Annual report 2015Year ended 31 March 2015Caledonia Investments Annual report 2015 Welcome to Caledonia
We are a self-managed investment trust company
with net assets of £1.6bn. 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
1 Company highlights
2
6
Chairman’s and Chief Executive’s report
Business model and strategy
Investment review
10 Performance and analysis
13 Portfolio summary
14 Quoted pool
16 Unquoted pool
18 Funds pool
20
22 Financial review
24 Valuation methodology
25 Risk management
28 Sustainability
Income & Growth pool
Directors’ report
30 Board of directors
32 Corporate governance report
35 Nomination Committee report
36 Audit Committee report
38 Governance Committee report
Directors’ remuneration report
39 Annual Chairman’s statement
41 Remuneration policy
47 Annual report
54 Other governance matters
57 Responsibility statements
Financial statements
58 Independent auditor’s report
60 Financial statements
64 Significant accounting policies
67 Notes to the financial statements
Other information
79 Company performance record
80 Information for investors
81 Directors and advisers
Strategic report
Directors’ report
Financial statements
Other information
Company highlights
(cid:520) (cid:17)et asset value per share total return of 14.2(cid:936)
(cid:520) Ten year outperformance against the FTSE All-Share
(cid:520) Annual dividend per share up 3.1(cid:936) to 50.(cid:888)p
Results summary
Net asset value
NAV per share
Annual dividend per share
50.6p
49.1p
2906p
2593p
NAV total return growth over ten years
31 March
2015
31 March
2014
Change
%
£1,627m £1,446m
12.5
250
Caledonia NAVTR
FTSE All-Share TR
12.1
3.1
200
150
100
Performance
NAV total return
Total shareholder return
Dividend growth
1 year
%
14.2
21.2
3.1
5 years
%
10 years
%
56.3
127.3
56.0
106.2
43.3
79.4
03/05
03/07
03/09
03/11
03/13
03/15
Annualised ten year rolling performance
Caledonia NAVTR
FTSE All-Share TR
RPI+3%
RPI+6%
%
15
10
5
0
Pools
Annual dividends over 48 years
03/05
03/07
03/09
03/11
03/13
03/15
Quoted
Unquoted
Funds
Income & Growth
Value
£m
447.7
510.3
327.7
202.1
Portfolio
1,487.8
Cash and other items
139.1
Return
%
3.5
19.2
45.2
11.4
16.8
Net assets
1,626.9
14.2
p
60
40
20
0
Annual dividend
RPI (rebased)
1967
1975
1985
1995
2005
2015
NAV per share was calculated on a diluted, cum income basis.
Source: Caledonia Investments plc and FTSE International Limited (‘FTSE’) © FTSE 2015. ‘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.
Annual report 2015 Caledonia Investments plc
1
Strategic report
Directors’ report
Financial statements
Other information
Chairman(cid:495)s and Chief Executive(cid:495)s report
This has been a very strong year
for Caledonia, with our portfolio
delivering a healthy 14.2(cid:936) return for
shareholders, taking our total (cid:17)AV
to another record high and further
extending our ten year market
outperformance. This performance
was well ahead of our year on year
ob(cid:140)ective and, together with our
increasing income generation, has
supported our proposed 3.1(cid:936) rise
in the total dividend for the year,
the forty-eighth year of consecutive
annual increases.
(cid:18)ur portfolio is built on high (cid:147)uality
businesses with strong prospects for
the medium to long term. Coupled
with our conservative cash position,
we are well placed to capitalise on
future opportunities and to meet our
average annual return ob(cid:140)ectives of
RPI(cid:938)3(cid:936) to RPI(cid:938)(cid:888)(cid:936) over a ten year
period.
Results
We are pleased to report that Caledonia’s portfolio has delivered
another year of strong growth. The net asset value per share total
return (‘NAVTR’), which measures the growth of the balance sheet
capital and the income that it produces, was 14.2% for the year. This
creditable performance is well ahead of our year on year objective
of delivering average annual returns of between RPI+3% and RPI+6%
over ten year periods and contributed positively to the ten year
annualised NAVTR at 31 March 2015 of 8.6%. Our year-end NAV per
share recorded a new high of 2906p and we were pleased to see
that this has been reflected in our share price, which increased by
just under 19% in the 12 month period. The board is recommending
a 3.1% increase in the final dividend, which would result in an overall
increase of 3.1% for the year, the forty-eighth consecutive year of
growth in our annual dividend.
Caledonia strategy
Caledonia offers shareholders the opportunity to invest in a
portfolio, much of which is not available to investors generally.
The portfolio consists of four pools, each with a differing profile,
not reflecting any single market or tracking any benchmark. Rather,
it is the result of finding businesses that demonstrate attributes that
fit our strategy – low gearing, cash generation and a strong position
in their market place – and, particularly in the unquoted space,
companies that prefer our offering as a long term provider of
capital. By consistently delivering average annual returns over rolling
ten year periods of between RPI+3% and RPI+6%, we aim to provide
to shareholders a return that also exceeds the FTSE All-Share Total
Return index over the long run.
The company’s ownership structure and the fact that we invest from
our own balance sheet, rather than raising external funds, allows
us to take a much longer investment time horizon than many
institutional investors, often over ten years. The long term
commitment of the Cayzer family and our open-ended approach
also helps to attract other family-owned businesses and
management teams seeking capital to develop their businesses
without the pressure of a change of ownership every few years.
Our investments in Cobehold and more recently Choice Care Group
and Park Holidays are good examples of these.
Our longer term, collaborative approach has several other
differentiating advantages. It allows management teams to invest
in opportunities for their businesses that take time to bear fruit.
It avoids the distraction of frequent corporate action that is the
inevitable result where the providers of capital have to return funds
to their own investors within a fixed period of time. It also requires
less reliance on gearing to achieve the required returns, thereby
taking less risk with the balance sheets of the companies we invest
in. However, when capital is plentiful and competition is strong, we
often find ourselves out-bid by others more willing to use higher
gearing and pay prices that we consider too high. We would rather
maintain a disciplined approach and preserve our capital than
overpay for an investment, however attractive.
2
Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Income and ongoing charges
Investment income for the year rose 15% to £47.2m which, after
other income and expenses, fully covers the proposed dividend for
the year. Growth in income has been a particular focus for us over
the past five years and over this period has increased by 43%, driving
the yield from the portfolio from under 2% to 3.3%, despite our NAV
increasing by 38%. We believe the prudent way to run the company
for our shareholders is to maintain a fully covered dividend without
charging any of our management expenses to capital.
Our ongoing charges for the year were 1.22% of NAV against 1.03%
for the prior year. The difference resulted largely from an increase
in the cost of our share incentive plans, which reflected the recent
strong performance of our NAV. Our business model of investing
in unquoted companies requires more management resources than
a purely quoted portfolio and therefore higher employment costs.
We estimate that, based on an analysis of the expenses of other
funds with similar investment focus to each of our pools, an
equivalent ‘sum of the parts’ benchmark cost of running a fund
with our particular attributes would be approximately 1.7% of NAV.
We therefore believe that Caledonia’s self-managed model offers
shareholders good value for money on a like for like basis.
Balance sheet and cash
Net cash at the year-end amounted to £131.0m against a small net
debt position of £7.1m at the beginning of the year. This movement
was the result of the proceeds from the sale of Oval in April 2014,
distributions of cash by funds and top-slicing activity within our
Quoted pool. Overall, during the course of the year, we invested
£199.4m and realised £320.1m, not including investments and
divestments made within the Income & Growth pool.
We consider it prudent at this stage of the stock market cycle to
have a cushion of cash which, alongside committed bank facilities
of £175m, will enable us to take advantage of opportunities as they
present themselves. This is especially important in the unquoted
arena, where the precise timing of investments is generally more
unpredictable. The board’s policy is to use modest structural gearing
selectively within the individual portfolio companies, rather than
borrow within Caledonia.
We also seek to diversify our assets by allocating capital to different
geographies and currencies. We invest in funds, both quoted market
and private equity, to gain exposure to economies such as Asia and
the US, where we consider it more effective to use local managers
than to invest directly ourselves. In addition, we enable shareholders
to gain exposure to a carefully picked selection of direct quoted
investments. These also reflect our cautious nature with our
preference for established companies which have demonstrated
the ability to produce compound growth over the long term, such
as AG Barr, Bristow Group and Close Brothers – all high quality
businesses which we have held for many years.
Investment performance
Our long term investment strategy, together with the high
proportion of less liquid unquoted investments in our portfolio,
means that performance is most effectively measured over the
longer term. The board’s aim is therefore for Caledonia’s NAVTR to
outperform the FTSE All-Share Total Return index over rolling ten
year periods. Our ten year investment horizon provides the
timeframe for our portfolio to accumulate value, whilst optimising
risk/return characteristics. We believe that targeting a performance
range of long term RPI+3% to long term RPI+6% will lead to an
outperformance of the FTSE All-Share over ten years.
NAVTR
NAVTR annualised
RPI annualised
Caledonia RPI outperformance
FTSE All-Share TR annualised
Caledonia FTSE outperformance
1 year
%
14.2
14.2
0.9
13.3
3 years
%
56.3
16.1
2.2
13.9
5 years
%
55.5
9.2
3.1
6.1
10 years
%
127.3
8.6
3.0
5.6
7.7
0.9
The graph below, which shows annualised ten year rolling periods
of performance (thereby utilising data from a 20 year timespan)
further illustrates that we are have consistently delivered our long
term performance objectives.
Annualised ten year rolling performance
Caledonia NAVTR
FTSE All-Share TR
RPI+3%
RPI+6%
%
15
10
5
0
03/05
03/07
03/09
03/11
03/13
03/15
Annual report 2015 Caledonia Investments plc
3
Strategic report
Directors’ report
Financial statements
Other information
Chairman(cid:495)s and Chief Executive(cid:495)s report continued
Of particular note was the sale of our entire holding in Dewan
Housing Finance in India, banking a healthy profit on total sale
proceeds of £52m. We top-sliced our holdings in Close Brothers
and Quintain Estates, following strong share price performance,
and exited our holdings in both Petroceltic International and
Urban&Civic following mergers, as these were no longer core to the
Quoted pool strategy. We added substantially to our initial holding
in Rolls-Royce and established new holdings in Microsoft and Oracle,
all of which have strong business models that produce compound
investment returns over time. Rolls-Royce, in particular, is a business
best viewed over the long term and we took advantage of some
short term adverse sentiment in the market to build a position
of £23m.
Unquoted (£510m, 31% of net assets)
We invest in unlisted businesses requiring capital and where our
balance sheet is able to provide a long term perspective. We invest
in both majority and minority positions.
The Unquoted pool returned 19.2% for the year under review,
including £23m of income. We are careful to structure deals
which allow a good flow of dividends back to shareholders, which
necessarily and prudently means that we utilise relatively low levels
of bank debt. We have an annual total return target of 14% for the
Unquoted pool, and given a yield target of 5%, the capital growth
requirement is not overly demanding. This, in turn, means that
we do not have to invest in more risky companies to achieve
our returns.
We sold our holding in Oval, the insurance broker, on 1 April 2014
to Arthur J Gallagher, receiving £70m, a 2x return on invested
capital, although we had already taken the uplift in valuation in
the previous year’s results. Brookshire sold a portfolio of property
assets, profiting from the narrowing of yields in the sector. In
addition, Latshaw Group, a group of five US engineering companies
in which we invested in 2012, sold one of its businesses and
distributed to us almost the entire cost of our original investment.
Pleasingly, strong profits growth at Park Holidays, a UK based
operator of caravan parks, and TGE Marine, a German LNG
engineering business, have pushed their valuations significantly
higher.
The Unquoted team pursued several potential transactions that
evolved from our deal pipeline during the year, but we were unable
to secure any of the businesses at prices with which we were
comfortable. The private equity market has plentiful availability of
debt at present and is prepared to pay multiples of profit that leave
little headroom for the unexpected to happen. We will maintain our
discipline and continue to find opportunities where the fit with
Caledonia and our values outweighs pure pricing considerations.
Overview of portfolio
The portfolio, before management expenses and other net assets
were taken into account, returned 16.8% for the year under review.
This bulk of the return came from the Unquoted and Funds pools,
the latter returning an exceptional 45.2%, driven by Capital Today
China (‘CTC’) and its investment in JD.com, which during the year
listed on NASDAQ. It is important to point out that the performance
of just about all of the underlying funds within the Funds pool was
strong, although CTC was by far the biggest contributor. The
Unquoted pool returned 19.2% over the year, with pleasing
performances from two of our newer investments, Park Holidays
and Latshaw Group. The Quoted pool produced a more modest
return of 3.5%, following two consecutive years of over 20%, and
was particularly affected by reductions in value of two of its larger
holdings, Bristow Group and Weir, whose share prices were
impacted by the falling oil price. The Income & Growth pool made
a significant contribution to Caledonia’s income account, yielding
4.3% net, as well as being on target for its capital return.
Invest-
Value
ments
2014
£m
£m
80.5
497.8
568.3
4.9
204.4 104.0
Disposals
£m
(136.1)
(109.0)
(75.0)
Other
move-
ments
£m
5.5
46.1
94.3
Value
2015
£m
447.7
510.3
327.7
Income
£m
11.4
23.1
3.6
Return
%
3.5
19.2
45.2
189.6
51.3
1,460.1 240.7
(14.5)
1,445.6
(51.6)
8.7
(371.7) 158.7 1,487.8 46.8
202.1
12.8
139.1
1,626.9
11.4
16.8
14.2
Pool
Quoted
Unquoted
Funds
Income &
Growth
Portfolio
Other
Net assets
The Quoted pool allocation at 28% has reduced to below its
strategic range of 35-50% of the portfolio. This is a consequence
of both top-slicing and exiting non-core investments to take
advantage of high valuations and discipline in waiting for some
of our identified new investment opportunities to come with our
target price ranges. The Income & Growth pool at 13% also remains
slightly below its strategic allocation of 15-20% of net assets.
Again, we have resisted the temptation to rush into what has been
a popular and hence expensive sector of the market of late.
See page 7 for details of portfolio allocation.
Overview of pool performance
Quoted (£448m, 28% of net assets)
We invest in companies with established business models, strong
balance sheets and good returns on capital over the long term.
The Quoted pool produced a total return of 3.5% for the year.
This followed two years of strong growth (25% and 21% in 2013
and 2014 respectively), during which time the portfolio has
continued to evolve in line with the strategy laid out in 2010. The
companies within the pool now reflect the characteristics outlined
above with only a few exceptions. We have added companies such
as Jardine Matheson, Rolls-Royce, Microsoft, Atlas Copco, Oracle
and Spirax Sarco, to long established holdings such as Bristow
Group, LondonMetric Property, Close Brothers and AG Barr. Post the
year end, we halved the holding in Avanti Communications to reflect
the additional risk taken onto its balance sheet by a high yield bond
issue in 2014. The Quoted pool team has a deeply researched list of
target companies that it monitors closely, although we are unwilling
to invest at current pricing levels.
4
Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Board
As heralded in last year’s annual report, Richard Goblet d’Alviella
retired from the board in June 2014, with our thanks for the support
he provided over his nine years as a non-executive director.
