Year ended 31 March 2014
Annual report 2014
Welcome to Caledonia
We are a self-managed investment trust company
with net assets of £1.4bn. We aim to deliver long term
growth in shareholder capital and income by investing
in well-managed, long term businesses and funds,
both listed and private, in a range of sectors and regions.
Strategic report
Directors’ report
Financial statements
1 Company highlights
Chairman’s and Chief Executive’s report
2
Investment review
Business model and strategy
6
Performance and analysis
Portfolio summary
10
13
14 Quoted pool
16 Unquoted pool
18
20
22 Financial review
25 Risk management
28 Sustainability
Funds pool
Income & Growth pool
30 Board of directors
32 Corporate governance report
35 Nomination Committee report
36 Audit Committee report
Directors’ remuneration report
39 Governance Committee report
Annual Chairman’s statement
40
Remuneration policy
42
49
Annual report
55 Other governance matters
57 Responsibility statements
58 Independent auditor’s report
60 Financial statements
64 Significant accounting policies
68 Notes to the financial statements
Other information
82 Valuation methodology
83 Company performance record
84 Information for investors
85 Directors and advisers
Caledonia Investments plc Annual report 2014 1
Company highlights
• Net asset value per share total return of 14.9%
• Annual dividend per share up 4.0% to 49.1p
Results summary
Net asset value
NAV per share
Annual dividend per share
Performance
NAV total return
Total shareholder return
Dividend growth
Pools
Quoted
Unquoted
Funds
Income & Growth
Portfolio
Cash and other items
Net assets
31 March
2014
31 March
2013
£1,446m £1,302m
2305p
47.2p
2593p
49.1p
Change
%
11.1
12.5
4.0
NAV total return growth over ten years
Caledonia NAVTR
FTSE All-Share TR
250
200
150
100
03/04
03/06
03/08
03/10
03/12
03/14
1 year
%
14.9
8.8
4.0
5 years
%
83.6
113.3
45.3
10 years
%
146.0
128.7
81.9
Annualised ten year rolling performanceCaledonia NAVTR
FTSE All-Share TR
RPI
%
15
10
5
0
03/04
03/06
03/08
03/10
03/12
03/14
Annual dividends over 47 years
Annual dividend
RPI (rebased)
p
60
40
20
0
1967
1974
1984
1994
2004
2014
Value
£m
497.8
568.3
204.4
189.6
1,460.1
(14.5)
1,445.6
Return
%
20.5
17.7
11.8
0.1
15.4
14.9
NAV per share was calculated on a diluted, cum income basis.
Source: Caledonia Investments plc and FTSE International Limited (‘FTSE’) © FTSE 2014. ‘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.
Strategic report
2 Annual report 2014 Caledonia Investments plc
Chairman’s and Chief Executive’s report
We have achieved a strong performance
in a year in which we undertook
significant activity across our portfolio.
We continued to take advantage of
opportunities to reduce some of our
larger holdings to maintain the right
balance of risk across the portfolio,
and reported a substantial uplift in NAV
on the sale of two unquoted investments.
Our investment activity included
two significant acquisitions, the
purchase of Choice Care Group and
Park Holidays, both of which fit well
with our investment criteria.
Results
We are delighted to report another successful year for the
company, which has witnessed strong growth from the
investment portfolio combined with profitable realisations
and substantial new investments. Net asset value per share
total return (‘NAVTR’) was 14.9%, building on last year’s 18.9%.
Income generation was slightly above the previous year and
continued to cover the cost of both expenses and dividend.
The board is recommending an increase in the final dividend
that would result in a 4.0% improvement on the previous year,
a rate comfortably ahead of inflation. This would represent
the forty-seventh consecutive year that the dividend paid to
shareholders has been increased.
Caledonia offers investors the chance to invest alongside the
company’s largest shareholder, the Cayzer family. The company
achieves its long term outperformance by carefully choosing
investments with strong management and sound financial
discipline in both the listed and unlisted sectors. Caledonia’s
balance sheet and ownership structure allow the company to
take a genuinely long term view (in excess of ten years). As a
closed end fund, we are not under pressure, as many other fund
managers are, of having to invest new monies raised or having
to make disposals within a fixed timescale.
The portfolio has evolved significantly since the incumbent
management team took over four years ago. We have sold many
of the smaller investments which, whilst good businesses, were
unlikely to make a material impact on Caledonia’s net asset
value. We have successfully sold several long term investments
from our unquoted holdings and have reinvested in typically
larger unit sizes or added to other larger shareholdings.
A recent but important emphasis has been on the management
of risk such that returns from the risk taken compare favourably
with the wider market. Above all, we recognise that we manage
capital that has already been created and our job is one of both
preservation and growth within sensible levels of risk.
It is worth reiterating Caledonia’s overriding
strategic aims:
• to grow capital value over the long term measured
in real terms
• to pay an increasing annual dividend, which grows
at or in excess of inflation over the long term
• to manage risk commensurate with shareholders’
requirements and our investment horizon.
A review of the detailed strategy adopted in 2011 was carried
out by the board during the year. The result of this saw the
strategic allocation to the Unquoted pool marginally increasing
and allocation to the Funds pool reducing. This has reflected
both market conditions and available opportunity. Details are
given on page 7. In addition, we have made changes to overall
performance measurement, which reflect the way we manage
the business to achieve our strategic aims.
Caledonia Investments plc Annual report 2014 3
The table below shows performance over various time frames:
1 year
%
3 years
%
5 years
%
10 years
%
NAVTR
NAVTR annualised
Caledonia RPI outperformance
RPI annualised
14.9
14.9
12.4
2.5
27.4
8.4
5.3
3.1
83.6 146.0
9.4
12.9
6.1
9.1
3.3
3.8
Caledonia FTSE outperformance
FTSE All-Share TR annualised
Income
0.8
8.6
Income received during the year rose slightly to £41.7m,
compared with £41.4m last year. Significant growth in income
is unlikely to resume until 2016, when we expect the most recent
Balance sheet
unquoted investments to begin to make a full contribution.
At the year end, we had net debt of £7.1m, compared with net
assets of £1,445.6m, though one day later, we received initial
cash of £67.2m from the disposal of Oval, taking the net cash
to £60.1m. In addition to the cash balances, the company has
£175m of committed bank facilities available to it. Our policy
is to keep gearing at modest levels and this is primarily confined
to the unlisted companies that we own rather than on Caledonia’s
balance sheet. This is closely monitored by our investment
team from their board positions at these companies. Our bank
facilities are primarily in place to provide flexibility for timing
differences between investment and divestment, but also in
the case of extreme market movements when we might wish
Overview of portfolio
to deploy significant amounts of capital.
This year’s performance has been driven by the Quoted,
Unquoted and Funds pools. Income & Growth had a flat year
following on from two years of strong outperformance,
so its overall performance since inception remains healthy.
Pool
Value
2013
£m
Invest-
ments
£m
Disposals
£m
Change
in value
£m
Value
2014
£m
Income
£m
Return
%
517.2
26.9 (127.8)
(37.1)
(17.4)
Quoted
Unquoted 384.5 166.7
Funds
35.1
Income &
Growth
Portfolio 1,230.5 332.4 (251.6) 148.8
81.5
54.2
19.9
162.0 103.7
166.8
(69.3)
497.8
568.3
204.4
10.6
22.4
1.7
20.5
17.7
11.8
(6.8) 189.6
1,460.1
7.0
41.7
0.1
15.4
The portfolio weighting by pool has changed modestly during
the year, as the Quoted pool has continued to take profits and
the Unquoted pool has made substantial new investments.
The Quoted pool, measured as a percentage of net assets, has
decreased from 40% to 35%, whereas the Unquoted pool has
increased from 29% to 39%, although this reduced to 34% after
the sale of Oval. The movement reflects partially our view as
to comparative valuation metrics between listed and unlisted
markets and partly the individual opportunities that presented
themselves to us. The Funds pool continued to build its
investments in public and private equity funds, particularly
in the US and Asia, which is a long term process and will not
influence performance in a significant way for several years.
Caledonia’s top ten investments accounted for 44% of the
portfolio, which is consistent with the previous year.
Performance measurement
Last year, the board ceased using a one year benchmark to
measure performance, which had hitherto been the FTSE
All-Share, preferring to concentrate on the ten year total return
measure. Over a shorter period of time, it is more relevant to
measure our absolute performance on an inflation adjusted basis.
Since our shareholders expect to increase their wealth in real
terms on an annual basis, we, in turn, should expect, on average,
to beat inflation. Should markets fall substantially, so the value
of our portfolio will fall as we will not move substantially into
cash. But over several years, we would expect our portfolio to
grow somewhat ahead of inflation. The table below shows the
performance of markets over varying periods of time and is
instructive in judgement of inflation adjusted performance.
Years
Periods
25
20
15
10
5
1989-2014
1994-2014
1999-2014
2004-2014
2009-2014
Annualised
FTSE All-Share
Total Return
%
Outperformance
to RPI
%
8.8
7.8
4.7
8.5
16.2
5.4
4.8
1.7
5.2
12.4
With both our longer term investment strategy and our
exposure to unlisted investments, a true picture of how the
portfolio is performing is only really apparent after a substantial
amount of time has passed. The board therefore has settled on
a rolling ten year timeframe as being a relevant period against
which to compare performance with the FTSE All-Share Total
Return index. In addition, the board’s aim is for the company to
deliver annual average returns over a ten year period of between
RPI+3% and RPI+6%. Historically, this level of performance
would be in line with or above most share indices, including the
FTSE All-Share Total Return. Caledonia’s own track record since
1987, the year in which Caledonia realised its holding in British
& Commonwealth Holdings and embarked on its strategy
to build a diversified holding company, was RPI+9% against
that of the FTSE All-Share Total Return, which was RPI+6%.
The graph below shows the ten year rolling performance of
the FTSE All-Share and Caledonia’s NAV total returns marked
against inflation.
Annualised ten year rolling performance
Caledonia NAVTR
FTSE All-Share TR
%
15
RPI+3%
RPI+6%
10
5
0
03/04
03/06
03/08
03/10
03/12
03/14
Strategic report
4 Annual report 2014 Caledonia Investments plc
Chairman’s and Chief Executive’s report
continued
Caledonia’s portfolio is invested worldwide though, in general,
we restrict our direct unlisted investing activities to the UK.
We invest in funds, both private and public equity, to give
shareholders wider geographical exposure, backing managers
for whom we have a high regard. The portfolio has wide
exposure to currencies other than sterling, which represented
47% of the overall exposure when investee companies are
analysed by revenue rather than by domicile. Our policy, as a
long term investor, is to accept currency fluctuation as a part of
investment risk. We do not therefore hedge unless a contractual
obligation has been entered into concerning either proceeds of
Pool performance
a disposal or funds for an acquisition.
long term approach is well matched with this business, which
seeks to grow gradually without compromising its provision
of care, which is its first and foremost priority. We have already
provided the company with additional capital to fund its plans
for expansion.
In November 2013, we acquired Park Holidays, the UK’s fourth
largest caravan park operator, for an equity consideration of
£88.1m. This is also a business that fits well with our investment
criteria, being asset backed and highly cash generative. The
business has made a good start, with bookings and caravan sales
showing good growth on the previous year, as we head into the
high season.
We invest in companies with established business models, strong
Quoted (£498m, 35% of net assets)
balance sheets and good returns on capital and invest in equities
over the long term.
The Quoted pool produced an impressive 20.5% return for the
year, despite reducing its capital base by a net £101m. There
were notable performances from Polar Capital, returning 69%,
and Quintain Estates, returning 62%, both investments that
have been part of the portfolio for many years. The latter had a
difficult time during the financial crisis, culminating in a rights
issue, which we supported, and we are delighted to see it return
to robust health. Close Brothers also contributed significantly,
producing the second largest gain in value in the portfolio over
the year. We continued to lighten our holding in this company,
but we still retain a substantial, albeit reduced, shareholding.
We also took profits on our long term shareholding in Bristow
Group, which has produced a series of excellent results over the
past three years.
New positions have been taken in Rolls-Royce, Diageo and
Atlas Copco and we added to a number of existing quoted
businesses that we hold, notably Jardine Matheson. All pay
healthy levels of dividends.
We invest in unlisted businesses requiring capital and an investor
Unquoted (£568m, 39% of net assets)
with a balance sheet to support a long term perspective. We invest
in both majority and minority positions.
The Unquoted pool produced a healthy return of 17.7% for
the year, including generating £22.4m of income. The return
included a significant uplift on the disposal of Amber Chemicals
and an increase in value of Oval to its sale value, with healthy
contributions from most of the remainder of the portfolio.
It has been a year of intense deal making for the Unquoted pool,
with two significant new investments, Park Holidays and Choice
Care Group, and two sales, Amber Chemicals and Oval.
We purchased 98% of the equity of Choice Care Group for
£49.5m in August 2013. The business is based near Reading and
owns and operates 49 homes in the south of England, providing
personalised residential care and supported living for adults
with severe learning difficulties. The company has significant
asset backing from its properties and has many other
characteristics that fit well with our strategy. Caledonia’s
We sold our holding in Oval to the US family-owned insurance
company, Arthur J Gallagher, one day after the year end. Whilst
the investment is still shown as part of the portfolio at the year
end, it is included at the disposal value of £70.0m, a 65% uplift
to our previous holding value. The final division of Amber
Chemicals was sold for £22.9m, which represented an uplift
of over 60% on the holding value prior to sale.
The remainder of the portfolio, which consisted of ten principal
investments, exhibited good growth. At TGE Marine, the
liquefied gas engineering company, profits more than doubled
as its strong order book was translated into sales. Our 2013
US acquisition of Latshaw Group, consisting of five engineering
businesses, has been successful, with strong profits growth
across the companies, as the US economy continues to recover.
The Sloane Club had a good year, with occupancy rising to new
highs. Cobehold, which is our largest single investment, valued
at £100.2m, saw its NAV total return grow by 7%. During the year,
we participated in Cobehold’s €400m capital raising, committing
€19.8m of which €9.9m (£8.4m) has been paid to date, enabling
the company to make several interesting new acquisitions.
However, we wrote down the value of Easybox, our Italian self-
storage business, and Satellite Information Services, the media
company, recognising difficult trading conditions.
We invest in both private and public equity funds with an emphasis
Funds (£204m, 14% of net assets)
on providing exposure to areas of the world where we are less
willing to invest directly.
The Funds pool return of 11.8% was particularly creditable,
especially as we are in the process of progressively building its
exposure to private equity, which means that investment gains
will not fully come through for several years. The most notable
performance came from our Chinese private equity fund
holding, Capital Today China (‘CTC’), where the valuation of
our stake increased by 53% to £44.8m as at 31 March 2014.
We originally committed $20m to this fund and have to date
received $15.2m (£9.9m) in cash. CTC holds a 7% stake in JD.com,
a Chinese internet retailer, which has recently completed an
IPO in the US. The fund also owns three other investments
of note: Youku Tudou, an online video sharing site in which
Alibaba recently took an 18% stake, Shanghai Sinoway Herbage
Cosmetics Company, the leading herbal skincare brand in China,
and City, the largest lingerie retail chain in China.
Caledonia Investments plc Annual report 2014 5
Board
After serving on the board for nine years, Richard Goblet
d’Alviella has decided to step down on 25 June 2014. He will be
replaced by Harold Boël, CEO of Sofina, the Belgian investment
company, which has a 5% stake in Caledonia and shares our
philosophy of close involvement in its investee companies.
Richard has been a great advocate and supporter of our
long term outlook and we will miss his wise counsel. Harold
is a material sciences engineer by training and has been CEO
of Sofina for six years, prior to which he held a number of
operational and managerial roles with Corus, now part of
Tata Steel. We look forward to welcoming him to the board
as an independent non-executive director.
Charles Allen-Jones has also signalled his wish to step down at
some point during the current year. Charles has served on the
board for over 12 years and has made an immeasurable impact
on the affairs of the company, especially as senior independent
non-executive director. His sage advice and independent
thinking will be difficult to replace, but when the time comes
Outlook
he will retire with our deep gratitude and very best wishes.
It makes a pleasant change to be able to write that economic
growth is finally returning to western economies, albeit at a low
level. Asian and other developing economies continue to grow
at a much faster rate than those in the west, though not without
signs of slowing down. This has affected their stock markets
and has brought valuations back to levels where we now feel
comfortable to deploy capital in these regions.
Elsewhere, stock markets are now mainly being valued on
a fundamentals basis, with earnings growth to the fore.
We believe that the gains of the past two years will not be
repeated to the same extent this or next year and remain wary
of external events, which often lead to heavy falls in markets.
In the UK, economic growth continues to pick up, but we face
the uncertainty caused by the Scottish vote on independence
in September this year and a UK general election in 2015.
Our portfolio remains cautiously positioned, but invested in
sound businesses with good prospects providing they are
allowed to flourish by those entrusted to govern our economy.
We remain confident in our strategy, which is delivering long
term outperformance and annual returns in excess of inflation.
Rod Kent
Chairman
Will Wyatt
Chief Executive
During the year, we invested in several new funds: $10.0m
(£6.0m) in the Ranger fund managed by Arlington Value Capital,
a US based value investor which targets listed US equities,
and £10.0m in the launch of the Polar Capital Global Financials
Trust, which aims to benefit from the re-rating of financial
assets across the globe. In addition, we committed $50m to
FLAG Capital, a US private equity fund of funds, of which $8.5m
(£5.7m) was drawn in the year. Soon after the year end,
we invested $20.0m (£11.9m) in the NTAsian Discovery Fund,
a Bangkok-based small-cap public equity fund, and committed
$15m to Vision Knight Capital II, an Asian private equity fund.
The portfolio holds interests in 40 international listed businesses,
Income & Growth (£190m, 13% of net assets)
which provide a reliable and growing dividend. Cash flow returns
to shareholders are prioritised in the invested businesses.
The Income & Growth pool’s flat performance for the year
contrasted with last year’s excellent performance, when it
produced a 23.7% return. The pool has completed three
full years in existence and performance figures have been
very pleasing, with a three year return of 28%. Higher yield
investments went out of vogue during the year under review
as investors chased growth in higher risk assets. The pool
produced income of £7.0m, a 40% increase on the previous year,
representing a gross yield of 4.3%. This will continue to build
in the future.
The top five holdings were SES, Zurich Insurance, Swedbank,
HSBC and General Electric. The pool not only provides Caledonia
with a sustainable income, but also gives us exposure to some
of the world’s best companies, something we believe is essential
in any portfolio. We added £20m to the pool during the year
and would anticipate doing so again during the current year,
whilst we have surplus cash, to bring the pool in line with its
Discount and share buy-backs
strategic allocation.
During the year, we bought back shares for a total of £15.0m,
which were subsequently cancelled. We view buy-backs as a low
risk, long term tool for enhancing returns, providing a permanent
benefit to shareholders when purchased at a discount to net
assets. The discount to net asset value has traded in the range
of 16% to 26% throughout the year and we were able to take
advantage of this to buy shares at an average discount of 19.7%.
We will once again seek the necessary shareholder approvals
at the forthcoming annual general meeting to continue with
Dividend
these buy-backs for a further year.
The board is recommending shareholder approval of a final
dividend of 35.7p, giving a total for the year of 49.1p, a 4.0%
increase on the previous year. This would represent the
forty-seventh consecutive year of increase in our annual
dividend. The final dividend will be paid on 7 August 2014,
assuming its payment is approved at the annual general
meeting to be held at Cayzer House on 17 July 2014.
Strategic report 6 Annual report 2014 Caledonia Investments plc
Business model and strategy
Caledonia is a self-managed investment
trust company with net assets of £1.4bn.
Our heritage can be traced back to
the shipping empire established by
Sir Charles Cayzer in 1878. We continue
to enjoy the backing of the Cayzer family,
which owns some 48.5% of the share
capital. The Cayzer family shareholding
provides both support for our long term
value investment horizon and provides a
foundation to our culture of conservative
generational wealth management.
Business model
We aim to deliver long term growth to both shareholder capital
and income by investing in a balanced, risk managed range of
asset classes, across diversified sectors and regions. We focus
on established businesses, where return on capital employed
is a differentiator of longer term performance and where
underlying real assets provide risk mitigation to the balance
sheet. We use gearing cautiously and focus it within appropriate
asset classes, principally to mitigate risk rather than to drive
returns. This typically arises within the Unquoted pool, where
the existence of preference share capital and structured loans
provides both a level of additional security over assets and a
mechanism for preferential annual income flows.
We have funding flexibility, through a £125m revolving credit
facility, which is used to mitigate any short term illiquidity
within the portfolio, facilitating the bridging of short term
investment flows. We also have a £20m term loan, used to
provide long term funding to investments and an additional
£30m revolving credit facility for liquidity management in
a service company.
Our business model has been developed over many years to
deliver long term growth in capital and an increasing annual
Pools of capital
dividend to shareholders.
We manage our portfolio through distinct ‘pools’ of capital,
each headed by an experienced, specialist investment executive.
Each pool invests to achieve target capital and income returns,
combining to provide a managed total return for Caledonia.
Quoted pool
• The
focuses on identifying opportunities to build
Unquoted pool
meaningful positions in long term value businesses.
• The
takes direct minority and majority stakes in
private companies, where an opportunity exists to partner a
strong management team with capital, without the traditional
restrictions of short term private equity financing. We take a
board seat in all significant private company investments.
Funds pool
• The
contains investments in UK, European, North
American and Asian private and public equity funds and, in
particular, provides diversified overseas reach in areas where
our investment model would make direct investing more
difficult to manage.
Income & Growth pool
• The
provides an exposure to global
‘mega-cap’ companies offering capital growth potential and
high dividend expectations. This pool provides both a reliable
platform for our overall income requirements and a source
of liquidity.
Caledonia Investments plc Annual report 2014 7
Investment principles
The key principles we apply in building and financing our
portfolio are:
Principles
Where we are now
We allocate our capital predominantly amongst quoted equities,
private companies and funds. We identify a strategic allocation
range to each of these classes commensurate with our overall
risk and return objectives. These allocation ranges are reviewed
regularly to ensure they remain consistent with our strategy
and market conditions.
We look to achieve a diverse investment portfolio by asset class,
industry sector, geography and currency. Overall exposures in
each case are actively monitored and managed by our executive
management, under the supervision of the board. The portfolio
is further diversified through our fund investment portfolio and
the selection of external fund managers with clear mandates.
Despite being primarily a sterling based asset portfolio, we
achieve a significant exposure outside the UK through the
revenue exposure provided, in particular, from our Funds
pool and our Income & Growth pool investments.
We look to mitigate concentration risk by limiting the value of
an investment in any one company to less than 10% of our net
asset value and will look for appropriate market opportunities
to recycle value throughout the portfolio to achieve this in an
appropriate timeframe. In recent years, our investment
concentration has reduced.
Pool
Investment style
Strategic
allocation
%
Allocation
2014
%
Quoted
Unquoted
Funds
Income & Growth
Cash and other
Portfolio
Large equity holdings
in high quality companies
8-10 direct stakes in private
companies >£25m
Private and public equity
funds, (US and Asia focus)
Mega-cap, 5% yield,
global equity portfolio
35-50
20-35
15-20
15-20
(10)-10
35
39
14
13
(1)
100
Pool distribution
Asset class distribution
Quoted
Unquoted
Funds
Income & Growth
Cash and other
2014 2013
35% 40%
39% 29%
14% 13%
13% 12%
6%
-1%
Listed equities
Private companies
Private equity funds
Public equity funds
Cash and other
2014 2013
48% 53%
40% 30%
9%
10%
2%
3%
6%
-1%
Geographic distribution
Currency exposure
United Kingdom
Continental Europe
North America
Asia
Other countries
2014 2013
57% 56%
18% 15%
14% 16%
10% 10%
3%
1%
Pound sterling
US dollar
Euro
Other currencies
2014 2013
60% 62%
19% 20%
13% 10%
8%
8%
Investment concentration
%
100
31 March 2014
31 March 2010
75
50
25
0
0
10
20
30
40
50
Cumulative number of investments
60
70
80
90
100
31 March 2014
31 March 2010
We maintain a degree of portfolio liquidity to provide both risk
mitigation and increased flexibility in opportunistic markets.
Our portfolio is increasingly focused on established businesses
of scale, particularly within the Quoted and Income & Growth
pools, which has resulted in further enhanced liquidity.
Portfolio liquidity
%
75
50
25
0
We maintain borrowing facilities primarily to provide additional
temporary liquidity between buying and selling investments.
We would not expect gearing at any time to exceed 10% of
net assets.
0
1
2
3
Months
4
5
6
Strategic report
8 Annual report 2014 Caledonia Investments plc
Business model and strategy
Investment process
continued
Our investment process is built from a disciplined series of steps,
leveraging Caledonia’s reputation and the experience of our
investment team. We look to identify long term value through
each stage, including sourcing opportunities and initial reviews,
through due diligence, approval and deal execution. The
performance of our investments is subject to a formal review
process and both individual investments and the portfolio
as a whole are periodically measured against a number of risk
control metrics, including concentration, liquidity, volatility and
sector and geographical diversity. In addition, we ensure that we
have formal representation on the board of all our core private
company investments and, where we have a significant holding,
some listed investments.
Attract preferential deal flow
Identify best opportunities
Make significant investments
Our reputation, network of deal
originators and family tradition enable
us to access premium investment
opportunities not always available to
others. This derives from both tracking
quality management teams in proven
businesses and through the contacts
we make through our extensive board
representation network.
We adopt a disciplined process of
research and due diligence to identify
value opportunities in well-managed,
long term businesses with established
business models and strong cash flows.
Such opportunities are typically not
reliant on leverage for returns and offer
long term growth potential.
We invest directly in both listed and
unlisted opportunities around the world.
Our minimum investment size is £10m
and we are willing to invest between
£20m and £50m for significant equity
interests in companies.
Identify best M
o pportunities
in
a
k
e
Attract preferential
deal flow
D
e
v
e
l
o
n
p
e
t
b
w
u
The Caledonia team
At its heart, our investment
process is focused on
recruiting and retaining high
quality investment executives
to maintain deal flow and
investment continuity,
who understand and are able
to execute Caledonia’s
investment philosophy.
s
i
o
r
k
n
e
s
s
Monito r a n d
control r i s k
v
e
s
i
s
t
g
n
m
i
f
e
i
c
n
t
a
s
n
t
s
e
e
t
s
e
v
d
n
e a
g
support in
M ana
Develop business network
Monitor and control risk
Manage and support investees
Maintaining our reputation as a
supportive and constructively involved
long term investor enables us to develop
our network of contacts, who will give
us priority consideration when new deal
opportunities arise.
Individual investments and the
investment portfolio as a whole are
monitored for risk against our strategic
objectives. Consideration is given to
concentration exposure, volatility levels,
liquidity and geographical and industry
sector diversity.
We manage our investments as pools
of capital, focusing ownership and
responsibility on our executive team.
Where we take a board seat, we can both
actively monitor the development of our
investment and contribute long term
support and governance.
Target returns
Our investment approach is aimed at delivering high single
digit total annual returns, over rolling ten year periods. This
investment horizon provides the time frame for businesses to
grow and accumulate in value in a controlled manner, within both
the public and private markets, whilst mitigating some of the
volatility inherent in short term trading investment strategies.
Over rolling ten year periods, we believe such an investment
approach both optimises risk/return characteristics and
outperforms most markets. Over a ten year investment horizon,
we target a sustainable annual yield from portfolio assets,
providing a balance to total return between income and
capital appreciation.
Caledonia Investments plc Annual report 2014 9
The chart below shows Caledonia’s annualised ten year rolling
net asset value total return (‘NAVTR’) growth, compared with
the FTSE All-Share Total Return index (‘FTSE All-Share TR’)
and the Retail Prices Index (‘RPI’).
Annualised ten year rolling performanceCaledonia NAVTR
FTSE All-Share TR
RPI
%
15
10
5
0
03/04
03/06
03/08
03/10
03/12
03/14
The chart below compares the RPI adjusted NAVTR and FTSE
All-Share TR.
Annualised ten year rolling performance,
RPI adjusted
%
10
Caledonia NAVTR
FTSE All-Share TR
5
0
-5
03/04
03/06
03/08
03/10
03/12
03/14
Strategic report 10 Annual report 2014 Caledonia Investments plc
Investment review
Performance and analysis
Over the year, our investment
performance delivered an NAV total
return of 14.9%.
Over the last four years, we have
rebalanced our portfolio substantially,
increasing diversification, yield and
portfolio liquidity and reducing
investment concentration and the
number of subscale investments.
Our investment process is at the heart of our current
performance and future prospects. We have an unconstrained
approach, which allows us to look across regions, sectors, size
and time horizons. Fundamental to our choice of investments
Performance
is our research and disciplined investment process.
Our NAV total return over the year was 14.9%, which built
on a total return of 18.9% in the previous year.
Over the year, we have developed our portfolio through
significant new investment, funded by opportunistic disposals
and managed top-slicing. The portfolio has benefited from
significant revaluation and realisation gains, as well as higher
levels of income. Our investment portfolio produced a 15.4%
return, which, after management and other expenses, delivered
an overall NAV total return of 14.9%.
The 15.4% portfolio return comprised increases in the valuation
of our investments and the income that they yielded.
Pool
Value
1
2013
£m
Invest-
ments
£m
Disposals
£m
Change
2
in value
£m
Value
1
2014
£m
Income
£m
Return
%
26.9 (127.8)
(37.1)
(17.4)
517.2
384.5 166.7
35.1
166.8
81.5 497.8 10.6 20.5
54.2 568.3 22.4 17.7
1.7 11.8
19.9 204.4
Quoted
Unquoted
Funds
Income &
Growth
Portfolio
Other
71.9
Net assets 1,302.4
1. Unallocated investments totalling £10.3m (2013 – £10.9m) were included in Other.
2.
Change in value comprised £152.0m of net gains, after adjusting for a £0.6m loss on
unallocated investments, less £3.2m of rolled-up interest.
Portfolio movements
0.1
1,230.5 332.4 (251.6) 148.8 1,460.1 41.7 15.4
(14.5)
1,445.6
162.0 103.7
(6.8) 189.6
(69.3)
14.9
7.0
At the beginning of the year, the overall value of our investment
portfolio was £1,230.5m. After £148.8m of net portfolio gains
and £80.8m of net investments, this increased to £1,460.1m
at the year end. The following chart illustrates the components
of this movement:
Movement in the investment portfolio
£m
1,600
1,400
1,200
1,000
Opening
balance
Investments Realisations Gains/losses
and other
Closing
balance
Around half of our £332.4m of investments were in new and
follow-on situations in Unquoted pool companies, principally
Park Holidays, the UK caravan parks operator, and Choice Care
Group, the UK care homes provider. A third of investments arose
within the Income & Growth pool and the balance in Quoted pool
situations and Funds pool drawdowns.
Caledonia Investments plc Annual report 2014 11
During the year, we realised £251.6m, around half resulting from
the reduction of holdings in the Quoted pool and a quarter from
recycling within the Income & Growth pool.
Realisations
Proceeds from portfolio realisations during the year totalled
£251.6m (2013 – £309.6m), summarised as follows:
Net portfolio gains over the year totalled £152.0m (after
adjusting for a £0.6m loss on unallocated investments),
comprising £196.4m of gains, offset by £44.4m of losses.
£57.7m of net gains were generated by the Unquoted pool,
principally Oval, sold on 1 April 2014, and TGE Marine.
The Quoted pool generated £81.5m of net gains and the
Funds pool £19.9m. The Income & Growth pool lost £6.8m.
Investments
Total portfolio investments during the year were £332.4m
(2013 – £141.6m), summarised as follows:
Name
Pool
New investments
Park Holidays
Choice Care Group
Polar Capital Global Financials Trust
Atlas Copco
Arlington Ranger fund
FLAG Capital fund
Rolls-Royce Holdings
Diageo
Unquoted
Unquoted
Funds
Quoted
Funds
Funds
Quoted
Quoted
Follow-on investments
TGE Marine
Cobehold
Brookshire Capital
Jardine Matheson
Income & Growth pool
Other follow-on investments
Total portfolio investments
Unquoted
Unquoted
Unquoted
Quoted
Income & Growth
Cost
£m
88.1
49.5
10.0
8.3
6.0
5.7
5.1
4.8
177.5
8.9
8.4
7.5
5.2
103.7
21.2
154.9
332.4
During the year, we made two substantial unquoted
investments. We invested £88.1m for 100% of the equity
in Park Holidays, a UK caravan parks owner and operator.
We also invested £49.5m for 97.7% of the equity in Choice Care
Group, a UK owner and operator of residential learning disability
homes, in each case to support a management buy-out.
Other new investments included £10.0m in the Polar Capital
Global Financials Trust, a UK investment trust investing in
global financial companies, and drawdowns from new fund
commitments.
Follow-on investments included an increase in our holding in
TGE Marine, the German gas engineering company, to 67.9% at
a cost of £8.9m. We invested a further £8.4m in part paid shares
in Cobehold, the Belgian investment company, as part of a
€400m capital raising. During the year, we advanced a further
£7.5m of loan finance to Brookshire Capital, a UK property
investment company, to enable it to expand its portfolio.
The £103.7m invested through the Income & Growth pool
represented both an increased allocation of cash to this pool
of £20.0m and changing holdings within the pool. This portfolio
contained 40 companies at 31 March 2014 (down from 42 at
the previous year end), in a range of sectors across the globe,
with stakes ranging in value from £2.0m to £7.5m.
Name
Pool
Close Brothers
Bristow Group
Amber Chemicals
LondonMetric Property
Quintain Estates
Greggs
Kingdom Group
Income & Growth pool
Other realisations
Total portfolio realisations
Quoted
Quoted
Unquoted
Quoted
Quoted
Quoted
Quoted
Income & Growth
Proceeds
£m
43.4
35.2
22.9
23.2
13.4
8.1
6.6
69.3
29.5
251.6
We have continued to sell down our substantial investment
in Close Brothers, to enable us to broaden the spread of our
investments across the portfolio. In addition, we released capital
from a number of other substantial long term investments held
in the Quoted pool, in particular, Bristow Group, LondonMetric
Property, Quintain Estates and Kingdom Group.
The £69.3m of realisations through the Income & Growth pool
were recycled into new investments, or used to increase our
holdings in existing companies. This demonstrates the active
management of the Income & Growth pool and indicates an
average portfolio turnover of around three years.
Portfolio returns
The total return on our investment portfolio over the year was
15.4%. The following table highlights the principal contributors
to this performance:
Name
Oval
Close Brothers
Quintain Estates
Polar Capital
Capital Today China
TGE Marine
LondonMetric Property
Amber Chemicals
Sterling Industries
Latshaw Group
AG Barr
Easybox
Satellite Information Services
Income & Growth pool
Other investments
Total portfolio returns
Gain or
loss
£m
35.3
21.2
18.0
14.9
15.5
12.9
8.2
7.2
5.7
5.5
6.1
(3.4)
(7.9)
(6.8)
19.6
152.0
Income
£m
Return
£m
Return
%
1.2
2.5
–
1.2
0.3
1.1
1.8
2.0
3.5
3.6
0.3
–
–
7.0
17.2
41.7
36.5
23.7
18.0
16.1
15.8
14.0
10.0
9.2
9.2
9.1
6.4
(3.4)
(7.9)
0.2
36.8
193.7
103.4
37.1
62.0
68.7
54.3
66.3
40.6
63.4
30.2
33.0
12.5
(46.0)
(27.8)
0.1
15.4
The overall return primarily arose from strong market
performances of our top listed investments, including Close
Brothers, Quintain Estates, Polar Capital, LondonMetric Property
and AG Barr. Amber Chemicals delivered a gain of £7.2m as a
result of our sale to ICM Corporation on 31 March 2014 and
Oval was marked up to the value of its sale to Arthur J Gallagher
on 1 April 2014.
Strategic report 12 Annual report 2014 Caledonia Investments plc
Investment review
Performance and analysis
continued
On the other hand, the valuation of Satellite Information Services
fell as a result of the loss of its BBC outside broadcasting contract
and reduced prospects for its core betting content services.
The value of the Income & Growth pool investments fell in
aggregate, particularly during the first quarter of 2014, when
market sentiment moved quickly against income stocks, which
Portfolio analysis
is the core of this portfolio, in favour of growth opportunities.
Pools
The following chart shows the distribution of net assets between
the pools of capital and cash.
