holdings in AG Barr and Polar Capital. Other activity was restricted to refining positions in existing investments.

Caledonia Private Capital  

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 54.7% for 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 a leading global designer and manufacturer of energy technology solutions and other power products. DSE had grown strongly since its acquisition by Caledonia in October 2018. 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 at 31 March 2021.

On 17 November 2021, Caledonia announced that the shareholders of portfolio company BioAgilytix, a leading provider of bioanalytical testing for large molecule research and development, had agreed terms of a majority investment in the company by international private equity firm Cinven. Caledonia co-invested in BioAgilytix in February 2019 alongside Cobepa. Since then, the business had grown strongly via a mix of impressive organic growth and acquisitions in the US and Australia, expanding its geographic reach and capabilities. The transaction completed on 22 December 2021 delivering gross proceeds of US$183m, net of fees. The BioAgilytix co-investment was valued at US$36m in Caledonia’s accounts at 31 March 2021. The sizeable valuation uplift reflected the strong growth in the business, good levels of profitability and the attractiveness of the sector. Caledonia agreed to re-invest US$42m alongside Cinven and a consortium of investors including Cobepa, for a minority investment in BioAgilytix. This holding in BioAgilytix was valued at cost of US$42m (£32m) at 31 March 2022, reflecting the recent closing of the transaction.

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 7IM’s platform business. Assets under management continue to grow strongly through a mix of positive investment performance and net new fund inflows of c.£1.6bn during the year. The valuation at 31 March 2022 was £174m, a return of 41% for the year.  

 Cobepa, the Belgian-based investment company, owns a diverse portfolio of private global investments. The businesses within its portfolio have delivered healthy performances which, coupled with two notable exits, has resulted in a significant valuation increase for the year. As noted above, Cobepa was the majority owner of BioAgilytix, which was sold to Cinven, and it has also recently completed the disposal of its largest asset, Hillebrand, to Deutsche Post DHL Group at an equity value of €1.5bn. The impact of these transactions is largely included in the valuation of Caledonia’s holding in Cobehold (the holding company of Cobepa) which was £159m at 31 March 2022, a return of 44% for the year.

Stonehage Fleming, the international multi-family office, continues to deliver good growth, both organically and through successful acquisitions. In summer 2020, the business acquired Cavendish Asset Management which has now been fully integrated, and in January 2022 completed the acquisition of the private client business of the Maitland Group, a global advisory, administration and family office firm. The Maitland private client business is highly complementary to Stonehage Fleming’s existing operations. The acquisition was funded from existing cash resources and additional term debt. The valuation at 31 March 2022 was £140m, a return of 25% for 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 through the year, despite the adverse impact of the Omicron variant of Covid-19 during the busy December to early January trading period. The business has proved to be financially robust with an estate focused on destination pubs, a strong food offering, large outdoor spaces and, in several sites, good quality accommodation. Summer trading saw better than expected levels of demand return as consumers responded to a relaxation of Coronavirus restrictions, supported by the popularity of UK-based holidays. The pubs recently acquired from Wadworth & Co. are performing well following a programme of investment. The valuation at 31 March 2022 was £136m, a return of 6% for the year.   

Cooke Optics, a leading manufacturer of cinematography lenses, has also traded well over the last twelve months. The business has faced a number of challenges over the past two years but is now delivering improved financial performance. The recently launched range of full frame cine lenses has been positively received by the market with a healthy initial order book. The market is strong as global demand for both streaming and cinema content remains elevated. The valuation at 31 March 2022 was £118m including £30m of term debt, an equity return of 34% for the year.

Caledonia Funds  

The total return for the Funds portfolio was 38.3% for the year. This reflects strong underlying fund performance, including an increased level of distributions, from across our maturing portfolio. Caledonia’s valuation policy is to utilise the latest valuations reported by the managers of the funds in which we invest, adjusted for any cash movements to our reporting date. 20% of NAV is based on valuations dated 31 March 2022 and 71% dated 31 December 2021, primarily the directly owned funds. The remainder, mostly fund of funds holdings, are dated 30 September 2021.

Caledonia Funds’ investments are principally in third party managed private equity funds operating in North America and Asia. The level of return during the year has been very strong, reflecting the outcome of a consistent, planned approach to selecting and committing to funds over the last ten years, which mature to deliver valuation growth and generate cash distributions as underlying holdings are realised. Almost all of our managers have recorded good growth this year, across both geographies. Our investments with fund of funds managers – Aberdeen US Private Equity funds, Axiom Asia funds and Asia Alternatives funds – have shown particularly healthy returns.

The strategy for the Funds portfolio involves committing between US$100m and US$150m per annum to new fund opportunities. During the year, £111m was drawn down and £169m was distributed by the funds; we also received £9m from the sale of a fund position in the secondary market. The level of distributions remains positive, with a notable bias towards our North American funds, reflecting merger, acquisition and IPO activity in broader private equity markets.

CLDN : Strong performance and a special dividend from Caledonia

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