He was replaced by Harold Boël, whose commercial and investment
expertise gained at Corus and Sofina is already proving insightful.
Charles Allen-Jones also stepped down from the board just before
year end after 13 years. His immense experience, common sense
and wisdom will be missed by the company, as he has guided the
executive management and the board through various challenges
during his tenure. We are truly grateful for his immense contribution.
At the same time, we were pleased to welcome David Stewart to the
board, whose experience, both in the fund management world and
working for family businesses, is particularly relevant to Caledonia.
Shonaid Jemmett-Page will also join the board on 1 July 2015 and
her experience at KPMG, Unilever Asia and CDC Group, as well as
from her current non-executive portfolio, will be of great benefit
to us.
Outlook
The European Central Bank has taken over the baton of quantitative
easing from The Federal Reserve and Bank of England. Interest
rates in developed economies are being held at artificially low
rates, in some cases the quite extraordinary situation exists where
customers are charged for leaving money on deposit, and it looks as
though they will stay low for quite some time yet. The combination
of these two policies drove asset prices up, bond yields to new lows
and stock markets to new highs. Strong currency movements are
also a side effect of such policies. Corporate profits, and in particular
margins, remain healthy and the economies of both the US and UK
seem to be on a steady, if unspectacular, growth trajectory. Asia is
more difficult to assess, which is reflected in markets which are
more reasonably priced.
Although the UK General Election is now behind us, we still face
uncertain times with a US presidential election due next year. We
believe that our portfolio and conservative cash position leave us
well placed however challenging market conditions may be. We are
invested in high quality businesses which have good prospects for
the medium to long term. Our strategy is delivering performance
for shareholders at an appropriate level and we are confident that
the portfolio is well positioned for the future.
Rod Kent
Chairman
Will Wyatt
Chief Executive
Funds (£328m, 20% of net assets)
We invest in both private equity and quoted market funds, with an
emphasis on providing exposure to areas of the world where we are
less willing to invest directly.
The Funds pool return of 45.2% was principally attributable to the
successful flotation of JD.com, which is a key constituent of Capital
Today China, a private equity fund launched in 2006 with Caledonia
as a cornerstone investor. As a result, the fund is our largest single
investment, being valued at the year end at £103.6m, even after
distributing £15.2m of cash during the year. However, strong gains
were also made from the rest of Funds pool, in particular from the
Asian portfolio of quoted market funds. Excluding the exceptional
performance within Capital Today China, the Funds pool return was
15.6% over the year. New investments were made during the year
in four funds specialising in Asian listed equities at a cost of £60.9m,
taking our overall exposure to £81.6m.
Income & Growth (£202m, 13% of net assets)
The pool holds interests in 36 international listed businesses, which
provide a reliable and growing dividend. Cash flow returns to
shareholders are a priority for the companies in which we invest.
The Income & Growth pool exceeded its 10% total return
requirement, returning 11.4% for the year. The pool invests in global
listed companies that have a higher than average dividend yield. This
has been a popular area in which to invest over the past few years,
as central banks have reduced interest rates. Whilst past returns
have been healthy, these sorts of companies are now more highly
rated, which makes the task of producing our required level of total
return more challenging, although we can counter this by running a
more concentrated portfolio without increasing our risk or volatility.
We are pleased to welcome Jonathan Greig as the manager of the
pool, who joined us in January to succeed Stephen Mitchell who had
managed the pool since its inception in 2011. Holdings within the
pool include companies such as Pfizer, Novartis, General Electric,
Zurich Insurance and Daimler, which fit well with our approach.
Share buy-backs and discount
The discount of Caledonia’s shares to its underlying net asset value
has ranged between 12% and 26% during the year. This provided
opportunities to buy back shares for cancellation, thereby producing
a permanent benefit for all shareholders. During the year, the
discount has mostly been toward the lower end of the range and
we bought back £0.6m of shares. We will ask for the necessary
shareholder approvals at the annual general meeting to be able
to continue with these buy-backs for a further year, albeit within
the constraints of the annual waiver that we seek under the
requirements of the Takeover Code.
Dividend
The board is recommending to shareholders a final dividend of
36.8p, giving a total dividend for the year of 50.6p, an increase of
3.1% on the previous year. This would represent the forty-eighth
consecutive year of increases in our annual dividend. Only a handful
of listed companies have achieved such a long and consistent record
and it demonstrates our long term attitude to investing. Subject to
approval by shareholders at the annual general meeting to be held
at Cayzer House on 16 July 2015, the final dividend will be paid on
6 August 2015.
Annual report 2015 Caledonia Investments plc
5
Strategic report
Directors’ report
Financial statements
Other information
(cid:5)usiness model and strategy
Caledonia is a self-managed investment
trust company with net assets of
(cid:841)1.(cid:888)bn. (cid:18)ur heritage can be traced
back to the shipping empire established
by Sir Charles Cay(cid:156)er in 18(cid:889)8. (cid:26)e have
the backing of the Cay(cid:156)er family, which
owns some 48.5(cid:936) of the share capital
and provides both support for our
long term value investment hori(cid:156)on
and 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
in the company, which is used to mitigate any short term illiquidity
within the portfolio, facilitating the bridging of short term
investment flows. We also have a £50m revolving credit facility in
a subsidiary treasury company, used to provide long term funding
to subsidiaries and for liquidity management.
Our business model has been developed over many years to
deliver long term growth in capital and an increasing annual
dividend to shareholders.
Pools of capital
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.
(cid:891) The Quoted pool focuses on identifying opportunities to build
meaningful positions in long term value businesses.
(cid:891) The Unquoted pool 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 board
seats in all significant private company investments.
(cid:891) The Funds pool contains investments in both private equity
and quoted market funds, providing Caledonia with diversified
overseas reach in areas where our investment model would
make direct investing more difficult to manage. The Funds pool
is primarily focused on investment in North America and Asia.
(cid:891) The Income & Growth pool provides an exposure to global
companies offering higher dividend yield and dividend growth
expectations. This pool provides both a reliable platform for
our overall income requirements and a source of readily accessible
liquidity.
6
Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
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.
Pool
Quoted
Unquoted
Funds
Investment style
Large equity holdings in
high quality companies
8-10 direct stakes in private
companies >£25m
Private equity and quoted
market funds (US and Asia focus)
Income & Growth Global equity portfolio,
4.5% net yield
Cash and other
Net assets
Strategic
allocation
%
35-50
Allocation
2015
%
28
20-35
15-20
15-20
(10)-10
31
20
13
8
100
We look to achieve a diverse investment portfolio, managed
through distinct investment ‘pools’.
Pool distribution
Asset class distribution
Despite a significantly sterling based asset portfolio, we achieve
geographic exposure outside the UK through, in particular,
our Funds and Income & Growth pool investments.
Quoted
Unquoted
Funds
Income & Growth
Cash and other items
Listed equities
Private companies
Private equity funds
Quoted market funds
Cash and other items
Overall exposures to geography, currency and asset classes are
actively monitored and managed by our executive management,
under the supervision of the board. The portfolio is further
diversified through our fund investments and the selection of
external fund managers with clear mandates.
We look to mitigate concentration risk by managing 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.
We maintain 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 enhanced liquidity.
We maintain borrowing facilities primarily to provide additional
temporary liquidity between buying and selling investments. We
would not expect gearing to exceed 10% of net assets.
Currency distribution
Geographic distribution
Pound sterling
US dollar
Euro
Other currencies
United Kingdom
Continental Europe
North America
Asia
Other countries
Investment concentration
%
100
31 March 2015
31 March 2010
75
50
25
0
0
10
20
Portfolio liquidity
%
75
50
25
0
40
50
30
Cumulative number of investments
70
60
80
90
100
31 March 2015
31 March 2010
0
1
2
3
Months
4
5
6
Annual report 2015 Caledonia Investments plc
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Strategic report
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Other information
(cid:5)usiness model and strategy continued
Investment process
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
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.
Identify best opportunities
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.
Make significant investments
We invest directly in both listed and
unlisted opportunities around the
world. Our minimum investment size
is £10m and we aim to invest between
£25m and £100m for significant equity
interests in companies.
ct preferenti al
al flow
d
e
a
r
tt
A
D
e
v
e
l
o
n
p
e
t
b
w
u
o p p ortunities
I d e nti fy best
M
i
a
k
n
e
v
e
s
i
s
g
t
n
m
i
fi
e
c
n
a
t
n
s
t
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
n
o
r
k
e
s
s
Monitor a n d
control ris k
d
n
s
e
support investe
Manage a
Develop business network
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.
Monitor and control risk
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.
Manage and support investees
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.
8
Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
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 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.
We target real return and the chart below shows Caledonia’s
annualised ten year rolling RPI adjusted net asset value total return
(‘NAVTR’) growth, compared with the RPI adjusted FTSE All-Share
Total Return index (‘FTSE All-Share TR’).
Annualised ten year rolling performance, RPI adjusted
Caledonia NAVTR
FTSE All-Share TR
%
10
5
0
-5
03/05
03/07
03/09
03/11
03/13
03/15
Annual report 2015 Caledonia Investments plc
9
Strategic report
Directors’ report
Financial statements
Other information
Investment review
Performance and analysis
(cid:18)ver the year, our investment
performance delivered an (cid:17)AV total
return of 14.2(cid:936).
(cid:18)ver the last five years, we have
rebalanced our portfolio substantially,
increasing diversification, yield and
portfolio li(cid:147)uidity whilst 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 is our research and
disciplined investment process.
Performance
Our NAV total return over the year was 14.2%, which built on a
total return of 14.9% 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 16.8% return, which, after management and other
expenses, delivered an overall NAV total return of 14.2%.
The 16.8% portfolio return comprised increases in the valuation
of our investments and the income that they yielded.
Invest-
Value
ments
2014
£m
£m
80.5
497.8
4.9
568.3
204.4 104.0
Pool
Quoted
Unquoted
Funds
Income
& Growth
51.3
Portfolio 1,460.1 240.7
(14.5)
Other
Net assets 1,445.6
189.6
Value
2015
£m
Other
move-
Return
Income
ments
%
£m
£m
5.5
3.5
447.7 11.4
46.1 510.3 23.1 19.2
3.6 45.2
Disposals
£m
(136.1)
(109.0)
(75.0) 94.3
327.7
(51.6)
8.7 11.4
(371.7) 158.7 1,487.8 46.8 16.8
12.8 202.1
139.1
1,626.9
14.2
1. Unallocated investments with a value of £11.0m (2014 – £10.3m) were included in
‘Other’. £0.4m of net gains and £0.4m of income was attributed to unallocated
investments.
2. Other movements comprised £179.5m of net portfolio gains, less £2.3m of
rolled-up interest and £18.5m of reclassifications, being the transfer of the
Buckingham Gate property from the portfolio to property, plant and equipment.
Portfolio movements
At the beginning of the year, the overall value of our investment
portfolio was £1,460.1m. After £131.0m of net divestments and
£158.7m of other movements, comprising £179.5m of net portfolio
gains, £2.3m of rolled-up interest and £18.5m of reclassifications,
the portfolio value increased to £1,487.8m at the year end. The
following chart illustrates the components of this movement:
(cid:68)ovement in investment (cid:393)or(cid:414)olio value
£m
1,700
1,600
1,500
1,400
Opening
balance
Listed
net (cid:336)ains
(cid:104)nliste(cid:282)
net (cid:336)ains
Net
realisations
Closin(cid:336)
balance
Around half of our £240.7m of investments were in new situations,
predominantly in funds. Nearly half of all investments arose within
the Funds pool, a third in Quoted pool situations and the balance
within the Income & Growth pool. Minimal investment was made
in unquoted companies in the year.
10 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
During the year, we realised £371.7m, around one-third resulting
from the sale of Oval and other Unquoted pool realisations, another
third from the sale and reduction of holdings in the Quoted pool
and the remainder from fund distributions and recycling within
the Income & Growth pool.
Net portfolio gains over the year totalled £179.5m, comprising
£261.0m of gains, offset by £81.5m of losses. Over 50% (£96.5m)
of net gains were generated by the Funds pool, principally due
to the JD.com IPO and subsequent share price rise, reflected in
the valuation of the Capital Today China fund. The Quoted pool
generated £5.5m of net gains, the Unquoted pool £64.6m and
the Income & Growth pool £12.8m.
Investments
Total portfolio investments during the year were £240.7m
(2014 – £332.4m), summarised as follows:
Name
New investments
Macquarie Asia New Stars fund
Microsoft
Newton Asian fund
Oracle
Asia Landmark fund
NTAsian Discovery fund
Longleaf Global UCITS
Morgan Stanley PE Asia fund
Other new investments
Pool
Funds
Quoted
Funds
Quoted
Funds
Funds
Funds
Funds
Follow-on investments
Rolls-Royce
FLAG Capital fund
Diageo
Arlington Ranger fund
Income & Growth pool
Other follow-on investments
Total portfolio investments
Quoted
Funds
Quoted
Funds
Income & Growth
Cost
£m
19.1
17.8
15.0
15.0
14.9
11.9
6.7
6.3
15.1
121.8
19.9
7.1
7.1
6.7
51.3
26.8
118.9
240.7
During the year, we made substantial fund investments. We
increased our exposure to quoted market funds in the Asia Pacific
region, with investments of £19.1m in the Macquarie Asia New
Stars Fund, £15.0m in the Newton Asian fund, £14.9m in the Asia
Landmark Fund, managed by New Silk Road, and £11.9m in the
NTAsian Discovery fund, managed by NTAsset Management. We
also increased our exposure to Asian private equity with a £6.3m
investment in the Morgan Stanley Private Equity Asia fund. This
£67.2m of investment in new Asian funds increased our exposure
to this fast-growing region, through a range of established fund
managers with a proven track record.
We also invested £6.7m in the Longleaf Global UCITS fund, managed
by Southeastern in the US and investing in a concentrated portfolio
of public companies in developed countries around the world.
Through the Quoted pool, we made new investments of £17.8m
and £15.0m respectively in Microsoft and Oracle, the technology
infrastructure companies. We also invested a further £19.9m in
Rolls-Royce, the UK manufacturer of aircraft engines and other
power systems.
The £51.3m invested through the Income & Growth pool
represented both an increased allocation of cash to this pool
of £10.0m and changing holdings within the pool. This portfolio
contained 36 companies at 31 March 2015 (40 at the previous year
end), in a range of sectors across the globe, with stakes ranging in
value from £2.3m to £8.1m.
Realisations
Proceeds from portfolio realisations during the year totalled
£371.7m (2014 – £251.6m), summarised as follows:
Name
Oval
Dewan Housing Finance
Capital Today China
Close Brothers
Latshaw Group
Quintain Estates
Petroceltic International
Diageo
Brookshire Capital
Nova Caledonia
Pragma Capital funds
Income & Growth pool
Other realisations
Total portfolio realisations
Pool
Unquoted
Quoted
Funds
Quoted
Unquoted
Quoted
Quoted
Quoted
Unquoted
Funds
Funds
Income & Growth
Proceeds
£m
70.2
52.4
15.2
15.1
15.1
14.6
13.3
12.4
11.1
11.1
11.0
51.6
78.6
371.7
1. Total portfolio realisations excluded the £18.5m transfer of property from portfolio
investments to property, plant and equipment.