Pool distribution
Geographic by revenue generation
United Kingdom
Continental Europe
North America
Asia
Other countries
2014 2013
47% 54%
17% 25%
14% 11%
2%
15%
8%
7%
Quoted
Unquoted
Funds
Income & Growth
Cash and other
2014 2013
35% 40%
39% 29%
14% 13%
13% 12%
6%
-1%
Asset class
The following chart shows the distribution of net assets by asset
class. Listed securities represented 48% of net assets at the year
end and unlisted investments (companies and funds) in total
accounted for 53%.
Asset class distribution
The chart shows a significant shift during the year, from the
Quoted pool and cash and into the Unquoted pool. However,
this omits the sale of Oval on 1 April 2014, which reduced
the Unquoted pool to 34% and increased cash to 4%.
The increase in the Funds pool reflected the investment
in the Polar Capital Global Financials Trust and commitment
drawdowns in two new US funds.
Geography
The following chart shows the distribution of net assets between
regions. The basis of this analysis is the country of listing,
country of residence for unlisted investments and underlying
regional analysis for funds.
Geographic distribution
United Kingdom
Continental Europe
North America
Asia
Other countries
2014 2013
57% 56%
18% 15%
14% 16%
10% 10%
3%
1%
The increase in the value of TGE Marine, a shift in the geographic
weighting of the Income & Growth pool, the Quoted pool
investment in Atlas Copco and the additional fund raising by
Cobehold has increased our exposure to Europe over the year.
Similarly, the realisation of part of our holding in Bristow Group
has reduced our exposure to the US.
At the end of the year, UK listed and resident companies
accounted for 57% of our portfolio. However, much of our UK
exposure is through multinational companies, which generate
a large proportion of their revenues overseas. The following
chart shows the geographic analysis by revenue generation,
which shows an exposure to the UK economy of 47%.
Listed equities
Private companies
Private equity funds
Public equity funds
Cash and other
2014 2013
48% 53%
40% 30%
9%
10%
2%
3%
6%
-1%
Over the year, there has been a substantial shift in allocation
from listed equities and cash to private companies. The
reduction in listed equities principally arose from part
realisations of Close Brothers, Bristow Group, LondonMetric
Property and Quintain Estates. The new investments in Park
Holidays and Choice Care Group principally accounted for the
increase in private companies.
After the year end, we realised our investment in Oval, which
would have had the effect of reducing private companies and
increasing cash each by 5%.
Currency
The following chart analyses net assets by currency exposure,
based on the currencies in which securities are denominated
or traded.
Currency exposure
Pound sterling
US dollar
Euro
Other currencies
2014 2013
60% 62%
19% 20%
13% 10%
8%
8%
The changes in currency exposure over the year principally
reflected portfolio changes. In particular, the sales of UK quoted
company holdings and additional European investments have
shifted the balance from sterling to the euro.
Caledonia Investments plc Annual report 2014 13
Portfolio summary
Holdings over 1% of net assets at 31 March 2014 were as follows:
Name
Pool
1
Geography
Business
Unquoted
Unquoted
Quoted
Unquoted
Quoted
Quoted
Unquoted
Quoted
Funds
Unquoted
Quoted
Unquoted
Quoted
Unquoted
Unquoted
Quoted
Funds
Unquoted
Unquoted
Quoted
Unquoted
Quoted
Quoted
Funds
Unquoted
Cobehold
Park Holidays
Bristow Group
Oval
Close Brothers
AG Barr
Choice Care Group
Avanti Communications
Capital Today China
The Sloane Club
Quintain Estates
TGE Marine
Polar Capital
Sterling Industries
Latshaw Group
Dewan Housing Finance
Perlus Microcap
Bowers & Wilkins
Satellite Information Services
LondonMetric Property
Buckingham Gate
Spirax Sarco
Jardine Matheson
Nova Springboard
Brookshire Capital
Other investments
Investment portfolio
Cash and other items
Net assets
1. Geography is based on the country of listing, country of domicile for unlisted investments and underlying regional analysis for funds.
2. Unallocated investments totalling £10.3m are included in Cash and other items.
Belgium Investment company
Caravan parks operator
UK
Helicopter services
US
Insurance broking
UK
Financial services
UK
Soft drinks
UK
Care homes provider
UK
Satellite communications
UK
Private equity fund
China
Residential club
UK
Property services
UK
Germany LNG engineering
UK
UK
US
India
US
UK
UK
UK
UK
UK
Singapore Industrial engineering
UK
UK
Fund manager
Engineering
Manufacturing
Housing finance
Public equity fund
Audio equipment
Broadcasting services
Property investment
Property investment
Steam engineering
Private equity fund
Property investment
2
Value
£m
100.2
88.1
74.5
70.0
64.6
57.7
50.2
46.8
44.8
43.8
41.2
39.3
39.0
36.4
33.0
31.0
24.3
24.1
20.6
20.5
18.5
18.0
16.2
14.9
14.8
427.6
1,460.1
(14.5)
1,445.6
Net
assets
%
6.9
6.1
5.2
4.9
4.5
4.0
3.5
3.2
3.1
3.0
2.9
2.7
2.7
2.5
2.3
2.1
1.7
1.7
1.4
1.4
1.3
1.2
1.1
1.0
1.0
29.6
101.0
(1.0)
100.0
Strategic report
14 Annual report 2014 Caledonia Investments plc
Investment review
Quoted pool
continued
The Quoted pool contains significant holdings in well managed
companies, held for the long term. These investments typically
offer substance, brand, intellectual property and strong market
position. We target opportunities that have a good record of
return on capital employed and a strong asset base. In common
with the wider Caledonia philosophy, we look to back good
management teams who run their companies along prudent
financial lines but with ambition for good returns.
The pool started the year with investments valued at £517.2m
and ended with a value of £497.8m, as the opportunity was
taken to top-slice a number of strongly performing investments
into a buoyant market. In total, £100.9m of net realisations were
made, principally £43.4m from Close Brothers, £35.2m from
Bristow Group and £23.2m from LondonMetric Property.
Including £10.6m of income, the Quoted pool achieved a return
over the year of 20.5%, following last year’s return of 24.6%.
A number of strong performances contributed to the Quoted
pool gains totalling £81.5m, notably from Close Brothers,
Polar Capital, Bristow Group and Quintain Estates.
We have established new initial investments in a number of
quality businesses, including Atlas Copco (£8.3m), the Swedish
industrial engineering group, Rolls-Royce (£5.1m), the aircraft
engine manufacturer, and Diageo (£4.8m), the premium drinks
business, and added £5.2m to our holding in Jardine Matheson,
the diversified business group focused principally on Asia.
The Quoted pool is comprised of
significant investments in listed equities.
Our focus is on mature, long term
businesses with significant presence in
their market space and where tangible
assets produce strong returns on capital,
giving strength to their balance sheets.
return over the year
35% of NAV at 31 March 2014
+20.5%
Opening value
Investments
Realisations
Revaluation
Closing value
Investment income
£m
517.2
26.9
(127.8)
81.5
497.8
10.6
Top investments
Name
Business
Bristow Group
Close Brothers
AG Barr
Avanti Communications
Quintain Estates
Polar Capital
Dewan Housing Finance
LondonMetric Property
Spirax Sarco
Jardine Matheson
The table above shows pool holdings of over 1% of net assets at 31 March 2014.
Helicopter services
Financial services
Soft drinks
Satellite communications
Property services
Fund manager
Housing finance
Property investment
Steam engineering
Industrial engineering
Geography
US
UK
UK
UK
UK
UK
India
UK
UK
Singapore
First
invested
Equity
held
%
Residual
cost
£m
1991
1987
1977
2005
1994
2001
2005
2007
2011
2011
4.5
3.1
8.1
13.7
7.7
9.2
11.0
2.3
0.8
0.1
24.8
10.0
1.1
42.9
45.3
0.6
31.8
14.8
11.9
13.8
Value
£m
74.5
64.6
57.7
46.8
41.2
39.0
31.0
20.5
18.0
16.2
Income/(expense)
recognised in the year
Pool
%
Revenue
£m
Capital
£m
15.0
13.0
11.6
9.4
8.3
7.8
6.2
4.1
3.6
3.3
1.0
2.5
0.3
–
–
1.2
0.8
1.8
1.0
0.3
4.0
21.2
6.1
(0.5)
18.0
14.9
3.2
8.2
0.6
(1.0)
Caledonia Investments plc Annual report 2014 15
Bristow Group is a leading provider of helicopter services to
the offshore energy industry, quoted on the NYSE. We initially
invested in Bristow in the UK in 1991 and saw it merged with
the US-based Offshore Logistics in 1996. Bristow had a
successful year, with revenue and earnings increasing over
the previous year. In February 2014, Bristow acquired 60% of
Eastern Airways, a UK airline providing charter and scheduled
services, principally for UK oil and gas industry transport.
Close Brothers, the UK listed specialist financial services group,
had a strong first half result to 31 January 2014, with increases
across the banking, brokerage and asset management divisions.
Although we continued to top-slice our holding into a buoyant
market, our investment returned an excellent 37.1% over
the year.
AG Barr, the UK soft drinks manufacturer, particularly notable
for its Scottish soft drinks, Irn-Bru and Rubicon, had another
good year, with earnings and dividends increased by some 10%.
Avanti Communications, the AIM listed company supplying
satellite broadband services to telecoms companies across
Europe, Africa and the Middle East, had an excellent close to
2013. For the six months to 31 December 2013, Avanti’s revenues
nearly doubled and it signed a number of new contracts.
However, its share price slipped a little over the year, resulting
in a negative return of 1.0%.
Quintain Estates, the UK listed property company, returned
62.0% over the year, as it completed its corporate re-positioning
with the sale of its interest in Greenwich Peninsula and the
advancement of development at Wembley Park. We have taken
advantage of the improving market for Quintain stock to lighten
our holding over the year.
Polar Capital, the AIM listed investment manager, almost
doubled its assets under management over the year to $13.2bn.
We provided initial capital for this business in 2001, which has
now grown to 99 employees.
Dewan Housing Finance, the Indian listed company providing
house financing to lower and middle income purchasers
returned 14.7% over the year, supported by strong results.
LondonMetric Property, is a UK REIT investing in commercial
and residential property, principally in the UK. Strong earnings
growth and valuation increases resulted in a 40.6% return
to Caledonia whilst, at the same time, we reduced our
holding substantially.
We invested in Spirax Sarco, a supplier of engineered solutions
for the design, maintenance and operation of industrial and
commercial steam systems, in 2011. Although the company’s
performance improved over the last year, its share price
advanced only a modest amount. However, an 11% increase
in its annual dividend helped us achieve a 9.8% return.
We increased our investment in Jardine Matheson, the
diversified business group focused on Asia, over the year.
However, a flat result led to a slight decline in the share price,
which could not be offset by its dividend, resulting in a negative
return to us of 4.1%.
Strategic report 16 Annual report 2014 Caledonia Investments plc
Investment review
Unquoted pool
continued
The Unquoted pool contains both
significant minority and majority
holdings in private companies. Our focus
is on established businesses, led by
sound management teams, where our
target investment size of £20m to £50m
provides a meaningful presence and
growth capital supporting double-digit
operating margins.
return over the year
39% of NAV at 31 March 2014
+17.7%
Opening value
Investments
Realisations
Revaluation
Closing value
Investment income
£m
384.5
166.7
(37.1)
54.2
568.3
22.4
The Unquoted pool has grown substantially over the year,
increasing from £384.5m at the start of the year to £568.3m
at the end, after £129.6m of net investment. Including £22.4m
of income, the Unquoted pool achieved a return over the year
of 17.7%, building on a return of 16.1% last year.
The Unquoted pool had an active year, making two significant
new investments, five follow-on investments and two
material disposals.
In August 2013, we acquired a controlling stake in Choice Care
Group for £49.5m. Based in the south of England, Choice Care
owns and operates a portfolio of 49 residential learning
disability homes, as well as providing supported living services
in the same areas. The estate is well invested and represents
a solid platform for future developments. Our strategy is to
develop new homes as well as extend Choice Care’s supported
living business, building incremental value. Since the buy-out,
we have invested an additional £0.7m to support the
development of two additional homes.
In November 2013, we acquired 100% of Park Holidays for an
equity commitment of £88.1m. Based in the south of England,
Park Holidays owns and operates a portfolio of 23 caravan
parks. Our strategy is to continue to grow the parks’ profits
through selective capital expenditure as well as operational
improvement. In addition, we will look to support Park Holidays’
management team in making targeted acquisitions.
Belgium-based Cobehold, our largest investment, had a solid year.
It is an investment company with holdings in companies with
long term growth prospects throughout Europe. Its portfolio
of unquoted investments weathered the European downturn
admirably, maintaining capital values and increasing the
dividend paid to shareholders. During the year, we participated
in Cobehold’s €400m first fundraising since its buy-out in 2004,
committing €19.8m, of which €9.9m (£8.4m) has been paid to
date, enabling the business to develop further across Europe.
Top investments
Name
Business
Geography
First
invested
Equity
held
%
Residual
cost
£m
Income/(expense)
recognised in the year
Value
£m
Pool
%
Revenue
£m
Capital
£m
Cobehold
Park Holidays
Oval
Choice Care Group
The Sloane Club
TGE Marine
Sterling Industries
Latshaw Group
Bowers & Wilkins
Satellite Information Services Broadcasting services
Property investment
Buckingham Gate
Brookshire Capital
Property investment
The table above shows pool holdings of over 1% of net assets at 31 March 2014.
Belgium 2004
Investment company
2013
Caravan parks operator UK
2003
UK
Insurance broking
2013
UK
Care homes provider
UK
Residential club
1991
Germany 2006
LNG engineering
1989
UK
Engineering
2012
US
Manufacturing
2011
UK
Audio equipment
2005
UK
2000
UK
2010
UK
8.7
100.0
23.2
97.7
100.0
67.9
100.0
n/a
20.0
22.5
100.0
80.0
43.7
88.1
42.5
50.2
38.5
19.2
5.3
27.2
24.1
16.7
20.5
11.1
100.2
88.1
70.0
50.2
43.8
39.3
36.4
33.0
24.1
20.6
18.5
14.8
17.6
15.5
12.3
8.8
7.7
6.9
6.4
5.8
4.2
3.6
3.3
2.6
1.9
–
1.2
–
5.6
1.1
3.5
3.6
0.9
–
0.5
0.6
0.3
–
35.3
–
0.8
12.9
5.7
5.5
0.1
(7.9)
–
2.7
Caledonia Investments plc Annual report 2014 17
Oval, a leading provider of insurance broking and financial
services in the UK, maintained its recent track record of
increasing earnings and, following a re-financing of its senior
debt facilities in June 2013, re-commenced interest payments to
Caledonia. On 1 April 2014, we sold our 23.2% holding to Arthur
J Gallagher of the US for £70.0m, as part of its acquisition of the
entire Oval group. We revalued Oval to the sale value at the year
end, which was a 65% increase on the previous carrying value.
The Sloane Club, a premium residential club situated in central
London, had a good year, with improved occupancy leading to
increased revenue and earnings. As a result of this improvement
and a review of its five year business plan, consulting valuers
marked-up the value of the property.
TGE Marine, the Germany-based designer and supplier of cargo
handling systems for liquid gas carrying ships and offshore
units, improved its revenue and earnings. Over the year, we
acquired additional ordinary shares in TGE Marine for €10.6m
(£8.9m), increasing our stake from 49.9% to 67.9%.
We saw particularly strong revenue and earnings growth at
Sterling Industries and Latshaw Group this year, resulting in
an increase in our valuations of both these businesses. Sterling
Industries is a UK-based international engineering business,
specialising in the global supply of combustion and heat transfer
technology and services, and Latshaw Group comprises five
US engineering businesses in sectors including plastic injection
moulding, custom wire and cable products and gauging tools.
Both these companies paid significant dividends during the year.
Bowers & Wilkins, a premium audio manufacturer headquartered
in the UK, had a good year and paid a welcome dividend.
Satellite Information Services, the UK media group, took the
decision to exit its outside broadcasting business following
the announcement of the loss of its BBC contract to other media
providers. As a result, we have marked down the value of our
holding in this company.
Buckingham Gate is a property investment company, which
owns an office building in central London, partly used as
our head office and partly let out to third parties. Due to the
continuing development work in Victoria, external advisers
have held the value of this property to last year’s level.
Over the year, we also increased our investment in Brookshire
Capital, a property investment company in which we have an
80% interest, as it continued to invest in light industrial units
located in the south of England. The portfolio of 11 properties
has benefited from valuations rising in the sector over the year
and now generates a geared yield at property level of 14.5%.
Easybox, our Italian self-storage business, has had a
disappointing year, with challenges to the market coupled with
significant management change. Consequently, we have written
down the value of our investment in this company by some 46%.
Following earlier loan repayments of £1.6m, on 31 March 2014
we sold our holding in Amber Chemicals, the global speciality
silicones business, to ICM Corporation of the US for £22.9m
(net of costs), an uplift of over 60% on its carrying value.
We invested in Amber Chemicals over 50 years ago and have
benefited from its ability to grow and sell chemicals businesses
over the years and latterly the development of its market leading
silicones business.
Strategic report 18 Annual report 2014 Caledonia Investments plc
Investment review
Funds pool
continued
The Funds pool comprises investments
in private and public equity collective
investment vehicles, structured through
companies, limited partnerships and
open-ended funds.
Our fund investments provide broad
exposure to areas of the world where it
is more difficult for us to invest directly.
return over the year
14% of NAV at 31 March 2014
+11.8%
Opening value
Investments
Realisations
Revaluation
Closing value
Investment income
£m
166.8
35.1
(17.4)
19.9
204.4
1.7
The Funds pool had a good year, with a total return of 11.8%.
The principal component of the valuation movement was a 53%
increase in the value of the Capital Today China fund, principally
due to the continued success of JD.com (formerly Jingdong),
the Chinese online retailer. The Funds pool started the year at
£166.8m and ended at £204.4m, after net investment of £17.7m.
The Funds pool contains investments in private and public
equity funds in the UK, Europe, US and Asia. Investment through
funds enables us to broaden our geographic and sector spread,
by taking advantage of managers’ specialist knowledge and
ensures exposure to areas of the world where we are less willing
to invest directly.
The nature of the longer term investment process within the
Funds pool requires the continuous origination and investment
in new funds, to ensure both effective vintage management and
a balance between maturing funds and those at the initial stages,
where returns are naturally phased to later years.
During the year, we committed to three new limited partnership
funds: $50m (£30.0m) to FLAG Private Equity V, managed by
FLAG Capital, £10m to the ISIS Growth I fund, managed by ISIS
Equity Partners, and $10m (£6.0m) to AVM Ranger, managed
by Arlington Value Capital. A total of £14.0m was drawn down
by these funds in the year.
FLAG Private Equity V is a private equity fund of funds, investing
in buy-out managers operating in the US lower-mid market.
FLAG Capital has a strong track record and has achieved top
quartile performance with its previous funds.
ISIS is one of the most active and successful lower mid-market
private equity houses in the UK and has supported over 100
entrepreneurial businesses since its inception in 1995. The ISIS
Growth I fund continues this tradition.
AVM Ranger is a US public equity fund, with a value oriented,
sector and size agnostic style. Arlington Value Capital has been
active since 2008, with excellent returns to investors.
We also invested £10.0m in the Polar Capital Global Financials
Trust, a UK investment trust managed by Polar Capital. This is
an actively managed trust, designed to take advantage of growth
opportunities and potential for significant yield recovery in the
global financials sector.
Top investments
Name
Business
Geography
Capital Today China
Perlus Microcap
Nova Springboard
The table above shows pool holdings of over 1% of net assets at 31 March 2014.
Private equity fund
Public equity fund
Private equity fund
China
US
UK
First
invested
2006
2010
2006
Equity
held
%
Residual
cost
£m
n/a
n/a
n/a
1.8
16.5
3.2
Value
£m
44.8
24.3
14.9
Income/(expense)
recognised in the year
Pool
%
Revenue
£m
Capital
£m
21.9
11.9
7.3
0.3
–
–
15.5
2.1
2.0
Caledonia Investments plc Annual report 2014 19
Realisations of £17.4m comprised the sale of part of our holding
in Eredene Capital, the India infrastructure investor, and a
number of fund distributions.
The Capital Today China Growth Fund is managed by Capital
Today and provides growth capital to medium-sized Chinese
companies, focusing on the consumer, retail and internet
sectors. The particular success of JD.com has led to a significant
increase in the valuation of this fund, resulting in a return to
Caledonia of 54.4% over the year.
Perlus Microcap is a long only equity fund investing in small
public companies in North America, managed by UK-based
Perlus Investment Management. Perlus Microcap has an
excellent track record, being 45.9% ahead of Russell 2000K
Value since its August 2008 inception, with low volatility.
Our investment in this fund returned 9.3% over the year.
Nova Springboard is a fund managed by Nova Capital
Management. Springboard was an AIM listed investment
company that Nova took private in 2006, with financing from
Caledonia. This fund continues to perform well and returned
15.1% over the year.
On 1 April 2014, we invested $10.0m (£6.0m) in the NTAsian
Discovery Fund and added a further $10.0m (£6.0m) on 1 May.
The NTAsian Discovery Fund is a $600m public equity fund
managed by Bangkok-based NTAsset Management, investing
in Asian (ex Japan) companies. The fund specialises in
‘undiscovered small cap companies’ and aims to generate
absolute returns by investing for the long term in companies
trading at deep discounts to their intrinsic values.
In April 2014, we committed $15m to the Vision Knight Capital
(China) Fund II. VKCII is a Shanghai-based private equity fund
focusing on investments in internet, e-commerce and B2B
services empowered by IT and internet technologies in China.
The fund was founded by the ex-CEO of Alibaba.
At the year end, our fund commitments amounted to £76.7m
(2013 – £60.2m). The following chart shows the geographical
spread of our fund investments and outstanding commitments,
including the post year end Asian investments and commitment
noted above of £21.0m.
Fund investments and commitments
North America
Asia
United Kingdom
Continental Europe
Global
2014 2013
33% 32%
32% 31%
25% 29%
8%
–
6%
4%
The chart shows a shift away from the UK and Europe and into
North America, Asia and global funds, in line with our strategy
of investing in funds in areas of the world where it is more
difficult for us to invest directly.
Strategic report
20 Annual report 2014 Caledonia Investments plc
Investment review
Income & Growth pool
continued
The Income & Growth pool comprises
a geographical and sector balanced
portfolio of investments in up to
45 international blue chip businesses,
targeting yields for the pool as a whole
of 5% gross.
return over the year
13% of NAV at 31 March 2014
+0.1%
Opening value
Investments
Realisations
Revaluation
Closing value
Investment income
The Income & Growth pool comprises a geographical and sector
balanced portfolio of currently 40 investments in mainly global
blue chip companies with strong balance sheets, above average
returns and demonstrable histories of creating shareholder
value. All investments are carefully researched, visited locally
and have strong organic growth potential in tandem with a high
dividend yield.
Over the year, the Income & Growth pool invested £103.7m,
of which £20.0m was new funding, and realised £69.2m, as we
rebalanced the portfolio as noted below. Net dividend income
during the year was £7.0m, representing a gross yield of 4.3%
on the average invested capital. Overall, the value of the pool
grew over the year from £162.0m to £189.6m, representing
13% of Caledonia’s net assets.
The Income & Growth pool was created in March 2011, with
£156.0m of investment to date, and, over the three years of its
existence produced a return of 28.5%, giving an annualised
rate of 8.7%.
Cumulative pool return
140
03/11
03/12
03/13
03/14
120
100
80
£m
162.0
103.7
(69.3)
(6.8)
189.6
7.0
Top investments
The top ten investments in the pool at 31 March 2014 were as follows:
Name
Business
Satellite communications
SES
Multi-line insurance
Zurich Insurance
Banking
Swedbank
Banking
HSBC Holdings
Conglomerate
General Electric
Pharmaceuticals
Pfizer
Pharmaceuticals
GlaxoSmithKline
Life insurance
Standard Life
Pharmaceuticals
Novartis
Intel Corporation
Semiconductors
The table above shows pool holdings of over 1% of net assets at 31 March 2014.
Country
Luxembourg
Switzerland
Sweden
UK
US
US
UK
UK
Switzerland
US
Value
£m
7.5
7.2
7.1
6.9
6.7
6.6
6.3
6.0
5.9
5.7
Pool
%
3.9
3.8
3.8
3.6
3.5
3.5
3.3
3.2
3.1
3.0
Income
£m
–
0.3
0.4
0.3
0.1
0.2
0.3
0.4
0.1
0.2
Caledonia Investments plc Annual report 2014 21
After two strong years of capital returns, the valuations of
higher yielding stocks did not continue their rise. This subdued
performance resulted in a return to the pool over the year of
just 0.1%. In the first half of the year, the Federal Reserve
Bank introduced tapering to wind down quantitative easing,
which had an adverse effect on higher yielding stocks globally.
However, this effect diminished in the second half of the year,
as economic growth picked up and the pool returns improved,
gaining 4.7% since October.
Solid performance came from developed markets, with US,
UK and European equities all contributing to returns. Europe
in particular came back strongly and the pool added a number
of European holdings, including Daimler, the German maker of
Mercedes cars and trucks, SES, the Luxembourg-based global
satellite company, RTL Group, the German television group, and
Novartis, the Swiss pharmaceutical giant, which have all gained
in value. Asian and emerging market investments had a more
difficult year, as Chinese growth slowed and Brazil experienced
higher inflation. However, there were still some good returns
from Asia, with Giant Manufacturing in Taiwan, the world’s
largest manufacturer of bicycles, providing the best gains.
Over the year, we rebalanced the pool investments away from
the UK and Asia and towards Europe and, to a more limited
extent, North America, with the purchase of General Electric.
Whilst the portfolio is a collection of research driven
investments, focusing on the sustainable organic growth
and dividend potential of each company, over the longer term,
regional allocations are important. From that perspective,
Asian and emerging markets are now exhibiting relatively good
value and the Australian economy is showing signs of a recovery.
Australia has above average dividend yields, particularly in the
sustainable type of companies that suit the pool. Reassessing
the potential and valuations of investments in Australia, Asia
and Brazil is important to maintaining dividend yields and
keeping good value in the pool.
Sectors
Oil and gas
Basic materials
Industrials
Consumer goods
Health care
Consumer services
Telecommunications
Utilities
Financials
Technology
5%
3%
6%
2014 2013
6%
3%
7%
24% 25%
13% 11%
3%
7%
7%
30% 28%
3%
8%
3%
5%
3%
Regions
United Kingdom
Continental Europe
North America
Asia Paci�ic
Latin America
2014 2013
18% 25%
37% 21%
28% 26%
12% 22%
6%
5%
Strategic report
22 Annual report 2014 Caledonia Investments plc
Financial review
Investment Entities
amendments,
The company has early-adopted the
IASB
consolidating the company and its
service subsidiaries, as we believe that
this will make the annual report more
understandable to the reader.
Caledonia’s net asset value increased over the year to £1,445.6m
at 31 March 2014, from £1,302.4m at the start of the year.
The following chart analyses this increase:
Movement in net asset value
£m
1,500
1,400
1,300
1,200
Opening
NAV
Revenue
return
Capital
return
Dividends
Other
Closing
NAV
Total return
The company seeks to generate total return from investment
income, net of expenses, and capital growth. For the year ended
31 March 2014, the total return was £184.2m (2013 – £207.6m),
of which £29.8m (2013 – £29.8m) derived from income and
Revenue performance
£154.4m (2013 – £177.8m) from capital.
Investment income in the year of £41.7m was marginally higher
than last year’s £41.4m. The Income & Growth pool contributed
£2.0m more than in 2013, reflecting the increased cash
allocation to this pool, and the Unquoted pool benefited from
substantial dividends from the Latshaw Group, The Sloane Club
and Sterling Industries. These increases were substantially
offset by a reduction in income from Close Brothers and other
Quoted pool investments, as we reduced overweight holdings.
The investment income represented a net yield on the monthly
Capital performance
average portfolio of 3.2%, compared with 3.3% last year.
Net gains on investments totalled £151.4m (2013 – £178.1m,
including derivatives). The principal gains were £35.3m from
Oval, £21.2m from Close Brothers, £18.0m from Quintain Estates
and £15.5m from the Capital Today China fund. These gains
more than offset investment losses, the most significant of which
was £7.9m from Satellite Information Services.
Listed investments contributed £72.1m to the valuation gains,
and unlisted investments contributed £79.3m. Unlisted
investments increased in value at a greater rate than listed
investments over the year. This was evidenced principally
by transactions in the year or soon after. In general, we would
normally expect to see the valuation changes of unlisted
companies lagging those of our listed portfolio, reflecting
our prudent valuation principles.
Caledonia Investments plc Annual report 2014 23
Movement in investment portfolio value
£m
1,500
1,400
1,300
1,200
Opening
balance
Listed
net gains
Unlisted
net gains
Net
investment
Closing
balance
The company maintains a prudent valuation approach to
investments. Internal valuations of investments are conducted
in accordance with the International Private Equity and Venture
Capital Valuation Guidelines. Adjustments are normally made
to earnings benchmark multiples – generally of around 30% –
to account for points of difference between the comparators and
the company being valued, including relative liquidity and scale.
Most unlisted property and fund investments are based on
external valuations.
The following chart summarises the source of valuations
across the portfolio:
Portfolio by valuation source
Quoted price
External fund manager
External property valuer
Recent transaction
Directors’ valuation
48%
19%
6%
14%
13%
Expenses
Caledonia allocates all expenses, other than transaction costs,
to revenue. Our ongoing charges ratio for the year was 1.03%
(2013 – 1.13%), compared with the Investment Trust Global
sector average of 0.85% (2013 – 1.02%). We calculate our
ongoing charges ratio on an industry standard basis, comprising
published management expenses over the monthly average NAV.
Overall, the company’s revenue column management expenses
were slightly higher than last year at £13.6m (2013 – £13.3m).
Dividend
We recognise that a reliable source of growing dividends is an
important part of shareholder total return and have extended
to 47 years our record of growing annual dividends.
We paid an interim dividend of 13.4p per share on 9 January
2014 and have proposed a final dividend of 35.7p per share.
The total dividend for the year of 49.1p is an increase of 4.0%
on last year.
Including the proposed final dividend, the dividends to be
paid out of revenue earnings for the year ended 31 March 2014
totalled £27.1m, which was covered by that year’s revenue
earnings of £29.8m.
If approved, the final dividend will be payable on 7 August 2014
to holders of shares on the register on 11 July 2014.
Investment entities accounting
The ex-dividend date will be 9 July 2014.
In October 2013, the IASB issued the Investment Entities
amendments to IFRS 10, 12 and IAS 27, for accounting periods
beginning 1 January 2014. The EU adopted these IFRS
amendments in November 2013. The company has early-adopted
these amendments for its 31 March 2014 year end.
For a number of years, Caledonia’s financial presentation had
focused on the supplemental results of the company, which were
considered to be the most appropriate measure of performance,
as they enabled majority-owned investments to be measured at
fair value. The company results were thus directly comparable
with the results of other investment trusts, which typically do
not hold majority stakes.
Applying the Investment Entities amendments enables
Caledonia to present group accounts broadly consistent with
the supplemental company results. That is, under Investment
Entities, all investments (except service subsidiaries) are
measured at fair value. As it would no longer be beneficial
to include the additional company information, Investment
Entities has enabled us to simplify the financial statements,
making them more understandable.
The principal differences between Investment Entities
accounting and the company results is the grossing up of certain
investments for £30.7m of debt lent by Caledonia Treasury,
a wholly-owned subsidiary of Caledonia. Caledonia Treasury’s
finance is principally from a Royal Bank of Scotland term loan.
In addition, the Investment Entities consolidation includes
accounting for the pension schemes funded by Caledonia
Group Services and the head office property in Buckingham
Gate, London.
The comparatives quoted in the strategic review reflect
the restated Investment Entities accounting comparatives,
which may differ from information published previously.
Strategic report
24 Annual report 2014 Caledonia Investments plc
continued
Financial review
Cash flows, liquidity and facilities
During the year, we moved from opening net cash of £73.9m
to net debt of £7.1m, principally due to net portfolio investment
settlements of £71.4m. However, we moved into a net cash
position again of £62.9m on 1 April 2014, with the receipt
of £67.2m from the sale of Oval.
The total cash movement over the year of £81.0m was analysed
by pool as follows:
At the year end, the company had borrowings of £20.0m
against its committed facilities of £125m, expiring in April 2018.
In addition, Caledonia Treasury had drawn £20.0m in term loans
to fund loans to subsidiaries and had undrawn revolving facilities
of £30m.
During the year, the company increased its committed facilities
from £75m to £125m, to increase its flexibility to take advantage
Treasury management
of opportunities as they arise.
Net cash movement by pool
£m
120
60
0
-60
-120
The Treasury department provides a central service to group
companies and conducts its operations in accordance with
clearly defined guidelines and policies, which have been
reviewed and approved by the board. Treasury transactions
are only undertaken as a consequence of underlying commercial
transactions or exposures and do not seek to take active
risk positions. It is Treasury’s role to ensure that the group
has sufficient available funds to meet its needs in the
foreseeable future.
Quoted
Unquoted
Funds
Income
& Growth
Other
Stephen King
Finance Director
Risk management
Effective risk management is a key
component of the company’s business
model and assists in ensuring that the
different parts of the group operate
within strategic risk parameters.
The board has overall responsibility
for setting and monitoring the
company’s risk appetite.
Caledonia Investments plc Annual report 2014 25
Corporate governance
Board of directors
Primary responsibility
Audit committee
Finance Director
Caledonia risk governance and structure
Reviews and approves the risk
management process
Investment executives
reports risk and
operates controls
Risk management and its governance is the responsibility of
assurance program
the board, with the executive given the task of ensuring an
effective and transparent process to ensure risks are identified,
documented, assessed and, where appropriate, mitigated.
The board sets the risk appetite within the business model and
this is communicated through the executive to all those with
managerial responsibilities. Risks emanate from all parts of the
business and are considered by all executives as part of their
work, from origination of investments to ongoing monitoring
and portfolio management.
risk identi�ication and
mitigation responsibility
Business engagement
risk management part
of investing process
Investee managements
The Audit Committee assesses and approves the risk
management processes and structure and specifically reviews
the controls assurance programme. This programme identifies
key mitigating controls, tests their operation and reports on
compliance and effective operation. This, together with reports
arising from the external audit, provides input to the board as
a whole on the status of the risk management process.
Board of directors
Primary responsibility
Audit committee
Reviews and approves the
risk management
process
Corporate
governance
Finance Director
Reports risk and
operates controls
assurance program
Investment
executives
Business
engagement
Risk management part
of investing process
Investee managements
Risk identi�ication and
mitigation responsibility
Risk management reporting
Caledonia manages and reports risk through two primary
areas of focus: an overall business risk report and a portfolio
investment risk report.
The business risk report considers the wider business
environment of the group, including business continuity
planning, IT and cyber security risks, regulatory risks and
financial control risks.
Caledonia manages business risk through a number of
integrated processes and procedures operating throughout
the year to provide risk visibility to both the executive team
and the wider board.
Strategic report ➤
Set risk
appetite
consistent
with approved
strategy
➤
Report and
feedback
➤
Identify
and document
➤
Monitor
and improve
26 Annual report 2014 Caledonia Investments plc
➤
Score impact
and likelihood
➤
Set target
and mitigate
continued
Risk management
Caledonia risk management process
S
t r
e
w i
ort and feedback
p
e
R
M
o
n
i
t
o
r
a
n
d
i
m
p
r
o
v
e
t h approved strategy
i s k appetite consistent Id
e
n
tif
y
a
n
d
d
o
c
u
m
e
n
t
t
c
a
p
d
o
o
elih
Score im
and lik
Set target an d m i t
e
t
i g a
Risks are identified and assessed through a risk dashboard,
capturing the most significant business risks facing Caledonia
and documenting the actions required to achieve an acceptable
level of risk.
The business risk dashboard is reported to the board half yearly.
The portfolio investment risk report specifically focuses on
the more technical areas of investment portfolio risk in relation
to Caledonia’s investment strategy. This includes such areas
as investment volatility, value at risk, diversification, liquidity
and concentration risks.
Principal risks
Strategic
Risks in relation to the appropriateness of the business model
to deliver long term growth in capital and income and the
effective communication and delivery of the business model.
Strategic risks include the appropriate allocation of capital
in relation to geographic, sector and currency exposures.
Investment
Risks in respect of specific investment and realisation decisions.
Pool managers have well-developed networks through
• An increased breadth of investment management skills
Investment risks include the appropriate research and due
diligence of new investments and the timely execution of both
new investments and realisations for optimal shareholder value.