We completed the successful sale of Oval, the UK regional insurance
broker, for £70.2m on 1 April 2014.
In the Quoted pool, we realised £52.4m from Dewan Housing
Finance. We sold down our holdings in Close Brothers and Quintain
Estates, raising £15.1m and £14.6m respectively, and sold our entire
holdings in Petroceltic International and Diageo for £13.3m and
£12.4m respectively.
The £51.6m of realisations through the Income & Growth pool
were recycled into new investments, used to increase our holdings
in existing companies or retained in cash.
Portfolio returns
The total return on our portfolio over the year was 16.8%. The
principal contributors to this performance were as follows:
Name
Capital Today China
TGE Marine
Dewan Housing Finance
Park Holidays
Latshaw Group
The Sloane Club
Close Brothers
Perlus Microcap fund
Cobehold
Polar Capital
Avanti Communications
Bristow Group
Income & Growth pool
Other investments
Total portfolio returns
Gain/loss
£m
74.0
25.2
21.4
20.2
15.9
11.1
6.6
5.5
(8.0)
(9.6)
(12.0)
(13.8)
12.8
30.2
179.5
Income
£m
0.3
5.8
0.8
2.0
4.7
1.4
2.2
–
1.7
2.1
–
1.1
8.7
16.0
46.8
Return
£m
74.3
31.0
22.2
22.2
20.6
12.5
8.8
5.5
(6.3)
(7.5)
(12.0)
(12.7)
21.5
46.2
226.3
Annual report 2015 Caledonia Investments plc
Return
%
177.0
84.8
353.0
27.4
76.1
28.7
14.3
22.7
(6.4)
(19.9)
(28.2)
(17.1)
11.6
16.8
11
Strategic report
Directors’ report
Financial statements
Other information
Investment review continued
Performance and analysis
The sale of some significant, predominantly UK, holdings in the
Quoted pool and of Oval in the Unquoted pool, together with
new Asian fund investments, saw a shift in our geographic exposure
from the UK to Asia.
At the end of the year, UK listed and resident companies accounted
for 48% of our investment 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
a reduced exposure to the UK economy of 37%.
Geographic by revenue generation
United Kingdom
Continental Europe
North America
Asia
Other countries
2015
37%
15%
16%
26%
6%
2014
47%
17%
14%
15%
7%
Asset class
The following chart shows the distribution of net assets by asset
class. Listed securities represented 40% of net assets at the year end
and unlisted investments (companies and funds) in total accounted
for 52%.
Asset class distribution
Listed equities
Private companies
Private equity funds
Quoted market funds
Cash and other items
2015
40%
32%
12%
8%
8%
2014
48%
40%
10%
3%
-1%
Over the year, there was a shift in allocation from listed equities and
private companies to quoted market and private equity funds and
to cash.
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
2015
55%
27%
12%
6%
2014
60%
19%
13%
8%
The changes in currency exposure over the year principally reflected
portfolio changes, in particular, the sales of UK quoted company
holdings, investment in US dollar denominated funds, mainly
investing in Asia, and the significant increase of the value of JD.com,
held in the US dollar denominated Capital Today China fund.
The overall return benefited significantly from the Capital Today
China fund, resulting from the IPO and subsequent share
performance of JD.com, one of its investments. We also saw
significant uplifts in the valuation of some unquoted companies
– principally TGE Marine, Park Holidays, Latshaw Group and
The Sloane Club – resulting from substantial increases in earnings
and property valuations.
Partially offsetting these gains, we recorded valuation losses
in Bristow Group, as a result of the oil price decline, Avanti
Communications, on the back of downgraded profit forecasts
and rising debt, and in Polar Capital.
As a result of actively managing risk, Caledonia’s one year risk/return
index (measured using the Sharpe methodology) has improved over
the last three years.
Risk/return over three years
Caledonia
FTSE All-Share
4
2
0
-2
03/12
03/13
03/14
03/15
Portfolio analysis
Pools
The following chart shows the distribution of net assets between
the pools of capital and cash.
Pool distribution
Quoted
Unquoted
Funds
Income & Growth
Cash and other items
2015
28%
31%
20%
13%
8%
2014
35%
39%
14%
13%
-1%
The chart shows a significant redistribution during the year, from the
Quoted and Unquoted pools to the Funds pool or retained as cash.
Significant elements were the sale of Dewan Housing Finance and
Oval from the Quoted and Unquoted pools respectively, against the
substantial new Asian and US fund investments in the year.
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
2015
50%
18%
15%
16%
1%
2014
57%
18%
14%
10%
1%
12 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Portfolio summary
Holdings over 1% of net assets at 31 March 2015 were as follows:
Name
Capital Today China
Park Holidays
Cobehold
TGE Marine
Bristow Group
AG Barr
Close Brothers
The Sloane Club
Choice Care Group
Sterling Industries
Latshaw Group
Perlus Microcap
Polar Capital
Avanti Communications
Bowers & Wilkins
Quintain Estates
Rolls-Royce
Spirax Sarco
Macquarie Asia New Stars
Jardine Matheson
Satellite Information Services
LondonMetric Property
Microsoft
Oracle
Asia Landmark
Other investments
Investment portfolio2
Cash and other items
Net assets
Pool
Funds
Unquoted
Unquoted
Unquoted
Quoted
Quoted
Quoted
Unquoted
Unquoted
Unquoted
Unquoted
Funds
Quoted
Quoted
Unquoted
Quoted
Quoted
Quoted
Funds
Quoted
Unquoted
Quoted
Quoted
Quoted
Funds
Geography1
China
UK
Belgium
Germany
US
UK
UK
UK
UK
UK
US
US
UK
UK
UK
UK
UK
UK
Asia
Singapore
UK
UK
US
US
Asia
Business
Private equity fund
Caravan parks operator
Investment company
LNG engineering
Helicopter services
Soft drinks
Financial services
Residential club
Care homes provider
Engineering
Manufacturing
Quoted market fund
Fund manager
Satellite communications
Audio equipment
Property services
Aircraft engine manufacturer
Steam engineering
Quoted market fund
Industrial engineering
Broadcasting services
Property investment
Infrastructure technology
Infrastructure technology
Quoted market fund
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 £11.0m are included in Cash and other items.
Value
£m
103.6
101.1
92.2
64.9
60.8
57.6
56.1
55.0
51.5
35.5
34.0
29.8
29.3
29.3
24.0
23.5
23.1
22.2
21.7
21.5
20.6
20.4
18.4
17.8
16.6
457.3
1,487.8
139.1
1,626.9
Net
assets
%
6.4
6.2
5.7
4.0
3.7
3.5
3.4
3.4
3.2
2.2
2.1
1.8
1.8
1.8
1.5
1.4
1.4
1.4
1.3
1.3
1.3
1.3
1.1
1.1
1.0
28.1
91.4
8.6
100.0
Annual report 2015 Caledonia Investments plc
13
Strategic report
Directors’ report
Financial statements
Other information
Investment review continued
Quoted pool
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 long term record of return on
capital employed and a strong asset base. In common with the
wider Caledonia philosophy, we look to invest in companies whose
business model emphasises a steady long term accumulation of
value, consistent with our target returns and risk.
The pool started the year with investments valued at £497.8m and
ended with a value of £447.7m, as the opportunity was taken to
realise a number of non-core investments and top-slice others
into a strong market. In total, £136.1m was realised. Non-core
realisations included £52.4m from Dewan Housing Finance, and
£13.3m from Petroceltic International. We top-sliced our holdings
in Close Brothers and Quintain Estates, realising £15.1m and £14.6m
respectively. New investments included £17.8m in Microsoft and
£15.0m in Oracle and we added a further £19.9m to our investment
in Rolls-Royce.
Including £11.4m of income, the Quoted pool achieved a return
over the year of 3.5%, following last year’s return of 20.5%.
A number of strong performances contributed to the Quoted pool
gains, notably from Dewan Housing Finance and Close Brothers, but
these were substantially offset by reductions in the value of Bristow
Group, Avanti Communications, Polar Capital and Weir. Overall, the
Quoted pool achieved revaluation gains in the year of £5.5m.
The (cid:20)uoted pool is a concentrated
portfolio of listed e(cid:147)uities.
(cid:18)ur focus is on mature, long term
businesses with significant presence
in their market space and where assets
produce strong returns on capital,
giving strength to their balance sheets.
(cid:938)3.5(cid:936)
return over the year
28% of NAV at 31 March 2015
Opening value
Investments
Realisations
Revaluation
Closing value
Investment income
Top investments
£m
497.8
80.5
(136.1)
5.5
447.7
11.4
Name
Bristow Group
AG Barr
Close Brothers
Polar Capital
Avanti Communications
Quintain Estates
Rolls-Royce
Spirax Sarco
Jardine Matheson
LondonMetric Property
Microsoft
Oracle
Geography
Business
US
Helicopter services
UK
Soft drinks
UK
Financial services
UK
Fund manager
UK
Satellite communications
Property services
UK
Aircraft engine manufacturer UK
UK
Steam engineering
Singapore
Industrial engineering
UK
Property investment
US
Infrastructure technology
US
Infrastructure technology
The table above shows pool holdings of over 1% of net assets at 31 March 2015.
14 Annual report 2015 Caledonia Investments plc
First
invested
1991
1977
1987
2001
2005
1994
2014
2011
2011
2007
2014
2014
Equity
held
%
4.7
8.1
2.4
9.0
9.3
4.7
0.1
0.9
0.1
2.0
<0.1
<0.1
Residual
cost
£m
24.8
1.1
7.9
0.6
36.8
28.1
24.6
12.7
16.6
12.8
17.8
15.0
Value
£m
60.8
57.6
56.1
29.3
29.3
23.5
23.1
22.2
21.5
20.4
18.4
17.8
Income/(expense)
recognised in the year
Capital
Revenue
£m
£m
(13.8)
1.1
–
1.1
6.6
2.1
(9.6)
2.1
(12.0)
–
(3.1)
–
(1.8)
0.4
3.5
0.4
2.5
0.5
2.9
1.0
0.7
0.3
2.8
0.1
Pool
%
13.6
12.9
12.5
6.5
6.5
5.2
5.2
5.0
4.8
4.6
4.1
4.0
Strategic report
Directors’ report
Financial statements
Other information
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 continues to make progress
in both its Oil and Gas and Search and Rescue business lines. Its
share price has been impacted by the fall in the oil price and also
strengthening of the US dollar. The pool had top-sliced the holding
in Bristow during 2014.
AG Barr, the UK soft drinks manufacturer, particularly notable for
its Scottish soft drinks, Irn-Bru and Rubicon, had another good year,
with earnings increased by some 5% and dividends by some 10%.
Close Brothers, the UK listed specialist financial services group, had
a strong first half result to 31 January 2015, with increases across
the banking and asset management divisions, dampened by
a decline in the Winterflood brokerage business. Although we
continued to top-slice our holding into a buoyant market, our
investment returned 14.3% over the year.
Polar Capital, the AIM listed investment manager, saw increased
profitability in its half year to 30 September 2014. However, a recent
decline in its assets under management over the year from $13.2bn
to $12.3bn at 31 March 2015 has had an impact on its share price,
resulting in a reduction in the value of our holding. We provided
initial capital for this business in 2001, which has now grown to
support 11 investment teams, 23 funds and six managed accounts
across a range of long-only and alternative products.
Avanti Communications, the AIM listed company supplying satellite
broadband services to telecoms companies across Europe, Africa
and the Middle East, posted increased revenues for the six months
to 31 December 2014. However, downgraded growth forecasts
and rising debt costs have reflected in its share price, resulting in
a negative return to us over the year of 28.2%.
Quintain Estates, the UK listed property company, returned a
negative 8.9%, compared with a positive 62.0% last year. Its buoyant
half year results to September 2014, with increased profits and
NAV and reducing debt burden, appear not to have been reflected
in its share price.
We increased our investment in Rolls-Royce, the UK listed
manufacturer of aircraft engines and other power systems,
by £19.9m over the year. Despite static results for its year ended
31 December 2014, the company had a record order book of £72bn
(excluding a recent Emirates order for $9.2bn). The declining share
price over the year resulted in a negative return of 6.8%.
Spirax Sarco, a supplier of engineered solutions for the design,
maintenance and operation of industrial and commercial steam
systems, posted strong underlying revenue and profit growth for
the year ended 31 December 2014, however the international
nature of its operations and the relative strengthening of sterling
eroded most of this progress in its reported numbers. Spirax Sarco’s
share price has advanced over the year, contributing to our
21.3% return.
Jardine Matheson, the diversified business group focused on Asia,
reported static results over the year. However, a recent increase
in its share price has helped contribute to our 17.4% return from
this investment.
LondonMetric Property, a UK REIT investing in commercial and
residential property, principally in the UK, reported strong results
across all key metrics in its September 2014 interim report, as it
benefited from a structural shift in shopping patterns. This resulted
in a 20.3% return to Caledonia whilst, at the same time, we reduced
our holding.
During the year, we invested £17.8m and £15.0m in Microsoft and
Oracle respectively, to gain exposure to these well-established,
durable and cash generative information technology companies.
Both performed well over the year, with Microsoft returning 8.6%
and Oracle 27.6%.
Annual report 2015 Caledonia Investments plc
15
Strategic report
Directors’ report
Financial statements
Other information
Investment review continued
Unquoted pool
Principally as a result of the sale of Oval for £70.2m, the Unquoted
pool has reduced in size over the year, from £568.3m at the start
of the year to £510.3m at the end, after £104.1m of net realisations.
Including £23.1m of income, the Unquoted pool achieved a return
over the year of 19.2%, building on a return of 17.7% last year.
After an active year of acquisition in 2014, the Unquoted pool
focused on building value within its portfolio during this year.
The pool as a whole has seen significant revaluation gains in the
year, principally reflecting strong underlying earnings growth.
On 1 April 2014, we sold our 23.2% holding in Oval, a leading
provider of insurance broking and financial services in the UK, to
Arthur J Gallagher of the US for £70.2m, as part of its acquisition
of the entire Oval group.
In May 2014, we syndicated 7.7% of our holding in Park Holidays,
the UK caravan parks operator acquired in November 2013,
for £7.0m.
In November 2014, we received a distribution from Latshaw Group
on the sale of one of its companies, Coast Wire & Plastic Tech Inc,
a manufacturer of custom electronic wire and cable products for
the medical, instrumentation and commercial electronics industries.
The (cid:24)n(cid:147)uoted pool contains both
ma(cid:140)ority and significant minority
holdings in private companies. (cid:18)ur
focus is on established businesses,
led by sound management teams,
where our target investment si(cid:156)e
of (cid:841)25m to (cid:841)100m provides a
meaningful presence and growth
capital supporting double-digit
operating margins.
(cid:938)1(cid:891).2(cid:936)
return over the year
31% of NAV at 31 March 2015
Opening value
Investments
Realisations
Reclassification
Revaluation
Closing value
Investment income
Top investments
£m
568.3
4.9
(109.0)
(18.5)
64.6
510.3
23.1
Name
Park Holidays
Cobehold
TGE Marine
The Sloane Club
Choice Care Group
Sterling Industries
Latshaw Group
Bowers & Wilkins
Satellite Information Services Broadcasting services
Business
Caravan parks operator
Investment company
LNG engineering
Residential club
Care homes provider
Engineering
Manufacturing
Audio equipment
Geography
UK
Belgium
Germany
UK
UK
UK
US
UK
UK
The table above shows pool holdings of over 1% of net assets at 31 March 2015.
16 Annual report 2015 Caledonia Investments plc
First
invested
2013
2004
2006
1991
2013
1989
2012
2011
2005
Equity
held
%
92.3
8.7
67.9
100.0
97.7
100.0
n/a
20.0
22.5
Residual
cost
£m
81.1
43.7
19.6
38.4
51.5
5.3
12.3
24.1
16.7
Value
£m
101.1
92.2
64.9
55.0
51.5
35.5
34.0
24.0
20.6
Income/(expense)
recognised in the year
Capital
Revenue
£m
£m
20.2
2.0
(8.0)
1.7
25.2
5.8
11.1
1.4
–
1.0
(0.9)
3.5
15.8
4.7
(0.1)
0.8
–
1.1
Pool
%
19.8
18.1
12.7
10.8
10.1
7.0
6.7
4.7
4.0
Strategic report
Directors’ report
Financial statements
Other information
Park Holidays is based in the south of England and owns and
operates a portfolio of 24 caravan parks. We acquired a controlling
stake in the company in November 2013 for £88.1m, with a strategy
of building value through continuing to grow the parks’ profits,
selective capital expenditure, operational improvement and new
park acquisition. Park Holidays has had a strong year, with revenue
and profits well ahead of the prior year and continuing prospects for
growth. We have revalued our holding upwards to £101.1m at the
year end, giving a 27.4% return over the year.
Cobehold is a Belgium-based investment company with holdings
in companies with long term growth prospects throughout Europe.
Its portfolio of unquoted investments made steady progress
throughout the year, maintaining capital values and increasing the
dividend paid to shareholders. The NAV of Cobehold increased by
5.2% over the year, but the 14.3% depreciation in the value of the
euro has caused our sterling value to decline, resulting in a negative
return of 6.7% over the year.
TGE Marine, the Germany-based designer and supplier of cargo
handling systems for liquid gas carrying ships and offshore units, had
an excellent year, with significantly increased revenue and earnings.
TGE Marine paid a dividend of £5.8m in the year. As a result of the
excellent trading and improved prospects, the euro valuation has
increased by some 90%. Our sterling return from TGE Marine has
been impacted by the weakened euro and was 84.8%.
The Sloane Club is a premium residential club situated in central
London near Sloane Square. The Club traded well in 2015, increasing
both its revenue and earnings. As a result, we have marked up the
value of the Club by nearly 25%. With a dividend of £1.4m, this has
resulted in a return of 28.7% over the year.
Choice Care Group, based in the south of England, operates
a portfolio of 52 residential learning disability homes, as well
as providing supported living services in the same area. The estate
is well invested and represents a solid platform for future
developments. Following our acquisition of a controlling stake in
2013, the business has pursued a strategy of developing new
homes, as well as extending its supported living business. Significant
investment has been made in new capacity over the year, adding
19 new beds with agreement to add an additional 65 during 2016.
We have maintained our valuation at the year end.
Sterling Industries, the international engineering business,
specialising in the global supply of combustion and heat transfer
technology and services, posted good trading results and paid a
dividend of £3.5m. Although the valuation was little changed from
last year, the substantial dividend enabled Sterling to return 7.3%
over the year.
Latshaw Group comprises a number of US engineering businesses in
sectors including mechanical wiring looms for oncology equipment
and controls for domestic tools. The group has traded well over
the year. In September 2014, Coast Wire & Plastic Tech Inc, a
manufacturer of custom electronic wire and cable products for the
medical, instrumentation and commercial electronics industries,
was sold and Latshaw made a substantial capital distribution to us
of £15.1m. In addition, Latshaw paid an income distribution to us of
£4.7m, after receiving dividends from the underlying companies.
Bowers & Wilkins is a premium audio manufacturer headquartered
in the UK. The business continued its development in the
automotive and streaming spaces, whilst Bowers’ core product
range sold well throughout the world. Caledonia received a dividend
during the year and gearing levels reduced in line with
management’s focus on reducing inventory. We have maintained
our valuation at the year end.
Satellite Information Services, the UK media group, continued
to build its media and betting rights inventory over the year.
We have maintained our valuation of this business at the year end.
The company paid a dividend to shareholders, resulting in a return
to us of 5.6% over the year.
Annual report 2015 Caledonia Investments plc
17
Strategic report
Directors’ report
Financial statements
Other information
Investment review continued
Funds pool
The Funds pool comprises investments
in private e(cid:147)uity and (cid:147)uoted market
collective investment vehicles,
structured through companies, limited
partnerships and open-ended funds.
The Funds pool had an excellent year, with a total return of 45.2%.
The principal component of this return was the increased valuation
of the Capital Today China fund, following the IPO of JD.com, the
Chinese e-commerce business, in May 2014. However, even
excluding this exceptional performance from Capital Today China,
the Funds pool return was 15.6% for the year. The pool started
the year at £204.4m and ended at £327.7m, after net investment
of £29.0m.
(cid:18)ur fund investments provide broad
exposure to areas of the world where
it would prove more difficult for us
to invest directly.
The Funds pool contains investments in private equity and quoted
market funds principally in North America 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.
(cid:938)45.2(cid:936)
return over the year
20% of NAV at 31 March 2015
Opening value
Investments
Realisations
Revaluation
Closing value
Investment income
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 private equity funds –
$50m (£33.7m) to FLAG Private Equity VI, $20m (£13.4m) to Asia
Alternatives IV and $25m (£16.8m) to Morgan Stanley Private Equity
Asia. In addition, we invested in five new quoted market funds –
£19.1m in Macquarie Asia New Stars, £14.9m in Asia Landmark,
£15.0m in Newton Asian Income, £119m in NTAsian Discovery Fund
and £6.7m in Longleaf US UCITS, whilst making an additional £6.7m
investment in Arlington.
FLAG Private Equity VI is a fund of private equity funds, investing
in buy-out managers operating in the US lower-mid market. Asia
Alternatives IV is another fund of private equity funds, but focused
on the Asian markets. In both cases we are invested in their previous
funds. Morgan Stanley Private Equity Asia has an excellent record
over two decades of investing in leading businesses in Asia with
strong value propositions.
Macquarie Asia New Stars, Asia Landmark (managed by New Silk
Road) and Newton Asian Income invest in quoted companies
in Asia. Longleaf US UCITS, managed by Southeastern Asset
Management in the US, invests in US securities that it believes
to be significantly undervalued.
£m
204.4
104.0
(75.0)
94.3
327.7
3.6
Top investments
Name
Capital Today China
Perlus Microcap
Macquarie Asia New Stars
Asia Landmark
Business
Private equity fund
Quoted market fund
Quoted market fund
Quoted market fund
Geography
China
US
Asia
Asia
First
invested
2006
2010
2014
2014
Equity
held
%
n/a
n/a
n/a
n/a
Residual
cost
£m
–
16.6
19.1
14.9
Value
£m
103.6
29.8
21.7
16.6
Income/(expense)
recognised in the year
Capital
Revenue
£m
£m
74.0
0.3
5.5
–
2.6
–
1.7
–
Pool
%
31.5
9.1
6.6
5.0
The table above shows pool holdings of over 1% of net assets at 31 March 2015.
18 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
The Asia Landmark fund was established in 2009 and is managed
by New Silk Road Investment in Singapore. It invests in Asian
companies with the aim of achieving superior long term absolute
returns through an independent, fundamentals-based, value-driven
investment process. We invested £14.9m in this fund in May 2014,
which has generated a return of 13.8% over the year.
At the year end, our fund commitments, including commitments to
funds held in a subsidiary investment entity, amounted to £120.1m
(2014 – £79.7m). The following chart shows the geographical spread
of our fund investments and outstanding commitments.
(cid:38)un(cid:282) investments an(cid:282) commitments
North America
Asia
United Kingdom
Continental (cid:28)uro(cid:393)e
(cid:39)lobal
2015
31%
47%
17%
–
5%
2014
36%
27%
27%
6%
4%
The fund investments in the UK represented legacy private equity
funds that were made prior to the Funds pool being established with
its strategic focus on North America and Asia.
Realisations in the year comprised £40.0m from the sale of securities
and fund interests and £35.0m from fund distributions. Included in
the sale of securities were £11.1m from the sale of TCL and
Omniport from our Nova Capital managed portfolio, the realisation
of our Polar Capital Global Financials Trust holding for £9.6m and the
sale of our India Capital Growth Fund shares for £6.9m. During the
year, we also sold our interests in the Pragma Capital private equity
funds for £11.0m and in Crescendo IV for £0.8m. Fund distributions
included £15.2m from Capital Today China, resulting from the sale
of part of its holding in JD.com.
The Capital Today China Growth Fund is managed by Capital Today
and provides growth capital to Chinese companies, focusing on the
consumer, retail and internet sectors. The investment in JD.com,
the Chinese e-commerce company, has been particularly successful.
JD.com completed its IPO on NASDAQ in May 2014, raising $1.8bn.
Capital Today has subsequently sold part of its holding in JD.com,
resulting in a £15.2m distribution to us. 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 177.0% over the year. We
continue to adjust the manager’s quarterly valuation of the Capital
Today China fund with the share price of JD.com at the reporting
date.
Perlus Microcap is a long-only quoted market fund investing in small
public companies in North America, managed by UK-based Perlus
Investment Management. Perlus Microcap has an excellent track
record, being 54.7% ahead of the Russell Value Index, since its
August 2008 inception. Our investment in this fund returned 22.7%
over the year. Subsequent to the year end, we have commenced a
process of realising a portion of our investment in this fund in order
to rebalance our North American quoted market fund portfolio.
Macquarie Asia New Stars is a quoted market fund managed by
Macquarie Investment Management in Hong Kong, which aims to
capture the potential growth of small and mid-sized companies in
Asia (ex-Japan). We invested £19.1m in November 2014 and, over
the four months of ownership, the fund has increased in value
by 13.5%, delivering a return of 38.8%.
Annual report 2015 Caledonia Investments plc
19
Strategic report
Directors’ report
Financial statements
Other information
Investment review continued
Income & Growth pool
The Income (cid:428) 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 4.5(cid:936) net.
The Income & Growth pool comprises a geographical and sector
balanced portfolio of currently 36 investments in mainly global blue
chip companies with strong balance sheets, above average returns
and demonstrable histories of creating shareholder value. All
investments have strong organic growth potential in tandem with
a high dividend yield.
Over the year, the Income & Growth pool invested £51.3m, of which
£10.0m was new funding, and realised £51.6m, as we rebalanced
the portfolio. Net dividend income during the year was £8.7m,
representing a net yield of 4.3% on the average invested capital.
Overall, the value of the pool grew over the year from £189.6m to
£202.1m, representing 13% of Caledonia’s net assets.
The Income & Growth pool was created in March 2011, and has
had £166.0m of investment to date, and, over the four years of its
existence, produced a return of 43.9%, giving an annualised rate
of 9.5%.
Cumulative return
(cid:938)11.4(cid:936)
13% of NAV at 31 March 2015
Opening value
Investments
Realisations
Revaluation
Closing value
Investment income
Top investments
Name
Pfizer
Novartis
General Electric
Daimler
Zurich Insurance
Telenor
RTL
Swedbank
Television Broadcasts
Sanofi
03/11
03/12
03/13
03/14
03/15
150
130
110
90
£m
189.6
51.3
(51.6)
12.8
202.1
8.7
Business
Pharmaceuticals
Pharmaceuticals
Conglomerate
Vehicle manufacturer
Multi-line insurance
Mobile telecommunications
Entertainment network
Banking
Television broadcasting
Healthcare
Country
US
Switzerland
US
Germany
Switzerland
Norway
Belgium
Sweden
Hong Kong
France
Value
£m
8.1
7.7
7.2
7.1
7.1
6.8
6.8
6.7
6.7
6.7
Pool
%
4.0
3.8
3.6
3.5
3.5
3.4
3.4
3.3
3.3
3.3
Income
£m
0.2
0.1
0.2
0.1
0.4
–
0.3
0.4
0.3
0.2
The table above shows the top ten investments in the pool at 31 March 2015.
20 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Following a relatively subdued market in the first half of the year,
but fuelled by the Federal Reserve Bank completing its quantitative
easing tapering programme, the pool had a strong second half year
and produced a total return for the year of 11.4%, including a net
yield of 4.3%.
Over the year, the pool was rebalanced away from the UK, the
US and Latin America and into Europe and Asia, with a new
investment in Scentre, the Australian retail property developer,
including Westfield, and a further investment in Hutchinson Port
Holdings, the Hong Kong-based ports investor.
Solid performance came from developed markets, with US, UK and
European equities all contributing to returns. Europe in particular
came back strongly in the second half of the year and the pool
added a number of European holdings, including Daimler, the
German maker of Mercedes cars and trucks, Roche, the Swiss
pharmaceuticals company, British American Tobacco, the
international tobacco company, and Telenor, the Norwegian mobile
telecommunications provider. Good returns came from Novartis,
Daimler, Zurich Financial Services and Standard Life in Europe, Pfizer,
Intel and Altria in the US and APA Group in Australia.
Sectors
Regions
Oil and gas
Basic materials
Industrials
Consumer goods
Health care
Consumer services
Telecommunications
Utilities
Financials
Technology
2015
4%
3%
9%
20%
14%
10%
7%
5%
28%
–
2014
5%
3%
6%
24%
13%
8%
3%
5%
30%
3%
United Kingdom
Continental Europe
North America
Asia Pacific
Latin America
2015
14%
44%
24%
18%
–
2014
18%
37%
28%
12%
5%
Annual report 2015 Caledonia Investments plc
21
Strategic report
Directors’ report
Financial statements
Other information
Financial review
The strength of the company(cid:495)s
balance sheet has continued to reflect
our longer term approach to capital
accumulation, whilst benefiting from
a managed growth in revenue income
to support a record of 48 consecutive
years of dividend growth.
Caledonia’s net asset value increased over the year to £1,626.9m
at 31 March 2015, from £1,445.6m at the start of the year. The
following chart analyses this increase:
Movement in net asset value
£m
1,700
1,600
1,500
1,400
Opening
NAV
Revenue
return
Capital
return
Dividends
Other
Closing
NAV
Total return
The company seeks to generate total return from both investment
income, net of expenses, and capital growth. For the year ended
31 March 2015, the total return was £205.9m (2014 – £184.2m), of
which £29.6m (2014 – £28.7m) derived from income and £176.3m
(2014 – £155.5m) from capital.
Revenue performance
Investment income in the year of £47.2, including £0.4m from
unallocated investments, was significantly higher than last year’s
£41.1m. The Income & Growth pool contributed £1.7m more than
in 2014, reflecting first time dividends from investments initiated
late last year and a progressive shift to higher-yielding investments.