Market
Risk of losses in value of investments arising from movements
in market prices, particularly in highly volatile markets.
Caledonia invests primarily in listed equities, private companies
and equity funds. Its principal market risks are therefore equity
price volatility, foreign exchange rate movements and interest
rate volatility. An explanation of these risks, along with
sensitivities, is included in note 23 to these accounts.
Liquidity
Risk that liabilities cannot be met or new investments made due
to a lack of liquidity. Such risk can arise from not being able to
sell an investment due to lack of a market or from not holding
cash or being able to raise debt.
Operational
Risks arising from inadequate or failed processes, people and
systems or from external factors.
Operational risks include recruiting, developing and retaining
staff, appropriate systems and procedures, business disruption
and an IT framework that provides flexible and resilient support.
Regulatory and legal
Risk arising from exposure to litigation or fraud and adherence
to the tax and regulatory environment, as Caledonia operates
across a number of jurisdictions and in an industry that has
been subject to increasing regulatory oversight.
Mitigation
Key developments
The company’s business model and strategy are reviewed
• Caledonia has established and communicated a clear
periodically, against market conditions and target returns.
investment strategy, focusing on longer term value
The performance of the company and its key risks are
monitored regularly by management and the board.
investing. A clear strategic capital allocation to a range
of investment types, risk profiles and returns has been
established and communicated, enabling the board
and shareholders to evaluate targeted performance.
Remuneration and rewards are aligned to strategic
targeted performance.
and expertise over the last two years has facilitated
increased deal flow and quality of research across
the portfolio.
which they attract proprietary deal flow.
Investment opportunities are subject to rigorous and
disciplined investment appraisals and multi-stage
approval processes. Target entry and exit events and
prices are monitored and updated regularly, in relation
to market conditions and strategic aims.
Market risks and sensitivities are reviewed on a weekly
• Risk weighted performance reporting and portfolio risk
basis and actions taken to balance appropriately risk
analysis has been developed for management and the
board, giving a regular insight into the characteristics
and performance of Caledonia’s portfolio.
and return.
A regular review of market and investment volatility and
value at risk is conducted by the board and the portfolio is
realigned with strategic aims where appropriate. Reviews
also consider investment concentration, currency and
liquidity exposures.
Detailed cash forecasting for six months ahead is updated
• Average liquidity levels of our quoted portfolio have
and reviewed weekly, including the expected drawdown of
increased over the last year.
capital commitments.
Listed portfolio liquidity is reviewed regularly.
Loan facilities are maintained to provide appropriate
liquidity headroom.
• The successful exit of two recent significant unquoted
investments generated £93m net proceeds.
• Revolving borrowing facilities were renegotiated for a
further five years, and committed facilities increased to
£175m from the previous level of £125m.
Systems and control procedures are developed and
reviewed regularly. They are tested, as part of the
annual programme of controls assurance, to ensure
effective operation.
• An IT risk dashboard has been developed to document
significant IT risks facing Caledonia.
• A cyber security review was completed during the year
looking at how equipment, information and services are
Appropriate remuneration and other policies are in place
protected from unintended or unauthorised access, change
to encourage the retention of key staff. Business continuity
or destruction.
plans are maintained, using an offsite facility.
Caledonia has internal resource which considers all
• Caledonia is satisfied that it is not an Alternative
regulatory and tax matters as they arise. Use is made of
Investment Fund (‘AIF’), as defined in the EU’s Alternative
advisers and the Association of Investment Companies, of
Investment Fund Managers Directive, and therefore
which Caledonia is a member and on whose self-managed
is not required to be authorised by the Financial Conduct
investment company committee it is represented. Regular
Authority to perform the regulated activity of managing
training is undertaken.
an AIF under the Financial Services and Markets Act 2000,
as amended.
Caledonia Investments plc Annual report 2014 27
Mitigation
Key developments
Risks in relation to the appropriateness of the business model
to deliver long term growth in capital and income and the
effective communication and delivery of the business model.
Strategic risks include the appropriate allocation of capital
in relation to geographic, sector and currency exposures.
The company’s business model and strategy are reviewed
periodically, against market conditions and target returns.
The performance of the company and its key risks are
monitored regularly by management and the board.
Pool managers have well-developed networks through
which they attract proprietary deal flow.
Investment opportunities are subject to rigorous and
disciplined investment appraisals and multi-stage
approval processes. Target entry and exit events and
prices are monitored and updated regularly, in relation
to market conditions and strategic aims.
Market risks and sensitivities are reviewed on a weekly
basis and actions taken to balance appropriately risk
and return.
A regular review of market and investment volatility and
value at risk is conducted by the board and the portfolio is
realigned with strategic aims where appropriate. Reviews
also consider investment concentration, currency and
liquidity exposures.
• Caledonia has established and communicated a clear
investment strategy, focusing on longer term value
investing. A clear strategic capital allocation to a range
of investment types, risk profiles and returns has been
established and communicated, enabling the board
and shareholders to evaluate targeted performance.
Remuneration and rewards are aligned to strategic
targeted performance.
• An increased breadth of investment management skills
and expertise over the last two years has facilitated
increased deal flow and quality of research across
the portfolio.
• Risk weighted performance reporting and portfolio risk
analysis has been developed for management and the
board, giving a regular insight into the characteristics
and performance of Caledonia’s portfolio.
Detailed cash forecasting for six months ahead is updated
and reviewed weekly, including the expected drawdown of
capital commitments.
Listed portfolio liquidity is reviewed regularly.
Loan facilities are maintained to provide appropriate
liquidity headroom.
• Average liquidity levels of our quoted portfolio have
increased over the last year.
• The successful exit of two recent significant unquoted
investments generated £93m net proceeds.
• Revolving borrowing facilities were renegotiated for a
further five years, and committed facilities increased to
£175m from the previous level of £125m.
Systems and control procedures are developed and
reviewed regularly. They are tested, as part of the
annual programme of controls assurance, to ensure
effective operation.
Appropriate remuneration and other policies are in place
to encourage the retention of key staff. Business continuity
plans are maintained, using an offsite facility.
• An IT risk dashboard has been developed to document
significant IT risks facing Caledonia.
• A cyber security review was completed during the year
looking at how equipment, information and services are
protected from unintended or unauthorised access, change
or destruction.
Caledonia has internal resource which considers all
regulatory and tax matters as they arise. Use is made of
advisers and the Association of Investment Companies, of
which Caledonia is a member and on whose self-managed
investment company committee it is represented. Regular
training is undertaken.
• Caledonia is satisfied that it is not an Alternative
Investment Fund (‘AIF’), as defined in the EU’s Alternative
Investment Fund Managers Directive, and therefore
is not required to be authorised by the Financial Conduct
Authority to perform the regulated activity of managing
an AIF under the Financial Services and Markets Act 2000,
as amended.
Principal risks
Strategic
Investment
Market
Risks in respect of specific investment and realisation decisions.
Investment risks include the appropriate research and due
diligence of new investments and the timely execution of both
new investments and realisations for optimal shareholder value.
Risk of losses in value of investments arising from movements
in market prices, particularly in highly volatile markets.
Caledonia invests primarily in listed equities, private companies
and equity funds. Its principal market risks are therefore equity
price volatility, foreign exchange rate movements and interest
rate volatility. An explanation of these risks, along with
sensitivities, is included in note 23 to these accounts.
Liquidity
Risk that liabilities cannot be met or new investments made due
to a lack of liquidity. Such risk can arise from not being able to
sell an investment due to lack of a market or from not holding
cash or being able to raise debt.
Operational
Risks arising from inadequate or failed processes, people and
systems or from external factors.
Operational risks include recruiting, developing and retaining
staff, appropriate systems and procedures, business disruption
and an IT framework that provides flexible and resilient support.
Regulatory and legal
Risk arising from exposure to litigation or fraud and adherence
to the tax and regulatory environment, as Caledonia operates
across a number of jurisdictions and in an industry that has
been subject to increasing regulatory oversight.
Strategic report
28 Annual report 2014 Caledonia Investments plc
Sustainability
We are committed to building our
business for the long term. To this
end, we consider the impact of our
business on the marketplace,
workplace and environment.
Marketplace
As an investment company, we are committed to a long term
investment strategy and to maintaining effective relationships
with those companies in which we invest. We often hold a board
seat in our significant investments and use this to maintain
a close relationship with managements of those companies.
Additionally, we hold frequent meetings with managements
and review internal documents, such as management accounts
and reports.
We also make considered use of our voting rights. As a
consequence of our involved investment style, we would expect
to vote in line with management recommendations, but are
prepared to abstain or vote against recommendations where
we consider they are not in the interests of our shareholders.
We continue to meet with our shareholders and listen to any
Workplace
concerns they may have.
Caledonia has in place a set of polices intended to protect
employees from unlawful discrimination, offer them a working
environment where they have a right to be treated fairly,
with consideration and respect, and support high standards
of conduct and performance. These policies assist in ensuring
that the company meets applicable health and safety standards
and treats disabled employees in accordance with its statutory
obligations. These policies are communicated to employees
by way of a staff handbook provided at the time of joining,
with periodic updates thereafter.
In addition to a grievance procedure, which allows employees
to raise concerns either formally or informally, there are formal
whistleblowing arrangements in place, which enable members
of staff to raise any issue of concern regarding possible
impropriety in the conduct of the company’s business,
confidentially and independently of line management.
A formal performance appraisal process, through which
employees may be set objectives on an annual basis and their
achievement against those objectives assessed at the end of
the year, is intended to ensure that employees have a clear view
of their performance and the ability to develop their potential
within the company through additional training where
necessary. Together with team meetings and company-wide
briefings, this provides staff with the opportunity to be closely
involved in the success of the business.
Caledonia Investments plc Annual report 2014 29
Equality and diversity
Greenhouse gas emissions
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
Caledonia’s carbon footprint has been estimated in line with
the WRI/WBCSD Greenhouse Gas Corporate Accounting and
Reporting Standard (GHG Protocol) and Defra guidelines.
The sources of greenhouse gas emissions shown in the table
below are from the companies included in the consolidated
financial statements. We do not have responsibility for any
emission sources from companies that are not included in
our consolidated financial statements.
Operational scope
Source of GHG emissions
Scope 1
(direct emissions)
Scope 2
(indirect emissions)
Scope 3
(indirect emissions)
Total
Key performance
indicator
• Combustion of fuel
and operation of
facilities
• Air conditioning
refrigerant loss
• Company car use
• Electricity
purchased for
own use
• Business travel
Scope 1 and 2
normalised to
full time employee
equivalent
GHG
emissions
in year
Unit
61 Tonnes CO2e
176 Tonnes CO2e
238 Tonnes CO2e
475 Tonnes CO2e
9.9 Tonnes CO2e
per FTE
We believe that a diverse workforce will create the optimum
environment in which our business will thrive and grow.
We are committed to creating an inclusive environment where
our employees can develop and contribute fully.
In formulating and implementing our employment and
recruitment policies, we ensure that they are at all times
compliant with all relevant legislation. Recruitment,
development and promotion are based solely on suitability
for the job to be done. We will not discriminate on the basis
of gender, sexual orientation, age, race, nationality, disability
or political or religious belief.
The table below provides the gender split at different levels
within the business.
Board
Senior managers
Total workforce
Environment
Male
Female
Number
%
Number
10
8
23
100
80
51
–
2
22
%
–
20
49
Caledonia’s environmental impact is limited. However, any
measures taken to reduce this impact demonstrate the
company’s commitment to improve the environment and can
have direct benefits through reductions in costs for energy
and consumables. A number of measures have been and will
be taken in this area:
• encouragement of the use of electronic communications
to save paper, printing consumables and energy
• usage of video-conferencing and telephone conference calls
rather than travelling to meetings
• recycling of office waste, used paper and other consumables.
30 Annual report 2014 Caledonia Investments plc
Board of directors
1
2
3
4
5
6
1 Rod Kent
3 Stephen King
5 Charles Allen-Jones
Finance Director
He joined Caledonia in 2009 as Finance
Director. He is currently a non-executive
director and Chairman of the Audit
Committees of Bristow Group and
TT Electronics. He was Group Finance
Director of De La Rue from 2003 to 2009
and, prior to that, Group Finance Director
of Midland Electricity. He is a Fellow of
the Institute of Chartered Accountants
4 Jamie Cayzer-Colvin
in England and Wales.
Executive Director
He joined the Caledonia group in 1995,
initially working at its Amber speciality
chemicals subsidiary before becoming
an investment executive at Caledonia’s
head office in 1999. He was appointed an
associate director in 2002 and a director
in 2005. He is Chairman of The Henderson
Smaller Companies Investment Trust
and a non-executive director of Polar
Capital Holdings.
Chairman
Appointed a non-executive director of
Caledonia in 2011 and Chairman in 2012,
he is also Chairman of the Nomination
Committee. He was Managing Director
of Close Brothers Group for 28 years until
2002 and then a non-executive director
and later Chairman from 2006 until 2008.
His non-executive roles have included the
Chairmanships of M&G Group, Bradford
& Bingley and BT Pension Trustees, Senior
Independent Director of Whitbread and
a Governor of the Wellcome Trust. He is
currently Chairman of the Trustees of
2 Will Wyatt
Calthorpe Estates.
Chief Executive
He joined the Caledonia group in 1997
from Close Brothers Corporate Finance,
working at Sterling Industries before
transferring to Caledonia’s head office in
1999 as an investment executive. He was
appointed an associate director in 2002,
a director in 2005 and Chief Executive
in 2010. He is Vice-Chairman of the
supervisory board of TGE Marine
and a non-executive director of Avanti
Communications Group, Cobehold
and Real Estate Investors.
Senior Independent
Non-Executive Director
Appointed a non-executive director of
Caledonia in 2001, he is Chairman of the
Governance Committee and a member of
the Audit, Nomination and Remuneration
Committees. He was a partner of the
international law firm, Linklaters, for
33 years, including five years as Senior
Partner until his retirement in 2001.
He is currently a non-executive director
of Hongkong Land Holdings and Jardine
Strategic Holdings and Vice-Chairman
6 Stuart Bridges
of the Council of the Royal College of Art.
Non-Executive Director
Appointed a non-executive director of
Caledonia in January 2013, he is Chairman
of the Audit Committee. A chartered
accountant, he 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 is a member of the audit
committee of the Institute of Chartered
Accountants in England and Wales and
of the Prudential Financial and Taxation
Committee of the Association of
British Insurers.
Caledonia Investments plc Annual report 2014 31
D
i
r
e
c
t
o
r
s
’
r
e
p
o
r
t
7
8
9
10
7 The Hon Charles Cayzer
9 Charles Gregson
Non-Executive Director
Having gained experience of merchant
banking, commercial banking and
corporate and project finance with Baring
Brothers, Cayzer Irvine and Cayzer Ltd,
he was appointed an executive director
of Caledonia in 1985, becoming non-
executive in December 2012. He is
Chairman of The Sloane Club, Senior
Independent Non-Executive Director
of LondonMetric Property and a non-
executive director of Eredene Capital
8 Richard Goblet d’Alviella
and Quintain Estates & Development.
Non-Executive Director
A Belgian national, he was appointed
a non-executive director of Caledonia in
2005 and is a member of the Audit and
Nomination Committees. He is Executive
Chairman of Sofina, a quoted Belgian
financial holding company, where he has
been a board member since 1982, prior
to which he was a managing director
of the Paine Webber Group with a
background in international investment
banking in London and New York. He is a
non-executive director of Group Danone
and Eurazeo, in which Sofina has interests.
Non-Executive Director
Appointed a non-executive director of
Caledonia in 2009, he is Chairman of the
Remuneration Committee and a member
of the Audit, Governance and Nomination
Committees. He spent his business career
at United Business Media and its
predecessor companies in a number
of divisional and head office roles and
10 Robert Woods CBE
is now non-executive Chairman of ICAP.
Non-Executive Director
Appointed a non-executive director of
Caledonia in 2011, he is a member of the
Governance, Nomination and Remuneration
Committees. He spent most of his business
career at P&O Steam Navigation Company,
joining its main board in 1996 before
serving as its Chief Executive from 2004
until its takeover by DP World in 2006.
He was a non-executive director of Cathay
Pacific Airways from 2006 to 2010 and
is currently Chairman of P&O Ferries,
Southampton Container Terminal and
Tilbury Container Services and a non-
executive director of John Swire & Sons.
He is also Chairman of the Mission to
Seafarers and was awarded the CBE
in 2003.
32 Annual report 2014 Caledonia Investments plc
Corporate governance report
Caledonia recognises the importance
of good corporate governance, which
requires the board to consider the
processes, controls and limits within
which the company should operate and
define a working framework that is clear
and understandable to everyone involved
in the management of the company.
Membership and attendance
The board held eight scheduled meetings during the year.
Attendance of the directors was as follows:
Director
Meetings
attended
Meetings
eligible
to attend
R D Kent
W P Wyatt
S A King
J M B Cayzer-Colvin
C M Allen-Jones
S J Bridges
Hon C W Cayzer
R Goblet d’Alviella
C H Gregson
R B Woods
1
D G F Thompson
1. Mr Thompson retired from the board at the annual general meeting on 24 July 2013.
8
8
8
7
8
7
7
7
7
6
3
8
8
8
8
8
8
8
8
8
8
3
Statement of compliance
The board recognises the importance of good corporate
governance and this report describes how the company has
complied with The UK Corporate Governance Code issued
in September 2012.
A copy of The UK Corporate Governance Code is available on the
website of the Financial Reporting Council at www.frc.org.uk/
Our-Work/Codes-Standards/Corporate-governance/UK-
The board
Corporate-Governance-Code.aspx.
Overall responsibility and operation
The board as a whole is collectively responsible for the success
of the company and for supervising its affairs. It sets the
company’s strategy, ensures that the necessary financial and
human resources are in place to enable the company to meet
its objectives and reviews management performance. It also
sets the company’s values and standards and ensures that
its obligations to its shareholders and others are understood
and met. It aims to provide leadership of the company within
a framework of prudent and effective controls, which enables
risk to be assessed and appropriately managed.
To assist its operation, the board has adopted a Schedule of
Authorities which sets out those matters which it specifically
reserves for its own decision and those which are delegated
to board committees and to executive management. Matters
reserved for the board’s own decision include the following:
• the appointment and removal of directors of the company,
as prescribed by the company’s articles of association,
and of certain senior executive positions
• the terms of reference of board committees and the
membership thereof
• the company’s strategy
• annual budgets
• the company’s systems of risk management and
internal control
• treasury policies, banking counterparties and counterparty
exposure limits
• policy on directors’ remuneration and terms of appointment
• significant capital transactions
• charitable donations and political donations.
The roles of the Chairman and the Chief Executive are separated
and clearly defined in the Schedule of Authorities. The Chairman
is primarily responsible for the leadership of the board to ensure
that it carries out its role effectively and for succession planning.
The Chief Executive is responsible for the implementation of
the board’s strategy and policies and the management of the
company’s activities, other than those matters specifically
reserved to the board. The Schedule of Authorities is reviewed
annually by the board.
All directors receive detailed papers in advance of board
meetings to enable them to discharge their duties and also
have unlimited access to senior management should further
information be required. Presentations by pool managers and
other senior executives are regularly given to the board, as well
as occasionally by senior executives of investee companies.
Caledonia Investments plc Annual report 2014 33
Appointment, induction and training
The company complies with the recommendation of The UK
Corporate Governance Code that all directors of FTSE 350
companies should be subject to annual election by shareholders.
Other committees
Various other committees have been established with
responsibility for specific areas of the company’s activities,
other than matters reserved to the board as a whole, as follows:
On appointment, new directors are offered induction and
training considered appropriate by the board, and subsequently
as necessary, and the annual performance evaluation of the
board encompasses the identification of any individual training
needs of board members so that, if necessary, these can be
reviewed by the Chairman with the directors concerned.
The directors receive briefings at board meetings on regulatory
and other issues relevant to the company and its business sector
and, in addition, may attend external courses to assist in their
professional development.
Board composition
The biographies of the directors appear on pages 30 and 31.
The board currently comprises ten directors. Excluding the
Chairman, three of the directors are executive and six are
non-executive. The board considers all of the non-executive
directors to be independent, other than The Hon C W Cayzer,
who was an executive director until 3 December 2012. In
assessing Mr Goblet d’Alviella’s independence, the board took
account of the fact that he has served as a non-executive director
for nine years and also of his position as Executive Chairman
of Sofina SA, whose wholly-owned subsidiary, Rebelco SA,
has a 5.1% shareholding in Caledonia. Mr Goblet d’Alviella’s
position at Sofina has not given rise to any conflicts of interest
and his circumstances very much accord with the importance
that Caledonia attaches to its own executives having board
positions at, or close contact with, investee companies. Mr Allen-
Jones has also served as a non-executive director for more than
nine years. The board has specifically considered both his and
Mr Goblet d’Alviella’s length of tenure in the context of The UK
Corporate Governance Code and does not believe that their
independent status is compromised simply by length of service.
Rather, the experience, character and conduct of each director
are the board’s determinants of their independence.
The company has announced that Harold Boël will be joining
the board from 25 June 2014. Mr Boël is Chief Executive Officer
of Sofina SA and the board has determined that he will be an
independent director, based on the same consideration of his
role at Sofina as for Mr Goblet d’Alviella.
Board committees
The board has delegated certain specific areas of responsibility
to the following standing committees: the Nomination
Committee, the Audit Committee, the Governance Committee
and the Remuneration Committee. Further details of the work
of each of these committees and their membership during the
year are set out on pages 35, 36, 38 and 40 respectively.
The terms of reference of each committee are reviewed annually
and are available on the company’s website.
• The Administrative Committee of the board has been
established to deal with administrative matters of a routine
nature requiring board approval or matters which are
reserved to the board, but for which board approval has
already been given in principle. The Administrative
Committee meets when required and is comprised of any
two directors.
• The Executive Committee meets when required and is
responsible for matters relating to the day to day management
of the company’s business, other than where delegated to
other committees. It is chaired by the Chief Executive and
attended by the Chairman, the executive directors, the heads
of the pools of capital and the Company Secretary.
• The Investment Management Committee meets weekly
and considers matters relating to the company’s investment
portfolio and monitors the company’s cash requirements
and its net asset value per share performance. The Investment
Management Committee is chaired by the Chief Executive
and is attended by the entire investment team, the Company
Secretary and the Deputy Company Secretary.
• The Investment Approvals Committee considers and formally
approves new investments and proposed realisations.
This committee meets when required, is chaired by the
Chief Executive and is attended by the Chairman, the
executive directors, the heads of the pools of capital and
the Company Secretary.
• The Compliance Committee meets weekly to monitor the
company’s ongoing compliance with the requirements for
investment trust status and to approve all investment activity
from an investment trust compliance perspective. It also
monitors the potential impact of legal and regulatory
developments. The Compliance Committee is chaired by the
Company Secretary and attended by the Finance Director,
the Heads of Tax, Treasury and Finance, the Group Financial
Controller and the Deputy Company Secretary.
• The Challenge Committee formally reviews valuations of all
of the company’s investments at each half-year and full-year.
It is chaired by the Chief Executive and attended
by the Finance Director, the Head of Finance, the Chairman
of the Audit Committee and observed by representatives
from KPMG LLP.
Directors’ report 34 Annual report 2014 Caledonia Investments plc
Corporate governance report
Board performance evaluation
continued
The board conducts an annual evaluation of its performance
and that of its committees and, in accordance with best practice,
involves an independent third party to assist in this process
every three years. For the year ended 31 March 2014, Law
Debenture Governance Services (‘Law Debenture’) acted as
the external facilitator. Law Debenture invited each director
and the Company Secretary to complete an online questionnaire
regarding the operation and effectiveness of the board,
conducted one to one interviews with each of them and observed
a board meeting. Law Debenture then discussed its findings
at a separate session of the board.
The evaluation of the performance of the Chairman was led
by the Senior Independent Non-Executive Director and involved
individual discussions with other members of the board,
the results of which were then considered by the non-executive
directors without the Chairman present. The Chairman
considered the performance of the non-executive directors and
that of the executive directors was reviewed by the Chairman
and the non-executive directors, with the Chief Executive also
present for the discussion on the other executive directors.
Law Debenture’s review of the effectiveness of Caledonia’s board
concluded that shareholders can be confident that the board is
well led and administered and that governance requirements
are well covered. A number of minor process improvements
were put forward for the board’s consideration, the principal
being that a clearer specification of the skills and experience
required amongst board members might assist in achieving the
optimum mix around the board table.
Directors’ conflicts of interest
Law Debenture has no other connection with the company.
Each director has a duty under the Companies Act 2006 to
avoid a situation where he has, or could have, a direct or indirect
interest which conflicts, or may possibly conflict, with the
company’s interests. The Companies Act 2006 however allows
directors of public companies to authorise conflicts and potential
conflicts where the articles of association contain a provision
to this effect. The Companies Act 2006 also allows the articles
to contain other provisions for dealing with directors’ conflicts
of interest to avoid a breach of duty.
There are safeguards in the company’s articles which apply when
the directors decide whether to authorise a conflict or potential
conflict of interest. First, only independent directors, being those
who have no interest in the matter being considered, are able
to take the relevant decision and, second, in taking the decision,
the directors must act in a way which they consider, in good
faith, will be most likely to promote the success of the company.
The directors are able to impose time limits or conditions when
giving authorisations if they think this is appropriate.
The board has adopted procedures to address the requirements
of the Companies Act 2006 in relation to directors’ conflicts
of interest. Each new director on appointment is required to
declare any potential conflict situations, which may relate to him
or her, or his or her connected persons. These are reviewed by
the board and, if necessary, also by the Governance Committee,
which then considers whether these situations should be
authorised and, if so, whether any conditions to such authority
should be attached.
Each board meeting includes a standing agenda item on conflicts
of interest to ensure that all directors disclose any new potential
conflict situations. These are then reviewed, again if necessary
also by the Governance Committee, and authorised by the board
as appropriate. A register of directors’ conflicts of interest is
maintained by the Company Secretary and is reviewed annually
Relations with shareholders
by the Governance Committee.
The company welcomes dialogue with investors in order
to achieve a mutual understanding of objectives. The Chief
Executive and the Finance Director regularly hold meetings
with institutional investors, private client stockbrokers and
fund managers. The Senior Independent Non-Executive Director
is also available to attend some of these meetings. Any views
put forward by shareholders are reported back to the board,
which periodically also receives presentations from the brokers
on shareholder feedback and the general market perception of
the company. In addition, the annual general meeting provides
a forum for shareholders to meet the directors, both formally
and informally.
The Chairmen of all of the board’s committees will be available
to answer questions at the annual general meeting.
Rod Kent
Chairman of the board
28 May 2014
Caledonia Investments plc Annual report 2014 35
Nomination Committee report
The Nomination Committee is focused
on evaluating the directors and
examining the skills and characteristics
needed in board candidates. It is also
responsible for identifying suitable
candidates for various director positions.
Membership and attendance
The membership and attendance record of the Nomination
Committee during the year was as follows:
Meetings
attended
Meetings
eligible
to attend
1
R D Kent (Chairman)
1
C M Allen-Jones
1
R Goblet d’Alviella
1
C H Gregson
1
R B Woods
1
D G F Thompson
1
1. Mr Thompson retired as a member of the committee on 24 July 2013.
1
1
1
1
1
1
The Nomination Committee is responsible for the regular
review of the structure, size and composition (including the
skills, knowledge, experience and diversity) of the board and
for giving consideration to succession planning for directors
and, if requested by the board, for other senior executives. It is
responsible for identifying, using external search consultants
where necessary, candidates to fill board vacancies as and when
they arise, for making recommendations to the board in relation
thereto and for keeping under review the leadership needs of
the company, both executive and non-executive.
The Nomination Committee also reviews the time required
of the non-executive directors and ensures that they receive
formal letters of appointment setting out clearly what is
expected of them in terms of time commitment, committee
Diversity
service and involvement outside board meetings.
The board’s policy on diversity is, as it has been in the past,
to seek to appoint the best qualified person to a particular role
regardless of gender or other diversity criteria and therefore it
Work of the Nomination Committee
has not adopted any measurable objectives in relation thereto.
The Nomination Committee met once during the year to review
the size and composition of the board following the 2013 annual
board performance evaluation and to consider the contributions
of the non-executive directors seeking election or re-election
at the 2013 annual general meeting, prior to giving
recommendations for their elections or re-elections.
Rod Kent
Chairman of the Nomination Committee
28 May 2014
Directors’ report 36 Annual report 2014 Caledonia Investments plc
Audit Committee report
The Audit Committee plays a significant
role in ensuring that the company’s
financial statements are properly
prepared and that the system of
controls that is in place is effective
and appropriate.
Membership and attendance
The membership and attendance record of the Audit Committee
during the year was as follows:
Meetings
attended
Meetings
eligible
to attend
1
S J Bridges (Chairman)
C M Allen-Jones
R Goblet d’Alviella
C H Gregson
2
D G F Thompson
1. Mr Bridges replaced Mr Thompson as chairman of the committee on 24 July 2013.
2. Mr Thompson retired as a member of the committee on 24 July 2013.
3
3
2
3
1
3
3
3
3
1
The Audit Committee is responsible for monitoring the
integrity of the financial statements of the company and any
announcements relating thereto and for reviewing any
significant financial reporting judgements contained therein.
In addition, it oversees the relationship with the external auditor,
KPMG LLP (‘KPMG’). It also reviews the company’s systems of
internal control and risk management procedures and considers
annually whether an internal audit function is required.
The Audit Committee, comprised exclusively of independent
non-executives directors, met three times in the year ended
31 March 2014, in May and November 2013 and in March 2014.
Subsequent to the year end, it met in May 2014 to consider the
significant issues in relation to the 2014 annual report.
The external auditor, KPMG, the Finance Director, the Company
Secretary and various members of the finance team attend the
meetings of the Audit Committee. Other board members and/or
senior executives may also attend meetings at the invitation of
the Chairman. At the end of each meeting, the Audit Committee
has a separate discussion with the external auditor without
Work of the Audit Committee
executive management present.
The Audit Committee undertook the following activities in the
discharge of its responsibilities.
Financial statements
The main focus of the meetings in May and November 2013 was
the 2013 annual report and financial statements and the 2013
half-year results respectively, including evaluation of the going
concern statements therein.
The March 2014 meeting considered principally the audit
planning for the 2014 annual report, including in particular
the new requirements of the revised UK Corporate Governance
Code, other new disclose requirements and investment
entities accounting.
In its May 2014 meeting, the Audit Committee reviewed the form
and content of the 2014 annual report and financial statements.
In conducting its review, the Audit Committee considered
reports prepared by management and the external auditor.
These reports provided an analytical review of the financial
statements, comparing the current to prior year financial
position and results, and detailed the judgements and sources
of estimation uncertainty involved in applying the accounting
policies to the financial statements. The Audit Committee also
considered the going concern statement. The Audit Committee
recommended the 2014 annual report to the board.
The significant issues the Audit Committee considered in relation
to the 2014 financial statements were the valuation of unlisted
and listed investments. In relation to these financial statements,
the Audit Committee also considered material balance sheet
provisions, the going concern statement (and related liquidity
issues), compliance with the annual report ‘fair, balanced
and understandable’ provisions of the revised UK Corporate
Investment Entities
Governance Code and the proposed early adoption of the IASB
amendments.
Unlisted valuations
The Audit Committee recognises that unlisted investments
are a significant component of the financial statements and
that their valuation is subject to considerable judgement and
uncertainty. The Chairman of the Audit Committee attended
an internal valuation review meeting (along with the external
Caledonia Investments plc Annual report 2014 37
auditor) and reported to the Audit Committee on the quality
of the review, adherence to the company’s valuation policy
and consistency of valuation methodologies over time.
In the case of one unlisted investment (representing 4.9% of
net assets), the valuation at 31 March 2014 was based on the
expected proceeds from a pending sale, a change in methodology
from previous years. The Audit Committee heard that the sale
was completed on 1 April 2014 and, therefore, concurred that a
year end valuation based on pending proceeds was appropriate.
Listed valuations
Listed investments are a significant component of the financial
statements. The internal valuation review meeting referred to
above also considered the listed securities, to ensure that the
exchange bid prices used in the valuation were from an actively
traded market. Although a number of investments traded in
relatively illiquid markets, there had been at least one trade in
the previous month. Therefore, the Audit Committee concurred
that it was appropriate to use the exchange bid price in all cases.
Balance sheet provisions
The company holds a provision of £8.3m against a guarantee
given for potential liabilities of a subsidiary. The subsidiary’s
potential liabilities relate to an HMRC claim that losses deducted
on the derecognition of FTSE index options in 2009 should not be
allowed. The company and its advisors have presented its case to
HMRC, who are dealing with the issue as a joint case, along with
a number of other parties. During the year, there had been no
significant change to the circumstances of the case. Therefore,
the Audit Committee agreed that it was appropriate to hold a
provision equivalent to full cover for the potential loss of the case.
Going concern
The Audit Committee considered the trading needs of the
company and its financial capacity, including available bank
credit and liquid funds, to be wholly sufficient to confirm the
going concern of the business.
Fair, balanced and understandable statement
The Audit Committee reviewed the draft annual report
and, taken as a whole, considered it to be fair, balanced and
understandable. The Audit Committee recommended to the
board that the statement of directors’ responsibilities in respect
of the annual report and the financial statements, set out on
page 57, should be signed accordingly.
Investment entities
In October 2013, the IASB issued the Investment Entities
amendments to IFRS 10 and 12 and IAS 27, for accounting
periods beginning 1 January 2014. The EU adopted these
IFRS amendments in November 2013. Management proposed
that Caledonia should adopt Investment Entities early, for the
31 March 2014 year end, and the Audit Committee examined
management’s arguments. Management noted that, for a number
of years, Caledonia’s financial presentations had focused on the
supplemental results of the company, which were considered
to be the most appropriate measure of performance, as they
enabled investments in subsidiaries to be measured at fair value.
The company results were thus directly comparable with the
results of other investment trusts, which typically do not hold
majority stakes.
Management submitted that Investment Entities would enable
Caledonia to present group accounts broadly consistent with
the existing supplemental company results. That is, under
Investment Entities, all investments (except service subsidiaries)
would be measured at fair value. This would significantly
simplify the financial statements, making them more
understandable.
The Audit Committee discussed management’s submission and
sought the views of the company’s auditor, who agreed that early
adoption of Investment Entities would be beneficial to the clarity
of the company’s financial reporting. The Audit Committee
decided that it would recommend early adoption of Investment
Entities to the board.
Internal control
In the May and November meetings, a report on the internal
control reviews performed during the previous six months was
presented, together with an update on the controls assurance
programme given at the March 2014 meeting. The Audit
Committee reviewed the effectiveness of the internal control
environment and the structure in place to resolve identified
weaknesses. The control reviews included treasury segregation,
computer security and anti-bribery policy compliance. No
significant areas of weakness were identified. The Audit
Committee agreed the control review work plan for 2015.
Internal audit
As the company does not have an internal audit function, the
Audit Committee considers annually whether there is a need
for one. The company is an investment trust and manages
its non-consolidated subsidiaries as other private company
investments, expecting them to operate their own risk
management processes. The company closely monitors the
control environment of its private company investments.
Additionally, for majority-owned investments, the company’s
auditor is engaged to extend the annual audit to include
the control environment. The Audit Committee recommended
to the board that an internal audit function was not required.
Auditor
The Audit Committee last conducted an audit tender process
in mid-2011. The main outcomes of the process were the
replacement of Deloitte (who had been the company’s auditor
since 2006) with KPMG Audit Plc and a plan for the development
of the external audit approach. The principal planned changes
were to increase the depth of the audit by reducing the
materiality level and to provide risk assurance reports to
complement the internal reviews. At its request and for internal
reasons, KPMG Audit Plc resigned as the company’s auditor
with effect from the conclusion of the annual general meeting
on 24 July 2013 and was replaced by its immediate parent entity,
KPMG LLP.
Directors’ report 38 Annual report 2014 Caledonia Investments plc
Audit Committee report
continued
Audit effectiveness
Audit quality is reviewed continuously throughout the year
by both the Finance Director and Audit Committee. The focus
is centred on the following:
• the quality and seniority of the auditor’s staff
• the appropriateness of the planned audit methodology
as applied to Caledonia’s business activity
• the level and challenge and quality of reporting to the
Audit Committee.
The effectiveness of the audit is also monitored throughout the
year using a number of measures, including but not limited to:
• a review and approval of the scope of the planned audit
• the planned implementation of improvements following
appropriate post audit reviews
• the monitoring of the independence of the external auditor
• a review of any Financial Reporting Council’s Audit Quality
Review Report for KPMG’s audit of the company
• discussion with the firm’s independent senior partner.