The Funds pool received £1.9m more income than last year, due
principally to income distributions by the CBPE private equity funds
on realisation of several of their investments. The Unquoted pool
yielded £23.1m, similar to last year, but with last year’s substantial
income from The Sloane Club, Amber Chemicals (sold on 31 March
2014) and Oval (sold on 1 April 2014) replaced with receipts from
TGE Marine, Park Holidays, Choice Care Group and Latshaw Group.
Investment income represented a net yield on the monthly average
portfolio of 3.3%, compared with 3.2% last year.
Capital performance
Net gains on investments totalled £179.9m (2014 – £151.4m),
including £0.4m of gains on unallocated investments (2014 – £0.6m
of gains). The principal individual gain was £74.0m from the Capital
Today China fund, arising from the successful IPO of JD.com, the
Chinese e-commerce company, in which the fund held a substantial
stake. Significant gains also arose from TGE Marine, Dewan Housing
Finance, Park Holidays and Latshaw Group. These gains more than
offset our investment losses, the most significant of which were
Bristow Group, Avanti Communications and Polar Capital.
Overall, across the entire portfolio, looking through subsidiary
investment entities, listed investments contributed £17.5m to the
valuation gains, and unlisted investments contributed £162.0m.
22 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
(cid:68)ovement in investment (cid:393)or(cid:414)olio value
£m
1,700
1,600
1,500
1,400
Opening
balance
Listed
net (cid:336)ains
(cid:104)nliste(cid:282)
net (cid:336)ains
Net
realisations
Closin(cid:336)
balance
The company maintains a prudent valuation approach to all
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
multiples – generally of around 30% – to account for points of
difference between the comparators and the company being
valued, most significantly reflecting relative marketability and scale.
Unlisted property and fund investments are based on external
valuations.
Dividend
We recognise that a reliable source of growing dividends is an
important part of shareholder total return over both the short and
longer terms and have extended our record of growing annual
dividends to 48 consecutive years.
We paid an interim dividend of 13.8p per share on 8 January 2015
and have proposed a final dividend of 36.8p per share. The total
dividend for the year of 50.6p is an increase of 3.1% on last year.
Including the proposed final dividend, the dividends to be paid out
of revenue earnings for the year ended 31 March 2015 totalled
£27.9m, which was more than covered by the profit for the year
of £29.6m.
If approved, the final dividend will be payable on 6 August 2015 to
holders of shares on the register on 10 July 2015. The ex-dividend
date will be 9 July 2015.
Cash flows, liquidity and facilities
Over the year, we moved from opening net debt of £7.1m to net
cash of £131.0m, principally due to net portfolio realisations.
The following chart summarises the source of valuations across the
portfolio:
The total cash movement over the year of £138.1m is analysed
by pool as follows:
Portfolio by valuation source
Net cash movement by pool
£m
Quoted price
External fund manager
External property valuer
Directors' valuation
44%
30%
5%
21%
Expenses
Caledonia allocates all expenses, other than transaction costs, to
revenue. Our ongoing charges ratio for the year was 1.22% (2014 –
1.03%). 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 higher than last year at £18.3m (2014 – £13.6m). This primarily
reflected a credit last year to expenses in respect of the 2011
performance share awards having failed to meet their performance
targets, together with an increase in share-based payment expenses
and reorganisation costs.
180
120
60
0
-60
Quoted
Unquoted
Funds
Income
& Growth
Other
At 31 March 2015, the company had undrawn committed
facilities of £125m, expiring in April 2018. In addition, its treasury
subsidiary had drawn £9.0m against £50m of committed facilities.
Treasury management
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.
Stephen King
Finance Director
Annual report 2015 Caledonia Investments plc
23
Strategic report
Directors’ report
Financial statements
Other information
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 used to give the fair value
of a certain asset or group of assets.
Fund interests
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 carried interest.
Other investments
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.
Valuation methodology
Investments are measured at the directors’ estimate of fair value
at the reporting date, in accordance with IFRS 13 Fair Value
Measurement. Fair value is the amount for which an asset could
be exchanged between knowledgeable, willing parties in an arm’s
length transaction.
Publicly traded securities
Investments listed in an active market are valued at their bid price
on the reporting date. When a bid price is unavailable, the price
of the most recent transaction will normally be used.
Unlisted companies
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.
24 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Risk management
Effective risk management is a key
component of the company(cid:495)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(cid:495)s
risk appetite.
Caledonia risk governance and structure
Risk management and its governance is the responsibility of 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.
The Audit Committee assesses and monitors 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 programme
Business
engagement
Investment
executives
Risk management part
of investing process
Investee managements
Ris(cid:364) identification and
mitigation responsi(cid:271)ility
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.
Annual report 2015 Caledonia Investments plc
25
Strategic report
Directors’ report
Financial statements
Other information
Principal risks
Mitigation
(cid:14)ey developments
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.
Investment risks include the appropriate research and due diligence
of new investments and the timely execution of both new
investments and realisations for optimising 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 22 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 arise from the recruitment, development and
retention of staff, systems and procedures and business disruption.
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.
The company’s business model and strategy are reviewed
(cid:891) Caledonia has developed its risk monitoring procedures
periodically, against market conditions and target returns.
to ensure that there is a clear and monitored strategic
alignment of the portfolio to the agreed strategy.
The performance of the company and its key risks are
monitored regularly by management and the board.
Pool managers have well-developed networks through
(cid:891) The continued development of investment management
skills and expertise over the last three 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 basis
(cid:891) Risk weighted performance reporting and portfolio risk
and actions taken to balance appropriately risk and return.
analysis has been enhanced to look at the movement in
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.
the risk factors and why these have occurred, giving more
complete insight into the characteristics and performance
of Caledonia’s portfolio.
Detailed cash forecasting for six months ahead is updated
(cid:891) Average liquidity levels of our quoted portfolio have
and reviewed weekly, including the expected drawdown of
increased over the last year, as we have continued to
capital commitments.
realise less liquid non-core investments.
Loan facilities are maintained to provide appropriate liquidity
(cid:891) Committed borrowing facilities to £175m are in place up
headroom.
to April 2018.
The liquidity of the portfolio is reviewed regularly.
Systems and control procedures are developed and reviewed
(cid:891) An IT risk dashboard is maintained and is an important
regularly. They are tested, as part of the annual programme
document, noting current IT risks facing Caledonia.
of controls assurance, to ensure effective operation.
(cid:891) Increasing use of the cloud for systems processing,
Appropriate remuneration and other policies are in place to
including email and for backing up data.
encourage the retention of key staff. Business continuity plans
are maintained, using an offsite facility.
Caledonia has internal resources to consider 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.
(cid:891) There have been no significant additional regulatory
requirements in the year.
Risk management continued
Caledonia risk management process
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 risks as
investment volatility, value at risk, diversification, liquidity and
concentration risks.
r i s k appetite
S e t
c o n s i s tent with
p p r o v ed strategy
a
rt and feedback
o
p
e
R
M
o
n
i
t
o
r
a
n
d
i
m
p
r
o
v
e
Id
e
n
ti
f
y
a
n
d
d
o
c
u
m
e
n
t
t
c
a
p
d
o
o
Score im
and likelih
Set target and m i ti g a
e
t
26 Annual report 2015 Caledonia Investments plc
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.
Investment risks include the appropriate research and due diligence
of new investments and the timely execution of both new
investments and realisations for optimising 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 22 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 arise from the recruitment, development and
retention of staff, systems and procedures and business disruption.
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
Directors’ report
Financial statements
Other information
Mitigation
(cid:14)ey developments
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.
(cid:891) Caledonia has developed its risk monitoring procedures
to ensure that there is a clear and monitored strategic
alignment of the portfolio to the agreed strategy.
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.
(cid:891) The continued development of investment management
skills and expertise over the last three years has facilitated
increased deal flow and quality of research across the
portfolio.
(cid:891) Risk weighted performance reporting and portfolio risk
analysis has been enhanced to look at the movement in
the risk factors and why these have occurred, giving more
complete 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.
(cid:891) Average liquidity levels of our quoted portfolio have
increased over the last year, as we have continued to
realise less liquid non-core investments.
Loan facilities are maintained to provide appropriate liquidity
headroom.
(cid:891) Committed borrowing facilities to £175m are in place up
to April 2018.
The liquidity of the portfolio is reviewed regularly.
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.
Caledonia has internal resources to consider 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.
(cid:891) An IT risk dashboard is maintained and is an important
document, noting current IT risks facing Caledonia.
(cid:891) Increasing use of the cloud for systems processing,
including email and for backing up data.
(cid:891) There have been no significant additional regulatory
requirements in the year.
Annual report 2015 Caledonia Investments plc
27
Strategic report
Directors’ report
Financial statements
Other information
Sustainability
(cid:26)e 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
concerns they may have.
Workplace
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.
28 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Equality and diversity
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 UK 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
All employees
Male
Number
10
8
24
Female
Number
–
3
21
Female
%
–
27
47
Environment
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:
(cid:891) encouragement of the use of electronic communications to save
paper, printing consumables and energy
(cid:891) usage of video-conferencing and telephone conference calls
rather than travelling to meetings
(cid:891) recycling of office waste, used paper and other consumables.
Greenhouse gas emissions
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
Scope 1 (direct
emissions)
Scope 2 (indirect
emissions)
Scope 3 (indirect
emissions)
Total
Key performance
indicator
Source of GHG emissions
(cid:891) Com(cid:271)ustion of
fuel and operation
of facilities
(cid:891) Air conditioning
refridgerant loss
(cid:891) Company car use
(cid:891) Electricity purchased
for own use
(cid:891) (cid:17)usiness travel
Scope 1 and 2
normalised to full time
employee equivalent
GHG
emissions
in year Unit
65 Tonnes CO2e
171 Tonnes CO2e
254 Tonnes CO2e
490 Tonnes CO2e
10.0 Tonnes CO2e
per FTE
Annual report 2015 Caledonia Investments plc
29
Strategic report
Directors’ report
Financial statements
Other information
(cid:5)oard of directors
1
2
3
4
5
6
1 Rod Kent
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
Calthorpe Estates.
2 Will Wyatt
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
a director in 2005 and Chief Executive in
2010. He is a non-executive director of
Cobehold and Real Estate Investors. He is
also a trustee of the Rank Foundation and
a director of Newmarket Racecourses.
3 Stephen King
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 in England
and Wales.
4 Jamie Cayzer-Colvin
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 a director
in 2005. He is Chairman of The Henderson
Smaller Companies Investment Trust and
a non-executive director of Polar Capital
Holdings.
5 David Stewart
Non-Executive Director
Appointed a non-executive director of
Caledonia on 17 March 2015, he is a
member of the Audit, Nomination and
Remuneration Committees. Having begun
his career at Swire Pacific in 1981, he joined
James Capel in 1986 and then Fidelity
Investments in 1995, where he was Head
of Emerging Markets and subsequently
European President. From 2005 until 2013,
he was Chief Executive Officer of Odey
Asset Management before assuming a
non-executive director role until 2014.
He is currently Chairman and a co-founder
of IMM Associates.
6 Stuart Bridges
Non-Executive Director
Appointed a non-executive director of
Caledonia in 2013, he is Chairman of the
Audit Committee and a member of the
Governance and Nomination Committees.
A chartered accountant, he has been
Chief Financial Officer of Hiscox since 1999,
although will be joining ICAP as Group
Finance Director after 31 August 2015. Prior
to Hiscox, 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
30 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
7
8
9
10
7 The Hon Charles Cayzer
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 2012. He is Chairman of The Sloane Club,
Senior Independent Non-Executive Director
of LondonMetric Property and a non-
executive director of Eredene Capital and
Quintain Estates & Development. He is a
member of the Nomination Committee.
8 Harold Boël
Non-Executive Director
A Belgian national, he was appointed
a non-executive director of Caledonia on
25 June 2014 and is a member of the Audit
and Nomination Committees. A material
sciences engineer by training, he has been
Chief Executive Officer of Sofina, a quoted
Belgian financial holding company, since
2008, prior to which he held a number of
operational and managerial roles within
Corus, now part of Tata Steel. He is a
non-executive director of Suez
Environnement Company and bioMérieux,
in which Sofina has interests.
9 Charles Gregson
Senior Independent
Non-Executive Director
Appointed a non-executive director of
Caledonia in 2009, he is Chairman of the
Governance and Remuneration Committees
and a member of the Nomination
Committee. He spent his business career at
United Business Media and its predecessor
companies in a number of divisional and
head office roles and is now non-executive
Chairman of ICAP and a non-executive
director of Non-Standard Finance.
10 Robert Woods CBE
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.
Annual report 2015 Caledonia Investments plc
31
Strategic report
Directors’ report
Financial statements
Other information
Corporate governance report
Caledonia recognises the importance
of good corporate governance, which
re(cid:147)uires 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
R D Kent
W P Wyatt
S A King
J M B Cayzer-Colvin
H Y H Boël1
S J Bridges
Hon C W Cayzer
C H Gregson
R B Woods
D C Stewart2
C M Allen-Jones3
R Goblet d’Alviella4
Meetings
attended
8
8
8
8
4
7
7
8
7
1
8
2
Meetings
eligible
to attend
8
8
8
8
5
8
8
8
8
1
8
3
1. Mr Boël was appointed a director on 25 June 2014.
2. Mr Stewart was appointed a director on 17 March 2015.
3. Mr Allen-Jones retired from the board on 17 March 2015.
4. Mr Goblet d’Alviella retired from the board on 25 June 2014.
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 for the duration
of the reporting period.
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-Corporate-Governance-
Code.aspx.
The board
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:
(cid:891) the appointment and removal of directors of the company, as
prescribed by the company’s articles of association, and of certain
senior executive positions
(cid:891) the terms of reference of board committees and the membership
thereof
(cid:891) the company’s strategy
(cid:891) annual budgets
(cid:891) the company’s systems of risk management and internal control
(cid:891) treasury policies, banking counterparties and counterparty
exposure limits
(cid:891) directors’ remuneration and terms of appointment
(cid:891) significant capital transactions
(cid:891) 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.
32 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
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.
Following changes in the Financial Conduct Authority’s Listing Rules
introduced in May 2014, the election of those directors determined
by the board to be independent under the UK Corporate Governance
Code must be subject to the approval of both all shareholders of the
company and separately those shareholders who are not controlling
shareholders, being the Cayzer Concert Party.
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 prior to becoming
non-executive. In assessing Mr Boël’s independence, the board took
account of his position as Chief Executive Officer of Sofina SA, whose
wholly-owned subsidiary, Rebelco SA, has a 5.1% shareholding in
Caledonia. Mr Boël’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. On 13 April 2015, ICAP plc,
where Mr Gregson is non-executive Chairman, announced that, subject to
approval by the Financial Conduct Authority, Mr Bridges would be joining
that company as Group Finance Director. The board does not consider
that Mr Bridges’ new role, which will not take effect until after 31 August
2015, will have any influence on either his, or Mr Gregson’s, ability to
exercise independent judgement in relation to the affairs of Caledonia,
which has no other connection with ICAP. Mr Woods has also had past
connections with the company and in particular its former Chairman,
the late Peter Buckley, through business dealings between P&O Steam
Navigation Company and British & Commonwealth Shipping Company,
in which Caledonia was a substantial shareholder, during the 1970s and
early 1980s and remained a friend of Mr Buckley’s until his death in 2008.
The board does not consider that these past relationships affect his
independence given the time that has passed since Mr Woods last had
business dealings with British & Commonwealth and the fact that
Mr Woods did not join Caledonia’s board until some three years after
Mr Buckley’s death.
Caledonia has also announced that Shonaid Jemmett-Page will be joining
the board from 1 July 2015. The board has determined that she will also
be an independent director. Mrs Jemmett-Page was Caledonia’s audit
partner at KPMG Audit Plc from November 1995 to March 2001. The
board does not consider that this affects her independence given the
length of time that has elapsed since this role ended and also the fact that
none of the current board members, other than The Hon Charles Cayzer,
were in post whilst she was audit partner.
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 39
respectively.
The terms of reference of each committee are reviewed annually and
are available on the company’s website.
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:
(cid:891) 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 comprises any two directors.
(cid:891) 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 other members comprise the Chairman,
the executive directors, the heads of the pools of capital and the
Company Secretary.
(cid:891) 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
total return performance. The Investment Management Committee
is chaired by the Chief Executive and other members comprise the
entire investment team, the Company Secretary and the Deputy
Company Secretary.
(cid:891) 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 other members
comprise the Chairman, the executive directors, the heads of the pools
of capital and the Company Secretary.
(cid:891) 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,
tax and regulatory developments. The Compliance Committee is
chaired by the Company Secretary and other members comprise the
Finance Director, the Heads of Tax, Treasury and Finance, the Group
Financial Controller and the Deputy Company Secretary.
(cid:891) 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 other members comprise the Finance Director,
the Head of Finance and the Chairman of the Audit Committee. The
meetings are observed by representatives from KPMG LLP.
Board performance evaluation
The board conducts an annual evaluation of its performance and that
of its committees and, in accordance with best practice, engages an
independent third party facilitator to assist in this process every three
years. For the year ended 31 March 2015, the evaluation of the board
as a whole and of its committees was undertaken internally, led by the
Chairman, and was conducted by inviting individual board members to
complete questionnaires regarding the operation and effectiveness of
the board and its committees, the responses from which were collated
by the Company Secretary and discussed at a special 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 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.
Annual report 2015 Caledonia Investments plc
33
Strategic report
Directors’ report
Financial statements
Other information
Corporate governance report continued
The results of the 2015 evaluation process were presented in a report
to the board. The conclusion was that the board operated in a unified
manner, but with a preparedness to provide an appropriate level of
challenge to, and when necessary veto of, management proposals.
Actions agreed for improvement included the provision of more general
background information on macro-economic issues for board members
and periodic reviews of the process involved in reaching key decisions
taken to evaluate its effectiveness and whether any lessons could
be learned.
Directors’ conflicts of interest
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 by the Governance Committee.
Relations with shareholders
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.
Relations with controlling shareholders
Following recent changes to the Financial Conduct Authority’s Listing
Rules, where a premium listed company has a controlling shareholder
or shareholders (being a person or persons acting in concert who exercise
or control 30% of more of the company’s voting rights), the company is
required to enter into a written and legally binding agreement which is
intended to ensure that the controlling shareholder undertakes to comply
with certain independence provisions, namely that:
1. transactions and arrangements with the controlling shareholder (and/
or any of its associates) will be conducted at arm’s length and on
normal commercial terms;
2. neither the controlling shareholder nor any of its associates will take
any action that would have the effect of preventing the listed company
from complying with its obligations under the Listing Rules; and
3. neither the controlling shareholder nor any of its associates will
propose or procure the proposal of a shareholder resolution which
is intended or appears to be intended to circumvent the proper
application of the Listing Rules.
The board confirms that agreements specified under the Listing Rules
as described above (which were required to be in place by 17 November
2014) were entered into by the company on 30 October 2014 with The
Cayzer Trust Company Limited (‘Cayzer Trust’) and separately with the
Trustee of the Caledonia Investments plc Employee Share Trust
(‘Employee Share Trust’), which is deemed by the Panel on Takeovers
and Mergers to form part of the Cayzer Concert Party. As at 26 May 2015,
being the latest practicable date prior to the publication of this annual
report, the Cayzer Concert Party held 48.49% of Caledonia’s voting rights.
Under the terms of its agreement, Cayzer Trust undertook to procure the
compliance with the independence provisions of all of the other members
of the Cayzer Concert Party, other than the Employee Share Trust.
The board confirms that, between 30 October 2014 and 26 May 2015,
being the latest practicable date prior to the publication of this annual
report:
1. the company has complied with the independence provisions included
in the agreements with Cayzer Trust and the Employee Share Trust
2. so far as the company is aware, the independence provisions included
in the agreements have been complied with by Cayzer Trust and the
Employee Share Trust
3. so far as the company is aware, the procurement obligation included
in the agreement with Cayzer Trust has been complied with by
that company.
Rod Kent
Chairman of the board
27 May 2015
34 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
(cid:17)omination Committee report
The (cid:17)omination Committee is focused
on evaluating the directors and
examining the skills and attributes
needed of board members. It is also
responsible for identifying suitable
candidates for new director positions.
Membership and attendance
The membership and attendance record of the Nomination Committee
during the year was as follows:
R D Kent (Chairman)
H Y H Boël1
S J Bridges1
The Hon C W Cayzer1
C H Gregson
D C Stewart2
R B Woods
W P Wyatt1
C M Allen-Jones3
R Goblet d’Alviella4
Meetings
attended
5
3
3
3
4
0
4
4
5
0
Meetings
eligible
to attend
5
4
4
4
5
0
5
4
5
1
1. Mr Boël, Mr Bridges, The Hon C W Cayzer and Mr Wyatt were appointed members
of the committee on 17 July 2014.
2. Mr Stewart was appointed a member of the committee on 17 March 2015.
3. Mr Allen-Jones retired from the committee on 17 March 2015.
4. Mr Goblet d’Alviella retired from the committee on 25 June 2014.
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 service and involvement outside
board meetings.
Diversity
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 has not adopted any
measureable objectives in relation thereto.
Work of the Nomination Committee
The Nomination Committee met four times during the year and the work
undertaken included:
(cid:891) an evaluation of the structure, size and composition of the board as
a whole in the light of the 2014 board performance evaluation
(cid:891) consideration of the contributions and effectiveness of the non-
executive directors seeking election or re-election at the 2014 annual
general meeting, prior to giving recommendations for their elections
or re-elections
(cid:891) a recommendation to the board that Mr Boël be appointed a director
of the company
(cid:891) the conduct of a search for additional independent non-executive
directors, concluding with recommendations to the board that
Mr Stewart and Mrs Jemmett-Page be appointed.
The Nomination Committee engaged an external search consultancy,
Odgers Berndtson, to assist in the search that culminated in the
appointments of Mr Stewart and Mrs Jemmett-Page. Odgers Berndtson
has no other connection with the company. An external search
consultancy was not used in relation to the appointment of Mr Boël,
who was known to the company by virtue of his role at Sofina.
Rod Kent
Chairman of the Nomination Committee
27 May 2015
Annual report 2015 Caledonia Investments plc
35
Strategic report
Directors’ report
Financial statements
Other information
Audit Committee report
The Audit Committee plays a
significant role in ensuring that the
company(cid:495)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:
S J Bridges (Chairman)
H Y H Boël1
D C Stewart2
C M Allen-Jones3
R Goblet d’Alviella4
C H Gregson5
Meetings
attended
3
2
1
2
1
3
Meetings
eligible
to attend
3
2
1
2
1
3
1. Mr Boël was appointed a member of the committee on 17 July 2014.
2. Mr Stewart was appointed a member of the committee on 17 March 2015.
3. Mr Allen-Jones retired as a member of the committee on 17 March 2015.
4. Mr Goblet d’Alviella retired as a member of the committee on 25 June 2014.
5. Mr Gregson ceased to be a member of the committee on 17 March 2015.
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 2015,
in May and November 2014 and in March 2015. Subsequent to the year
end, it met in May 2015 to consider the significant issues in relation to the
2015 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 executive management present.
Work of the Audit Committee
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 2014 was the 2014
annual report and financial statements and the 2014 half-year results
respectively, including evaluation of the going concern statements
therein.
The March 2015 meeting considered principally the audit planning for the
2015 annual report, including in particular the requirements of the 2012
revision of the UK Corporate Governance Code and other disclosure
requirements.
In its May 2015 meeting, the Audit Committee reviewed the form and
content of the 2015 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
2015 annual report to the board.
The significant issues the Audit Committee considered in relation to
the 2015 financial statements were the valuation of unlisted and listed
investments. In relation to these financial statements, the Audit
Committee also considered the going concern statement (and related
liquidity issues) and compliance with the annual report ‘fair, balanced
and understandable’ provisions of the 2012 revision of the UK Corporate
Governance Code.
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 the Challenge Committee meeting (along
with the external 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.
36 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Listed valuations
Listed investments are a significant component of the financial
statements. The Challenge Committee 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. The
Audit Committee concurred that it was appropriate to use the exchange
bid price in all cases.
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.
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 2015 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
corporate tax and VAT compliance and reporting, purchase invoice
processing and payment and general ledger accounting and reporting.
No significant areas of weakness were identified. The Audit Committee
agreed the control review work plan for 2015.
The board of directors is responsible for the company’s system of internal
control and for reviewing its effectiveness. The system is designed to
manage rather than eliminate the risk of failure to achieve business
objectives and can only provide reasonable and not absolute assurance
against material misstatement or loss.
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.
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. 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.
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:
(cid:891) the quality and seniority of the auditor’s staff
(cid:891) the appropriateness of the planned audit methodology as applied
to Caledonia’s business activity
(cid:891) 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:
(cid:891) a review and approval of the scope of the planned audit
(cid:891) the planned implementation of improvements following appropriate
post audit reviews
(cid:891) the monitoring of the independence of the external auditor
(cid:891) a review of any Financial Reporting Council’s Audit Quality Review
Report for KPMG’s audit of the company
(cid:891) 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 proposed
at the annual general meeting on 16 July 2015.
Private meetings
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
27 May 2015
Annual report 2015 Caledonia Investments plc
37
Strategic report
Directors’ report
Financial statements
Other information
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 (cid:140)udgement.
Membership and attendance
The membership and attendance record of the Governance Committee
during the year was as follows:
C H Gregson (Chairman)1
S J Bridges2
R B Woods
C M Allen-Jones3
Meetings
attended
3
0
2
3
Meetings
eligible
to attend
3
0
3
3
1. Mr Gregson replaced Mr Allen-Jones as chairman of the committee on
17 March 2015.
2. Mr Bridges was appointed a member of the committee on 17 March 2015.
3. Mr Allen-Jones retired as a member of the committee on 17 March 2015.
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 board or any of its committees on the
matter concerned.
Work of the Governance Committee
The Governance Committee met three times during the year and the
principal matters it considered were:
(cid:891) the review and approval of the Corporate governance report for the
year ended 31 March 2014
(cid:891) 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
(cid:891) 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
(cid:891) the review and approval of agreements entered into by the company
with The Cayzer Trust Company Limited and the Trustee of the
Caledonia Investments plc Employee Share Trust incorporating
independence provisions to comply with the new Listing Rule
requirements for premium listed companies with controlling
shareholders.
Charles Gregson
Chairman of the Governance Committee
27 May 2015
38 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Directors(cid:495) 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:
C H Gregson (Chairman)
D C Stewart1
R B Woods
C M Allen-Jones2
Meetings
attended
6
1
4
5
Meetings
eligible
to attend
6
1
6
5
1. Mr Stewart was appointed a member of the committee on 17 March 2015.
2. Mr Allen-Jones retired as a member of the committee on 17 March 2015.
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 Large and
Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013. The parts of the annual report on
directors’ remuneration that have been audited are indicated in that
report. The annual statement of the Chairman of the Remuneration
Committee and the policy on directors’ remuneration are not
subject to audit.
On behalf of the board, I am pleased to introduce Caledonia’s directors’
remuneration report for the year ended 31 March 2015.
Last year, the Remuneration Committee completed a strategic review
of Caledonia’s executive remuneration framework and engaged with its
larger shareholders and investor representative bodies on the key
changes. The revised framework was set out in the remuneration policy
which was approved by shareholders at the 2014 annual general meeting.
No changes to this policy are proposed at this year’s annual general
meeting and the key elements of the policy have been included in this
year’s directors’ remuneration report for ease of reference.
In this introductory statement, I have set out a summary of the
implementation of the remuneration policy in respect of the year ended
31 March 2015 and how we intend to approach remuneration for the
2016 financial year. Detailed disclosure and explanations of the
remuneration paid to directors in the year ended 31 March 2015 are
included in the annual report on directors’ remuneration, which will be
put to an advisory vote of shareholders at the annual general meeting
on 16 July 2015.
Remuneration for the year ended 31 March 2015
Turning to the year under review, as described in the Chairman’s and
Chief Executive’s report, Caledonia has delivered a net asset value per
share total return (‘NAVTR’) of 14.2%, continuing the strong returns
achieved over the previous two years and extending Caledonia’s record
of outperformance against the Retail Prices Index (‘RPI’) over one, three
and five years and the FTSE All-Share Total Return index (‘FTSE index’)
over ten years. The Funds pool, led by Jamie Cayzer-Colvin, was a
significant contributor to this year’s performance, delivering a total return
of 45.2% compared with its target of 12.5%. Taking these results into
account 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 2015 also represented the end of the three year
performance measurement period for awards granted in 2012 under
the company’s performance share scheme. For these awards, the
performance targets were that, for two-thirds of the shares comprised in
an award, Caledonia’s NAVTR had to outperform the 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. Both of these targets were comfortably met, with
Caledonia’s NAVTR outperforming the FTSE index by 17.2% and the Gilts
index by 29.9% over the three year period. Accordingly, these awards
have vested in full.
No deferred bonus plan awards were granted in 2012.
Annual report 2015 Caledonia Investments plc
39
Strategic report
Directors’ report
Financial statements
Other information
Directors(cid:495) remuneration report continued
Annual statement by the Chairman of the Remuneration Committee
Performance measures for long term incentive awards
Following a further consultation with shareholders and investor
representative bodies, in November 2014 the Remuneration Committee
adopted new performance measures for the performance share scheme
and deferred bonus plan matching shares which are based on the
annualised absolute returns achieved by Caledonia over three and five
year periods, in order to align the measures more closely with the
company’s long term objective of achieving absolute returns over rolling
ten year periods of between RPI+3% and RPI+6%. For investment
executives, including Mr Cayzer-Colvin, a substantial proportion of the
awards will be geared towards the total returns achieved by the pools
of capital for which they are responsible. Further details of these new
performance measures and how they will operate for executive directors
are set out in the summary of performance measures and targets in the
notes to the remuneration policy table on pages 43 and 44.
Remuneration for the year ending 31 March 2016
Looking ahead to the 2016 financial year, basic salaries of executive
directors have been increased with effect from 1 April 2015 by 1.0%,
broadly in line with inflation, which was the same as the standard increase
given to the company’s senior executives, although other grades of staff
received a higher increase of 3.0%. The Chairman’s and the non-executive
directors’ fees are reviewed on a triennial basis and, since these were last
increased in April 2014, they have not been changed.