Non-audit work
In order to safeguard the auditor’s independence and objectivity,
the Audit Committee maintains a schedule of specific non-audit
activities which may not be undertaken by the external auditor,
within the broad principles that the external auditor should not
audit its own work, should not make management decisions on
behalf of the company, should not be put into the role of advocate
for the company and that no mutuality of interest should be
created between the company and the external auditor.
Pre-approval of non-audit fees is required for non-audit fees
exceeding pre-determined thresholds.
Re-appointment of KPMG as auditor
KPMG Audit Plc was appointed auditor in 2011 and was replaced
by KPMG LLP in 2013. The lead audit partner is required to
rotate every five years and other key audit partners every seven
years. No contractual obligations restrict the Audit Committee’s
choice of external auditor. The Audit Committee concluded that
KPMG provides an effective audit and the Audit Committee
recommended to the board the re-appointment of KPMG LLP.
Resolutions to re-appoint KPMG LLP as auditor and to authorise
the directors to determine the auditor’s remuneration, will be
Private meetings
proposed at the annual general meeting on 17 July 2014.
During the year, the Chairman of the Audit Committee met
separately and privately with the Finance Director and KPMG.
Stuart Bridges
Chairman of the Audit Committee
28 May 2014
Caledonia Investments plc Annual report 2014 39
Governance Committee report
The Governance Committee monitors
and reviews the ability of each director
to act in the interests of shareholders
as a whole and to exercise independence
of judgement.
Membership and attendance
The membership and attendance record of the Governance
Committee during the year was as follows:
Meetings
attended
Meetings
eligible
to attend
2
C M Allen-Jones (Chairman)
2
C H Gregson
2
R B Woods
1
D G F Thompson
1
1. Mr Thompson retired as a member of the committee on 24 July 2013.
2
2
2
1
The Governance Committee keeps under review corporate
governance issues relating to the company and is responsible
for the monitoring and review of the ability of each director to
act in the interests of shareholders as a whole and to exercise
independence of judgement free from relationships or
circumstances which are likely to, or could appear to, affect
his or her judgement. The Governance Committee also reviews
conflict or potential conflict situations relating to directors,
which may require the prior authorisation of the board under the
Companies Act 2006, and makes recommendations to the board
as to whether such conflict or potential conflict situations should
be authorised and, if so, whether any conditions, such as duration
or scope of the authority, should be attached. The Governance
Committee reviews annually all authorisations previously
granted by the board to ensure that they remain appropriate.
If the Governance Committee believes that a director may be
subject to a conflict of interest which may prejudice his or her
ability to exercise independence of judgement, it may make such
recommendations to the board as it may think fit, including that
the director abstains from participating in any decision of the
Work of the Governance Committee
board or any of its committees on the matter concerned.
The Governance Committee met twice during the year and
the principal matters it considered included:
• the review and approval of the Corporate governance report
for the year ended 31 March 2013
• approval of final terms of the sale of certain artefacts
and memorabilia owned by Caledonia to the Cayzer Family
Archive, a charitable foundation established to preserve
an historical archive of the Cayzer family and its heritage
in shipping, for £0.3m
• the review of potential conflict situations notified by directors
in accordance with the Companies Act 2006 and the making
of recommendations to the board in relation thereto
• consideration of the influence of the Cayzer Concert Party on
Caledonia’s board and whether it was in the general interest
of the non-Cayzer Concert Party shareholders, with the
conclusion that it was
• the company’s ongoing ability to continue to buy back its own
shares whilst ensuring that the Cayzer Concert Party holding
remains below the 49.9% limit required by the waiver of
Rule 9 of the City Code on Takeovers and Mergers approved
by non-Concert Party shareholders and the considerations for
the company as share buy-backs bring such holding nearer
to this limit.
Charles Allen-Jones
Chairman of the Governance Committee
28 May 2014
Directors’ report 40 Annual report 2014 Caledonia Investments plc
Directors’ remuneration report
Annual statement by the Chairman of the Remuneration Committee
The Remuneration Committee ensures
that remuneration arrangements support
the strategic aims of the business and
enable the recruitment, motivation and
retention of senior executives of the
calibre needed to manage and grow the
company successfully.
Membership and attendance
The membership and attendance record of the Remuneration
Committee during the year was as follows:
Meetings
attended
Meetings
eligible
to attend
5
C H Gregson (Chairman)
5
C M Allen-Jones
4
R B Woods
1
D G F Thompson
3
1. Mr Thompson retired as a member of the committee on 24 July 2013.
5
5
5
3
On behalf of the board, I am pleased to introduce Caledonia’s
New basis of remuneration disclosure
Directors’ remuneration report for the year ended 31 March 2014.
and shareholder voting
As heralded in last year’s report, new remuneration reporting
regulations put forward by the Department for Business
Innovation and Skills became law with effect from 1 October
2013. This year’s Directors’ remuneration report is therefore
presented in a new format designed to comply with these
regulations – the Large and Medium-sized Companies and
Groups (Accounts and Reports)(Amendment) Regulations 2013
(‘Regulations’) – and is also prepared in accordance with the
recommendations of the UK Corporate Governance Code and
the requirements of the UKLA Listing Rules.
The report now comprises three sections as follows:
• an annual statement by the Chairman of the Remuneration
Committee, which summarises and explains the major
decisions taken and changes made in relation to directors’
remuneration during the year
• a forward looking remuneration policy, which describes the
company’s remuneration framework and how it is aligned
with its business strategy, summarises the key elements of
directors’ pay and illustrates levels of total remuneration that
may be paid to the executive directors in different scenarios
• an annual report on directors’ remuneration, which sets out
the amounts actually paid to directors in respect of the year
under review and the value of long term incentive awards that
vested in that period.
Shareholders will be asked to approve the remuneration policy
and the annual report on directors’ remuneration for the year
ended 31 March 2014 separately by simple majority votes at the
company’s annual general meeting on 17 July 2014, the vote on
the remuneration policy being binding on the company, whereas
the vote on the annual report on directors’ remuneration will
(as was the case with previous directors’ remuneration reports)
be advisory in nature only. The Regulations require that the
remuneration policy be approved by shareholders at least every
three years, although an earlier vote will be required if the
Remuneration Committee wishes to implement any policy
changes or if an advisory vote on an annual report on directors’
remuneration is not passed. A resolution to approve the annual
report on directors’ remuneration must be put to shareholders
every year.
The Companies Act 2006 requires the company’s auditor to
report to the shareholders on certain parts of the directors’
remuneration report and to state whether, in its opinion, those
parts of the report have been properly prepared in accordance
with the Regulations. The parts of the annual report on
directors’ remuneration that have been audited are indicated
in that report. The annual statement by the Chairman of the
Remuneration Committee and the policy on directors’
remuneration are not subject to audit.
Caledonia Investments plc Annual report 2014 41
Remuneration for the 2014 financial year
Turning to the year under review, as described in the Chairman’s
and Chief Executive’s report, Caledonia has delivered strong
performance in the year to 31 March 2014. NAV per share on
a total return basis (‘NAVTR’) increased by 14.9%, compared
with an increase of 2.5% in the Retail Prices Index (‘RPI’), which
the Remuneration Committee introduced as a measure of the
company’s performance for annual bonuses this year in order to
reward executives only when positive real returns are generated
for shareholders. On the basis of the company’s relative
performance against RPI over the year and after assessing the
performance of the individual directors against the personal
objectives set for them at the start of the year and, where
relevant, pool performance and objectives, the Remuneration
Committee decided that it was appropriate to award the
maximum potential bonus of 100% of basic salary to each
of the executive directors.
The year to 31 March 2014 also represented the end of the three
year performance measurement period for awards granted
in 2011 under the company’s performance share scheme and
matching shares under the deferred bonus plan. For the 2011
matching awards under the deferred bonus plan, the targets
were that, for 50% of the shares comprised in an award to vest,
Caledonia’s undiluted net asset value per share (‘NAV’) would
have to outperform RPI by at least 9% over the measurement
period, and for the other 50%, Caledonia’s NAV would have to
outperform the FTSE All-Share index by at least 3% over the
measurement period. Both targets were met and therefore all
of the 2011 deferred bonus matching shares have vested.
For the 2011 performance share scheme awards, the
performance targets were that, for two-thirds of the shares
comprised in an award, Caledonia’s NAVTR had to outperform
the FTSE All-Share Total Return index (‘FTSE index’) and,
for the other third, the FTSE Actuaries UK Index-linked Gilts
(all-stocks) Total Return index (‘Gilts index’) over the three year
measurement period, in each case with shares vesting on a
graduated basis between 0.5% and 3.5% outperformance. Whilst
Caledonia’s NAVTR has outperformed both of these benchmark
indices over the past two financial years, underperformance
in the 2012 financial year prior to the implementation of the
company’s revised strategy meant that neither performance
target was met and accordingly the 2011 awards lapsed in their
entirety. For this year’s performance share scheme awards, the
Remuneration Committee commenced a phased move towards
a longer performance period for a significant proportion of the
shares comprised therein, in order better to align them with the
company’s long term investment horizon. Half of the shares
comprised in an award will be measured over three years by
reference to the Gilts index and half over five years by reference
to the FTSE index. This balance will be repeated for any awards
made in the 2015 financial year, but thereafter one-third will
be measured over three years and two-thirds over five years
by reference to the aforementioned indices.
In line with good practice, the Remuneration Committee
has also introduced provisions into Caledonia’s performance
share scheme and deferred bonus plan, which will give the
Remuneration Committee the right to cancel or reduce unvested
awards in the event of a material misstatement of the company’s
financial results, a miscalculation of a participant’s entitlement,
misconduct on the part of the participant or an event resulting
in material loss or reputational damage to the company or a
member of the group. These are commonly known as ‘malus’
provisions and will apply to share based awards granted after
Remuneration for the 2015 financial year
1 April 2014.
Looking ahead to the 2015 financial year, basic salaries of
executive directors have been increased with effect from 1 April
2014 by 2.5%, which was the same as the standard increase
given to the company’s staff generally and mirrored the rise in
the cost of living as measured by RPI of 2.5%. The Chairman’s
and the non-executive directors’ fees were last reviewed in
April 2011 and these have therefore also been increased by 10%,
in line with inflation since that date.
As explained in the Chairman’s and Chief Executive’s report,
the board has recently decided to adopt RPI as the basis of
measurement of Caledonia’s performance over the medium,
as well as the shorter, term in place of the FTSE index. In the
light of this, the Remuneration Committee will be considering
whether RPI should also be adopted as the benchmark index for
the company’s share incentive plans, in place of the FTSE index
and Gilts index currently used. Other than this, no changes in
the basis of directors’ remuneration are anticipated for the 2015
Shareholder consultation
financial year.
The remuneration policy that we are now asking shareholders to
approve embodies the fundamental principles that have guided
our Remuneration Committee for many years, namely that we
aim to attract and retain talented individuals needed to manage
and grow our business successfully and to motivate them with
packages that are closely linked to the company’s long term
performance and strategy. We endeavour to ensure that the
quantum of our pay is competitive, but not excessive, and that we
reward success when earned, but not failure. Most importantly,
we seek to align the interests of those who manage our company
with the shareholders who own it.
We have taken the opportunity to consult with some of our
larger shareholders and certain institutional shareholder
representative bodies on this policy and are very grateful for
their constructive feedback. We hope therefore that both the
policy and the annual report will receive your support at the
annual general meeting in July.
Charles Gregson
Chairman of the Remuneration Committee
28 May 2014
Directors’ report 42 Annual report 2014 Caledonia Investments plc
Directors’ remuneration report
Remuneration policy
Implementation of the policy
Legacy arrangements
continued
The remuneration policy set out below embodies the policies
and practices previously operated by the company, as described
in the Remuneration Committee’s Directors’ remuneration
report for the year ended 31 March 2013, included in the 2013
annual report. If approved by shareholders at the annual general
meeting to be held on 17 July 2014, this policy will take effect
from that date and will then apply until a revised remuneration
policy is approved by shareholders. The company does not
expect to seek shareholder approval for a revised policy until
the annual general meeting in 2017.
The policy is essentially forward looking in nature. In view of the
long term nature of the company’s remuneration structures –
including obligations under service contracts, pension
arrangements and incentive schemes – a substantial number
of pre-existing obligations will remain outstanding at the time
that the new policy is approved, including obligations that
are ‘grandfathered’ by virtue of being in force at 27 June 2012.
It is the company’s policy to honour in full any pre-existing
obligations that have been entered into prior to the effective
Objectives
date of this policy.
Under the new statutory regime, a company may only make
a remuneration payment to a director or a payment for loss of
office if it is either consistent with the most recently approved
remuneration policy or, if not, is separately approved by
shareholders. The Remuneration Committee considers that
an effective remuneration policy needs to be sufficiently flexible
to take account of future changes in the company’s business
environment and in remuneration practice generally. In framing
its policy, the Remuneration Committee has therefore sought
to combine a level of breadth and flexibility to enable it to react
to changed circumstances without the need for a specific
shareholder approval, whilst at the same time incorporating
sufficient detail and transparency to enable shareholders
to understand how it will operate in different scenarios and
feel comfortable that payments made under it are justified.
Components of remuneration where the Remuneration
Committee wishes to retain a level of discretion are identified
in the relevant sections of the policy.
Remuneration structure
The key objectives of the Remuneration Committee in setting
the company’s remuneration policy are as follows:
• remuneration of executive directors should be linked to the
company’s long term performance and its business strategy
• performance related remuneration should seek to align the
interests of executive directors with those of the shareholders
• a significant proportion of executive directors’ remuneration
should be linked to the performance of the company and only
receivable if demanding performance targets are achieved
• remuneration packages for executive directors should be
competitive, but not excessive, in terms of market practice in
order to attract, retain and motivate executive directors of the
quality needed to manage and grow the company successfully.
Executive directors
The table below sets out Caledonia’s policy in relation to each component of executive director remuneration, with further
explanations in the notes that follow.
Salary (fixed pay)
Purpose and link to
strategic objectives
To support the recruitment and retention of executive directors of the calibre required to manage and grow
the company successfully.
Operation
Reviewed annually.
The basic salaries of the executive directors on implementation of the policy will be as follows:
W P Wyatt
S A King
J M B Cayzer-Colvin
£506,480
£359,380
£303,890
Opportunity and
recovery or
withholding
provisions
Salary increases are normally awarded by reference to any increase in the cost of living, but may take
into account other factors such as external market positioning, change in the scope of the individual’s
responsibilities or level of experience, development in the role and levels of pay elsewhere in the company.
Other than in exceptional circumstances or where there is a change in role or responsibilities, year on year
increases in basic salaries will not exceed inflation by more than 5%.
No recovery or withholding provisions.
Performance
measurement
Benefits (fixed pay)
framework
1
Not applicable.
Purpose and link to
strategic objectives
Operation
To provide a range of benefits alongside basic salary to recruit and retain high calibre executive directors.
Executive directors are provided with family private medical insurance cover, death-in-service insurance,
permanent health insurance and, in the case of Mr Wyatt and Mr Cayzer-Colvin, a cash allowance in lieu of
a company car. They are also entitled to receive minor benefits that are available to other Caledonia staff.
The executive directors are also covered by the company’s directors’ and officers’ liability insurance policy
and have the benefit of an indemnity under the company’s articles of association.
Caledonia Investments plc Annual report 2014 43
Where there is a valid business reason for doing so, the company may pay for the cost of spouses
accompanying directors on business trips and reimburse directors for hotel accommodation and travel
expenses (including payment of any tax thereon). Executive directors are also eligible to receive other
minor benefits and expenses payments (again including payment of any tax thereon).
Opportunity
and recovery
or withholding
provisions
A taxable benefits package that is competitive with the marketplace.
The value of taxable benefits provided, other than ad hoc items incurred in connection with Caledonia’s
business that may be deemed taxable benefits such as travel and other expenses, will not in aggregate exceed
10% of basic salary.
No recovery or withholding provisions.
Performance
measurement
Short term incentives (variable pay)
framework
Not applicable.
1
Purpose and link to
strategic objectives
Operation
To reward performance on an annual basis against key financial, operational and individual objectives.
Discretionary annual bonus scheme and deferred bonus plan under which a proportion of bonus may
be compulsorily or voluntarily deferred into shares.
Bonus is not pensionable.
Opportunity
and recovery
or withholding
provisions
The maximum potential bonus is 100% of basic salary. Any bonus over 50% of basic salary is compulsorily
deferred into shares and up to half of any remaining cash bonus may be voluntarily deferred, each for a period
of three years. Shares derived from compulsory or voluntary deferral of bonus are matched on a one for one
basis, subject to performance conditions (as described under long term incentives below).
All bonus payments are subject to the overriding discretion of the Remuneration Committee, which also
retains discretion to amend the proportions of bonus subject to compulsory or voluntary deferral or not
to require or offer any deferral.
In order to be entitled to an annual bonus, an executive director must normally be in the group’s employment
and not under notice of termination (either given or received) at the time the bonus is paid.
The Remuneration Committee has the right to cancel or reduce any bonus compulsorily or voluntarily deferred
into shares which have not yet vested in the circumstances described under long term incentives below.
Performance
measurement
Long term incentives (variable pay)
framework
By reference to a combination of company performance against external benchmarks and individual
performance against personal objectives. Executive directors with responsibility for pools of capital will
have a proportion of bonus determined by reference to pool performance and objectives.
1
Purpose and link to
strategic objectives
To motivate executive directors to deliver long term shareholder value, thereby aligning the interests
of management with those of shareholders.
To encourage long term retention of key executives.
Operation
Caledonia operates a performance share scheme under which participants are awarded nil-cost options over
the company’s shares.
The performance share scheme replaced an executive share option scheme under which market value options
were awarded to senior executives. The last awards under the executive share option scheme were made in
2010, although Mr Wyatt and Mr Cayzer-Colvin retain options under this scheme which have yet to be exercised.
Under the company’s deferred bonus plan, matching share awards are granted in respect of compulsory
and voluntary deferral of pre-tax bonus. The current deferred bonus plan replaced an earlier plan introduced
in 2005 under which matching share awards were granted in 2011. Mr Wyatt, Mr King and Mr Cayzer-Colvin
all retain matching share awards granted under the earlier scheme, the vesting conditions for which have
been met.
The maximum value of nil-cost options that may be granted in any year under the performance share scheme
rules is 200% of basic salary, although the company’s policy is to grant annual awards of no more than 125%
of basic salary.
Matching shares are granted on a one for one basis for shares derived from bonus deferral.
On exercise of nil-cost options or calling of matching share awards, participants will also receive an amount
equivalent to the dividends and any associated tax credits that would have accrued on the shares during the
relevant performance measurement period.
Opportunity
and recovery
or withholding
provisions
Directors’ report 44 Annual report 2014 Caledonia Investments plc
Directors’ remuneration report
Remuneration policy
continued
The Remuneration Committee has the right, in respect of awards granted after 1 April 2014, to cancel or
reduce long term incentive awards which have not yet vested, in the event of a material misstatement of the
company’s financial results, miscalculation of a participant’s entitlement, individual misconduct or an event
resulting in material loss or reputational damage to the company or any member of the group.
In the event of a change of control before the expiry of the performance measurement period of a long term
incentive award, the vesting level of the award will be determined by the Remuneration Committee based on
the extent to which the performance targets have been achieved and vested shares will then be scaled down
to reflect the shortened measurement period. The Remuneration Committee may modify such vesting levels
if it considers that the performance target would be met to a greater or lesser degree at the testing date and/
or if the application of time pro rating would be inappropriate in the circumstances.
Performance
measurement
framework
1
Nil-cost options awarded under the 2011 performance share scheme and matching share awards granted
under the deferred bonus plan are subject to performance targets related to the company’s diluted net
asset value per share on a total return basis (‘NAVTR’) measured against two benchmark indices, the FTSE
All-Share Total Return index (‘FTSE index’) and the FTSE Actuaries UK Index-linked Gilts (all stocks)
Total Return index (‘Gilts index’), measured over three or five years.
The rules of each scheme provide discretion to the Remuneration Committee to amend the performance
targets or impose different performance targets.
Pension related benefits (fixed pay)
The performance targets for all outstanding options granted under the company’s executive share option
schemes and matching share awards granted under the 2005 deferred bonus plan have been met.
Purpose and link to
strategic objectives
To provide a means of retirement saving as part of a range of benefits alongside basic salary to recruit
and retain high calibre executive directors.
Operation
Executive directors are offered defined contribution funding, based on a percentage of salary, to a personal
pension scheme or a cash salary supplement (or a combination of both) at their choice.
Opportunity
and recovery
or withholding
provisions
The percentage of basic salary for the Chief Executive is 22.5% and for other executive directors 17.5%.
If a director chooses to take a cash supplement in lieu of some or all of his or her pension entitlement,
the payment is reduced by such amount as is necessary to make the cash supplement cost neutral for
the company after taking into account National Insurance contributions.
The Remuneration Committee will retain the discretion to increase the percentage of salary relating to
pension benefits from time to time in line with market conditions, up to a maximum of 30% of basic salary.
No recovery or withholding provisions.
Not applicable.
Performance
measurement
framework
Annual bonus
1.
1
Performance measures and targets
For the Chief Executive and the Finance Director, a maximum of 50% of bonus is
determined by reference to company performance and 50% by reference to individual
performance objectives. For executive directors responsible for a specific pool of capital,
25% of bonus is determined by reference to the company’s performance, 25% to pool
performance, 35% to pool objectives and 15% to individual performance objectives.
In all cases, the company performance element is determined by reference to the relative
performance of the company’s NAVTR against RPI. Bonus payments for this element
commence with a 10% pay-out if NAVTR matches RPI, increasing incrementally
to the maximum entitlement payable if outperformance of 7% or more is achieved.
Pool performance is judged by the Remuneration Committee by reference to the return
achieved by the pool over the year against RPI and an annualised target return set for
the pool and by objectives such as deal flow and delivery of portfolio strategy. Individual
performance is assessed by reference to personal objectives set at the start of the year,
including non-financial measures such as risk management, marketing of the company,
team leadership, management skills and promotion of Caledonia’s corporate culture and
image both internally and externally.
The Remuneration Committee retains discretion to amend or adopt alternative annual
Compulsory and voluntary deferral of bonus
bonus targets in order to achieve better alignment with the company’s strategic objectives.
Shares comprised in a compulsory deferral will normally only vest if the director remains
an employee of the Caledonia group for a three year period commencing on the first day
of the financial year in which the award is made.
Shares comprised in a voluntary deferral are not subject to any conditions and will
normally vest at the earlier of three years from the first day of the financial year in which
the award is made or the date that the director ceases to be an employee of the Caledonia
group for any reason.
Long term incentive plans
Performance share scheme
For nil-cost options granted prior to the 2014 financial year under the performance share
scheme, one-third of the shares comprised in an award are subject to a performance condition
which compares the performance of NAVTR against the Gilts index over three years. For the
other two-thirds, Caledonia’s NAVTR is measured against the FTSE index, also over three
years. Awards vest on a graduated basis, with 10% vesting on 0.5% outperformance of
the relevant benchmark, rising on a straight line basis to maximum vesting on 3.5%
outperformance. There is no re-testing of either performance target and, to the extent a
performance target is not met, the relevant award will lapse. For the purpose of calculating
the performance measures, averages of the company’s NAVTR and the two benchmark
indices over the three months prior to the start and end of the performance period are
used to reduce volatility. To the extent that the performance targets are met, awards may be
exercised between the date of vesting and the tenth anniversary of the date of grant, except
that only two-thirds of the shares that have vested may normally be exercised after three
years, with the remaining one-third normally becoming exercisable after five years.
For nil-cost options granted in the 2014 financial year, the performance criteria are as above,
except that one-half of the shares comprised in an award will be measured against the Gilts
index over three years and the other half against the FTSE index over five years, with shares
that vest in each case becoming exercisable immediately.
Under transitional arrangements previously put in place by the Remuneration Committee,
nil-cost options to be granted in the 2015 financial year are to be on the same performance
measures as those granted in the 2014 financial year and then, for the 2016 financial year
onwards, one-third of the shares comprised in an award are to be measured against the Gilts
index over three years and two-thirds against the FTSE index over five years, with shares that
Deferred bonus plan matching awards
vest in each case becoming exercisable immediately.
The performance targets for matching shares awarded under the deferred bonus plan are the
same as those described above for the nil-cost options granted under the performance share
scheme prior to the 2014 financial year, except that shares that vest can be called
immediately following the end of the measurement period and will lapse if not called within
the twelve months thereafter.
Caledonia Investments plc Annual report 2014 45
Rationale for choice of performance measures for the short and long term incentive plans
The Remuneration Committee has chosen NAVTR as the basis of performance measurement
for the company for both its short term and long term incentive arrangements as it regards
this as the best indicator of the success or failure of management decisions in terms of the
value of the portfolio.
For the company performance element of the annual bonus scheme, the board has taken the
view that benchmarking against a stock market index or indices over a short period is not
relevant given Caledonia’s long term investment horizon and the nature of its portfolio. The
Remuneration Committee has therefore instead chosen RPI as the comparator, as on this
basis executives will only be rewarded to the extent that they are able to deliver positive real
returns for shareholders. The Remuneration Committee will review the rate of increase in
RPI at the start of each financial year and may adjust the level of outperformance required
for the incremental and maximum bonus payments in order to ensure that they remain a
fair measure of performance.
For awards under the performance share scheme and matching shares under the deferred
bonus plan, the Remuneration Committee has chosen the FTSE index as the measure for a
substantial proportion of the shares comprised in such awards as it believes that this is the
best way to incentivise executives to deliver continued strong NAVTR performance against
the market, which in turn should underpin Caledonia’s stated objective of delivering long
term growth in shareholder capital and income. The Gilts index has been chosen as a second
measure for the long term incentive plans as the Remuneration Committee regards it as
reflective of the company’s aim to provide a long term store of wealth for its shareholders.
2.
3.
4.
Chairman and non-executive directors
The table below sets out each component of the Chairman’s and
the non-executive directors’ remuneration and the approach
taken by the company in relation thereto.
Component
Approach
The targets for each component of the long term incentive plans have been set by the
Remuneration Committee with the aim of delivering increasing reward for greater
outperformance. The Remuneration Committee keeps these measures and the levels at
which incremental and maximum entitlements are earned under review in order to ensure
that they remain sufficiently challenging and aligned with the company’s strategy and key
performance indicators.
New components introduced into the new remuneration policy
Changes to components included in the previous remuneration policy
There are no new components included in the above policy table which were not a part
of the remuneration framework previously operated for executive directors by the company.
The only changes to the remuneration policy operated for the year to 31 March 2013 were
the adoption of RPI as the measure of the company performance element of the annual
bonus scheme, the phased adoption of a five year performance measurement period for a
significant proportion of awards under the company’s performance share scheme and the
How the remuneration policy for executive directors relates to remuneration
introduction of malus provisions for long term incentive awards and bonus deferral.
of Caledonia group employees generally
Caledonia’s executive directors’ remuneration packages tend to be higher than those
of other group employees, but also include a higher proportion of variable pay.
Chairman’s and non-executive
directors’ fees
The Chairman’s fee is determined by the Remuneration Committee and the non-executive
directors’ fees are set by the board. These are reviewed periodically taking into account the
responsibilities and time commitments required and non-executive director fee levels generally.
The Chairman receives an annual fee, which includes his basic non-executive director’s fee,
but does not receive any other remuneration.
Non-executive directors receive basic fees, which are subject to an annual limit for non-executive
directors’ ordinary remuneration contained in the articles of association, currently £350,000.
In addition, special fees are paid for the chairmanship and membership of the Audit and
Remuneration Committees and also for the role of Senior Independent Non-Executive Director
and chairman of the Governance Committee.
The fees of the Chairman and the non-executive directors on implementation of the policy
will be as follows:
Chairman
Basic non-executive director’s fee
Audit Committee chairman
Audit Committee member
Remuneration Committee chairman
Remuneration Committee member
Senior Independent Director/Governance Committee chairman
£184,500
£39,900
£5,600
£2,300
£4,900
£1,600
£5,100
Additional fees payable for
services to other group
companies
Exceptionally, non-executive directors may receive fees from group companies for services
provided to them. The Hon C W Cayzer receives such a fee, currently £60,000, for his chairmanship
of the Sloane Club, a position which he held as an executive director of Caledonia prior to becoming
non-executive.
Fees for services provided to subsidiary companies are set and reviewed by the boards of those
companies, but will not exceed £100,000 per annum in aggregate for any non-executive director.
Other benefits
The Chairman and the non-executive directors are all covered under the company’s directors’
and officers’ liability insurance policy and have the benefit of an indemnity under the company’s
articles of association. The Chairman is also provided with an office and some secretarial support.
The company may, where appropriate, pay for the cost of spouses accompanying non-executive
directors on trips where there is a business reason for doing so and reimburse non-executive
directors for hotel accommodation and travel expenses (in each case including payment of any
Remuneration policy for new appointments
tax thereon).
Executive directors
In the case of the appointment of a new executive director,
the Remuneration Committee would typically seek to align
the remuneration package with the above remuneration policy.
The Remuneration Committee however retains the discretion
to make special remuneration commitments on the appointment
of a new executive director, including the use of awards made
under Rule 9.4.2 of the Listing Rules, if such were absolutely
necessary to ensure the recruitment of an exceptional candidate.
In doing so, the Remuneration Committee would take into
consideration all relevant factors, including, but not limited to,
overall quantum, type of remuneration offered and comparability
with the packages of other Caledonia senior executives and the
total variable pay would not exceed the maxima stated in the
policy table for executive director remuneration above.
Directors’ report
46 Annual report 2014 Caledonia Investments plc
Directors’ remuneration report
Remuneration policy
continued
The Remuneration Committee may in addition make bonus
commitments or share awards on the appointment of
an external candidate to compensate for remuneration
arrangements forfeited on leaving a previous employer, taking
into account factors such as any performance conditions
attached to these awards, the form in which they were granted,
for example cash or shares, and the time over which they
would have vested. The aim would be to ensure that replacement
awards would be made on no greater than a comparable basis.
In order to attract and retain suitable executives, the
Remuneration Committee retains discretion, in exceptional
circumstances, to offer service contracts with up to an initial
24 month notice period, which then reduces to 12 months at
the end of this initial period. If it considers it appropriate,
the Remuneration Committee may also offer a lower salary
initially, but with a series of increases to achieve the desired
salary positioning over a period of time, as the individual
develops into the role.
If a new appointment is the result of an internal promotion,
the Remuneration Committee would expect to honour any
pre-existing contractual arrangements or benefits package
agreed with the relevant individual. In the event that a
new director resides overseas, the Remuneration Committee
may agree a reasonable relocation package and tax
equalisation arrangements.
In recruiting any new executive director, the Remuneration
Committee would apply the overall policy objective that
executive directors’ remuneration should be competitive,
but not excessive. In the event that the Remuneration
Committee agreed that it was necessary for special
commitments or sign-on arrangements to be offered
to secure the recruitment of a new executive director,
an explanation of why these were required and details
thereof would be announced at the time of appointment.
Chairman and non-executive directors
Terms for the appointment of any new Chairman or non-
executive director would also be determined by the
Remuneration Committee or the board within the above
Executive directors’ service contracts and the Chairman’s
remuneration policy.
and non-executive directors’ letters of appointment
Executive directors
Executive directors have service contracts with Caledonia Group
Services Ltd, a wholly-owned subsidiary of the company, details
of which are summarised below:
Date of contract
Notice period
for the
company and
the director
Unexpired
term
W P Wyatt
S A King
J M B Cayzer-Colvin 19 April 2005
2 June 2005
12 months 12 months
19 November 2009 12 months 12 months
12 months 12 months
If notice is served by either party, the director can continue to
receive basic salary, benefits and pension payments for the
duration of the notice period, during which time the company
may require the individual to continue to fulfil his current duties
or may assign a period of gardening leave. Alternatively, the
company may, in its discretion, terminate the contract without
notice and make a lump sum payment in lieu of notice. This lump
sum would include an amount equivalent to the basic salary
and benefits (based on a fixed percentage of salary specified in
the service contract) for the unexpired period of notice to which
the payment relates. Mr Wyatt’s and Mr Cayzer-Colvin’s service
contracts provide that an amount equivalent to 80% of the
average of the annual bonuses paid for the previous three
financial years would also be included in the payment in lieu
of notice. Mr Wyatt’s and Mr Cayzer-Colvin’s service contracts
also include provisions whereby a liquidated sum is payable in
the event of termination within one year following a change of
control. The payment would be calculated on the same basis as
a payment in lieu of notice, except that an amount equivalent to
100% of the average of the annual bonuses paid for the previous
three financial years would be included.
Mr King’s service contract contains provisions whereby,
as an alternative to the payment of a lump sum in lieu of notice,
the company may elect to pay the equivalent amount in equal
monthly instalments, such instalments to be reduced by 50%
of one-twelfth of the basic salary in excess of £20,000 per annum
that Mr King receives from any alternative employment that
he takes up during the notice period.
Executive directors’ service contracts may be terminated
without notice and without any further payment (other than
in respect of amounts due at the date of termination) on the
occurrence of certain events such as gross misconduct.
Chairman and non-executive directors
The Chairman and the non-executive directors do not have
service contracts, but are appointed under letters of
appointment, which provide for termination without notice
or compensation.
Inspection
Executive directors’ service contracts and the Chairman’s and
non-executive directors’ letters of appointment are available
Policy on external non-executive directorships held by
for inspection at the registered office of the company.
executive directors
It is the company’s policy to allow executive directors to hold
non-executive directorships unrelated to the company’s
business to broaden their commercial experience, provided that
the time required is not material. Normally the company will
retain any fees arising from such non-executive directorships,
but may permit the executive director to retain fees on a case
by case basis.
Details of any fees from external non-executive directorships
retained by executive directors are disclosed in the annual
Illustration of the application of the remuneration policy
report on directors’ remuneration.
for executive directors
The charts below provide an indication of the total pay
of the executive directors in the first year of operation
of the remuneration policy under three assumed
performance scenarios:
• minimum receivable – this assumes that the director receives
fixed components of pay only and nothing in respect of annual
bonus or long term incentives
• receivable for target performance – this assumes that, in
addition to fixed pay, there is a pay-out of 50% of basic salary
for annual bonus and 50% vesting of performance share
scheme awards and deferred bonus plan matching shares
• maximum receivable – this assumes that, in addition to fixed
pay, there is a maximum bonus of 100% of basic salary and
100% vesting of performance share scheme awards and
deferred bonus plan matching shares.
Caledonia Investments plc Annual report 2014 47
S A King
’
0
0
0
£
n
1,600
o
i
t
a
r
e
1,200
n
u
m
e
800
r
l
a
t
o
T
400
1
Fixed pay
2
Annual bonus
3
Long term awards
£1,504
48%
24%
28%
£875
31%
20%
49%
£426
100%
’
0
0
0
£
n
1,600
o
i
t
a
r
e
1,200
n
u
m
e
800
r
l
a
t
o
T
400
J M B Cayzer-Colvin
1
Fixed pay
2
Annual bonus
3
Long term awards
£755
30%
20%
50%
£375
100%
£1,287
47%
24%
29%
Total remuneration
W P Wyatt
1
Fixed pay
2
Annual bonus
3
Long term awards
’
0
0
0
£
n
2,500
o
i
t
a
r
2,000
e
n
u
m
1,500
e
r
l
1,000
a
t
o
T
500
0
£639
100%
£2,158
47%
23%
30%
£1,272
30%
20%
50%
0
0
Minimum
Target
Maximum
Minimum
Target
Maximum
Minimum
Target
Maximum
1.
Fixed pay – comprises basic salary and pension related benefits, based on basic salary for
the financial year ending 31 March 2015 and other taxable benefits taken from the table
of total emoluments paid to directors for the 2014 financial year included in the annual
report on directors’ remuneration.
Annual bonus – based on basic salary for the year ending 31 March 2015.
Long term awards – for target performance and maximum receivable, it is assumed that
the director will voluntarily defer into shares the maximum amount of annual bonus
2.
3.
Policy on payments for loss of office
Executive directors
It is the policy of the company that, other than in exceptional
circumstances on recruitment as stated above, no executive
director should be offered a service contract that requires
more than one year’s notice of termination or which contains
provision for predetermined compensation in excess of one
year’s total emoluments. In the event of a termination, the
Remuneration Committee will consider a director’s past
performance and the circumstances of the departure in
exercising any discretions relating to the arrangements
for loss of office, including contractual obligations, prevailing
best practice, the reason for the departure and any transition
or handover required.
The termination provisions in executive directors’ current
service contracts are described above in the section on executive
directors’ service contracts. It is the Remuneration Committee’s
intention that all future executive directors’ service contracts
should include provisions enabling the company to reduce
compensation payments in the event that the director takes
up alternative employment within the notice period. However,
if a new director is appointed internally, the Remuneration
Committee would expect to honour any existing contractual
arrangements agreed with the relevant individual before he
or she becomes a director.
In applying the company’s right to make a lump sum payment
in lieu of notice, the Remuneration Committee would normally
expect to pro rate the lump sum for the unexpired period of
notice to which the payment relates. In appropriate
circumstances, the Remuneration Committee may make a
payment in respect of the full twelve months’ notice period,
even if the director works under notice for part of it.
The company’s annual bonus scheme provides that an employee
must be in the group’s employment and not under notice of
termination (either given or received) in order to be entitled to
receive a bonus for the relevant financial year. The Remuneration
Committee would expect to apply this principle to executive
director terminations, but retains discretion to make bonus
payments on termination if it believes it appropriate to do so.
permissible under the deferred bonus plan rules and therefore receives an entitlement to
matching shares on a one for one basis. An initial grant of 125% of basic salary for the year
to 31 March 2015 under the performance share scheme is assumed, as this is the policy
maximum set by the Remuneration Committee, notwithstanding that the maximum permitted
under the scheme rules is 200%. No share price growth is assumed for shares vesting under
either scheme, nor are any dividend equivalents that might accrue on share awards included.
Executive directors would also be entitled under their service
contracts to be paid on termination for any accrued, but untaken,
holiday entitlement. The Remuneration Committee may, where it
considers it appropriate in the circumstances, make payments
for loss of statutory rights or waiver thereof and a contribution
towards legal and outplacement fees. The Remuneration
Committee may also make a payment to ensure that any
restrictive covenants remain enforceable.
Where the director holds unvested awards under the company’s
long term incentive schemes, the Remuneration Committee
would exercise its discretions as to vesting in accordance with
the relevant scheme rules. In good leaver circumstances, for
example where cessation of employment is by reason of death,
retirement, injury, disability, ill-health, redundancy, or such
other reason as the Remuneration Committee may decide,
the Remuneration Committee will normally determine the level
of vesting based on the attainment of the performance targets,
either at the time of cessation or at the normal test date if
permitted by the scheme rules, but in the case of the former
may decrease or increase the level of vesting if the Remuneration
Committee considers that the targets would have been met to
a lesser or greater extent at the end of the performance period.
The number of shares that vest will normally be reduced to
reflect the proportion of the performance period that the
director was in employment, although the Remuneration
Committee has discretion not to scale down the number of
shares if it believes it appropriate in the circumstances.
Following termination, the Remuneration Committee may
agree to pay a director consultancy fees and continue insurance
related benefits until the end of the policy period. The company’s
directors’ and officers’ liability insurance policy also provides
for a six year period of run-off cover for former directors.
In limited circumstances, the company may permit a director
to remain in employment after ceasing to be a director for a
limited period to allow time for an effective handover or for
a successor to be appointed.
Chairman and non-executive directors
The Chairman and the non-executive directors have no
entitlement to any compensation on termination of their
appointments, although they would have the benefit of
run-off cover under the directors’ and officers’ liability
insurance policy as described above.
Directors’ report
48 Annual report 2014 Caledonia Investments plc
Directors’ remuneration report
Remuneration policy
continued
Statement of consideration of employment conditions
elsewhere in the group
Statement of consideration of shareholder views
In setting the policy for directors’ remuneration, the
Remuneration Committee considered pay and employment
conditions of other employees within the group. The
Remuneration Committee does not however seek to apply any
metrics between pay levels of different roles within the group
as this would restrict flexibility in aligning reward and
performance and potentially could hinder the recruitment
and retention of high calibre individuals. Executive directors’
remuneration packages are however benchmarked with other
senior investment executives, who participate in the same
annual bonus and long term incentive plans. Given the parity of
these remuneration arrangements, the Remuneration Committee
did not feel it necessary to conduct any formal consultation
with employees, although views expressed by senior executives
are shared with Remuneration Committee members.
The Remuneration Committee last undertook a major review of
the remuneration arrangements for executive directors in 2011,
which principally resulted in the adoption of the performance
share scheme in place of an earlier executive share option
scheme and an updated deferred bonus plan. A consultation
with the company’s larger shareholders and various shareholder
representative bodies was undertaken through written
correspondence as part of this review. Other than changes
to the performance measures for the annual bonus scheme and
the performance share scheme and the introduction of malus
provisions for long term incentive awards, which are described
in this report, the remuneration structures adopted in 2011
remain the same. Notwithstanding, the Remuneration
Committee felt it appropriate to consult a number of the
company’s larger shareholders and certain institutional
shareholder representative bodies again through written
correspondence in formulating the above remuneration policy.
No changes to the remuneration policy were made as a result
of the consultation.
More generally, the Remuneration Committee receives copies
of correspondence from shareholders relating to remuneration
matters and the company’s annual general meeting provides
shareholders with the opportunity to ask questions about
directors’ remuneration.
Caledonia Investments plc Annual report 2014 49
Annual report on directors’ remuneration
The following report sets out details and explanations of remuneration paid to directors over the financial year to 31 March 2014
Single total figure of remuneration for each director (audited)
and describes how Caledonia’s remuneration policy will be implemented for the 2015 financial year.
Executive directors
The table below provides an analysis of total remuneration of each executive director for the financial year ended 31 March 2014
and a comparison with the previous financial year.
1
Taxable benefits
2
Short term incentives
3
Long term incentives
Pension related benefits
Total
Salary
2014
£’000
494
351
296
2013
£’000
480
340
288
W P Wyatt
S A King
J M B Cayzer-Colvin
Taxable benefits
1.
2014
£’000
2013
£’000
18
4
18
18
4
18
2014
£’000
494
351
296
2013
£’000
480
340
288
2014
£’000
2013
£’000
88
66
48
–
–
–
2014
£’000
102
54
51
2013
£’000
2014
£’000
2013
£’000
99
52
49
1,196
826
709
1,077
736
643
Taxable benefits comprised family private medical insurance cover and a small Christmas
supplement paid to all Caledonia staff. Mr Wyatt’s and Mr Cayzer-Colvin’s taxable benefits
also included a cash allowance of £15,024 in lieu of a company car.
In addition to taxable benefits, other non-taxable benefits were provided to executive
directors including death-in-service insurance (4x basic salary), permanent health
insurance, directors’ and officers’ liability insurance and certain other benefits of minor
value provided to all of Caledonia’s head office staff.
Short term incentives
2.
In accordance with the rules of the company’s deferred bonus plan, the following amounts
included in the total of short term incentives were compulsorily deferred, satisfied by
share awards made shortly after the announcement of the company’s final results for the
relevant year:
2014
2013
Compul-
sorily
deferred
£’000
247
175
148
Cash
£’000
247
176
148
Compul-
sorily
deferred
£’000
240
170
144
Total
£’000
494
351
296
3.
Cash
£’000
240
170
144
Total
£’000
480
340
288
W P Wyatt
S A King
J M B Cayzer-Colvin
For Mr Wyatt and Mr King, a maximum of 50% of bonus was determined by reference
to company performance and 50% by reference to individual performance objectives.
For Mr Cayzer-Colvin, who has specific responsibility for the Funds pool of capital, 25% of
his bonus was determined by reference to the company’s performance, 25% to his pool’s
performance, 35% to his pool’s objectives and 15% to individual performance objectives.
For the 2014 financial year, the company performance element was determined by
reference to the relative performance of the company’s NAV per share on a total return
basis (‘NAVTR’) against the Retail Prices Index (‘RPI’), with bonus payments for this
element commencing with a 10% pay-out if the company’s NAVTR matched that of RPI,
increasing incrementally to the maximum entitlement payable if outperformance of 7%
or more was achieved. Mr Cayzer-Colvin’s pool performance was assessed by reference
to the return achieved by the Funds pool over the year against RPI and an annualised
target return set for that pool of 12.5% and by pool objectives such as deal flow and
delivery of portfolio strategy. Individual performance for each executive director was
assessed by reference to personal objectives set at the start of the year, including
non-financial measures such as risk management, marketing of the company, team
leadership, management skills and promotion of Caledonia’s corporate culture and
image both internally and externally.
The company’s NAVTR increased by 14.9% over the year compared with an increase of
2.5% in RPI, resulting in a maximum bonus entitlement for the company performance
element. The Funds pool’s return over the year was 11.8%, which outperformed RPI
by 9.3% and was 0.7% below the annualised target return, notwithstanding that the pool
is still in a period of transition from legacy holdings to a strategic portfolio. On this basis,
the Remuneration Committee judged that the maximum of 25% of salary was appropriate
for this element and also that the progress made in transitioning merited a maximum
bonus for the Funds pool objectives. Based on an assessment of their individual
performance objectives over the year, the Remuneration Committee also awarded
Mr Wyatt, Mr Cayzer-Colvin and Mr King maximum bonuses for that component.
The total bonuses awarded to Mr Wyatt, Mr King and Mr Cayzer-Colvin for the year were
therefore determined as follows:
W P Wyatt
S A King
J M B Cayzer-Colvin
Performance
Award
%
Max
%
Award
%
Max
%
Award
%
Company
Objectives
Pool
Pool
Individual
Total
Long term incentives
50
n/a
n/a
50
100
50
n/a
n/a
50
100
50
n/a
n/a
50
100
50
n/a
n/a
50
100
25
25
35
15
100
Max
%
25
25
35
15
100
The long term incentive awards whose performance measurement period ended during
the year were awards granted in 2011 under the company’s performance share scheme
and matching share awards under the deferred bonus plan. The vesting of awards under
the performance share scheme was dependent on the performance of the company’s
NAVTR over the three financial years ending on 31 March 2014 measured against
two separate performance benchmarks. For two-thirds of the shares comprised in
an award, Caledonia’s NAVTR was measured against the FTSE All-Share Total Return index
(‘FTSE index’) and for the remaining one-third against the FTSE Actuaries UK Index-linked
Gilts (all stocks) Total Return index (‘Gilts index’). In each case, vesting was on a graduated
basis, with 10% vesting on achievement of 0.5% outperformance of the relevant benchmark
index, rising on a straight line basis to 100% vesting on 3.5% outperformance of the relevant
index. For the purpose of calculating the performance measures, averages of the figures for
the company’s NAVTR and the two benchmark indices published over the three months
prior to the start and end of the performance period were used to reduce volatility.
The company’s NAVTR increased by 21.1% over the performance period, compared with
increases of 29.2% in the FTSE index and 24.8% in the Gilts index. Accordingly, neither
of the performance targets was met and the performance share awards granted in 2011
therefore lapsed in their entirety.
The vesting of matching share awards under the deferred bonus plan was dependent, for 50%
of the shares comprised in the award, on the company’s undiluted net asset value per share
(‘NAV’) outperforming RPI by at least 9% over the three financial years to 31 March 2014,
and for the other 50%, on the company’s NAV outperforming the FTSE All-Share index
by at least 3% over such period. The company’s NAV increased by 19.9% over the
performance measurement period, compared with increases of 9.6% for RPI and 15.9%
for the FTSE All-Share index. Accordingly, the deferred bonus matching awards granted
in 2011 vested in full.
The amounts shown in the table above under long term incentives therefore comprised the
value of the vested bonus matching share awards granted in 2011 based on the company’s
share price at 31 March 2014 of 1923p, together with the value of dividends and associated
tax credits that would have accrued on the matching shares during the performance
measurement period as follows:
Value of
matching
bonus shares
£’000
82
62
45
2014
Value of
dividend
equivalents
£’000
6
4
3
Total
£’000
88
66
48
W P Wyatt
S A King
J M B Cayzer-Colvin
Directors’ report 50 Annual report 2014 Caledonia Investments plc
Directors’ remuneration report
Annual report on directors’ remuneration
continued
Chairman and non-executive directors
Fees and other remuneration paid to the Chairman and the
non-executive directors during the year ended 31 March 2014
and the previous year were as follows:
Fees
Taxable
benefits
Pension related
benefits
Total
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
–
–
–
–
–
–
–
–
–
–
–
14
–
–
–
–
168 126
44
44
10
40
96 225
38
41
38
43
– 168 126
44
–
44
10
40
–
96 287
48
38
38
–
41
43
–
38
38
–
43
13
–
1
R D Kent
C M Allen-Jones
2
S J Bridges
3
Hon C W Cayzer
R Goblet d’Alviella 38
43
C H Gregson
38
R B Woods
4
D G F Thompson
13
1.
–
–
–
–
–
–
–
–
Mr Kent was appointed Chairman of the company on 25 July 2012 and his fees for 2013
therefore comprised his basic non-executive director’s fee up to that date and his
Chairman’s fee thereafter.
Mr Bridges was appointed a director on 1 January 2013 and therefore his fees for 2013
were in respect of part of that year only. His non-executive director’s fees are paid to Hiscox
Group Underwriting Services Ltd.
The remuneration shown for The Hon C W Cayzer in 2013 included his salary, benefits
and pension as an executive director until 3 December 2012 and thereafter his fee as a
non-executive director. His salary and fees for 2013 also included £19,762 paid by a
subsidiary in respect of his services as Chairman of the Sloane Club from 4 December 2012.
The Hon C W Cayzer received no short term or long term incentive payments in 2013.
His salary and fees for 2014 included £60,000 paid by the subsidiary in respect of his
services as Chairman of the Sloane Club for the year.
The Hon C W Cayzer’s pension related benefits for 2013 represented the increase
in his pension entitlement whilst an executive director during the period using
the HMRC calculation method (with a valuation factor of 20).
4.
Mr Thompson retired from the board on 24 July 2013.
Total pension entitlements (audited)
3.
2.
Defined contribution
Pension benefits paid to executive directors during the year
either as contributions to personal pension arrangements
or as cash supplements were as follows:
Pension contribution
Cash supplement
Total
2014
£
2013
£
2014
£
2013
£
2014
£
2013
£
37,059 35,979 65,130 63,233 102,189 99,212
– 53,916 52,345 53,916 52,345
W P Wyatt
S A King
J M B Cayzer-
Scheme interests awarded during the financial year (audited)
38,912 37,778 11,398 11,066 50,310 48,844
Colvin
–
Defined benefit
The Hon C W Cayzer has deferred pension entitlements under
the Caledonia Pension Scheme, a defined benefit pension scheme.
He ceased to be an active member of the scheme on 3 December
2012 and therefore did not accrue any further pensionable
service during the year, nor were any contributions made on his
behalf into the scheme. The Hon C W Cayzer’s normal retirement
age is 60, however early retirement can be taken from age 55
with the company’s consent. In such circumstances, the accrued
pension would be reduced to take account of its early payment.
Details of The Hon C W Cayzer’s accrued pension benefits were
as follows:
Accrued pension at 31 March 2014
Accrued pension at 31 March 2013
Increase in accrued pension during the year
Transfer value of accrued pension
at 31 March 2014
Transfer value of accrued pension
at 31 March 2013
Change in transfer value over the year
1.
Row
ref
a
b
c
d
e
f
£
177,642
170,417
7,225
3,250,539
2,980,793
269,746
2.
3.
The accrued pensions shown in rows (a) and (b) represented the deferred pension that
would be paid at normal retirement age, ignoring any revaluation. The increase in accrued
pension during the year shown in row (c) represented the increase in deferred pension in
accordance with the revaluation of pension provisions of the Caledonia Pension Scheme
applicable to all deferred members.
The transfer values shown in rows (d) and (e) were the present values of the accrued
pension revalued to normal retirement age and associated benefits at the relevant date.
Transfer values were calculated using the transfer value basis as determined by the
trustees of the Caledonia Pension Scheme at the relevant date.
The change in transfer value over the year shown in row (f)(calculated as row (d) less
row (e)), also reflected the impact on transfer values of factors beyond the control of the
company and the directors, such as movements in financial markets. These can cause
transfer values at different points in time to fluctuate significantly. Disclosed changes in
transfer values may therefore be subject to a large degree of volatility and may even be
negative. In particular, the Caledonia Pension Scheme’s transfer value assumptions have
been updated to allow for changes in market conditions.
The table below sets out the awards made to each executive director during the year under the company’s performance share
scheme and matching share awards made under the deferred bonus plan.
Scheme
Type of award
Basis of award
Face value
of award
£’000
Share price
at grant
p
Shares
comprised
1
in award
Number
Receivable
if minimum
performance
2
achieved
%
End of
performance
period
W P Wyatt
Performance Share Scheme
Deferred Bonus Plan
Deferred Bonus Plan
Total scheme interests awarded
S A King
Performance Share Scheme
Deferred Bonus Plan
Deferred Bonus Plan
Total scheme interests awarded
J M B Cayzer-Colvin
Performance Share Scheme
Deferred Bonus Plan
Deferred Bonus Plan
Total scheme interests awarded
1.
Nil-cost option
618
125% of salary
Compulsory award % of bonus in excess of 50% 240
240
Matching award
1,098
1:1
Nil-cost option
438
125% of salary
Compulsory award % of bonus in excess of 50% 170
170
Matching award
778
1:1
Nil-cost option
371
125% of salary
Compulsory award % of bonus in excess of 50% 144
144
Matching award
659
1:1
1802
1802
1802
1802
1802
1802
1802
1802
1802
34,275
13,310
13,310
60,895
24,320
9,444
9,444
43,208
20,565
7,986
7,986
36,537
10 31.03.18
100 31.03.16
10 31.03.16
10 31.03.18
100 31.03.16
10 31.03.16
10 31.03.18
100 31.03.16
10 31.03.16
The number of shares comprised in the awards under the performance share scheme and
the deferred bonus plan was determined by reference to the company’s share price at the
time that the awards were made.
2.
The performance targets for awards under the performance share scheme and matching
shares under the deferred bonus plan are set out under the statement of directors’ share
scheme interests below.
Caledonia Investments plc Annual report 2014 51
External directorships
The table below sets out details of external directorships held
by executive directors where it had been agreed that they could
retain the fees arising therefrom.
Fees
Name
S A King
Position
Non-executive director,
TT Electronics plc
Non-executive director,
The Weir Group plc
2014
£’000
2013
£’000
47
45
–
6
For the Chief Executive, the minimum guideline shareholding
has been set at 200% of basic salary and for other executive
directors 150% of basic salary. Mr Wyatt and Mr Cayzer-Colvin
both significantly exceed their minimum guideline
shareholdings, although Mr King has yet to achieve his as he
has not received sufficient vested share awards since he joined
the company in December 2009. The values of the relevant
shareholdings of each executive director as at 31 March 2014,
calculated by reference to Caledonia’s closing share price on
that date of 1923p, were as follows:
J M B Cayzer-Colvin Non-executive chairman,
28
28
Payments to past directors (audited)
The Henderson Smaller
Companies Investment
Trust plc
W P Wyatt
S A King
J M B Cayzer-Colvin
Value of
shareholding
£m
20.2
0.2
8.0
Minimum
shareholding
achievement
%
1,992
32
1,764
At the time of his retirement in July 2010, the Remuneration
Committee determined that options granted in 2009 to Mr T C W
Ingram, formerly Chief Executive of Caledonia, over 53,250
shares should continue until their normal performance test date,
being 31 March 2012 and, to the extent that the performance
conditions were met, would become exercisable within the
12 months following notification to Mr Ingram of the test
results. One-half of the shares under option failed to meet their
performance target and therefore lapsed. The other half met
their target and were exercised by Mr Ingram during the year,
Payments for loss of office (audited)
realising a pre-tax gain of £119,413.
There were no payments for loss of office made during the year
Statement of directors’ shareholdings and scheme
to any director or former director.
interests (audited)
Executive directors’ minimum shareholding guidelines
In order to align the interests of executive directors with those
of shareholders, the Remuneration Committee has adopted
guidelines for minimum shareholdings, which executive
directors will be expected to attain through the retention of all
post-tax share awards vesting under the company’s long term
incentive plans until the minimum shareholding is met. For these
purposes, shareholdings include those of connected persons and
also the value, net of any exercise costs, income tax and National
Insurance contributions, of unexercised options granted under
the company’s executive share option schemes and awards
granted under its performance share plan for which the
performance targets have been met. Also included are bonuses
deferred, compulsorily or voluntarily, under the company’s
deferred bonus plans and any uncalled bonus matching shares
for which the performance targets have been met.
Directors’ shareholdings
The interests of the directors who served during the year and
their connected persons in the ordinary share capital of the
company as at 31 March 2014, or date of leaving if earlier, were
as follows:
Beneficial
Non-beneficial
2014
No
2013
No
2014
No
2013
No
–
650
10,000
15,273
–
–
355,298 408,498 64,453
–
–
R D Kent
1
W P Wyatt
S A King
1
J M B Cayzer-Colvin
C M Allen-Jones
S J Bridges
1
Hon C W Cayzer
R Goblet d’Alviella
C H Gregson
R B Woods
2
D G F Thompson
1.
–
–
1,034,420 1,015,920 23,293 19,093
–
650
7,053
–
–
40,892 18,985 18,985
–
–
–
3,000
15,273
–
45,092
–
610
2,000
3,000
Mr Wyatt’s beneficial interests included 6,485 shares (2013 – 6,485 shares) in which
The Hon C W Cayzer had a non-beneficial interest and 934,125 shares (2013 – 920,000
shares) held by The Dunchurch Lodge Stud Company, a private family company controlled
by Mr Wyatt and certain of his connected persons. The Hon C W Cayzer’s beneficial
interests included 4,200 shares (2013 – nil) in which Mr Wyatt and Mr Cayzer-Colvin had
non-beneficial interests and his non-beneficial interests included 12,500 shares (2013 –
12,500 shares) in which Mr Wyatt also had a non-beneficial interest.
–
610
2,000
3,000
–
–
–
3,000
2. Mr Thompson retired from the board on 24 July 2013.
There have been no changes in the directors’ interests shown
Directors’ share scheme interests
above notified up to the date of this report.
The interests of directors as at 31 March 2014 in the share-based
incentive schemes operated by the company are set out in the
following table.
Unvested with
performance
1
conditions
Unvested without
performance
2
conditions
Vested but
3
unexercised
Total
Executive share options
Share price at
date of award
W P Wyatt
Granted 19.08.05 (exercise price: 1580p)
Granted 01.06.06 (exercise price: 1878p)
Granted 29.05.09 (exercise price: 1446p)
Performance share scheme awards
Granted 28.05.12 (nil-cost)
Granted 12.06.13 (nil-cost)
Deferred bonus plan – compulsory awards
Granted 26.05.11 (nil-cost)
Granted 12.06.13 (nil-cost)
1580p
1878p
1446p
1267p
1802p
1734p
1802p
–
–
–
–
47,329
34,275
81,604
–
–
8,471
8,471
–
–
–
–
–
–
–
13,310
13,310
13,290
6,789
4,236
24,315
–
–
–
4,235
–
4,235
13,290
6,789
12,707
32,786
47,329
34,275
81,604
4,235
13,310
17,545
Directors’ report
52 Annual report 2014 Caledonia Investments plc
Directors’ remuneration report
Annual report on directors’ remuneration
continued
Deferred bonus plan – matching awards
Share price at
date of award
Unvested with
performance
1
conditions
Unvested without
performance
2
conditions
Vested but
3
unexercised
Total
Granted 26.05.11 (nil-cost)
Granted 12.06.13 (nil-cost)
1734p
1802p
–
13,310
13,310
94,914
–
–
–
21,781
4,235
–
4,235
32,785
4,235
13,310
17,545
149,480
During the year, Mr Wyatt exercised executive share options over 18,500 shares at a pre-tax gain over exercise cost of £149,113.
Total share scheme interests
Performance share scheme awards
S A King
Granted 28.05.12 (nil-cost)
Granted 12.06.13 (nil-cost)
Deferred bonus plan – compulsory awards
Granted 26.05.11 (nil-cost)
Granted 12.06.13 (nil-cost)
Deferred bonus plan – matching awards
Granted 26.05.11 (nil-cost)
Granted 12.06.13 (nil-cost)
Mr King did not exercise any share scheme interests during the year.
Total share scheme interests
Executive share options
Mr J M B
Cayzer-Colvin
Granted 19.08.05 (exercise price: 1580p)
Granted 01.06.06 (exercise price: 1878p)
Granted 29.05.09 (exercise price: 1446p)
Performance share scheme awards
Granted 28.05.12 (nil-cost)
Granted 12.06.13 (nil-cost)
Deferred bonus plan – compulsory awards
Granted 26.05.11 (nil-cost)
Granted 12.06.13 (nil-cost)
Deferred bonus plan – matching awards
Granted 26.05.11 (nil-cost)
Granted 12.06.13 (nil-cost)
Performance conditions
Total share scheme interests
Executive share option scheme
Mr Cayzer-Colvin did not exercise any share scheme interests during the year
1.
Options outstanding under the executive share option scheme have all met their
Performance share scheme
performance targets.
Nil-cost options awarded under the performance share scheme are subject to targets
related to the company’s NAVTR performance against two benchmark indices, the FTSE
index and the Gilts index. Awards vest on a graduated basis, with 10% vesting on 0.5%
outperformance of the relevant benchmark, rising to maximum vesting on 3.5%
outperformance. There is no re-testing of either performance target and, to the extent
that a performance target is not met, the relevant award will lapse. For the purpose of
calculating the performance measures, averages of the company’s NAVTR and the two
benchmark indices over the three months prior to the start and end of the performance
period is used to reduce volatility. To the extent that the performance targets are met,
vested awards may be exercised between the date of vesting and the tenth anniversary
of the date of grant.
For nil-cost options granted on 28 May 2012, two-thirds of the shares comprised in an
award are tested against the FTSE index and one-third against the Gilts index. In each case
the performance period is a period of three years commencing with the financial year in
which the awards are granted. For the nil-cost options awarded on 12 June 2013, one-half
of the shares comprised in an award are measured against the Gilts index over three years
and the other half against the FTSE index over five years.
2.
3.
1267p
1802p
1734p
1802p
1734p
1802p
1580p
1878p
1446p
1267p
1802p
1734p
1802p
1734p
1802p
33,583
24,320
57,903
–
–
–
–
9,444
9,444
67,347
–
–
–
–
28,397
20,565
48,962
–
–
–
–
–
–
–
9,444
9,444
–
–
–
9,444
–
–
8,471
8,471
–
–
–
–
7,986
7,986
–
7,986
7,986
56,948
–
–
–
16,457
–
–
–
3,222
–
3,222
3,222
–
3,222
6,444
13,290
6,789
4,236
24,315
–
–
–
2,335
–
2,335
2,335
–
2,335
28,985
33,583
24,320
57,903
3,222
9,444
12,666
3,222
9,444
12,666
83,235
13,290
6,789
12,707
32,786
28,397
20,565
48,962
2,335
7,986
10,321
2,335
7,986
10,321
102,390
Deferred bonus plan matching awards
The performance targets for matching share awards granted on 26 May 2011 have all been
met. The performance targets for matching awards granted on 12 June 2013 are the same
as those for nil-cost options granted under the performance share scheme on 28 May 2012.
Executive share option scheme
Other exercise conditions
Once the performance conditions have been met, options granted under the executive share
option scheme may normally be exercised between three and ten years from the date of
grant, although only one-third of the shares comprised in an option may be exercised three
Performance share scheme
years after grant, with the remaining two-thirds becoming exercisable six years after grant.
For nil-cost options granted under the performance share scheme on 28 May 2012, to the
extent that a performance target is met, two-thirds of the shares that vest may normally
be exercised three years after grant, with the remaining one-third normally becoming
exercisable five years after grant. For nil-cost options granted on 12 June 2013, shares that
vest following performance testing become immediately exercisable.
Vested but unexercised
Shares vested but unexercised represent those awards that are immediately exercisable
without any conditions.
Caledonia Investments plc Annual report 2014 53
Percentage change in remuneration of Chief Executive
The following table shows the percentage change in the basic
salary, value of taxable benefits and short term incentives paid
to the Chief Executive in the year to 31 March 2014 against the
previous financial year, compared with the average percentage
changes in those components of pay of Caledonia’s other staff
on a per capita basis. Caledonia’s staff received a standard
increase in basic salary of 3.0% and the standard bonus was
the maximum entitlement, the same as the Chief Executive.
However, the average per capita percentage changes shown
below were higher due to the effect of non-standard increases
or bonus awards for a number of staff reflecting promotion,
increased responsibilities or other such adjustments.
Chief Executive
% change
Staff average per
capita % change
Basic salary
Taxable benefits
Short term incentives
Relative importance of spend on pay
3.0
0.9
3.0
5.3
16.0
20.5
The graph below shows the personnel expenses for the year
of group companies consolidated under IFRS 10, compared
with amounts distributed to Caledonia’s shareholders by way
of dividends and share buy-backs.
Relative importance of spend on pay
2014
2013
-1.1%
3.2%
£9.6m
£9.3m
£43.5m
£44.0m
Personnel expenses
Dividends/share buy-backs
Statement of implementation of remuneration policy
in the 2015 financial year
The company expects to operate the remuneration policy set
out above without any significant changes in the financial year
ending 31 March 2015, other than potentially in relation to the
performance measures for the performance share scheme and
deferred bonus plan as described below.
Basic salaries of executive directors
In respect of the 2015 financial year, the Remuneration
Committee has already awarded the executive directors
inflation-based increases in basic salary of 2.5% as follows.
Salary for year to 31 March
W P Wyatt
S A King
J M B Cayzer-Colvin
2015
£
2014
£
506,480
359,380
303,890
494,120
350,610
296,475
60
40
20
0
During the year and in accordance with the terms previously
agreed by the Remuneration Committee in relation to the
termination of his executive service agreement, The Hon C W
Cayzer exercised executive share options over 39,129 shares
at a pre-tax gain over exercise cost of £102,547. He also called
a compulsory deferred bonus award over 1,557 shares,
crystallising a pre-tax gain of £28,805, in addition to which
he received an amount equivalent to the dividends that would
have been paid on these shares, together with the associated
Performance graph of total shareholder return and table
tax credits, of £1,192.
of Chief Executive’s total remuneration
The graph below shows the company’s total shareholder return
(‘TSR’) against that of the FTSE All-Share Total Return index
for the five financial years ending on 31 March 2014. TSR has
been calculated assuming that all dividends are reinvested
on their ex-dividend dates. The FTSE All-Share Total Return
index has been chosen as it is the benchmark by which the
company measures its delivery of value over the longer term.
For comparison, the table below the graph shows the total
remuneration received by the Chief Executive in each of the five
years to 31 March 2014, prepared on the same basis as in the
single total figure in the table on page 49, and the percentage
of the maximum potential short and long term incentives
received in those years.
TSR growth over �ive years
Caledonia TSR
FTSE All-Share TR
250
200
150
100
2009
2010
2011
2012
2013
2014
1
2011
Years ended 31 March
1
2011
2012
2010
2013
2014
Chief Executive
T C W
Ingram
T C W
Ingram
W P
Wyatt
W P
Wyatt
W P
Wyatt
W P
Wyatt
926
215
669
585 1,077 1,196
47.5
–
67.5
– 100.0 100.0
Total
remuneration
(£’000)
Short term
incentives vested
as a percentage
of maximum (%)
Long term
incentives vested
as a percentage
of maximum (%)
1.
–
–
–
50.0
10.1
1.5
Mr Ingram served as Chief Executive until his retirement on 21 July 2010, at which time
Mr Wyatt was appointed as his successor. The remuneration shown for 2011 represents the
amounts paid to each in the period that they served as Chief Executive in that financial year.
The long term incentives held by Mr Ingram which vested in 2011 were HMRC approved
executive share options granted in 2008, which the Remuneration Committee determined
should vest based on the measurement of the performance targets up to the date of his
retirement. The percentage of short term incentives shown as vesting for Mr Wyatt in 2011
relates to his annual bonus for that year, the total amount of which has been included in the
corresponding single figure for total remuneration.
Subsequent to his retirement, Mr Ingram exercised further share options as set out in the
section on payments to past directors above.
Directors’ report
54 Annual report 2014 Caledonia Investments plc
Directors’ remuneration report
Annual report on directors’ remuneration
continued
Consideration by the directors of matters relating
to directors’ remuneration
The current members of the Remuneration Committee are
Charles Gregson (Chairman), Charles Allen-Jones and Robert
Woods, all of whom served throughout the year. David
Thompson also served as a member of the committee until
his retirement from the board on 24 July 2013.
During the year, the Remuneration Committee received advice
from Freshfields Bruckhaus Deringer LLP, the company’s
main legal advisers, in relation to the new remuneration
reporting regulations, the introduction of malus provisions
for the long term incentive plans and the formalisation of the
guidelines for minimum shareholdings of executive directors.
The Remuneration Committee also consulted with the Chairman
and the Chief Executive in relation to the remuneration of the
executive directors and internal support was provided to the
Statement of voting at general meetings
Remuneration Committee by the Company Secretary.
At the annual general meeting of the company held on 24 July
2013, the proxy votes lodged for the resolution relating to
directors’ remuneration were as follows:
To approve the 2013 directors’
remuneration report
Number
%
Votes in favour
Votes against
Total votes cast
Votes withheld
37,532,549
1,129,790
38,662,339
117,880
97.1
2.9
This directors’ remuneration report was approved by the board
on 28 May 2014 and signed on its behalf by:
Charles Gregson
Chairman of the Remuneration Committee
Chairman’s and non-executive directors’ fees
The Chairman’s and the non-executive directors’ fees are
reviewed triennially. The last review was in April 2011 and
therefore their fees have been increased in line with inflation
since that date, as follows:
Chairman
Non-executive director basic fee
Chairman of the Audit Committee
Member of the Audit Committee
Chairman of the Remuneration Committee
Member of the Remuneration Committee
Senior Independent Director/
Chairman of the Governance Committee
Fees for year to 31 March
2015
£
2014
£
184,500
39,900
5,600
2,300
4,900
1,600
167,670
36,250
5,100
2,100
4,450
1,450
5,100
4,650
Annual bonus scheme
The Remuneration Committee has reviewed the performance
target for the company performance element of the annual bonus
scheme and decided that, for the financial year ending 31 March
2015, the current target, whereby payments commence with
a 10% pay-out if the performance of the company’s NAVTR
matches that of RPI, increasing incrementally to the maximum
entitlement payable if outperformance of 7% or more is
achieved, remains appropriate given the level of RPI prevailing
at the start of the financial year.
Long term incentive schemes
In view of the board’s recent decision to adopt RPI as the basis
of measurement of Caledonia’s performance over the medium,
as well as the shorter, term in place of the FTSE index, the
Remuneration Committee will be considering whether the
benchmark indices currently used for the company’s share
incentive plans, as described above, should similarly be
changed. Other than this, no changes in the basis of directors’
remuneration are anticipated for the 2015 financial year.
Approach
The Remuneration Committee will keep the implementation
of the remuneration policy under review in order to take account
of any changes in the company’s business environment and
remuneration practice generally, but with the overall aim of
ensuring that Caledonia’s remuneration arrangements continue
to attract and retain talent and reward executives appropriately
in the light of the company’s performance.
Caledonia Investments plc Annual report 2014 55
Other governance matters
Dividends
Substantial interests
An interim dividend of 13.4p per share (2013 – 12.9p) was
paid on 9 January 2014 and the board has proposed that a final
dividend of 35.7p per share (2013 – 34.3p) be paid on 7 August
2014. This will result in total dividends for the year of 49.1p
Share capital structure
per share (2013 – 47.2p).
The company has two classes of share capital – ordinary shares
of 5p each and deferred ordinary shares of 5p each.
The holders of the ordinary shares are entitled to receive
dividends as declared from time to time and are entitled to
one vote per share at meetings of the company. All voting rights
are however suspended in respect of any of the company’s
shares that are held in treasury or by group companies.
The deferred ordinary shares carry no voting rights and
are not redeemable. They carry the right to a fixed cumulative
preference dividend of 1% per annum (exclusive of any
associated tax credit) of the nominal value of such deferred
ordinary shares, being 0.05p per share, or £4,000 in aggregate,
for all such shares currently in issue. The company is required
to pay the dividend to the extent that it has distributable profits.
On a winding-up or other return of capital, the deferred ordinary
shares carry the right to the payment of the amount paid up
on such shares only after holders of the ordinary shares have
received the sum of £100,000 in respect of each ordinary share.