We plan to make performance share scheme and deferred bonus plan
awards following the release of our 2015 full year results announcement
in line with our normal grant cycle. These will be subject to the
performance measures adopted in November 2014, as outlined above.
The company performance related element of the annual bonus scheme
is determined by reference to the relative performance of the company’s
NAVTR to RPI over the year, with a 10% pay-out if NAVTR matches RPI,
rising to a 100% pay-out if outperformance of 7% or more is achieved.
In view of the current low level of RPI, the Remuneration Committee has
decided that, for bonus awards for the 2016 and subsequent financial
years, the RPI comparator should be 3%, which is broadly in line with
the historic long term average, or actual RPI if higher.
Malus and clawback
Last year, provisions were introduced into Caledonia’s performance
share scheme and deferred bonus plan which 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 known
as ‘malus’ provisions.
In September 2014, a revised UK Corporate Governance Code (‘Code’)
was issued which included a provision that all performance related
incentive schemes for executive directors operated by UK listed
companies should include not only malus provisions, but also
arrangements to recover amounts of variable remuneration after it has
been paid (known as ‘clawback’). The Code is not specific as to the period
of time over which clawback should operate or the circumstances in
which it should be applied and the Remuneration Committee has been
advised that, since only malus provisions were included in the current
remuneration policy approved by shareholders in 2014, it would be
necessary to seek formal shareholder approval to amend the policy
should clawback provisions be introduced. As a consequence, the
Remuneration Committee has decided to see how market practice in
relation to clawback develops before making a decision as to whether to
introduce it to Caledonia’s performance related incentive schemes and, if
it decides to do so, whether to seek an amendment of the remuneration
policy before it would next ordinarily be proposed for shareholder
approval at the annual general meeting in 2017.
Charles Gregson
Chairman of the Remuneration Committee
27 May 2015
40 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Remuneration policy
Introduction
Set out below are the material elements of the directors’ remuneration
policy which was approved by shareholders at the annual general meeting
of the company held on 17 July 2014. The policy came into effect on that
date and is next due to be put for approval by shareholders in 2017, unless
the Remuneration Committee wishes to implement any changes earlier.
There have been no changes to the policy since its implementation and
the extracts shown below are for information only and to provide context
for the 2015 annual report on directors’ remuneration which follows. The
performance conditions for the deferred bonus plan and the performance
share scheme described in the policy table and the notes thereto have
been updated to incorporate the new performance measures adopted
by the Remuneration Committee in November 2014. References to share
awards held by executive directors at the date of approval of the policy
which have since been exercised have been removed and it has also been
noted where share awards have met their performance targets since
implementation of the policy.
The full directors’ remuneration policy is contained on pages 42 to 48 of
the company’s annual report 2014, which is available in the ‘Literature’
section of Caledonia’s website at www.caledonia.com.
Objectives
The key objectives of the Remuneration Committee in setting the
company’s remuneration policy are as follows:
(cid:891) remuneration of executive directors should be linked to the company’s
long term performance and its business strategy
(cid:891) performance related remuneration should seek to align the interests
of executive directors with those of the shareholders
(cid:891) 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
(cid:891) 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.
Remuneration structure
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
Operation
To support the recruitment and retention of executive directors of the calibre required to manage
and grow the company successfully.
Reviewed annually.
The basic salaries of the executive directors on implementation of the policy were as follows:
W P Wyatt
S A King
The current salaries of the executive directors are set out in the annual report on directors’ remuneration.
J M B Cayzer-Colvin £303,890
£506,480
£359,380
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 framework Not applicable.
Benefits (fixed pay)
Purpose and link to strategic objectives
To provide a range of benefits alongside basic salary to recruit and retain high calibre executive directors.
Operation
Opportunity and recovery or
withholding provisions
Executive directors are provided with family private medical insurance cover, death-in-service insurance, and
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.
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).
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 framework Not applicable.
Annual report 2015 Caledonia Investments plc
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Other information
Directors(cid:495) remuneration report continued
Remuneration policy
Short term incentives (variable pay)
Purpose and link to strategic objectives
To reward performance on an annual basis against key financial, operational and individual objectives.
Operation
Opportunity and recovery or
withholding provisions
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.
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 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.
Long term incentives (variable pay)
Purpose and link to strategic objectives
Operation
Opportunity and recovery or
withholding provisions
Performance measurement framework
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.
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 there are no matching share awards still outstanding.
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.
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.
For Mr Wyatt and Mr King, nil-cost options awarded under the 2011 performance share scheme are subject to
the performance, on an absolute basis, of the company’s diluted net asset value per share on a total return basis
(‘NAVTR’) measured on an annualised basis over three or five years. For Mr Cayzer-Colvin, the nil-cost options are
subject to a combination of the performance of the company’s NAVTR as above and the total returns achieved
by the Funds pool, for which he is responsible, again measured on an annualised basis over three or five years.
Matching share awards granted under the deferred bonus plan are subject to the performance, on an absolute
basis, of the company’s NAVTR, measured on an annualised basis over three years.
The rules of each scheme provide discretion to the Remuneration Committee to amend the performance targets
or impose different performance targets.
The performance targets for all outstanding options granted under the company’s executive share option
scheme have been met.
42 Annual report 2015 Caledonia Investments plc
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Directors’ report
Financial statements
Other information
Pension related benefits (fixed pay)
Purpose and link to strategic objectives
Operation
Opportunity and recovery or
withholding provisions
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.
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.
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.
Performance measurement framework¹ Not applicable.
Performance measures and targets
Annual bonus
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. For bonus
awards for the 2016 and subsequent financial years, RPI will be taken as
the higher of actual RPI over the bonus year or 3%, being broadly in line
with its historic long term average. 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 against a set
target return 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 bonus targets in order to achieve better alignment
with the company’s strategic objectives.
Compulsory and voluntary deferral of bonus
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 Caledonia’s NAVTR against the FTSE Actuaries UK
Index-linked Gilts (all stocks) Total Return index (‘Gilts index’) over three
years. For the other two-thirds, NAVTR is measured against the FTSE
All-Share Total Return index (‘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.
For nil-cost options granted to Mr Wyatt and Mr King in the 2015 financial
year and subsequently, awards will vest on a graduated basis, with vesting
commencing at 10% on the achievement of an annualised NAVTR of 3%,
rising incrementally to 100% vesting on achievement of an annualised
NAVTR of 10%, measured over three and five years. For Mr Cayzer-Colvin,
who is head of the Funds pool, 60% of his performance share scheme
awards will be measured against the annualised total returns achieved by
the Funds pool, measured over three and five years. Awards will similarly
vest on a graduated basis, with vesting commencing at 10% on
achievement of an annualised Funds pool total return of 6%, rising
incrementally to 100% vesting on achievement of an annualised total
return of 13.5%. The remaining 40% of Mr Cayzer-Colvin’s performance
share scheme awards will be measured against Caledonia’s NAVTR
as above.
For nil-cost options granted in the 2015 financial year, one-half of the
shares comprised in the awards will be measured over three years and
one-half over five years. For subsequent financial years, one-third will be
measured over three years and two-thirds over five years. In all cases,
shares that vest will become immediately exercisable and will lapse if not
exercised within ten years of grant.
Deferred bonus plan matching awards
The performance targets for matching shares awarded under the
deferred bonus plan in the 2015 and prior financial years 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 twelve months
thereafter.
Matching awards to be granted in the 2016 and subsequent financial
years will be subject to performance measurement by reference to
Caledonia’s NAVTR on an annualised basis over three years, with vesting
commencing at 20% on achievement of an annualised NAVTR of 4%, rising
incrementally to 100% vesting on achievement of an annualised NAVTR of
10%. Again, shares that vest can be called immediately following the end
of the performance measurement period and will lapse if not called within
twelve months thereafter.
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Other information
Directors(cid:495) remuneration report continued
Remuneration policy
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 creating
value for the company.
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.
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 Caledonia’s NAVTR on an annualised basis as the performance
measurement, as it believes that this is the most effective method of
aligning directors’ rewards with the long term strategic objective of the
company of delivering annualised returns over rolling ten year periods of
between RPI+3% and RPI+6%. For Mr Cayzer-Colvin, the Remuneration
Committee believes that a significant proportion of his variable pay
should be weighted towards the annualised total return performance
of the Funds pool of capital for which he is responsible and has therefore
determined that 60% of his performance share scheme awards should
be tested by reference to this.
New components introduced into the new 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.
Changes to components included in the previous remuneration policy
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 introduction of malus provisions for long term incentive awards
and bonus deferral.
Since its approval by shareholders at the 2014 annual general meeting,
there have been no changes to the policy, although new performance
measurement conditions for the performance share scheme and the
deferred bonus plan matching shares have been adopted within the terms
of the policy, as described above.
How the remuneration policy for executive directors relates to
remuneration 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 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
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 were as follows:
Chairman
Audit Committee chairman
Remuneration Committee chairman
Senior Independent Director/
Governance Committee chairman
The current fees paid to the chairman and non-executive directors are set out in the annual report on directors’ remuneration,
but are unchanged from the above.
Basic non-executive director’s fee
Audit Committee member
Remuneration Committee member
£184,500
£5,600
£4,900
£39,900
£2,300
£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 tax thereon).
44 Annual report 2015 Caledonia Investments plc
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Other information
Remuneration policy for new appointments
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.
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 remuneration policy.
Legacy arrangements
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 date of this policy.
Executive directors’ service contracts and the Chairman’s 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:
W P Wyatt
S A King
J M B Cayzer-Colvin
Date of contract
2 June 2005
19 November 2009
19 April 2005
Notice period
for the company
and the director
12 months
12 months
12 months
Unexpired
term
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.
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Directors(cid:495) remuneration report continued
Remuneration policy
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.
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 for inspection
at the registered office of the company.
Policy on external non-executive directorships held by
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 report on directors’
remuneration.
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.
46 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
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 2015 and describes how
Caledonia’s remuneration policy will be implemented for the 2016 financial year.
Single total figure of remuneration for each director (audited)
Executive directors
The table below provides an analysis of total remuneration of each executive director for the financial year ended 31 March 2015 and a comparison
with the previous financial year.
Salary
Taxable benefits1
2015
£’000
506
359
304
2014
£’000
494
351
296
2015
£’000
19
3
18
2014
£’000
18
4
18
Short term
incentives2
2015
£’000
506
359
304
2014
£’000
494
351
296
Long term
incentives3
2015
£’000
1,154
819
692
2014
£’000
88
66
48
Pension related
benefits
Total
2015
£’000
100
55
51
2014
£’000
102
54
51
2015
£’000
2,285
1,595
1,369
2014
£’000
1,196
826
709
W P Wyatt
S A King
J M B Cayzer-Colvin
1. Taxable benefits
Taxable benefits comprised 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 staff.
2. Short term incentives
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:
2015
2014
Compul-
sorily
deferred
£’000
253
179
152
Cash
£’000
253
180
152
Compul-
sorily
deferred
£’000
247
175
148
Total
£’000
506
359
304
Cash
£’000
247
176
148
Total
£’000
494
351
296
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 2015 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 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 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 was 14.2% over the year, compared with an increase
of 0.9% in RPI, resulting in a maximum bonus entitlement for the company
performance element. The Funds pool’s return over the year was 45.2%,
significantly ahead of its target return and therefore triggering the maximum
entitlement for pool performance. The Remuneration Committee judged that
significant progress had been made over the year in identifying and promoting
Caledonia to high quality private equity and quoted market fund managers in
Asia and the US and in building the strategic portfolio for the Funds pool, which
merited a maximum bonus for Mr Cayzer-Colvin’s 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
Award
%
Max
%
Award
%
Max
%
J M B Cayzer-Colvin
Max
%
Award
%
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
25
25
35
15
100
Performance
Company
Pool
Objectives
Pool
Individual
Total
3. Long term incentives
The long term incentive awards whose performance measurement period ended
during the year were awards granted in 2012 under the company’s performance
share scheme. The vesting of the awards was dependent on the performance
of the company’s NAVTR over the three financial years ended 31 March 2015
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 53.2% over the performance period, compared
with increases of 35.9% for the FTSE index and 23.2% for the Gilts index.
Accordingly, both of the performance targets were met and the performance share
awards granted in 2012 therefore vested in full.
The amounts shown in the table above under long term incentives therefore
comprised the value of the vested performance share scheme awards granted in
2012 based on the company’s share price at 31 March 2015 of 2281p, together with
the value of dividends and associated tax credits that would have accrued on the
vested shares during the performance measurement period as follows:
W P Wyatt
S A King
J M B Cayzer-Colvin
Value of
performance
share scheme
awards
£’000
1,080
766
648
Value of
dividend
equivalents
£’000
74
53
44
Total
£’000
1,154
819
692
Annual report 2015 Caledonia Investments plc
47
Strategic report
Directors’ report
Financial statements
Other information
Directors(cid:495) remuneration report continued
Annual report on directors’ remuneration
Chairman and non-executive directors
Fees and other remuneration paid to the Chairman and the non-executive
directors during the year ended 31 March 2015 and the previous year
were as follows:
R D Kent
H Y H Boël1
S J Bridges2
Hon C W Cayzer3
C H Gregson
D C Stewart4
R B Woods
C M Allen-Jones5
R Goblet d’Alviella6
Fees
2014
£’000
168
–
40
96
43
–
38
44
38
2015
£’000
185
–
46
100
47
2
42
47
10
1. Mr Boël was appointed a director on 25 June 2014 and has waived his entitlement
to all fees arising from his appointment.
2. Mr Bridges’ non-executive director’s fees were paid to Hiscox Group Underwriting
Services Ltd.
3. The Hon C W Cayzer’s fees for 2015 and 2014 included £60,000 paid by a subsidiary
in respect of his services as Chairman of The Sloane Club.
4. Mr Stewart was appointed a director on 17 March 2015.
5. Mr Allen-Jones retired from the board on 17 March 2015.
6. Mr Goblet d’Alviella retired from the board on 25 June 2014.
Total pension entitlements (audited)
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
W P Wyatt
S A King
J M B Cayzer-
Colvin
2014
£
2015
£
2014
2015
£
£
– 37,059 100,139 65,130 100,139 102,189
– 55,265 53,916 55,265 53,916
–
2015
£
2014
£
31,022 38,912 19,472 11,398 50,494 50,310
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 in December 2012 and
therefore has not accrued any further pensionable service since then,
nor have any contributions been 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 2015
Accrued pension at 31 March 2014
Increase in accrued pension during the year
Transfer value of accrued pension
at 31 March 2015
Transfer value of accrued pension
at 31 March 2014
Change in transfer value over the year
Row
ref
a
b
c
£
184,434
177,642
6,792
d
e
f
3,653,745
3,250,539
403,206
1. 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.
2. 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, which reflected
market conditions at the relevant date.
3. 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 changes 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.