All of the deferred ordinary shares are held by Sterling
Industries PLC, a wholly-owned subsidiary of Caledonia.
At 31 March 2014, 55,411,017 ordinary shares and 8,000,000
deferred ordinary shares were in issue. The ordinary shares
therefore represented approximately 87%, and the deferred
ordinary shares approximately 13%, of the total issued share
capital by nominal value. Of the ordinary shares in issue at
31 March 2014, 3,000 shares were held by a group company.
As stated above, all voting rights are suspended on these shares.
During the year, the company purchased and cancelled 811,011
ordinary shares at a total cost of £15.0m. The company’s issued
share capital after these transactions, as at 27 May 2014, being
the latest practicable date prior to signature of these accounts,
was 55,411,017 ordinary shares and 8,000,000 deferred
Restrictions on the transfer of shares
ordinary shares.
There are no specific restrictions on the transfer of the
company’s shares, although the articles of association contain
provisions whereby the directors may refuse to register a
transfer of a certificated share which is not fully paid, provided
that such refusal does not prevent dealings in the share from
taking place on an open and proper basis. The directors may
also refuse to register the transfer of a certificated share unless
it is (a) lodged, duly stamped, at the registered office or at such
other place as the directors may appoint, accompanied by the
certificate for the shares to which it relates and such other
evidence as the directors may reasonably require to show
the right of the transferor to make the transfer; (b) in respect
of only one class of shares; and (c) in favour of not more than
four transferees.
The directors may refuse to register a transfer of shares if
a shareholder has not supplied information to the company
in default of a request duly served under section 793 of the
Companies Act 2006 and such shares represent at least 0.25%
of the class of shares concerned.
As at 31 March 2014, the following had notified the company
that they held 3% or more of the voting rights of the company:
Number
of voting
rights
The Cayzer Trust Company Ltd
1
Rebelco SA
1. Rebelco SA is a wholly-owned subsidiary of Sofina SA.
19,608,252
2,847,344
Percentage
of voting
rights
35.4%
5.1%
There have been no changes in the substantial interests notified
Employee share trust
to the company up to the date of this report.
The Caledonia Investments plc Employee Share Trust acquires
and holds ordinary shares in the company for subsequent
transfer to employees exercising options under the company’s
executive share option schemes and the performance share
scheme or calling for awards vesting under the company’s
deferred bonus plans. The voting rights of shares held by the
trust are exercisable by the independent trustee. The trustee
has also waived all dividends payable in respect of the ordinary
shares held by the trust, except to the extent of 0.0001%
of such dividends. At 31 March 2014, the trust held 320,713
Restrictions on voting rights
ordinary shares.
The directors may direct that a shareholder shall not be entitled
to attend and vote either personally or by proxy or exercise
any other right conferred by membership in relation to general
meetings of the company in respect of some or all of the shares
held by him, if he or any person with an interest in such shares
has been duly served with a notice under section 793 of the
Companies Act 2006 and is in default for the prescribed period
in supplying to the company the information required or,
in purported compliance with such a notice, has made a
Agreements which may restrict the transfer of shares or
statement which is false or inadequate in a material particular.
exercise of voting rights
The company is not aware of any arrangements which may
restrict the transfer of any of its shares or the exercise of any
Authority to allot and purchase shares
voting rights.
At the annual general meeting of the company held on
24 July 2013, shareholders granted to the directors authority
to allot ordinary shares up to a nominal amount of £931,850,
representing approximately one-third of the ordinary share
capital then in issue, with authority to allot additional ordinary
shares up to a nominal value of £931,850, representing
approximately a further one-third of the ordinary share capital
then in issue, by way of pre-emptive rights issues only,
in accordance with guidance issued by the Association of
British Insurers. The directors were further authorised to issue
ordinary shares up to a nominal amount of £139,775 other than
pro rata to existing ordinary shareholders. These authorities
last until 24 October 2014 or, if earlier, the conclusion of the next
annual general meeting.
Directors’ report 56 Annual report 2014 Caledonia Investments plc
Other governance matters
continued
Appointment and removal of directors and the articles
of association
The appointment and removal of directors is governed by the
company’s articles of association and prevailing company law.
The articles of association provide that at every annual general
meeting one-third of the directors, or if not a multiple of three,
the number nearest to one-third, shall retire by rotation and
therefore be required to seek re-election by shareholders.
New directors may be appointed by the board, but are subject
to election by shareholders at the next annual general meeting
of the company following their appointment. However, to comply
with the provisions of The UK Corporate Governance Code,
the company requires that all directors should be subject to
annual election by shareholders. Shareholders may also appoint
new directors by ordinary resolution. The articles of association
limit the number of directors to not less than two and not more
Customers and suppliers
than twelve, unless the shareholders resolve otherwise.
The group’s policy in relation to all of its suppliers is to settle the
terms of payment when agreeing the terms of the transaction.
The group will abide by those terms on condition that it is
satisfied that the supplier has provided the goods or services
in accordance with the agreed terms and conditions. The group
Going concern
does not follow any code or statement on payment practice.
The group’s business activities, together with the factors likely
to affect its future development, performance and position are
set out in the Chairman’s and Chief Executive’s report on pages 2
to 5 and the Investment review on pages 10 to 21. The financial
position of the group, its cash flows, liquidity position and
borrowing facilities are described in the Financial review on
pages 22 to 24. In addition, note 23 to the financial statements
includes the group’s objectives, policies and processes for
managing capital, financial risk management objectives, details
of financial instruments and hedging activities, and exposures
to currency risk, interest rate risk, price risk, credit risk and
liquidity risk.
The group has cash resources and committed bank facilities
available to meet existing and new investment commitments.
As a consequence, the directors believe that the group is well
placed to manage business risks successfully.
The directors have a reasonable expectation that the group has
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
Auditor
concern basis in preparing the annual report and accounts.
Resolutions will be proposed at the annual general meeting to
re-appoint KPMG LLP as auditor of the company and to authorise
the directors to agree the auditor’s remuneration. A description
of how the Audit Committee ensures the objectivity and
independence of the auditor is set out on page 38 within
the Audit Committee report.
At the annual general meeting held on 24 July 2013, shareholders
also granted authority for the company to make market
purchases of up to 5,591,100 of its own ordinary shares, being
approximately 10% of the ordinary share capital then in issue,
at a price not more than the higher of (a) 5% greater than the
average of the middle market quotations for such ordinary shares
during the five business days preceding any such purchase;
and (b) the higher of (i) the price of the last independent trade
in such ordinary shares; and (ii) the highest current independent
bid relating thereto on the trading venue where the purchase is
carried out, nor at a price less than 5p, being the nominal value
of an ordinary share. This authority lasts until 24 October 2014
or, if earlier, the conclusion of the next annual general meeting.
At the same time, shareholders who were not members of the
Cayzer family concert party (‘Cayzer Concert Party’) gave their
approval for a waiver by the Panel on Takeovers and Mergers
of the obligation that could arise on the Cayzer Concert Party
under Rule 9 of the City Code on Takeovers and Mergers to
make a general offer for Caledonia on the implementation by
the company of the above authority to purchase its own shares.
The approval was subject to the maximum percentage of voting
rights in which the Cayzer Concert Party is interested not
exceeding 49.9% as a result of purchases by the company.
This waiver expires on 24 October 2014 or, if earlier,
Change of control rights
the conclusion of the next annual general meeting.
There are no special control rights in relation to the
company’s shares.
Options granted under the company’s executive share option
schemes and its performance share scheme and awards made
under its deferred bonus plans may become exercisable or vest
as a result of a change of control, although the number of shares
comprised in those options or awards may be reduced. The
service contracts of certain directors and associate directors
also contain provisions whereby a liquidated sum is payable
by the company in the event of termination within one year
following a change of control.
Further details of these change of control rights are set out
Investment trust status
in the Directors’ remuneration report.
Her Majesty’s Revenue and Customs has confirmed that
Caledonia has investment trust status for all financial periods
Annual general meeting
from 1 April 2012.
The eighty-fifth annual general meeting of the company will be
held at Cayzer House, 30 Buckingham Gate, London SW1E 6NN
on Thursday, 17 July 2014 at 11.30 am. The notice of the annual
general meeting and details of all of the resolutions to be
put to shareholders are set out in a separate circular sent
Directors
to shareholders at the same time as this annual report.
The directors of the company are shown on pages 30 and 31.
All of the directors served throughout the year. In addition,
Mr D G F Thompson served as a director until his retirement
Directors’ indemnity
from the board on 24 July 2013.
Each of the directors has the benefit, under the company’s
articles of association, of an indemnity, to the extent permitted
by the Companies Act 2006, against any liability incurred by
him for negligence, default, breach of duty or breach of trust
in relation to the affairs of the company.
Caledonia Investments plc Annual report 2014 57
Responsibility statements
Statement of directors’ responsibilities in respect of the
annual report and the financial statements
Disclosure of information to auditors
Each of the persons who is a director at the date of approval
of this report confirms that:
1. so far as the director is aware, there is no relevant information
of which the company’s auditor is unaware; and
2. the director has taken all steps that he or she ought to have
taken as a director in order to make himself or herself aware
of any relevant audit information and to establish that the
company’s auditor is aware of that information.
This confirmation is given, and should be interpreted, in
accordance with the provisions of section 418 of the Companies
Responsibility statements under the Disclosure and
Act 2006.
Transparency Rules and the UK Corporate Governance Code
Each of the directors, whose names and functions are listed on
pages 30 and 31 confirm that, to the best of their knowledge:
1. the group financial statements, which have been prepared in
accordance with IFRS as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit
of the group; and
2. the Strategic report contained on pages 1 to 29 includes a fair
review of the development and performance of the business
and the position of the group, together with a description of
the principal risks and uncertainties that it faces.
Signed on behalf of the board by:
Will Wyatt
Chief Executive
28 May 2014
Stephen King
Finance Director
28 May 2014
The directors are responsible for preparing the annual report,
the Directors’ remuneration report and the financial statements
in accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
have prepared the group and parent company financial
statements in accordance with International Financial Reporting
Standards (‘IFRS’) as adopted by the European Union. Under
company law, the directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the group and the company
and of the profit or loss of the group for that period. In preparing
these financial statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether IFRS as adopted by the European Union has
been followed, subject to any material departures disclosed
and explained in the group and parent company financial
statements respectively; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the company and the group and enable
them to ensure that the financial statements and the Directors’
remuneration report comply with the Companies Act 2006 and,
as regards the group financial statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding
the assets of the company and the group and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors are responsible for the maintenance and integrity
of the company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to
assess the group’s performance, business model and strategy.
Directors’ report 58 Annual report 2014 Caledonia Investments plc
Independent auditor’s report
to the members of Caledonia Investments plc
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Caledonia
Investments plc for the year ended 31 March 2014 set out on
pages 60 to 81. In our opinion:
• the financial statements give a true and fair view of the state of
the group’s and of the parent company’s affairs as at 31 March
2014 and of the group’s profit for the year then ended;
• the financial statements have been properly prepared in
accordance with International Financial Reporting Standards
as adopted by the European Union (IFRSs as adopted by
the EU);
• the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU and
as applied in accordance with the provisions of the Companies
Act 2006; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the
IAS Regulation.
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial
statements the risks of material misstatement that had the
Valuation of unlisted investments (£748.7m)
greatest effect on our audit were as follows:
Refer to page 36 (Audit Committee Report), page 66
(accounting policy) and pages 69 to 70 (financial disclosures)
The risk
49.3% of the company’s total assets (by value) is held in
investments where no quoted market price is available. The
unquoted investments are measured at fair value, which is
established in accordance with International Private Equity
and Venture Capital Valuation Guidelines by using measurements
of value such as price of recent orderly transactions, earnings
multiples and net assets. There is a significant risk over the
valuation of these investments and this is one of the key
judgmental areas that our audit focused on.
Our response
Our procedures included, among others:
• enquiry with management to document and assess the design
and implementation of the investment valuation processes
and controls in place. We attended the biannual Challenge
Committee meetings and quarterly Audit Committee meetings
where we assessed the effectiveness of the Committees’
challenge and approval of unlisted investment valuations.
assumptions, such as discount factors, and the choice of
benchmark for earnings multiples. We compared key
underlying financial data inputs to external sources and
investee company audited accounts and management
information as applicable. We challenged the assumptions
around sustainability of earnings based on the plans of the
investee companies and whether these are achievable, and
we obtained an understanding of existing and prospective
investee company cash flows to understand whether
borrowings can be serviced or refinancing may be required.
Where a recent transaction is used to value any holding, we
obtained an understanding of the circumstances surrounding
the transactions and whether it was considered to be on an
arms-length basis and suitable as an input into a valuation.
Our work included consideration of events which occurred
subsequent to the year end up until the date of this audit report.
• We compared the investment property valuations of the
directors to valuations performed by the external valuer and
evaluated the competence, capabilities and objectivity of the
valuer. With the assistance of our own valuation specialist,
we considered the appropriateness of the external and
internal valuations and inherent assumptions by comparing
the group’s assumptions to externally derived data.
• For the valuation of fund interests we reviewed the latest
reported net asset values from the fund managers. Our
procedures also included obtaining the audited financial
statements of the funds and considering the historical
accuracy of the net asset values.
Our procedures also included consideration of the
appropriateness, in accordance with relevant accounting
standards, of the disclosures in Note 23 in respect of unlisted
investments and the effect of changing one or more inputs to
Carrying value of quoted equity investments (£703.2m)
reasonably possible alternative valuation assumptions.
Refer to page 36 (Audit Committee Report), page 66
(accounting policy) and pages 69 to 70 (financial disclosures)
The risk
The group’s portfolio of listed investments makes up 46.3% of
the total assets of the group and is considered to be a key driver
of operations and performance results. We do not consider
these investments to be at high risk of significant misstatement,
or to be subject to a significant level of judgment because they
comprise liquid, quoted investments. However, due to their
materiality in the context of the financial statements as a whole,
they are considered to be one of the areas which had the greatest
effect on our overall audit strategy and allocation of resources
in planning and completing our audit.
• assessment of investment realisations in the period,
comparing actual sales proceeds to prior year end valuations
to understand the reasons for significant variances and
consideration of whether they are indicative of bias or error
in the company’s approach to valuations.
• challenging the investment manager on key judgements
affecting investee company valuations in the context of
observed industry best practice and the provisions of the
International Private Equity and Venture Capital Valuation
Guidelines. In particular, we focused on the appropriateness
of the valuation basis selected as well as the underlying
Our response
Our procedures over the existence and valuation of the group’s
quoted equity investment portfolio included, but were not
limited to:
• documenting and assessing the processes in place to record
investment transactions and to value the portfolio;
• agreeing the valuation of investments to externally quoted
prices; and
• agreeing investment holdings to independently received
third party confirmations.
Caledonia Investments plc Annual report 2014 59
3. Our application of materiality and an overview of the scope
of our audit
The materiality of the financial statements as a whole was set at
£22.7m comprising 1.5% of total assets. This has been calculated
with reference to a benchmark of total assets. Total assets,
which is primarily composed of the company’s investment
portfolio, is considered the key driver of the company’s capital
and revenue performance and, as such, we believe that it is one
of the principal considerations for members of the company in
assessing its financial performance.
We agreed with the Audit Committee to report to it all corrected
and uncorrected misstatements we identified through our
audit with a value in excess of £1.1m in addition to other audit
misstatements below that threshold that we believe warranted
reporting on qualitative grounds.
Our audit of the company was undertaken to the materiality
level specified above and was performed at the Caledonia
Investments plc office in London.
4. Our opinion on other matters prescribed by the Companies Act
2006 is unmodified
In our opinion:
• the part of the Directors’ remuneration report to be audited
has been properly prepared in accordance with the Companies
Act 2006;
• the information given in the Strategic report and the
Directors’ report for the financial year for which the
financial statements are prepared is consistent with the
financial statements;
• information given in the Corporate governance statement set
out on pages 32 to 34 with respect to internal control and risk
management systems in relation to financial reporting
processes and about share capital structures is consistent
with the financial statements.
5. We have nothing to report in respect of the matters on which
we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if,
based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains
a material inconsistency with either that knowledge or the
financial statements, a material misstatement of fact, or that
is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors’
statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the group’s performance, business
model and strategy; or
• the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements and the part of
the Directors’ remuneration report to be audited are not
in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified
by law are not made; or
• we have not received all the information and explanations
we require for our audit; or
• a Corporate governance statement has not been prepared
by the company.
Under the Listing Rules we are required to review:
• the directors’ statement, set out on page 56, in relation
to going concern; and
• the part of the Corporate governance statement on pages 32
to 34 relating to the company’s compliance with the nine
provisions of the 2010 UK Corporate Governance Code
specified for our review.
Scope of report and responsibilities
We have nothing to report in respect of the above responsibilities.
As explained more fully in the Directors’ responsibilities
statement set out on page 57, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. A description
of the scope of an audit of financial statements is provided
on the Financial Reporting Council’s website at www.frc.org.uk/
auditscopeukprivate. This report is made solely to the
company’s members as a body and is subject to important
explanations and disclaimers regarding our responsibilities,
published on our website at www.kpmg.com/uk/
auditscopeukco2013a, which are incorporated into this
report as if set out in full and should be read to provide
an understanding of the purpose of this report, the work
we have undertaken and the basis of our opinions.
Jonathan Mills (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
28 May 2014
Financial statements 60 Annual report 2014 Caledonia Investments plc
Group statement of comprehensive income
for the year ended 31 March 2014
Revenue
Note
Revenue
£m
2014
Capital
£m
1
2013
Restated
Total
£m
Revenue
£m
Capital
£m
Total
£m
Investment income
Fair value property gains
Gains and losses on fair value investments
Total revenue
Gains and losses on derivatives
Management expenses
Guarantee obligation provided
Profit before finance costs
Warranty provision released
Treasury interest receivable
Finance costs
Profit before tax
Exchange movements
Profit for the year
Taxation
Other comprehensive income items
never to be reclassified to profit or loss
Actuarial gain/(loss) on defined benefit
pension schemes
Total comprehensive income
Tax on other comprehensive income
1
9
8
2
16
16
3
4
5
25
5
Basic earnings per share
Diluted earnings per share
1. Restated for the adoption of IFRS 10
Consolidated Financial Statements
7
7
41.7
–
–
–
41.7
(13.6)
–
–
28.1
1.1
(1.7)
(0.3)
27.2
1.5
28.7
1.4
(0.3)
29.8
–
–
151.4
–
151.4
(0.5)
(0.8)
3.5
153.6
–
–
–
153.6
0.8
154.4
–
–
154.4
41.7
–
151.4
–
193.1
(14.1)
(0.8)
3.5
181.7
1.1
(1.7)
(0.3)
180.8
2.3
183.1
1.4
(0.3)
184.2
41.4
–
–
–
41.4
(13.3)
–
–
28.1
3.0
(2.4)
(0.4)
28.3
3.3
31.6
(2.6)
0.8
29.8
–
1.0
181.2
(3.1)
179.1
(0.7)
(2.1)
–
176.3
–
–
–
176.3
1.5
177.8
–
–
177.8
41.4
1.0
181.2
(3.1)
220.5
(14.0)
(2.1)
–
204.4
3.0
(2.4)
(0.4)
204.6
4.8
209.4
(2.6)
0.8
207.6
51.9p
51.3p
279.2p
276.1p
331.1p
Employee Benefits
327.4p
55.9p
55.3p
314.4p
311.2p
370.3p
366.5p
and amendments to IAS 19 (Revised)
, as described in note 28.
The total column of the above statement represents the group’s statement of comprehensive income, prepared in accordance
with IFRSs as adopted by the European Union.
The revenue and capital columns are supplementary to the group’s statement of comprehensive income and are prepared under
guidance published by the Association of Investment Companies.
The profit for the year and total comprehensive income for the year is attributable to equity holders of the parent.
The accounting policies and notes to the financial statements on pages 64 to 81 are an integral part of these financial statements.
Caledonia Investments plc Annual report 2014 61
Statement of financial position
at 31 March 2014
Non-current assets
Investments held at fair value through profit or loss
Investments in subsidiaries held at cost
Property held at fair value
Plant and equipment at held at cost
Deferred tax assets
Employee benefits
Current assets
Non-current assets
Trade and other receivables
Current tax assets
Cash and cash equivalents
Total assets
Current assets
Current liabilities
Bank overdrafts
Interest-bearing loans and borrowings
Trade and other payables
Employee benefits
Current tax liabilities
Provisions
Non-current liabilities
Current liabilities
Interest-bearing loans and borrowings
Employee benefits
Deferred tax liabilities
Total liabilities
Non-current liabilities
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Capital reserve
Retained earnings
Total equity
Own shares
Undiluted net asset value per share
Diluted net asset value per share
1. Restated for the adoption of IFRS 10
Consolidated Financial Statements
Note
2014
£m
Group
1
Restated
2013
£m
8
8
9
10
11
25
12
5
13
13
14
15
25
16
14
25
11
17
1,451.9
–
18.5
0.1
1.0
3.2
1,474.7
7.3
–
35.5
42.8
1,517.5
(2.6)
(20.0)
(15.0)
(2.1)
(0.2)
(8.3)
(48.2)
(20.0)
(3.4)
(0.3)
(23.7)
(71.9)
1,445.6
3.2
1.3
1.3
1,151.5
305.5
(17.2)
1,445.6
1,222.9
–
18.5
0.1
1.4
2.3
1,245.2
13.8
1.7
96.5
112.0
1,357.2
(2.7)
–
(14.6)
(1.8)
–
(11.0)
(30.1)
(19.9)
(4.6)
(0.2)
(24.7)
(54.8)
1,302.4
3.2
1.3
1.3
1,012.1
301.5
(17.0)
1,302.4
1
Restated
2012
£m
1,204.0
–
17.5
0.2
1.0
–
1,222.7
12.6
0.6
8.4
21.6
1,244.3
(5.7)
–
(7.5)
(1.2)
–
(8.9)
(23.3)
(80.9)
(3.1)
(0.2)
(84.2)
(107.5)
1,136.8
3.2
1.3
1.3
852.2
295.5
(16.7)
1,136.8
Company
2014
£m
2013
£m
1,435.9
0.8
–
–
–
–
1,436.7
5.6
0.1
35.5
41.2
1,477.9
–
–
(6.8)
–
–
(10.9)
(17.7)
(20.0)
–
–
(20.0)
(37.7)
1,440.2
3.2
1.3
1.3
1,154.5
297.1
(17.2)
1,440.2
1,204.8
0.8
–
–
–
–
1,205.6
11.9
2.1
96.5
110.5
1,316.1
–
–
(4.4)
–
–
(12.9)
(17.3)
–
–
–
–
(17.3)
1,298.8
3.2
1.3
1.3
1,015.1
294.9
(17.0)
1,298.8
18
18
2624p
2593p
2331p
Employee Benefits
2305p
1994p
1982p
and amendments to IAS 19 (Revised)
, as described in note 28.
The financial statements on pages 60 to 81 were approved by the board and authorised for issue on 28 May 2014 and were signed
on its behalf by:
Will Wyatt
Chief Executive
Stephen King
Finance Director
The accounting policies and notes to the financial statements on pages 64 to 81 are an integral part of these financial statements.
Financial statements
62 Annual report 2014 Caledonia Investments plc
Statement of changes in equity
for the year ended 31 March 2014
1
Group (restated
)
Total comprehensive income
Balance at 31 March 2012
Profit for the year
Other comprehensive income
Total comprehensive income
Contributions by and distributions to owners
Transactions with owners of the company
Exercise of options
Share-based payments
Own shares purchased
Own shares cancelled
Dividends paid
Total transactions with owners
Total comprehensive income
Balance at 31 March 2013
Profit for the year
Other comprehensive income
Total comprehensive income
Contributions by and distributions to owners
Transactions with owners of the company
Exercise of options
Share-based payments
Own shares purchased
Own shares cancelled
Dividends paid
Total transactions with owners
Balance at 31 March 2014
Company
Balance at 31 March 2012
Profit and total comprehensive income
Contributions by and distributions to owners
Transactions with owners of the company
Exercise of options
Share-based payments
Own shares purchased
Own shares cancelled
Dividends paid
Total transactions with owners
Balance at 31 March 2013
Profit and total comprehensive income
Contributions by and distributions to owners
Transactions with owners of the company
Exercise of options
Share-based payments
Own shares purchased
Own shares cancelled
Dividends paid
Total transactions with owners
Balance at 31 March 2014
1. Restated for the adoption of IFRS 10
Consolidated Financial Statements
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Capital
Reserve
£m
Retained
earnings
£m
Own
shares
£m
Total
equity
£m
3.2
1.3
1.3
852.2
295.5
(16.7) 1,136.8
–
–
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
3.2
3.2
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
–
1.3
–
–
–
–
–
–
–
–
–
1.3
1.3
–
–
–
–
–
–
–
1.3
–
–
–
–
177.8
–
177.8
31.6
(1.8)
29.8
–
–
–
209.4
(1.8)
207.6
–
–
–
–
–
–
1.3
–
–
–
–
–
–
–
–
–
1.3
1.3
–
–
–
–
–
–
–
1.3
–
–
–
–
(17.9)
–
(17.9)
1,012.1
154.4
–
154.4
–
–
–
(15.0)
–
(15.0)
1,151.5
–
1.3
–
–
(25.1)
(23.8)
301.5
28.7
1.1
29.8
–
0.7
–
–
(26.5)
(25.8)
305.5
0.6
–
(0.9)
–
–
(0.3)
0.6
1.3
(0.9)
(17.9)
(25.1)
(42.0)
(17.0) 1,302.4
–
–
–
183.1
1.1
184.2
1.7
–
(1.9)
–
–
(0.2)
1.7
0.7
(1.9)
(15.0)
(26.5)
(41.0)
(17.2) 1,445.6
854.3
178.7
290.6
28.1
(16.7) 1,134.0
206.8
–
–
–
–
(17.9)
–
(17.9)
1,015.1
154.4
–
1.3
–
–
(25.1)
(23.8)
294.9
28.0
0.6
–
(0.9)
–
–
(0.3)
0.6
1.3
(0.9)
(17.9)
(25.1)
(42.0)
(17.0) 1,298.8
182.4
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
–
–
–
Employee Benefits
1.3
1.3
–
–
–
(15.0)
–
(15.0)
1,154.5
, as described in note 28.
–
0.7
–
–
(26.5)
(25.8)
297.1
1.7
–
(1.9)
–
–
(0.2)
1.7
0.7
(1.9)
(15.0)
(26.5)
(41.0)
(17.2) 1,440.2
and amendments to IAS 19 (Revised)
The accounting policies and notes to the financial statements on pages 64 to 81 are an integral part of these financial statements.
Statement of cash flows
for the year ended 31 March 2014
Operating activities
Dividends received
Interest received
Cash received from customers
Cash paid to suppliers and employees
Taxes received
Group tax relief received
Investing activities
Net cash flow from operating activities
Purchases of investments
Proceeds from disposal of investments
Net payments for derivative financial instruments
Purchases of plant and equipment
Proceeds from disposal of plant and equipment
Financing activities
Net cash flow from/(used in) investing activities
Interest paid
Dividends paid to owners of the company
Proceeds from new borrowings
Repayment of borrowings
Loans received from/(repaid to) subsidiaries
Exercise of share options
Purchase of own shares
Net increase/(decrease) in cash and cash equivalents
Net cash flow used in financing activities
Caledonia Investments plc Annual report 2014 63
Group
2014
£m
1
Restated
2013
£m
Company
2014
£m
2013
£m
Note
38.7
5.9
1.5
(15.6)
1.3
3.1
34.9
(327.1)
255.7
–
(0.1)
0.3
(71.2)
38.9
2.2
2.5
(15.0)
0.4
3.4
32.4
(167.3)
323.9
(0.6)
–
–
156.0
(2.5)
(26.5)
35.0
(14.9)
(0.4)
1.7
(17.0)
(24.6)
(60.9)
93.8
Employee Benefits
32.9
(1.2)
(25.1)
–
(61.5)
8.8
0.6
(18.9)
(97.3)
91.1
2.7
93.8
39.7
4.4
–
(14.0)
1.3
3.4
34.8
(318.7)
246.6
–
–
–
(72.1)
(2.0)
(26.5)
35.0
(14.9)
–
1.7
(17.0)
(23.7)
(61.0)
96.5
35.5
38.9
0.8
–
(12.7)
0.4
3.8
31.2
(141.8)
290.8
(0.6)
–
–
148.4
(0.5)
(25.1)
–
(45.1)
(2.5)
0.6
(18.9)
(91.5)
88.1
8.4
96.5
Cash and cash equivalents at year end
Cash and cash equivalents at year start
Consolidated Financial Statements
1. Restated for the adoption of IFRS 10
and amendments to IAS 19 (Revised)
13
, as described in note 28.
The accounting policies and notes to the financial statements on pages 64 to 81 are an integral part of these financial statements.
Financial statements
64 Annual report 2014 Caledonia Investments plc
Significant accounting policies
General information
Caledonia Investments plc is an investment trust company
domiciled in the United Kingdom and incorporated in England
in 1928, under the Companies Acts 1908 to 1917. The address
of its registered office is Cayzer House, 30 Buckingham Gate,
London SW1E 6NN. The ordinary shares of the company are
premium listed on the London Stock Exchange.
These financial statements were authorised for issue by the
directors on 28 May 2014.
These financial statements are presented in pound sterling,
as this is the currency of the primary economic environment
in which Caledonia operates.
Fair values of financial instruments
Key sources of estimation uncertainty
Many of the group’s financial instruments are measured at
fair value in the statement of financial position and it is usually
possible to determine their fair values within a reasonable
range of estimates.
For the majority of the group’s financial instruments, quoted
market prices are readily available. However, certain financial
instruments, such as unlisted securities, are fair valued using
valuation techniques, including reference to the current fair
values of instruments that are substantially the same (subject
to appropriate adjustments).
Fair value estimates are made at a specific point in time,
based on market conditions and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement (e.g. interest
rates, volatility, estimated cash flows) and therefore cannot be
Significant accounting policies
determined with precision.
Basis of accounting
These financial statements have been prepared in accordance
with International Financial Reporting Standards (‘IFRSs’)
as adopted for use in the EU and therefore the group financial
statements comply with Article 4 of the EU IAS Regulation.
IFRSs comprise accounting standards issued by the
International Accounting Standards Board and its predecessor
body as well as interpretations issued by the International
Financial Reporting Interpretations Committee and its
predecessor body.
The financial statements have been prepared on an historical
cost basis, except for the revaluation of certain financial
instruments and properties. Where presentational guidance
Statements of Investment Trust Companies and Venture Capital
set out in the
Trusts
Statement of Recommended Practice: Financial
(‘SORP’) issued by the Association of Investment
Companies in January 2009 is consistent with the requirements
of IFRSs as adopted by the EU, the directors have sought to
prepare the financial statements on a basis compliant with the
recommendations of the SORP.
The statement of comprehensive income of the company has
been omitted from these financial statements in accordance
with section 408 of the Companies Act 2006.
Under The UK Corporate Governance Code and applicable
regulations, the directors are required to satisfy themselves that
it is reasonable to presume that the company is a going concern.
The directors have a reasonable expectation that the company
and the group have adequate resources to continue in
operational existence for the foreseeable future, as discussed
on page 56. Accordingly, they continue to adopt the going
concern basis of preparing the financial statements.
Adopted IFRSs
In the current year, the group has adopted the following
Consolidated Financial Statements
standards and amendments:
• IFRS 10
Disclosures of Interests in Other Entities
• IFRS 12
Separate Financial Statements
• IAS 27
Employee Benefits (revised 2011)
• IAS 19
• IFRS 11
Joint Arrangements
Fair Value Measurement
• IFRS 13
Investments in Associates and Joint Ventures.
• IAS 28
IFRS 10 provides that an investment entity shall not consolidate
its subsidiaries or apply IFRS 3 when it obtains control of
another entity. Instead IFRS 10 requires that an investment
entity shall measure an investment in a subsidiary at fair value
through profit or loss. Subsidiaries that provide investment
related services or activities either to the entity or a third party
remain consolidated.
In addition, IFRS 10 redefines the term ‘control’ for the purpose
of identifying if an investor controls an investee. If one entity
controls another entity, the parent company shall include the
subsidiary in full in its consolidated financial statements. Under
the new definition, control is established if the potential parent
entity has power over the potential subsidiary (investee) as a
result of voting rights or other rights and actual circumstances,
is exposed or has rights to positive or negative variable returns
from its involvement with the investee, and above all has the
ability to use its power over the investee to affect significantly
the amount of its returns.
IFRS 12 sets out the disclosure requirements for interests
in other entities. This standard requires a much wider range
of disclosures than previously required by the rules set out
in IAS 27, IAS 28 and IAS 31.
IFRS 13 sets out in a single IFRS a unified framework for
measuring fair value in financial statements prepared in
accordance with International Financial Reporting Standards
and enhances quantitative disclosures.
IAS 19R relates to accounting for defined benefit pension
obligations and requires a net interest amount to be calculated
by applying the discount rate to the net defined benefit liability
or assets, in place of the interest cost on scheme liabilities and
the expected return on scheme assets. There was no overall
change in the net assets of the group.
IFRS 10 and 12 and IAS 19R were applied retrospectively and
the prior period impact of adopting these new standards and
amendments is shown in note 28.
IFRS 13 is applied prospectively and the remaining standards
have no significant impact on the net assets, financial position
or reported results of the group.
Caledonia Investments plc Annual report 2014 65
IFRSs not yet applied
At the date of approval of these financial statements, the
following standard, which has not been applied in these
financial statements, was in issue but not yet effective.
Financial Instruments
• IFRS 9
The directors anticipate that the adoption of this standard
in future periods will have no material impact on the
financial statements.
Basis of consolidation
The consolidated financial statements include the financial
statements of the company and service entities controlled by
the company made up to the reporting date. Control is achieved
where the company has the power over the potential investee
as a result of voting rights or other rights, has rights to positive
or negative variable returns from its involvement with the
investee and has the ability to use its power over the investee
to affect significantly the amount of its returns.
Foreign currencies
Transactions in foreign currencies are recorded at the rate of
exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the reporting
date are translated to the functional currency at the foreign
exchange rate ruling at the reporting date. Non-monetary assets
and liabilities that are measured in terms of historical cost in a
foreign currency are translated to the functional currency using
the exchange rate at the date of the transaction. Non-monetary
assets and liabilities denominated in foreign currencies that are
stated at fair value are translated to the functional currency
at foreign exchange rates ruling at the dates the fair values
were determined.
In the financial statements, foreign exchange gains or losses are
recognised in capital or revenue reserve depending on whether
the gain or loss is of a capital or revenue nature respectively.
Income
Dividends receivable on equity shares are recognised as revenue
when the shareholders’ right to receive payment has been
established, normally the ex-dividend date. Where no ex-dividend
date is available, dividends receivable on or before the period end
are treated as revenue for the period. Provision is made for any
dividends not expected to be received.
The fixed returns on debt securities, loans and non-equity
shares are recognised on an effective interest rate basis, which
is the rate that exactly discounts estimated future cash receipts
through the expected life of the financial asset to that asset’s
net carrying amount.
Rental income is recognised on a straight-line basis over the
lease term.
The company’s share of net income from limited partnerships
is recognised as revenue when received.
Where uncertainty arises over the collectability of an amount
already included in income, the uncollectible amount or the
amount in respect of which the recovery has ceased to be
probable, is recognised as an expense. When the uncertainty
over collectability is removed, normally on receipt, the income
is recognised in the statement of comprehensive income.
Expenses
All expenses are accounted for on an accrual basis. In the
financial statements, management expenses and performance
fees are included in revenue reserves. Expenses of acquisition
of an investment designated as held at fair value through profit
or loss or expenses of an aborted acquisition or disposal of an
investment are presented as transaction costs or deducted
from the proceeds of sale as appropriate and included in
capital reserves.
Operating leases
Rentals payable under operating leases are charged to income
on a straight-line basis over the term of the relevant lease.
Pension schemes
Employee benefits
Payments to defined contribution schemes are charged as an
expense as they fall due.
For defined benefit schemes, the cost of providing benefits is
determined using the projected unit credit method, with
actuarial valuations being carried out at each reporting date.
Actuarial gains and losses are recognised in full in the period in
which they occur. They are recognised in other comprehensive
income and presented in the statement of comprehensive income.
Past service cost is recognised immediately to the extent that
the benefits are already vested and otherwise is amortised on
a straight-line basis over the average period until the benefits
become vested.
The retirement benefit obligation recognised in the statement
of financial position represents the present value of the defined
benefit obligation as adjusted for unrecognised past service
cost and as reduced by the fair value of scheme assets. Any asset
resulting from this calculation is limited to past service cost,
plus the present value of available refunds and reductions in
Profit sharing and bonus plans
future contributions to the plan.
The group recognises a liability and an expense for bonuses and
profit sharing, based on a formula that takes into consideration
the profit attributable to the company’s shareholders after
certain adjustments. The group recognises a provision where
contractually obliged or where there is a past practice that has
created a constructive obligation.
Financial statements 66 Annual report 2014 Caledonia Investments plc
Significant accounting policies
continued
Share-based payments
The group issues equity-settled share-based payments to
certain employees. Equity-settled share-based payments are
measured at fair value at the date of grant and the fair value is
expensed on a straight-line basis over the vesting period, based
on the group’s estimate of the number of shares that will
eventually vest.
Where employees of a subsidiary are granted rights to the
equity instruments of its parent as consideration for the services
provided to the subsidiary, the subsidiary recognises an equity-
settled share-based payment transaction expense with a
corresponding increase recognised in equity representing
a contribution from the parent.
An employee share trust is used for distributing option and
performance share and deferred bonus awards to employees
under Caledonia’s share remuneration schemes. The trustee
purchases shares with money lent interest free by Caledonia
and transfers shares to participating employees on receipt
of the requisite consideration or calling of awards.
The transactions the employee share trust undertakes are
considered to be performed by the trust as an agent for
Caledonia. The transactions of the employee share trust are
included in the separate financial statements of the parent
company and, following the requirements of IFRS 10, in the
consolidated financial statements as if they arose in that
company. Own shares held by the employee share trust as at the
National Insurance on share option scheme gains and performance
reporting date are accounted for as if they were treasury shares.
share and deferred bonus awards
National Insurance payable on the exercise of certain employee
share options and performance share awards at the date of
exercise and deferred bonus awards at the date of call have
been charged as an expense spread over the respective vesting
periods. The charge is based on the difference between the
market value of the underlying shares at the reporting date
and the exercise price for share options or £nil for performance
share awards and deferred bonus awards and calculated
at the latest enacted National Insurance rate.
Taxation
The tax expense represents the sum of tax currently payable
and deferred tax.
The tax currently payable is based on the taxable profit for the
period. Taxable profit differs from net profit as reported in the
statement of comprehensive income because it excludes items
of income or expense that are taxable or deductible in other
periods and it further excludes items that are never taxable
or deductible. The group’s liability for current tax is calculated
using tax rates that were applicable at the reporting date.
Deferred tax is the tax expected to be payable or recoverable
on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit and is accounted
for using the liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary
differences can be utilised. Investment trust companies that
have approval as such under section 1159 of the Corporation
Tax Act 2010 are not liable for taxation on capital gains.
The carrying amount of deferred tax assets is reviewed at each
reporting date and adjusted to the extent that it is probable that
sufficient taxable profits will be available to allow all or part of
the assets to be recovered.
Dividend distribution
Dividends are recognised in the period in which they are
appropriately authorised and no longer at the discretion of the
entity. For interim dividends, this will normally mean the date
on which they are paid and, for final dividends, the date on which
they are approved in general meeting.
Investments
Investments are recognised and derecognised on a trade date
where a purchase or sale of an investment is under a contract
whose terms require delivery of the investment within the
timeframe established by the market concerned and are initially
measured at cost, excluding transaction costs.
Investments held as part of the group’s business of investing
in financial assets are designated as measured at fair value
through profit or loss in both the consolidated financial
statements and the company financial statements.
Investments designated as held at fair value through profit
or loss are measured at subsequent reporting dates at fair
value. Gains and losses arising from changes in the value of
investments designated as held at fair value through profit or
loss, including foreign exchange movements, are included in net
profit or loss for the period as a capital return.
Listed investments are valued at bid price or the last traded
price when a bid price is not available. Unlisted investments
are valued using recognised valuation methodologies, based on
the International Private Equity and Venture Capital Valuation
Guidelines, which reflect the amount for which an asset could be
exchanged between knowledgeable, willing parties on an arm’s
length basis. The portfolio valuation methodology is detailed
on page 82.
Distributions from investment limited partnerships are treated
as disposal proceeds or income in accordance with the nature of
the distribution. Any surplus capital distributions after repaying
partner’s capital are treated as realised gains.
Derivative financial instruments
Derivatives are recognised at fair value on the date a contract is
entered into and are subsequently re-measured at their fair value.
Hedge accounting is not applied. Changes in the fair value of
derivative financial instruments are recognised in the statement
of comprehensive income as they arise.
Capital reserve
The company maintains a capital reserve. The following items
are transferred into the capital reserve from profit or loss:
• gains and losses on investments held at fair value through
profit or loss
• gains and losses on derivatives used to hedge the fair value
of investments
• expenses and finance costs incurred directly in relation
to capital transactions
• taxation on items recognised in the capital reserve.
Caledonia Investments plc Annual report 2014 67
Property, plant and equipment
Property is held at fair value. Gains arising from changes
in the fair value of property are included in other
comprehensive income for the period in which they arise.
To the extent gains represent reversal of cumulative losses
previously recognised they are included in profit or loss.
Plant and equipment is stated at cost less accumulated
depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets,
other than land or properties under construction, over their
estimated useful lives, using the straight-line method, on the
following bases:
Plant
Equipment
10-15 years
3-8 years
The gain or loss on the disposal or retirement of an asset
is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised
in the statement of comprehensive income.
Impairment of assets
At each reporting date, the group reviews the carrying amounts
of its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss.
If any such indication exists, an impairment loss is recognised
for the amount by which the asset’s carrying amount exceeds its
recoverable amount, if any. The recoverable amount is the higher
of an asset’s fair value less costs to sell and value in use.
Receivables
Receivables do not carry any interest and are stated at their
nominal value as reduced by appropriate allowances for
estimated irrecoverable amounts.
Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash
equivalents are short term, highly liquid investments that
are readily convertible to known amounts of cash and that
are subject to an insignificant risk of changes in value.
Borrowings
Interest-bearing bank loans and overdrafts are recorded at
the fair value of proceeds received, net of direct issue costs.
Finance charges, including premiums payable on settlement
or redemption and direct issue costs, are accounted for on an
accrual basis in the statement of comprehensive income using
the effective interest method and are added to the carrying
amount of the instrument to the extent that they are not settled
in the period in which they arise. The effective interest method
allocates the interest expense over the life of the instrument
so as to reflect a constant return on the carrying amount of
the liability.
Provisions
A provision is recognised in the statement of financial position
when the company has a present legal or constructive obligation
as a result of a past event, and it is probable that an outflow
of economic benefits will be required to settle the obligation.
Provisions are measured at the directors’ best estimate of the
expenditure required to settle the obligation at the reporting date
and are discounted to present value where the effect is material.
In the financial statements, provisions recognised for investments
are included in the statement of comprehensive income as a
capital return.
Share capital
Equity instruments issued by the company are recorded as
the proceeds received, net of direct issue costs.
Where the Caledonia Investments plc Employee Share Trust
purchases the company’s equity share capital, the consideration
paid, including any directly attributable incremental costs (net
of income taxes), is deducted from equity attributable to the
company’s owners until the shares are transferred. Where such
shares are subsequently transferred, any consideration received,
net of any directly attributable incremental transaction costs
and the related income tax effects, is included in equity
attributable to the company’s owners.
Operating segments
Operating segments are based on the financial information
reported to the chief operating decision maker.
Financial statements
The average number of employees, including executive directors,
throughout the year was as follows:
68 Annual report 2014 Caledonia Investments plc
Notes to the financial statements
1. Investment income
Dividends from equity shares
Listed UK
Interest on debt investments
Unlisted
Property income
Unlisted
Rental income
2. Expenses
Management expenses
2014
£m
Restated
2013
£m
17.7
20.9
20.9
16.6
2.6
3.4
0.5
41.7
0.5
41.4
Average number of employees
3. Treasury interest receivable
Interest on bank deposits
Loan impairment reversal
Other interest receivable
Gain on acquisition of defined
benefit pension scheme
Income statement revenue column
2014
£m
Restated
2013
£m
4. Finance costs
Personnel expenses
Depreciation
Auditor’s remuneration
Other administrative expenses
Director fees and disbursements recharged
Management fees and recharges
Gain on disposal of plant and equipment
Income statement capital column
Transaction costs
Further information
9.6
0.1
0.2
4.9
(0.6)
(0.3)
(0.3)
13.6
0.5
14.1
9.7
0.1
0.2
4.1
(0.5)
(0.3)
–
13.3
0.7
14.0
Auditor’s remuneration
Fees payable to KPMG LLP (2013 – KPMG Audit Plc) were
as follows:
Audit services
Other services
Annual report
Other assurance and tax compliance
Personnel expenses
Wages and salaries
Compulsory social security contributions
Contributions to defined contribution plans
Defined benefit pension plans expense (note 25)
Equity-settled share-based payments (note 24)
National Insurance on share awards
2014
£m
Restated
2013
£m
0.1
0.1
0.2
0.1
0.1
0.2
2014
£m
Restated
2013
£m
7.1
1.0
0.4
0.3
0.7
0.1
9.6
6.3
0.9
0.3
0.5
1.3
0.4
9.7
Interest on bank loans and overdrafts
Interest to subsidiaries
Loan impairment
5. Taxation
Recognised in comprehensive income
Current tax income
Current year
Adjustments for prior years
Deferred tax income/(expense)
Origination and reversal of timing differences
Total tax income
Reconciliation of effective tax expense
Profit before tax
Tax expense at the domestic rate of 23%
(2013 – 24%)
Non-deductible expenses
Losses for the year unrelieved
Non-taxable gains on investments
Non-taxable UK dividend income
Tax exempt revenues
Other timing differences
Over-provided in prior years
Tax income
2014
No
45
2013
No
44
2014
£m
0.3
0.8
–
–
1.1
2014
£m
1.6
0.1
–
1.7
Restated
2013
£m
0.3
–
0.2
2.5
3.0
Restated
2013
£m
1.1
0.1
1.2
2.4
2014
£m
Restated
2013
£m
0.8
1.7
2.5
(0.2)
2.3
1.3
3.2
4.5
0.3
4.8
2014
£m
Restated
2013
£m
180.8
204.6
(41.6)
0.1
(1.4)
35.4
6.0
2.2
(0.1)
1.7
2.3
(49.1)
0.4
(1.3)
42.3
5.4
3.6
0.3
3.2
4.8
Caledonia Investments plc Annual report 2014 69
Recognised in other comprehensive income
7. Earnings per share
Basic and diluted earnings per share
Deferred tax income/(expense)
On actuarial losses/(gains) on defined
benefit pension schemes
On share options and awards
Current tax assets
2014
£m
Restated
2013
£m
(0.3)
–
(0.3)
0.6
0.2
0.8
Current tax assets of £0.1m in the company represented tax loss
relief surrender for settlement (2013 – company £2.1m, restated
group £1.7m).
6. Dividends
The calculation of basic earnings per share of the group was
based on the profit attributable to shareholders and the
weighted average number of shares outstanding during the year.
The calculation of diluted earnings per share included an
adjustment for the effects of dilutive potential shares.
The group earnings were as follows:
Revenue
Capital
2014
£m
Restated
2013
£m
2014
£m
Restated
2013
£m
Profit for the year
28.7
31.6
154.4
177.8
The profit attributable to shareholders was as follows:
Amounts recognised as distributions to owners of the company
in the year were as follows:
2014
2013
p/share
£m
p/share
£m
Profit attributable to shareholders
(basic and diluted)
2014
£m
Restated
2013
£m
183.1
209.4
Final dividend for the year
ended 31 March 2013 (2012)
Interim dividend for the year
ended 31 March 2014 (2013)
Proposed final dividend
for the year ended
31 March 2014 (2013)
34.3
19.1
31.2
17.8
13.4
47.7
7.4
26.5
12.9
44.1
7.3
25.1
35.7
19.7
34.3
19.1
The proposed final dividend has not been included as a liability
in these financial statements. This dividend, if approved
by shareholders at the annual general meeting to be held on
17 July 2014, will be payable on 7 August 2014 to holders of
shares on the register on 11 July 2014. The ex-dividend date
will be 9 July 2014.
For the purposes of section 1158 of the Corporation Tax Act 2010
and associated regulations, the dividends payable for the year
ended 31 March 2014 are the interim and final dividends for that
year, amounting to £27.1m (2013 – £26.4m).
The weighted average number of shares was as follows:
Issued shares at year start
Effect of shares cancelled
Effect of shares held by the employee
share trust
Basic weighted average number
of shares during the year
Effect of performance shares, share options
and deferred bonus awards
Diluted weighted average number
of shares during the year
8. Investments
2014
000’s
Restated
2013
000’s
56,222 57,359
(463)
(589)
(327)
(346)
55,306 56,550
628
589
55,934 57,139
Investments held at fair
value through profit or loss
Investments listed on
recognised stock exchanges
Unlisted investments
Investments held at cost
Service subsidiaries
Group
Company
2014
£m
Restated
2013
£m
2014
£m
2013
£m
703.2
748.7
691.9
512.9
1,451.9 1,222.9 1,435.9 1,204.8
691.9
531.0
703.2
732.7
–
0.8
1,451.9 1,222.9 1,436.7 1,205.6
0.8
–
Financial statements 70 Annual report 2014 Caledonia Investments plc
Notes to the financial statements
10. Plant and equipment
continued
Group
Cost
Balance at year start
Acquisitions
Disposals
Depreciation
Balance at year end
Balance at year start
Depreciation charge
Disposals
Carrying amounts
Balance at year end
At year start
At year end
11. Deferred tax
Group
2014
£m
Restated
2013
£m
1.4
0.1
(0.5)
1.0
(1.3)
(0.1)
0.5
(0.9)
0.1
0.1
1.4
–
–
1.4
(1.2)
(0.1)
–
(1.3)
0.2
0.1
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities were attributable
to the following:
2014
Employee benefits
Other items
Restated 2013
Employee benefits
Other items
Assets
£m
Liabilities
£m
Net
£m
1.0
–
1.0
1.4
–
1.4
(0.1)
(0.2)
(0.3)
–
(0.2)
(0.2)
0.9
(0.2)
0.7
1.4
(0.2)
1.2
Movement in temporary differences during the year
Balance
at year
start
£m
Compre-
hensive
income
£m
Other
compre-
hensive
income
£m
Acquired
in the
year
£m
Balance
at year
end
£m
2014
Employee benefits
Other items
Restated 2013
Employee benefits
Other items
1.4
(0.2)
1.2
1.0
(0.2)
0.8
(0.2)
–
(0.2)
0.3
–
0.3
(0.3)
–
(0.3)
0.8
–
0.8
–
–
–
(0.7)
–
(0.7)
0.9
(0.2)
0.7
1.4
(0.2)
1.2
The movements in non-current investments were as follows:
Listed
equity
£m
Unlisted
1
equity
£m
Unlisted
debt
£m
Total
£m
Restated group
Balance at 31 March 2012
Reclassifications
Purchases at cost
Disposal proceeds
Gains on investments
Foreign exchange movement
Rolled-up interest
Balance at 31 March 2013
Reclassifications
Purchases at cost
Disposal proceeds
Gains on investments
Rolled-up interest
Balance at 31 March 2014
716.7
14.8
81.1
(244.0)
123.3
–
–
691.9
–
140.6
(201.4)
72.1
–
703.2
387.6
(14.8)
60.5
(42.7)
49.5
–
–
440.1
12.6
182.7
(36.8)
78.3
–
676.9
–
25.5
(45.0)
8.4
0.5
1.8
99.7 1,204.0
–
167.1
(331.7)
181.2
0.5
1.8
90.9 1,222.9
–
(12.6)
332.4
9.1
(251.6)
(13.4)
151.4
1.0
(3.2)
(3.2)
71.8 1,451.9
–
–
(10.6)
3.3
1.8
Company
Balance at 31 March 2012
Reclassifications
Purchases at cost
Disposal proceeds
Gains on investments
Rolled-up interest
Balance at 31 March 2013
Reclassifications
Purchases at cost
Disposal proceeds
Gains on investments
Rolled-up interest
Balance at 31 March 2014
1. Unlisted equity includes limited partnership and open ended fund investments.
716.7
14.8
81.1
(244.0)
123.3
–
691.9
–
140.6
(201.4)
72.1
–
703.2
401.1
(14.8)
61.8
(44.0)
51.4
–
455.5
12.6
183.4
(37.5)
78.3
–
692.3
63.7 1,181.5
–
142.9
(298.6)
178.0
1.8
58.2 1,205.6
–
(12.6)
324.7
0.7
(242.5)
(3.6)
152.1
1.7
(3.2)
(3.2)
41.2 1,436.7
Rolled-up interest is the movement in the fair value of loan
instruments attributable to investment income.
9. Property
Group
Cost
Revaluation
Balance at year start and year end
Balance at year start
Revaluation in the year
Carrying amounts
Balance at year end
At year start
At year end
2014
£m
Restated
2013
£m
20.0
20.0
(1.5)
–
(1.5)
(2.5)
1.0
(1.5)
18.5
18.5
17.5
18.5
Property comprised freehold land and building partly occupied by
Caledonia service companies and partly let out to third parties.
Caledonia Investments plc Annual report 2014 71
Group and company
16. Provisions
Unrecognised deferred tax assets
Deferred tax assets were not recognised in respect of the
following items:
Tax losses
2014
£m
2.2
Restated
2013
£m
Bank guarantee provisions
Balance at the year start
2.2
Other guarantee provision
Released during the year
Group
Company
2014
£m
Restated
2013
£m
2014
£m
2013
£m
11.0
8.9
12.9
15.9
–
–
0.7
(5.1)
A deferred tax asset was not recognised in respect of the tax
losses because it was not probable that future taxable profits
would be available against which the company could utilise
the benefits.
12. Trade and other receivables
Group
Company
Trade receivables
Non-trade receivables
and prepayments
Other receivables
13. Net cash and cash equivalents
2014
£m
5.5
Restated
2013
£m
9.6
1.8
–
7.3
1.1
3.1
13.8
2014
£m
4.7
0.9
–
5.6
Bank balances
Short term deposits
Cash and cash equivalents
Bank overdrafts
Group
Company
2014
£m
33.3
2.2
35.5
(2.6)
32.9
Restated
2013
£m
0.2
96.3
96.5
(2.7)
93.8
2014
£m
33.3
2.2
35.5
–
35.5
Bank overdrafts were included in current liabilities in the
balance sheet.
14. Interest-bearing loans and borrowings
2013
£m
8.8
–
3.1
11.9
2013
£m
0.2
96.3
96.5
–
96.5
Warranty provision
Increased during the year
0.8
2.1
0.8
2.1
Released during the year
Balance at the year end
Current liabilities
(3.5)
8.3
8.3
–
11.0
11.0
(3.5)
10.9
10.9
–
12.9
12.9
During the year, the group and company recognised a £0.8m
guarantee provision (2013 – £2.1m) and released a £3.5m
provision related to the disposal of an investment in 2006.
The company also recognised a bank guarantee provision of
£0.7m (2013 – £5.1m release), recognised as fair value loss on
investments in the group statement of comprehensive income.
These provisions were allocated to the capital reserve.
Provisions are based on an estimate of the expenditure to be
incurred as a result of past events. The matters that gave rise to
the provisions were expected to be resolved over the next year.
17. Share capital
Ordinary
shares
£m
Deferred
ordinary
shares
£m
Share
premium
£m
Total
£m
Balance at 31 March 2012,
2013 and 2014
2.8
0.4
1.3
4.5
The number of fully paid shares in issue was as follows:
Ordinary shares
Deferred
ordinary shares
2014
000’s
2013
000’s
2014
000’s
2013
000’s
Group
Company
2014
£m
Restated
2013
£m
2014
£m
2013
£m
Balance at the year start
Shares cancelled
Balance at the year end
56,222 57,359
(1,137)
55,411 56,222
(811)
8,000
–
8,000
8,000
–
8,000
Non-current liabilities
Current liabilities
Unsecured bank loans
20.0
19.9
20.0
Unsecured bank loans
20.0
40.0
15. Trade and other payables
–
19.9
–
20.0
Trade payables
Non-trade payables and
accrued expenses
Other payables
Group
Company
2014
£m
2.7
1.4
10.9
15.0
Restated
2013
£m
1.7
1.6
11.3
14.6
2014
£m
6.1
0.7
–
6.8
Other payables include short term, subsidiary lending to
Caledonia Treasury Ltd.
–
–
–
2013
£m
3.5
0.9
–
4.4
The company had outstanding share options and performance
share scheme and deferred bonus awards (note 24).
As at 31 March 2014, the issued share capital of the company
comprised 55,411,017 ordinary shares (2013 – 56,222,028)
and 8,000,000 deferred ordinary shares (2013 – 8,000,000).
The ordinary and deferred ordinary shares have a nominal
value of 5p each.
The holders of the ordinary shares are entitled to receive
dividends as declared from time to time and are entitled to one
vote per share at meetings of the company. In respect of the
company’s ordinary shares that are held by the group, all voting
rights are suspended.
The deferred ordinary shares carry no voting rights and
are not redeemable. They carry the right to a fixed cumulative
preference dividend of 1% per annum (exclusive of any
associated tax credit) of the nominal value of such deferred
ordinary shares, being 0.05p per share, or £4,000 in aggregate,
for all such shares currently in issue. The company is required
to pay the dividend to the extent that it has distributable profits.
Financial statements 72 Annual report 2014 Caledonia Investments plc
Notes to the financial statements
continued
On a winding-up or other return of capital, the deferred ordinary
shares carry the right to the payment of the amount paid up
on such shares only after holders of the ordinary shares have
received the sum of £100,000 in respect of each such ordinary
share. All of the deferred ordinary shares are held by Sterling
Industries PLC, a wholly-owned subsidiary of Caledonia.
18. Net asset value per share
The group’s undiluted net asset value per share is based on the
net assets of the group at the year end and on the number of
shares in issue at the year end less shares held by the Caledonia
Investments plc Employee Share Trust. The group’s diluted net
asset value per share assumes the exercise of all outstanding
in-the-money share options and the calling of performance share
and deferred bonus awards.
2014
Restated 2013
Net
assets
£m
Number
of shares
000’s
NAV
p/share
Net
assets
£m
Number
of shares
000’s
NAV
p/share
Undiluted
Adjustments
Diluted
19. Operating segments
1,445.6 55,090 2624
(31)
1,447.9 55,838 2593
748
2.3
1,302.4 55,880 2331
(26)
1,305.6 56,644 2305
764
3.2
The chief operating decision maker has been identified as the
Executive Committee, which reviews the company’s internal
reporting in order to assess performance and allocate resources.
Management has determined the operating segments based
on these reports.
The performance of operating segments is assessed on a measure
of group total revenue, principally comprising gains and losses
on investments and derivatives hedging those investments and
investment income. Reportable profit or loss is after ‘Treasury
income’ and ‘Other items’, which comprise management and
other expenses and provisions. Reportable assets equate to the
groups’s net asset value. Cash and cash equivalents and other
items are not identifiable operating segments.
‘Other investments’ comprise subsidiaries not managed as part
of the investment portfolio.
Profit before tax
Assets
2014
£m
Restated
2013
£m
2014
£m
Restated
2013
£m
120.9
59.0
12.9
27.5
Quoted pool
Unquoted pool
Funds pool
Income & Growth pool
Investment portfolio
Other investments
1
Total revenue/investments
Cash and cash equivalents
Other items
Reportable total
1. Total investments comprised investments and property held at fair value.
Geographical segments
517.2
497.8
384.5
568.3
166.8
204.4
162.0
189.6
220.3 1,460.1 1,230.5
10.9
10.3
220.5 1,470.4 1,241.4
93.8
32.9
3.0
(18.9)
22.0
14.2
204.6 1,517.5 1,357.2
92.1
80.1
21.3
0.2
193.7
(0.6)
193.1
1.1
(13.4)
180.8
0.2
In presenting information on the basis of geographical segments,
segment revenue is based on the currency of primary listing
for listed securities, or country of residence for unquoted
investments, and segment assets are based on the geographical
location of the assets.
UK
£m
US
£m
Other
£m
Total
£m
2014
Revenue
Non-current assets
Restated 2013
Revenue
Non-current assets
141.3
18.6
162.8
18.6
27.6
–
58.4
–
24.2
–
193.1
18.6
(0.7)
–
220.5
18.6
Non-current assets exclude financial instruments, deferred tax
and employee benefit assets.
Major clients
The group is reliant on two investments accounting for more
than 10% of the group revenues, which included gains and losses
on investments.
20. Related parties
Identity of related parties
The group and company had a related party relationship with
its subsidiaries (note 26) and associates (note 27) and with its
Transactions with key management personnel
key management personnel, being its directors.
Certain directors of the company and their immediate relatives
had significant influence in The Cayzer Trust Company Ltd,
which held 35.4% of the voting shares of the company as at
31 March 2014 (2013 – 34.9%).
In addition to their salaries, the group provided non-cash and
post-employment benefits to directors and executive officers.
Details of directors’ pension benefits are set out on page 50
in the Directors’ remuneration report.
Caledonia Investments plc Annual report 2014 73
The key management personnel compensation was as follows:
Short term employee benefits
Post-employment benefits
Termination benefits
Equity compensation benefits
Group
2014
£m
2013
£m
2.4
0.1
–
0.5
3.0
2.5
0.2
0.2
0.6
3.5
Total remuneration of directors is included in ’Personnel
expenses’ (note 2).
During the year, the group invoiced and received £0.1m
(2013 – £0.1m) in rent and administration fees from The Cayzer
Other related party transactions
Trust Company Ltd.
Investees
Transactions between the company and its subsidiaries
were as follows:
Comprehensive income items
Guarantee fees receivable
Dividends receivable
on equity shares
Capital distributions
receivable
Management fees payable
Financial position items
Taxation
Investments purchased
Equity subscribed
Capital contributions
Loans advanced
Loans repaid
Guarantees
2014
2013
Amount
of trans–
actions
£m
Balance
at year
end
£m
Amount
of trans–
actions
£m
Balance
at year
end
£m
0.1
13.6
0.7
(13.8)
3.0
–
144.5
15.7
(14.5)
–
0.5
–
–
0.1
7.7
–
(3.5)
–
1.3
(12.3)
2.5
–
–
–
4.5
–
(77.2)
0.3
15.0
3.8
(1.3)
2.5
(6.9)
–
–
–
(2.3)
–
–
–
–
19.0
–
(77.7)
Associates and joint ventures
Transactions between the company and group and associates
and joint ventures were as follows:
Company
Dividends receivable
on equity shares
Interest receivable
on loan securities
Other group companies
Loans advanced
2014
2013
Amount
of trans–
actions
£m
Balance
at year
end
£m
Amount
of trans–
actions
£m
Balance
at year
end
£m
1.2
–
5.6
–
1.3
(2.8)
–
39.5
1.9
(8.4)
–
42.3
Directors’ fees receivable
0.3
0.1
0.3
0.1
Cayzer Family Archive
During the year, certain artworks and memorabilia relating to
the Cayzer family and its historic shipping interests were sold by
the group for £0.3m to The Cayzer Family Archive, a charitable
foundation established to preserve an historical archive of
the Cayzer family and its heritage in shipping. The sale price
was based on valuations by three independent valuers and the
items sold represented only part of a larger collection of
artefacts (not all relating to shipping) originally acquired from
British & Commonwealth Holdings plc, which had been valued at
some £0.5m. The Cayzer Family Archive has granted a licence to
the group to continue to display the items sold at its premises at
no cost other than maintenance and insurance obligations.
21. Capital commitments
At the reporting date, the group and company had entered
into unconditional commitments to limited partnerships,
commitments to other investment funds and loan facilities
to portfolio companies, as follows:
Investments
Group
Company
2014
£m
2013
£m
2014
£m
2013
£m
Contracted but not called
Conditionally contracted
22. Contingencies
88.5
19.0
107.5
59.2
19.7
78.9
88.5
19.0
107.5
59.2
19.7
78.9
The group and company has provided guarantees capped at
£6.5m, £3.7m and £5.0m to the trustees of the Caledonia Pension
Scheme, the Sterling Industries Pension Scheme and the Amber
Industrial Holdings PLC Pension & Life Assurance Scheme
respectively in respect of the liabilities of the participating
employers of those schemes.
At 31 March 2014, there was a litigation claim outstanding
for which any settlement liability is considered remote.
23. Financial instruments
Financial instruments comprise securities and other
investments, cash balances, borrowings and receivables
and payables that arise from operations. The investment
portfolio includes listed and unlisted equity investments,
debt instruments and investments in funds that are intended
Risk analysis
to be held for the long term.
The main types of financial risk to which the group is exposed
are market risk, credit risk and liquidity risk.
The nature and extent of the financial instruments outstanding
at the reporting date and the risk management policies
employed are discussed below.
Market risk
Market risk embodies the potential for both losses and gains and
includes price risk, currency risk and fair value interest rate risk.
The strategy for managing market risk is driven by the
investment objective, which is to outperform the FTSE All-Share
Total Return index over rolling ten year periods. Investments are
made in a range of instruments, including listed and unlisted
equities, debt and non-equity investment funds, in a range of
sectors and regions.
Details of the investment portfolio at the reporting date are
shown on pages 10 to 21.
Financial statements 74 Annual report 2014 Caledonia Investments plc
Notes to the financial statements
continued
Price risk
Price risk may affect the value of listed and unlisted investments
as a result of changes in market prices (other than arising from
interest rate risk or currency risk), whether caused by factors
specific to an individual investment, its issuer or factors
affecting all instruments traded in the market.
As the majority of financial instruments are carried at fair
value, with fair value changes recognised in the statement
of comprehensive income, all changes in market conditions
will directly affect reported portfolio returns.
Price risk is managed by constructing a diversified portfolio
of instruments traded on various markets and hedging
where appropriate.
The exposures of listed and unlisted equity investments,
equity linked bonds and funds were as follows:
Group
Company
2014
£m
Restated
2013
£m
2014
£m
2013
£m
Investments held at fair
value through profit or loss 1,380.1 1,132.0 1,395.5 1,147.4
The following table details the sensitivity to a 10% variation
in equity prices. The sensitivity analysis includes all equity and
fund investments held at fair value through profit or loss and
adjusts their valuation at the year end for a 10% change in value.
Group
Company
2014
£m
Restated
2013
£m
2014
£m
2013
£m
Increase in prices
Decrease in prices
138.0
(138.0)
113.2
(113.2)
139.5
(139.5)
114.7
(114.7)
The sensitivity to equity and fund investments has increased
during the year due to investment portfolio gains and net
investment in the year.
In management’s opinion, the sensitivity analysis is
unrepresentative of the inherent price risk as the year end
exposure does not reflect the exposure throughout the year
as a whole.
Currency risk
Investments in financial instruments and other transactions
may be denominated in currencies other than the functional
currency. Consequently, there is exposure to the risk that the
exchange rate of the functional currency may change relative
to other currencies in a manner that has an adverse effect on
the value of that portion of assets and liabilities denominated
in currencies other than the functional currency.
The company’s non-functional currency denominated
investments and gains/losses thereon are reviewed regularly by
the directors and the currency risk is managed by the directors
within the overall asset allocation strategies and risk.
The fair values of the monetary items that have foreign currency
exposure were as follows:
Cash and cash equivalents
Other receivables
Group
Company
2014
£m
2.0
–
Restated
2013
£m
0.2
3.1
2014
£m
1.9
–
2013
£m
0.2
3.1
The following table details the sensitivity to a 10% variation
in exchange rates. This level of change is considered to be
reasonable, based on observation of market conditions and
historic trends. The sensitivity analysis includes all foreign
denominated debt investments.
Sterling depreciates
(weakens)
Sterling appreciates
(strengthens)
Group
Company
2014
£m
Restated
2013
£m
2014
£m
2013
£m
0.2
0.3
0.2
0.3
(0.1)
(0.2)
(0.1)
(0.2)
The exposure to foreign currency has decreased during the year
due to the reduction in foreign denominated other receivables.
Interest rate risk
Interest rate movements may affect the fair value of investments
in fixed interest securities and the level of income receivable
from fixed income securities and cash at bank and on deposit.
The company and group held fixed rate, interest-bearing
financial assets, with maturity of up to five years, cash at bank
and term deposits, with the term to maturity of up to three
months, and floating rate, interest-bearing financial assets.
The group also had floating rate, interest-bearing borrowings.
The exposure to interest rate risk on financial assets and
liabilities was as follows:
Fixed rate
Investments in debt
instruments
Interest-bearing loans
Floating rate
to subsidiaries
Investments in debt
instruments
Interest-bearing loans
to subsidiaries
Cash and cash equivalents
Interest-bearing loans and
borrowings
Group
Company
2014
£m
Restated
2013
£m
2014
£m
2013
£m
9.0
11.4
9.0
11.4
9.1
6.6
–
–
32.2
46.8
32.2
46.8
21.5
32.9
26.1
93.8
–
35.5
–
96.5
(40.0)
(19.9)
(20.0)
–
The sensitivity analysis below has been determined based on the
exposure to interest rates at the reporting date from a 50 basis
point change taking place at the beginning of the financial year
and held constant throughout the year. This level of change is
considered to be reasonable, based on observation of market
conditions and historic trends.
Caledonia Investments plc Annual report 2014 75
Decrease in interest rates
Increase in interest rates
Group
Company
2014
£m
0.6
(0.6)
Restated
2013
£m
0.2
(0.2)
2014
£m
0.4
(0.4)
2013
£m
0.2
(0.2)
payables, the carrying amounts approximate fair value due to the
immediate or short term nature of these financial instruments.
The principal methods and assumptions used in estimating
Liquidity risk
the fair value of investments are disclosed on page 82.
The group’s and company’s sensitivity to interest rates has
increased in the year due to a reduction in net cash and an
increase in variable rate borrowings.
Credit risk
Credit risk is the risk that the counterparty to a financial
instrument will fail to discharge an obligation or commitment.
A credit policy is in place and exposure to credit risk is
regularly monitored.
At 31 March 2014, the financial assets exposed to credit risk
were as follows:
Investments in debt
instruments
Operating and other
receivables
Cash and cash equivalents
Group
Company
2014
£m
Restated
2013
£m
2014
£m
2013
£m
71.8
92.0
41.2
59.3
7.3
32.9
112.0
13.8
93.8
199.6
5.6
35.5
82.3
11.9
96.5
167.7
Prior to making investments in debt instruments, management
has in place a process of review that includes an evaluation
of a potential investee company’s ability to service and repay
its debt. Management reviews the financial position of investee
companies, including their continuing ability to service and
repay debt, on a regular basis.
The exposure to credit risk on operating and other receivables
is mitigated by performing credit evaluations on investee
companies as part of the due diligence process.
Credit risk arising on money market funds and cash and cash
equivalents is mitigated by spreading investments and deposits
across a number of approved counterparties in accordance with
board policy. These are either investment grade banks with a
credit rating of ‘AA3’ or ‘AA-‘ or higher, as determined by the
rating agencies Moody’s and Fitch, or banks specifically approved
by the board. These credit ratings are reviewed regularly.
All transactions in listed securities are settled on contract
terms using approved brokers. The risk of default is considered
minimal, as delivery of securities sold is only made once the
broker has received payment. Payment is made on a purchase
once the securities have been received by the broker. The trade
will fail if either party fails to meet their obligations. Listed
security trades are settled through HSBC Global Custody.
There were no significant concentrations of credit risk
Fair value
to counterparties at 31 March 2014 (2013 – £nil).
Most of the financial instruments are carried at fair value
in the statement of financial position. Usually, the fair value
of the financial instruments can be reliably determined within
a reasonable range of estimates. For certain other financial
instruments, specifically operating and other receivables and
Liquidity risk arises as a result of the possibility that the group
and company may not be able to meet its obligations as they
fall due.
The corporate treasury function provides services to the
company and group, coordinating access to domestic financial
markets for both borrowing and depositing. Group companies
access local financial markets when this is more favourable,
in liaison with the corporate treasury function. Executive
management monitors the group’s liquidity on a weekly basis.
The following table shows the group’s exposure to gross
liquidity risks, based on the undiscounted contractual
maturities of the financial liabilities:
Up to
1 year
£m
1 to
5 years
£m
Discount
£m
Net total
£m
Unsecured loans
2014
Company
Subsidiaries
Group
Unsecured loans
Restated 2013
1.4
20.3
21.7
24.3
–
24.3
(5.7)
(0.3)
(6.0)
20.0
20.0
40.0
Subsidiaries
Group
Capital management policies and procedures
20.2
20.2
0.5
0.5
(0.8)
(0.8)
19.9
19.9
The group’s capital management objectives are:
• to ensure that the group and company will be able to continue
as a going concern
• to maximise the income and capital return to the company’s
shareholders, principally through the use of equity capital,
although the group will maintain appropriate borrowing
facilities, to be used for short term working capital or bridging
finance, currently £175m (restated 2013 – £125m).
The group’s total capital at 31 March 2014 was £1,445.6m
(restated 2013 – £1,302.4m) and comprised equity share capital
and reserves. The group was 2.8% geared at the year end (restated
2013 – 1.5%).
The board monitors and reviews the broad structure
of the group’s and company’s capital on an ongoing basis.
This review includes:
• the planned level of gearing, which takes into account planned
investment activity
• the possible buy-back of equity shares for cancellation, which
takes account of the discount of the share price to net asset
value per share
• the annual dividend policy.
The group’s objectives, policies and processes for managing
capital are unchanged from the preceding year.
Financial statements 76 Annual report 2014 Caledonia Investments plc
Notes to the financial statements
continued
The parent company is subject to the following externally
imposed capital requirements:
• as a public limited company, the company is required to have
a minimum issued share capital of £50,000
• to maintain its approval as an investment trust company,
the company is required to comply with the provisions of
section 1158 of the Corporation Tax Act 2010 as amended
by the Investment Trust (Approved Company) (Tax)
Regulations 2011.
The parent company has complied with these requirements,
Fair value hierarchy
which are unchanged since the previous year end.
The group’s valuation methodology is disclosed on page 82. The
table below analyses financial instruments held at fair value
according to the subjectivity of the valuation method, using the
following hierarchy:
Level 1
Quoted prices (unadjusted) in active markets for
identical assets.
Level 2
Inputs other than quoted prices included within
Level 1 that are directly or indirectly observable.
Level 3
Inputs for the asset that are not based on observable
market data.
Investments held at fair value
Group
Company
2014
£m
Restated
2013
£m
2014
£m
2013
£m
Level 1
Level 2
Level 3
703.2
39.4
709.3
691.9
36.3
476.6
1,451.9 1,229.9 1,435.9 1,204.8
691.9
36.3
494.7
703.2
39.4
693.3
In the prior year, investments with a value of £4.0m were
transferred from Level 2 to Level 3 as a result of there no longer
being any observable market data.
The directors have used several valuation methodologies
as prescribed in the valuation guidelines to arrive at their
best estimate of fair value, including discounted cash flow
calculations, revenue and earnings multiples and recent
market transactions where available.
The multiples applied in valuing our unquoted investments are
derived from comparable companies sourced from market data.
A key metric in our internal valuation of unquoted investments
included within Level 3 is the EBITDA multiple. An increase of
10% in the earnings multiple applied to our internally valued
unquoted investments at 31 March 2014, would increase the
valuation by £10.9m to £131.2m.
Private equity fund investments, included under Level 3,
are valued in accordance with the valuation guidelines and
are based on information provided by the general partner.
The general partner’s policy in valuing unlisted investments
is to carry them at fair value. Similarly, externally managed
unquoted investment valuations are based on information
provided by the manager.
An entity is not required to create quantitative information
to comply with this disclosure requirement if quantitative
unobservable inputs are not developed by the entity when
measuring fair value (for example, when an entity uses prices
from prior transactions or third party pricing information
without adjustment).
Movement in Level 3 financial instruments was as follows:
Company
Group
2014
£m
Restated
2013
£m
2014
£m
2013
£m
Balance at the year start
Reclassifications
Purchases
Disposal proceeds
Gains and losses on
investments sold in the year
Gains and losses on
investments held at the
year end
Balance at the year end
24. Share-based payments
494.7
–
186.8
(45.2)
438.4
4.0
83.0
(83.8)
476.6
–
183.4
(40.5)
415.1
4.0
60.5
(52.4)
7.5
30.2
7.5
24.6
65.5
709.3
22.9
494.7
66.3
693.3
24.8
476.6
The company has an executive share option scheme, which
entitles senior employees to purchase shares in the company at
the market price of the shares at the date of grant and on similar
terms, subject to service and company performance criteria.
Under the terms of the scheme, options may be exercised
between three and ten years after the date of grant, although
only one-third of the options may be exercised after three years
from grant, with the remaining two-thirds becoming exercisable
six years after grant. A number of grants have been made under
this scheme.
At the 2011 annual general meeting, shareholders approved
a new performance share scheme to replace the existing share
option scheme as the means of delivering long term incentive
awards to senior executives. The performance share scheme
entitles senior executives to receive options over the company’s
shares which are exercisable at nil-cost, subject to service and
performance conditions. The nil-cost option awards granted in
2011 and 2012 may be exercised between three and ten years
after the date of grant, although only two-thirds of the awards
may be exercised after three years, with the remaining one-third
becoming exercisable five years after grant. The Remuneration
Committee approved an amendment to the performance
share scheme whereby some of the shares comprised in the 2013
awards may be exercised after three years, and the remainder
five years, after grant.
The company also has two deferred bonus plans, a 2005 plan
and a 2011 plan, under which senior employees compulsorily
defer part of their annual bonus, being any bonus in excess of
50% of their basic salary for the bonus year, into shares and may
voluntarily defer up to 50% of their remaining cash bonus into
shares. The company will match the number of shares comprised
in both compulsory and voluntary deferral, subject to service
and company performance criteria.
Caledonia Investments plc Annual report 2014 77
The terms and conditions of the grants outstanding as at
31 March 2014 were as follows, whereby all grants are settled
by physical delivery of shares:
Share options
Grant date
Entitlement
Vesting
conditions
Number
of shares
All share options and performance share awards have a life of
ten years and all deferred bonus awards have a life of four years.
The number and weighted average exercise prices of share
options were as follows:
2014
2013
Weighted
average
exercise
price
p/share
1487
1387
1055
1589
Weighted
average
exercise
price
p/share
1512
1503
1547
1487
Number
of options
000’s
271
(118)
(7)
146
Number
of options
000’s
605
(113)
(221)
271
Outstanding at the year start
Exercised during the year
Lapsed during the year
Outstanding at the year end
The options outstanding at 31 March 2014 have an exercise
price in the range of 1446p to 1878p and a weighted average
contractual life of ten years.
The fair value of services received in return for performance
share scheme and deferred awards granted was measured
indirectly, by reference to the share price at the date of grant.
Under the schemes, share options were granted with service and
non-market performance conditions. Such conditions were not
taken into account in the fair value measurement of the services
received at the dates of grant. There were no market conditions
associated with the share option grants.
The fair value of services received in return for deferred share
awards was measured directly, by reference to the fair value
of services received during the period. This was based on the
amount of annual bonus that was compulsorily and voluntarily
deferred in accordance with the rules of the company’s deferred
bonus plan.
Employee expenses/(credits) were as follows:
Years ended 31 March
Share options granted in 2006
Share options granted in 2007
Share options granted in 2010
Share options granted in 2011
Performance share awards granted in 2012
Performance share awards granted in 2013
Performance share awards granted in 2014
Deferred bonus awards for 2011
Deferred bonus awards for 2013
2014
£m
–
–
0.1
–
(1.4)
0.8
0.7
–
0.5
0.7
2013
£m
(0.1)
(0.1)
0.1
(0.4)
0.9
0.7
–
0.2
–
1.3
19.08.05
01.06.06
29.05.09
Performance share scheme awards
Option grant to senior staff
Option grant to senior staff
Option grant to senior staff
28.05.12
12.06.13
Deferred bonus awards to senior staff
Award grant to senior staff
Award grant to senior staff
21.05.10
26.05.11
26.05.11
26.05.11
28.05.12
28.05.12
12.06.13
12.06.13
Voluntary award
Compulsory award
Voluntary award
Matching shares
Voluntary award
Matching shares
Compulsory award
Matching shares
Note 1 46,009
Note 1 33,992
Note 1 65,833
145,834
Note 2 263,235
Note 3 206,761
469,996
Note 4
2,283
Note 5 12,555
2,335
Note 4
Note 6 11,154
680
Note 4
Note 7
100
Note 5 51,510
Note 7 51,510
132,127
Vesting conditions are as follows:
1. Three/six years of service and 50% vest if NAV outperforms
RPI by 9% and/or 50% vest if NAV outperforms FTSE
All-Share by 3%.
2. Three/five years of service and two-thirds vest if NAV total
return outperforms the FTSE All-Share Total Return and/or
one-third vest if NAV total return outperforms the FTSE
Actuaries UK Index-linked Gilts (all stocks) Total Return,
in each case over a three year period and with vesting on
a straight-line basis from 10% to 100% on outperformance
of 0.5% to 3.5%.
3. Three/five years of service and 50% vest if NAV total return
outperforms the FTSE All-Share Total Return over five years
and/or 50% vest if NAV total return outperforms the FTSE
Actuaries UK Index-linked Gilts (all stocks) Total Return over
three years, in each case with vesting on a straight-line basis
from 10% to 100% on outperformance of 0.5% to 3.5%.
4. Three years of service or earlier termination of employment.
5. Three years of service.
6. Three years of service and 50% vest if NAV outperforms RPI
by 9% and/or 50% vest if NAV outperforms FTSE All-Share
by 3%.
7. Three years of service and two-thirds vest if NAV total
return outperforms the FTSE All-Share Total Return and/or
one-third vest if NAV total return outperforms the FTSE
Actuaries UK Index-linked Gilts (all stocks) Total Return,
in each case over three years with vesting on a straight-line
basis from 10% to 100% on outperformance of 0.5% to 3.5%.
Financial statements 78 Annual report 2014 Caledonia Investments plc
Notes to the financial statements
continued
25. Employee benefits
Non-current assets
Current liabilities
Defined benefit pension asset
Non-current liabilities
Profit sharing bonus
Defined benefit pension obligations
National Insurance on share options,
performance shares and deferred bonus awards
Total employee liabilities
Defined benefit pension obligations
2014
£m
Restated
2013
£m
3.2
2.3
(2.1)
(1.8)
(2.8)
(4.1)
(0.6)
(3.4)
(5.5)
(0.5)
(4.6)
(6.4)
The group makes contributions to two (restated 2013 – two)
plans in the UK that provide pension benefits for employees.
Present value of funded obligations
Fair value of plan assets
Present value of net (assets)/obligations
2014
£m
38.5
(38.9)
(0.4)
Restated
2013
£m
39.2
(37.4)
1.8
Changes in the present value of defined benefit obligations
were as follows:
Balance at year start
Obligations acquired
Service cost
Interest cost
Actuarial (gain)/ loss
Actual benefit payments
Special termination benefits
Balance at year end
2014
£m
39.2
–
0.3
1.6
(1.5)
(1.1)
–
38.5
Changes in the fair value of plan assets were as follows:
Balance at year start
Assets acquired
Expected return on assets
Actuarial gain/(loss)
Employer contributions
Actual benefit payments
Balance at year end
2014
£m
37.4
–
1.6
(0.1)
1.1
(1.1)
38.9
Restated
2013
£m
25.5
7.8
0.3
1.3
4.9
(0.7)
0.1
39.2
Restated
2013
£m
22.5
11.1
1.2
2.3
1.0
(0.7)
37.4
Amounts recognised in management expenses in the statement
of comprehensive income were as follows:
Current service cost
Interest on obligations
Expected return on plan assets
Special termination benefits
2014
£m
0.3
1.6
(1.6)
–
0.3
Restated
2013
£m
0.3
1.3
(1.2)
0.1
0.5
Amounts recognised in other comprehensive income were
as follows:
Actuarial gains/(losses) arising from
financial assumptions
Actuarial gains from experience adjustments
Actuarial gains/(losses) in the year
2014
£m
Restated
2013
£m
1.1
0.3
1.4
(5.1)
2.5
(2.6)
An analysis of plan assets at the end of the year was as follows:
Equities
Bonds
Other assets
2014
£m
26.4
5.6
6.9
38.9
Principal actuarial assumptions at the reporting date
(expressed as weighted averages) were as follows:
Discount rate at year end
Future salary increases
Future pension increases
Price inflation
2014
%
4.2
5.0
3.5
3.5
Restated
2013
£m
24.7
6.0
6.7
37.4
Restated
2013
%
4.2
5.0
3.2
3.2
Mortality rates are assumed to follow the Self-Administered
Pension Schemes ‘Series 1’ light tables applicable to each
member’s year of birth, projected to calendar year 2012 in line
with the core CMI scale of improvements. Allowance has also
been made for further improvements in line with CMI core
projections with a long term trend of 1.5%. Life expectancy
on retirement in normal health is assumed to be 27.6 years
(2013 – 27.5 years) for males and 28.8 years (2013 – 28.7 years)
for females who are currently 62 years of age.
Expected contributions to group post-employment benefit
plans for the year ending 31 March 2015 were £0.7m (restated
2014 – £1.2m).
In the UK, the funding is set on the basis of a triennial funding
valuation by the actuaries for which the assumptions may differ
from those above. As a result of these valuations, the group
and the scheme trustees agree a Schedule of Contributions,
which sets out the required contributions from the employer
and employees for current service. Where the scheme is in
deficit, the Schedule of Contributions also includes required
contributions from the employer to eliminate the deficit.
The most recent triennial valuations were completed in 2012.
Caledonia Investments plc Annual report 2014 79
27. Interests in associates
A summary of the recent funding obligations and weighted
average duration of the defined benefit obligation was as follows:
Weighted
average
duration at
31 March
2014
Years
Obligations at
31 March
2012
£m
The company is an investment trust company and, accordingly,
does not equity account for associates, which are designated
as investments held at fair value through profit or loss.
Significant associates of the company were as follows:
Amber Industrial Holdings pension scheme
Caledonia Pension Scheme
12.1
27.4
16
17
Name
Country of
domicile
Shares held
Sensitivities
The calculations of the defined benefit obligations are sensitive
to the assumptions set out on page 78. The following table
summarises the estimated increase in defined benefit obligation
of a change in an assumption at 31 March 2014, while holding
all other assumptions constant. This sensitivity analysis may
not be representative of the actual change in the defined benefit
obligation as it is unlikely that the change in assumptions would
occur in isolation of one another as some of the assumptions
may be correlated.
£m
1.5
1.2
0.2
1.5
Ownership
2014
%
2013
%
100
80
100
100
100
98
100
100
100
100
100
100
100
80
100
100
100
100
100
100
100
100
Reduction in the discount rate of 0.25%
Increase in inflation of 0.25%
Increase in future salary increases of 0.25%
Increase in life expectancy of one year
26. Subsidiaries
Significant subsidiaries were as follows:
Country of
domicile
UK
UK
UK
UK
UK
UK
UK
Shares held
Ordinary
Capital
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
UK
Ordinary
Luxembourg Ordinary
Preferred
Ordinary
Ordinary
UK
UK
Name
Amber 2010 Ltd
Brookshire Capital LLP
Buckingham Gate Ltd
Caledonia CCIL
Distribution Ltd
Caledonia Lion Ltd
Caledonia Choice Ltd
Caledonia Group
Services Ltd
Caledonia Treasury Ltd
Easybox Sarl
Edinmore Holdings Ltd
Edinmore Investments
Four Ltd
Sloane Club
Management Ltd
Sloane Club Properties LLP UK
UK
Sterling Industries PLC
UK
Ordinary
100
100
Capital
Ordinary
Preference
Ordinary
100
100
80
68
100
100
80
50
TGE Marine AG
Germany
A complete list of investments in subsidiaries will be submitted
with the company’s annual return to the Registrar of Companies.
Guernsey Ordinary
UK
UK
UK
UK
B&W Group Ltd
Empresaria Group plc
Eredene Capital plc
General Practice
Investment Corp Ltd
India Capital Growth
Fund Ltd
Marwadi Shares
& Finance Ltd
UK
Omniport Holdings Ltd
Oval Ltd
UK
Real Estate Investors PLC UK
UK
Satellite Information
Services Ltd
Seven Publishing Group Ltd UK
UK
TCL Holdings Ltd
India
Preferred
Ordinary
Ordinary
Ordinary
Preference
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ownership
2014
%
20
22
21
24
100
24
32
39
23
28
23
29
50
2013
%
20
22
21
24
100
24
32
39
24
28
23
29
50
A complete list of investments in associates will be submitted
with the company’s annual return to the Registrar of Companies.
Aggregated amounts relating to associates, extracted on a 100%
basis, were as follows:
Assets
Liabilities
Equity
Revenues
Profit/(loss)
28. Group restatement
2014
£m
2013
£m
921.5
(586.4)
335.1
775.3
(5.3)
991.0
(584.5)
406.5
740.8
33.0
Consolidated Financial Statements
Disclosures
As described in the accounting policies, the group has adopted
of Interests in Other Entities
IFRS 10
Employee Benefits
, IFRS 12
(Revised
and IAS 19
2011) in the current year, which have retrospective application.
Caledonia Investments plc qualifies as an investment entity, being
an investment trust with a business purpose of providing its
investors with a total return comprising both capital appreciation
and investment income. In seeking to meet a long term total
return objective, it also measures and evaluates the performance
of substantially all of its investments on a fair value basis.
As the retrospective application of IFRS 10, IFRS 12 and IAS 19R
had an impact on virtually all the items in the group statement of
financial position and in the group statement of profit or loss, the
prior year figures disclosed have been adjusted throughout the
annual report. On adoption of IFRS 10, the fair value at 1 April
2012 of the subsidiaries ceasing to be consolidated was £103.7m.
Included within the subsidiaries’ fair value at 31 March 2012 of
£117.2m was the sum of £13.5m related to service companies,
which remain consolidated under IFRS 10.
Financial statements 80 Annual report 2014 Caledonia Investments plc
Notes to the financial statements
continued
The retrospective application of IFRS 10, IFRS 12 and IAS 19R
and the reclassification of property as held at fair value instead
of impaired cost resulted in the following adjustments being
made to the figures for the prior year group periods as
illustrated in the following restatements.
Reconciliation of group profit under restatement
The adjusted group statement of comprehensive income
for the year ended 31 March 2013 was as follows:
Revenue
Investment income
Gains on fair value property
Gains and losses on fair
value investments
Gains and losses on derivatives
Revenue from sales of goods
Total revenue
and services
Guarantee obligation provided
Investment management expenses
Trade operating expenses
Gain on investment property
Profit before finance costs
Share of results of joint ventures
Treasury interest receivable
Finance costs
Profit before tax
Exchange movements
Profit for the year
Taxation
Other comprehensive income
Exchange differences on translation
of foreign operations
Actuarial losses on defined benefit
pension schemes
Total comprehensive income
Tax on other comprehensive income
As
reported
£m
Effect of
restatement
£m
Restated
£m
33.5
–
178.2
(3.2)
117.0
325.5
–
(13.9)
(106.7)
0.4
(0.6)
204.7
0.5
(3.2)
(0.2)
201.8
0.3
202.1
7.9
1.0
3.0
0.1
(117.0)
(105.0)
(2.1)
(0.1)
106.7
(0.4)
0.6
(0.3)
2.5
0.8
(0.2)
2.8
4.5
7.3
41.4
1.0
181.2
(3.1)
–
220.5
(2.1)
(14.0)
–
–
–
204.4
3.0
(2.4)
(0.4)
204.6
4.8
209.4
1.1
(1.1)
–
(4.2)
1.4
200.4
1.6
(0.6)
7.2
(2.6)
0.8
207.6
Reconciliation of group cash flows under restatement
The adjusted group statement of cash flows for the year ended
31 March 2013 was as follows:
Operating activities
Dividends received
Interest received
Cash received from customers
Cash paid to suppliers
and employees
Taxes received
Group tax relief received
Net cash flow from
Investing activities
operating activities
Purchases of investments
Proceeds from disposal
of investments
Net payments for derivative
financial instruments
Purchases of property, plant
and equipment
Purchases of intangible assets
Purchases of investment property
Proceeds from disposal of
investment property
Purchases of subsidiaries
net of cash acquired
Net cash flow from
Financing activities
investing activities
Interest paid
Dividends paid to owners
of the company
Distributions paid to
non-controlling interest
Proceeds from new borrowings
Loans received from subsidiaries
Repayment of borrowings
Exercise of share options
Purchase of own shares
Net cash flow used in financing
Net increase in cash and
activities
cash equivalents
Cash and cash equivalents
at year start
Exchange movements on cash
Cash and cash equivalents
and cash equivalents
at year end
As
reported
£m
Effect of
restatement
£m
Restated
£m
31.2
0.7
120.0
7.7
1.5
(117.5)
38.9
2.2
2.5
(122.7)
0.5
–
107.7
(0.1)
3.4
(15.0)
0.4
3.4
29.7
2.7
32.4
(127.6)
(39.7)
(167.3)
302.2
21.7
323.9
(0.6)
–
(0.6)
(1.9)
(0.1)
(10.2)
1.9
0.1
10.2
0.4
(0.4)
(1.2)
1.2
–
–
–
–
–
161.0
(5.0)
156.0
(2.3)
1.1
(1.2)
(25.1)
–
(25.1)
(0.4)
7.2
–
(61.5)
0.6
(18.9)
0.4
(7.2)
8.8
–
–
–
–
–
8.8
(61.5)
0.6
(18.9)
(100.4)
3.1
(97.3)
90.3
0.8
91.1
24.6
(21.9)
2.7
1.3
(1.3)
–
116.2
(22.4)
93.8
Caledonia Investments plc Annual report 2014 81
Reconciliation of group equity under restatement
The adjusted group statements of financial position as at 1 April 2012 and 31 March 2013 were as follows:
Non-current assets
Investments held at fair value
through profit or loss
Available for sale investments
Intangible assets
Property held at fair value
Property, plant and equipment held at cost
Investment property
Interests in joint ventures
Deferred tax assets
Employee benefits
Current assets
Non-current assets
Inventories
Derivative financial instruments
Trade and other receivables
Current tax assets
Cash and cash equivalents
Total assets
Current assets
Current liabilities
Bank overdrafts
Interest-bearing loans and borrowings
Derivative financial instruments
Trade and other payables
Employee benefits
Current tax liabilities
Provisions
Non-current liabilities
Current liabilities
Interest-bearing loans and borrowings
Employee benefits
Deferred tax liabilities
Total liabilities
Non-current liabilities
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Capital reserve
Retained earnings
Foreign exchange translation reserve
Equity attributable to owners of the parent
Own shares
Total equity
Non-controlling interest
1 April 2012
Effect of
restatement
£m
As reported
£m
Restated
£m
As reported
£m
31 March 2013
Effect of
restatement
£m
1,088.5
0.8
2.6
–
76.8
14.8
0.8
5.4
6.9
1,196.6
15.0
2.5
35.7
0.7
24.6
78.5
1,275.1
–
(20.8)
(0.1)
(25.3)
(2.3)
(1.2)
(4.1)
(53.8)
(84.7)
(15.4)
(3.1)
(103.2)
(157.0)
1,118.1
3.2
1.3
1.3
–
1,121.7
4.3
(16.7)
1,115.1
3.0
1,118.1
115.5
(0.8)
(2.6)
17.5
(76.6)
(14.8)
(0.8)
(4.4)
(6.9)
26.1
(15.0)
(2.5)
(23.1)
(0.1)
(16.2)
(56.9)
(30.8)
(5.7)
20.8
0.1
17.8
1.1
1.2
(4.8)
30.5
3.8
12.3
2.9
19.0
49.5
18.7
–
–
–
852.2
(826.2)
(4.3)
–
21.7
(3.0)
18.7
1,204.0
–
–
17.5
0.2
–
–
1.0
–
1,222.7
–
–
12.6
0.6
8.4
21.6
1,244.3
(5.7)
–
–
(7.5)
(1.2)
–
(8.9)
(23.3)
(80.9)
(3.1)
(0.2)
(84.2)
(107.5)
1,136.8
3.2
1.3
1.3
852.2
295.5
–
(16.7)
1,136.8
–
1,136.8
1,087.4
0.9
2.8
–
73.8
25.0
0.2
5.0
6.9
1,202.0
19.0
–
41.7
0.9
116.2
177.8
1,379.8
–
(0.2)
(0.2)
(25.4)
(2.5)
(0.5)
(3.9)
(32.7)
(51.6)
(17.5)
(2.2)
(71.3)
(104.0)
1,275.8
3.2
1.3
1.3
–
1,278.0
5.4
(17.0)
1,272.2
3.6
1,275.8
135.5
(0.9)
(2.8)
18.5
(73.7)
(25.0)
(0.2)
(3.6)
(4.6)
43.2
(19.0)
–
(27.9)
0.8
(19.7)
(65.8)
(22.6)
(2.7)
0.2
0.2
10.8
0.7
0.5
(7.1)
2.6
31.7
12.9
2.0
46.6
49.2
26.6
–
–
–
1,012.1
(976.5)
(5.4)
–
30.2
(3.6)
26.6
Restated
£m
1,222.9
–
–
18.5
0.1
–
–
1.4
2.3
1,245.2
–
–
13.8
1.7
96.5
112.0
1,357.2
(2.7)
–
–
(14.6)
(1.8)
–
(11.0)
(30.1)
(19.9)
(4.6)
(0.2)
(24.7)
(54.8)
1,302.4
3.2
1.3
1.3
1,012.1
301.5
–
(17.0)
1,302.4
–
1,302.4
Financial statements
82 Annual report 2014 Caledonia Investments plc
Valuation methodology
Fair
Investments are measured at the directors’ estimate of fair
Value Measurement
value at the reporting date, in accordance with IFRS 13
. Fair value is the amount for which an asset
could be exchanged between knowledgeable, willing parties in
Publicly traded securities
an arm’s length transaction.
Investments listed in an active market are valued at their bid
price on the reporting date. When a bid price is unavailable,
Unlisted companies
the price of the most recent transaction will normally be used.
Unlisted company investments are valued by applying an
appropriate valuation technique, which makes maximum use of
market-based information, is consistent with models generally
used by market participants and is applied consistently from
period to period, except where a change would result in a better
estimation of fair value.
The value of an unlisted company investment is generally
crystallised through the sale or flotation of the entire business,
rather than the sale of an individual instrument. Therefore,
the estimation of fair value is based on the assumed realisation
of the underlying business at the reporting date, based on the
International Private Equity and Venture Capital Valuation
Guidelines (December 2012). Recognition is given to the
uncertainties inherent in estimating the fair value of unlisted
companies and appropriate caution is applied in exercising
judgments and making the necessary estimates.
Enterprise value is normally determined using one of the
following valuation methodologies:
Price of recent investment
Where the investment being valued was recently acquired
or a recent transaction has taken place, its cost or transaction
price will generally provide a good indication of fair value.
This methodology is likely to be appropriate only for a limited
period after the date of the relevant transaction.
Multiples
This methodology involves the application of an earnings
multiple to the maintainable earnings of the business and is
likely to be appropriate for an investment in an established
business with an identifiable stream of continuing earnings.
The earnings multiple used is determined by reference to
market-based multiples appropriate for the business and
correlating to the period and calculation of earnings of the
company being valued. The aim is to identify comparator
companies that are similar in terms of risk and growth
prospects to the company being valued. Earnings multiples
are adjusted for points of difference between the comparator
and the company being valued where appropriate, including
the ability of Caledonia to effect change in the company
and risks associated with holding an unlisted share.
Maintainable earnings balance reliability and relevance.
Generally, the latest historical accounts are used unless reliable
forecast results for the current year are available. Earnings are
adjusted where appropriate for exceptional or non-recurring
items and an average of more than one year’s earnings may
be used to estimate maintainable earnings for cyclical or
volatile businesses.
Net assets
The net assets methodology is likely to be appropriate for a
business whose value derives mainly from the underlying value
of its assets rather than its earnings, such as a property holding
company or an investment business. It may also be appropriate
for a business that is not making an adequate return on assets
and for which a greater value can be realised by liquidating the
business and selling its assets. A third party valuation may be
Fund interests
used to give the fair value of a certain asset or group of assets.
Fund interests refer to participations in arrangements to create
a designated pool of capital to invest in a wider range of assets
than is feasible for an individual investor and to share the costs
and benefits.
Open-ended funds, including investment companies with
variable capital, typically report regular net asset values,
which usually provide a reliable basis to estimate fair value.
If the price reported by the fund is not available at the reporting
date, the latest available price is used and may be adjusted to
take account of changes or events to the reporting date.
Closed-ended funds include unlisted investment companies
and limited partnerships. For these investments, the fair value
estimate is based on a summation of the estimated fair value
of the underlying investments. Fund manager valuation reports
may be used where there is evidence that the valuation is
derived using fair value principles and may be adjusted to take
account of changes or events to the reporting date. Adjustment
may also be necessary for features of the fund agreement not
captured in the valuation report, such as performance fees or
Other investments
carried interest.
Other investments include preference shares, loan notes or
facilities, options, warrants and treasury instruments that are
not publicly traded and do not form part of an investment in an
unlisted company. For such investments, appropriate valuation
techniques are adopted and used consistently.
Caledonia Investments plc Annual report 2014 83
Company performance record
A ten year record of the company’s financial performance is as follows:
Profit/
(loss) for
the year
£m
Diluted
earnings
per share
p
Annual
dividend
p
Net
assets
£m
Diluted
NAV per
share
p
Rolling ten years annualised
Share
price
p
Total share-
holder return
%
FTSE All-Share
Total Return
%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
1.
171.4
349.4
136.1
(43.9)
(325.5)
312.4
84.1
(93.2)
209.4
183.1
260.3
549.2
226.9
(76.0)
(564.1)
539.6
145.1
(161.8)
366.5
327.4
28.2
29.6
31.1
32.5
33.8
35.3
37.1
42.9
47.2
49.1
978
1,307
1,323
1,252
906
1,182
1,259
1,134
1,302
1,446
1531
2044
2258
2155
1559
2034
2165
1977
2305
Investment Entities
2593
1367
1980
2066
2050
1289
1625
1725
1486
1840
1923
12.7
14.9
15.0
12.6
9.4
11.5
10.5
8.1
13.6
8.9
Consolidated Financial Statements
8.1
8.4
7.7
3.5
(0.7)
2.6
4.7
5.2
10.7
8.6
.
Profits, earnings and net assets from 2013 were from the group results, prepared in accordance with the IASB
Pre-2013, they were from the company results.
2. NAVs per share prior to 2006 were originally prepared on an undiluted basis and have been restated on a diluted basis.
3. Annual dividends are stated in relation to the year’s results from which they were paid.
amendments to IFRS 10
Other information 84 Annual report 2014 Caledonia Investments plc
Information for investors
Dividends, change of address and other shareholder services
Caledonia Investments ISA
The Caledonia Investments Individual Savings Account (‘ISA’) is
a tax efficient savings account that allows participants to invest
up to an annual amount of £11,880 (increased to £15,000 from
1 July 2014 for the tax year ending 5 April 2015). Lump sum
payments or regular monthly deposits can be made into the ISA.
Details of the ISA are available on Caledonia’s website or by
Caledonia Investments Share Savings Scheme
request from the company.
The Caledonia Investments Share Savings Scheme is a plan
that aims to provide a simple and flexible way for investors to
purchase shares in Caledonia. Lump sum payments or regular
monthly deposits can be made into the Share Savings Scheme.
Details of the Share Savings Scheme are available on Caledonia’s
PEPs and ISAs
website or by request from the company.
Caledonia’s shares can be treated as qualifying investments
Share prices
for the purposes of the PEP and ISA rules.
The company’s ordinary shares are premium listed on the
London Stock Exchange under the SEDOL code of 0163992 or
TIDM code of CLDN. Prices are published daily in the Financial
Times under the ‘Investment Companies’ heading and in other
leading newspapers and can also be viewed on the company’s
website at www.caledonia.com.
Monthly net asset value
The ISIN code for Caledonia’s ordinary shares is GB0001639920.
The company releases a net asset value announcement and
publishes a fact sheet shortly after each month end. These can
be found on the company’s website at www.caledonia.com.
Shareholders who wish to have dividends paid directly into a UK
bank account, rather than by cheque to their registered address,
can complete a mandate form for this purpose. Mandates may be
obtained from Capita Asset Services. Where dividends are paid
directly into shareholders’ bank accounts, dividend tax vouchers
are sent directly to shareholders’ registered addresses.
Capita Asset Services also offer an international payment service
whereby overseas shareholders may convert their dividend
payments into a chosen currency and receive payment either
in the form of a currency draft or by a direct payment into an
overseas bank account. Details of the currencies available under
the service and how to apply, including the terms and conditions,
are available online at international.capitaregistrars.com
or an application pack can be requested by telephone on
+44 20 8639 3405 (from outside the UK) or 0871 664 0385
(from within the UK, calls cost 10p per minute including VAT
plus network extras) between 9.00am and 5.30pm, UK time.
Communications with shareholders are mailed to the address
held on the share register. In the event of a change of address
or other amendment, shareholders should notify Capita Asset
Services, under the signature of the registered holder, or where
there is more than one registered holder, under the signature
of the first named holder.
Post and telephone contact details for Capita Asset Services are
shown on the opposite page. Capita Asset Services also provide
an online facility to enable shareholders to manage securely
their shareholdings via the internet. By registering to use
the facility, shareholders can access a range of online services,
including viewing shareholding details, transaction and
dividend histories, change of address and bank mandate and use
of the online proxy voting service. The online facility is available
at www.capitashareportal.com.
Capita Asset Services also offer a share dealing service and
dividend reinvestment plan for existing shareholders. The share
dealing service is available online at www.capitadeal.com or by
telephone on 0871 664 0384 (calls cost 10p per minute including
VAT plus network extras, with lines open Monday to Friday
8.00am to 4.30pm).
The dividend reinvestment plan provides a convenient way
for shareholders to build up their shareholdings by using cash
dividends to buy more shares in the company. An application
form for the dividend reinvestment plan is available online at
www.capitashareportal.com or by telephone from Capita IRG
Trustees Ltd on 0871 664 0381 (calls cost 10p per minute
including VAT, plus network extras), or +44 20 8639 3402 if
calling from overseas. In each case, lines are open from Monday
to Friday 8.30am to 5.30pm. Alternatively, an application form
can be requested by email from shares@capita.com.
Caledonia Investments plc Annual report 2014 85
Auditor
KPMG LLP
15 Canada Square
Canary Wharf
London E14 5GL
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Tel: 0871 664 0300
(calls cost 10p per minute including VAT, plus network extras)
+44 20 8639 3399 if calling from overseas
Brokers
J.P.Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Winterflood Securities Ltd
The Atrium Building
Cannon Bridge House
25 Dowgate Hill
London EC4R 2GA
Solicitors
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
Directors and advisers
Chairman
2
Roderick D Kent
Executive directors
William P Wyatt (Chief Executive)
Stephen A King (Finance Director)
Jamie M B Cayzer-Colvin
Non-executive directors
1,2,3,4
1
1,2,3,4
Charles M Allen-Jones (Senior Independent)
Stuart J Bridges
1,2
The Hon Charles W Cayzer
Richard Goblet d’Alviella
2,3,4
Charles H Gregson
Robert B Woods CBE
1. Member of the Audit Committee
2. Member of the Nomination Committee
3. Member of the Remuneration Committee
4. Member of the Governance Committee
Associate directors
Stuart A Cox
Graeme P Denison
Charles H Edwards
Sally D Flanagan
Eloise J M Fox
Jonathan R Hale
Duncan E Johnson
Timothy R G Lewis
Mathew S D Masters
Sheena D McNeill
Stephen J Mitchell
Paul M Whiteley
Secretary
Graeme P Denison
Registered office
Cayzer House
30 Buckingham Gate
London SW1E 6NN
Registered number
Registered in England no 235481
This report has been printed in the UK by CPI Colour. Under the framework of ISO 14001, CPI takes a structured approach to measure, improve
and audit their environmental status on an ongoing basis. The main areas targeted for continual reduction arise from the use of solvents, energy
consumption and waste generation. CPI is a Carbon Neutral printing company and also Forestry Stewardship Council (FSC) Chain of Custody
Certified. All inks used are vegetable based. This paper is environmentally-friendly ECF (elemental chlorine free) , FSC certified, bio-degradable
and recyclable.
Designed and produced by Instinctif Partners. www.instinctif.com
Caledonia Investments plc
Cayzer House
30 Buckingham Gate
London SW1E 6NN
+44 20 7802 8080
tel
fax
+44 20 7802 8090
email enquiries@caledonia.com
web www.caledonia.com