Scheme interests awarded during the financial year (audited)
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
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
Type of award
Basis of award
Nil-cost option
Compulsory award
Matching award
125% of salary
% of bonus in excess of 50%
1:1
Nil-cost option
Compulsory award
Matching award
125% of salary
% of bonus in excess of 50%
1:1
Nil-cost option
Compulsory award
Matching award
125% of salary
% of bonus in excess of 50%
1:1
Face value
of award
£’000
Share price
at grant
p
Shares
comprised
in award1
Number
Receivable
if minimum
performance
achieved2
%
End of
performance
period
633
247
247
1,127
449
175
175
799
380
148
148
676
2294
2186
2186
2294
2186
2186
2294
2186
2186
27,598
11,302
11,302
50,202
19,582
8,019
8,019
35,620
16,558
6,781
6,781
30,120
10
100
10
10
100
10
10
100
10
31.03.19
31.03.17
31.03.17
31.03.19
31.03.17
31.03.17
31.03.19
31.03.17
31.03.17
1. 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.
48 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
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.
Name
S A King
J M B Cayzer-
Colvin
Position
Non-executive director,
TT Electronics plc
Non-executive chairman,
The Henderson Smaller
Companies Investment Trust plc
Fees
2015
£’000
2014
£’000
47
47
29
28
Payments to past directors (audited)
There were no payments made to former directors during the year.
Payments for loss of office (audited)
There were no payments for loss of office made during the year to any
director or former director.
Statement of directors’ shareholdings and scheme 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 scheme for which the performance targets
have been met. Also included are bonuses deferred, compulsorily or
voluntarily, under the company’s deferred bonus plan and any uncalled
bonus matching shares for which the performance targets have been
met, again net of income tax and National Insurance contributions.
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 2015, calculated by reference to
Caledonia’s closing share price on that date of 2281p, were as follows:
W P Wyatt
S A King
J M B Cayzer-Colvin
Value of
shareholding
£m
25.1
0.5
8.6
Minimum
shareholding
achievement
%
2,456
56
1,859
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 2015, or date of retirement if earlier, were as follows:
R D Kent
W P Wyatt3
S A King
J M B Cayzer-Colvin3
H Y H Boël4
S J Bridges
Hon C W Cayzer3
C H Gregson
D C Stewart5
R B Woods
C M Allen-Jones6
R Goblet d’Alviella7
4,054
Beneficial
20151
No
10,000
20142
No
10,000
1,060,365 1,034,420
650
364,314 355,298
–
–
45,092
610
–
2,000
15,273
–
–
5,000
40,092
610
–
2,000
15,273
–
Non-beneficial
20151
No
–
28,293
–
65,953
–
–
21,500
–
–
–
–
–
20142
No
–
23,293
–
64,453
–
–
18,985
–
–
–
–
–
1. Or date of retirement, if earlier.
2. Or date of appointment, if later.
3. Mr Wyatt’s beneficial interests included 9,000 shares (2014 – 6,485 shares) in which
The Hon C W Cayzer had a non-beneficial interest and 953,066 shares (2014 –
934,125 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 (2014 – 4,200 shares) in which
Mr Wyatt and Mr Cayzer-Colvin had non-beneficial interests and his non-beneficial
interests included 12,500 shares (2014 – 12,500 shares)
in which Mr Wyatt also had a non-beneficial interest.
4. Mr Boël was appointed a director on 25 June 2014.
5. Mr Stewart was appointed a director on 17 March 2015.
6. Mr Allen-Jones retired from the board on 17 March 2015.
7. Mr Goblet d’Alviella retired from the board on 25 June 2014.
There have been no changes in the directors’ interests shown above
notified up to the date of this report.
Annual report 2015 Caledonia Investments plc
49
Strategic report
Directors’ report
Financial statements
Other information
Directors(cid:495) remuneration report continued
Annual report on directors’ remuneration
Directors’ share scheme interests
The interests of directors as at 31 March 2015 in the share-based incentive schemes operated by the company are set out in the following table.
Share price
at date
of award
Unvested with
performance
conditions¹
Unvested
without
performance
conditions²
Vested but
unexercised³
W P Wyatt
Executive share options
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)
Granted 27.11.14 (nil-cost)
Deferred bonus plan – compulsory awards
Granted 12.06.13 (nil-cost)
Granted 06.06.14 (nil-cost)
Deferred bonus plan – matching awards
Granted 12.06.13 (nil-cost)
Granted 06.06.14 (nil-cost)
Total share scheme interests
1878p
1446p
1267p
1802p
2294p
1802p
2186p
1802p
2186p
–
–
–
–
34,275
27,598
61,873
–
–
–
13,310
11,302
24,612
86,485
–
8,471
8,471
15,776
–
–
15,776
13,310
11,302
24,612
–
–
–
48,859
During the year, Mr Wyatt exercised executive share options and deferred bonus awards over a total of 21,760 shares at a pre-tax gain of £278,795.
S A King
Performance share scheme awards
Granted 28.05.12 (nil-cost)
Granted 12.06.13 (nil-cost)
Granted 27.11.14 (nil-cost)
Deferred bonus plan – compulsory awards
Granted 12.06.13 (nil-cost)
Granted 06.06.14 (nil-cost)
Deferred bonus plan – matching awards
Granted 12.06.13 (nil-cost)
Granted 06.06.14 (nil-cost)
Total share scheme interests
1267p
1802p
2294p
1802p
2186p
1802p
2186p
During the year, Mr King exercised deferred bonus awards over 6,444 shares at a pre-tax gain of £141,027.
Mr J M B Cayzer-Colvin Executive share options
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)
Granted 27.11.14 (nil-cost)
Deferred bonus plan – compulsory awards
Granted 12.06.13 (nil-cost)
Granted 06.06.14 (nil-cost)
Deferred bonus plan – matching awards
Granted 12.06.13 (nil-cost)
Granted 06.06.14 (nil-cost)
Total share scheme interests
1878p
1446p
1267p
1802p
2294p
1802p
2186p
1802p
2186p
–
24,320
19,582
43,902
–
–
–
9,444
8,019
17,463
61,365
–
–
–
–
20,565
16,558
37,123
–
–
–
7,986
6,781
14,767
51,890
11,194
–
–
11,194
9,444
8,019
17,463
–
–
–
28,657
–
8,471
8,471
9,466
–
–
9,466
7,986
6,781
14,767
–
–
–
32,704
6,789
4,236
11,025
31,553
–
–
31,553
–
–
–
–
–
–
42,578
22,389
–
–
22,389
–
–
–
–
–
–
22,389
6,789
4,236
11,025
18,931
–
–
18,931
–
–
–
During the year, Mr Cayzer-Colvin exercised executive share options and deferred bonus awards over a total of 17,960 shares at a pre-tax gain of £195,632.
50 Annual report 2015 Caledonia Investments plc
Total
6,789
12,707
19,496
47,329
34,275
27,598
109,202
13,310
11,302
24,612
13,310
11,302
24,612
177,922
33,583
24,320
19,582
77,485
9,444
8,019
17,463
9,444
8,019
17,463
112,411
6,789
12,707
19,496
28,397
20,565
16,558
65,520
7,986
6,781
14,767
–
–
–
29,956
7,986
6,781
14,767
114,550
Strategic report
Directors’ report
Financial statements
Other information
1. Performance conditions
Executive share option scheme
Options outstanding under the executive share option scheme have all met their
performance targets.
Performance share scheme
Nil-cost options awarded under the performance share scheme on 28 May 2012
and 12 June 2013 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.
For nil-cost options granted to Mr Wyatt and Mr King on 27 November 2014, shares
will vest on a graduated basis, with vesting commencing at 10% if the company
achieves an annualised NAVTR of 3%, rising incrementally to 100% vesting on
achievement of an annualised NAVTR of 10%. For Mr Cayzer-Colvin, who is head
of the Funds pool, 60% of his performance share scheme awards granted on
27 November 2014 will be measured against the annualised total returns achieved
by the Funds pool. Awards will similarly vest on a graduated basis, with vesting
commencing at 10% on achievement of an annualised Funds pool total return of
6%, rising incrementally to 100% vesting on achievement of an annualised total
return of 13.5%. The remaining 40% of Mr Cayzer-Colvin’s performance share
scheme awards will be measured against Caledonia’s NAVTR as above. For all
nil-cost options granted on 27 November 2014, the relevant performance
conditions will be tested over three years for one-half of the shares comprised in
an award and over five years for the other half of the shares comprised in an award.
Deferred bonus plan matching awards
The performance targets for the matching awards are the same as those for nil-cost
options granted under the performance share scheme on 28 May 2012. Shares that
vest must be called within 12 months of vesting.
2. Other exercise conditions
Executive share option scheme
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 years after grant, with the remaining
two-thirds becoming exercisable six years after grant.
Performance share scheme
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 and 27 November 2014, shares that
vest following three or five year performance testing become immediately
exercisable.
3. Vested but unexercised
Shares vested but unexercised represent those awards that are immediately
exercisable without any conditions.
Performance graph of total shareholder return and table 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 six financial
years ending on 31 March 2015. 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 six years to 31 March 2015,
prepared on the same basis as in the single total figure in the table on
page 47, and the percentage of the maximum potential short and long
term incentives received in those years.
TSR growth over six years
Caledonia TSR
FTSE All-Share TR
250
200
150
100
2009
2010
2011
2012
2013
2014
2015
2010
T C W
Ingram
2011¹
T C W
Ingram
Years ended 31 March
2011¹
W P
Wyatt
2012
W P
Wyatt
2013
W P
Wyatt
2014
W P
Wyatt
2015
W P
Wyatt
926
215
669
585 1,077 1,196 2,285
47.5
–
67.5
– 100.0 100.0 100.0
–
1.5
–
50.0
–
10.1 100.0
Chief
Executive
Total
remuner-
ation (£’000)
Short term
incentives
vested as a
percentage of
maximum (%)
Long term
incentives
vested as a
percentage of
maximum (%)
1. 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 at a
pre-tax gain of £119,413 in the 2014 financial year.
Annual report 2015 Caledonia Investments plc
51
Strategic report
Directors’ report
Financial statements
Other information
Directors(cid:495) remuneration report continued
Annual report on directors’ remuneration
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 2014 and therefore their fees
are unchanged 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 years
to 31 March
2016 and 2015
£
184,500
39,900
5,600
2,300
4,900
1,600
5,100
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 2016 and subsequent
years, the current target, whereby payments commence with a 10%
pay-out if the performance of the company’s NAVTR matches RPI,
increasing incrementally to the maximum entitlement payable if
outperformance of 7% or more is achieved, should be qualified such
that the RPI comparator should be the higher of actual RPI or 3%, being
broadly in line with the historic long term average.
Long term incentive schemes
No changes to the company’s long term incentive schemes are anticipated
for the 2016 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.
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 2015 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 2.5% 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.
Basic salary
Taxable benefits
Short term incentives
Chief Executive
% change
2.5
0.7
2.5
Staff average
per capita
% change
6.0
3.5
10.5
Relative importance of spend on pay
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
(cid:940)m
60
40
20
0
2015
2014
-32.9%
(cid:940)43.4m
(cid:940)2(cid:1013).1m
34.4%
(cid:940)12.(cid:1013)m
(cid:940)(cid:1013).6m
Personnal expenses
Dividends(cid:876)share (cid:271)uy(cid:882)(cid:271)ac(cid:364)s
Statement of implementation of remuneration policy in the
2016 financial year
The company expects to operate the remuneration policy as described
in the previous section without any changes in the financial year ending
31 March 2016.
Basic salaries of executive directors
In respect of the 2016 financial year, the Remuneration Committee
has already awarded the executive directors inflation-based increases
in basic salary of 1.0%, as follows.
W P Wyatt
S A King
J M B Cayzer-Colvin
Salary for year to 31 March
2015
£
506,480
359,380
303,890
2016
£
511,550
362,980
306,930
52 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Consideration by the directors of matters relating
to directors’ remuneration
The current members of the Remuneration Committee are
Charles Gregson (Chairman), David Stewart and Robert Woods.
Mr Gregson and Mr Woods served throughout the year and
Mr Stewart became a member of the Committee on 17 March 2015.
Charles Allen-Jones also served as a member of the Committee until
his retirement from the board on 17 March 2015.
During the year, the Remuneration Committee received advice from
Freshfields Bruckhaus Deringer LLP, the company’s main legal advisers,
in relation to the preparation of the 2014 directors’ remuneration report,
the adoption of new performance measures for the long term incentive
plans and the implications of the introduction of clawback provisions into
the UK Corporate Governance Code. 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 Remuneration Committee by the Company Secretary.
Statement of voting at general meetings
At the annual general meeting of the company held on 17 July 2014, the
proxy votes lodged for the resolutions relating to directors’ remuneration
were as follows:
Number
%
To approve the 2014 directors’ remuneration report
(other than the directors’ remuneration policy)
Votes in favour
Votes against
Total votes cast
Votes withheld
36,607,789
68,129
36,675,918
274,305
To approve the directors’ remuneration policy
Votes in favour
Votes against
Total votes cast
Votes withheld
36,427,822
88,185
36,516,007
434,216
99.8
0.2
99.8
0.2
This report was approved by the board on 27 May 2015 and signed on its
behalf by:
Charles Gregson
Chairman of the Remuneration Committee
Annual report 2015 Caledonia Investments plc
53
Strategic report
Directors’ report
Financial statements
Other information
(cid:18)ther governance matters
Dividends
An interim dividend of 13.8p per share (2014 – 13.4p) was paid on
8 January 2015 and the board has proposed that a final dividend of
36.8p per share (2014 – 35.7p) be paid on 6 August 2015. This will result
in total dividends for the year of 50.6p per share (2014 – 49.1p).
Substantial interests
As at 31 March 2015, the following had notified the company that they
held 3% or more of the voting rights of the company:
Number
of voting
rights
19,623,769
2,847,344
Percentage
of voting
rights
35.4%
5.1%
Share capital structure
The company has two classes of share capital – ordinary shares of 5p each
and deferred ordinary shares of 5p each.
The Cayzer Trust Company Ltd
Rebelco SA1
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 2015, 55,381,017 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 2015, 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 30,000 ordinary
shares at a total cost of £0.6m. The company’s issued share capital after
these transactions, as at 26 May 2015, being the latest practicable date
prior to signature of these accounts, was 55,381,017 ordinary shares and
8,000,000 deferred ordinary shares.
Restrictions on the transfer of 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.
1. Rebelco SA is a wholly-owned subsidiary of Sofina SA.
There have been no changes in the substantial interests notified to the
company up to the date of this report.
Employee share trust
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 scheme
and the performance share scheme or calling for awards vesting under
the company’s deferred bonus plan. The voting rights of shares held
by the trust are exercisable by the independent trustee. The trustee has
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 2015,
the trust held 273,640 ordinary shares.
Restrictions on voting rights
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 statement which
is false or inadequate in a material particular.
Agreements which may restrict the transfer of shares or
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 voting rights.
Authority to allot and purchase shares
At the annual general meeting of the company held on 17 July 2014,
shareholders granted to the directors authority to allot ordinary shares up
to a nominal amount of £923,516, 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 £923,517, 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 at that time by the Association of British Insurers. The
directors were further authorised to issue ordinary shares up to a nominal
amount of £138,527 other than pro rata to existing ordinary shareholders.
These authorities last until 17 October 2015 or, if earlier, the conclusion of
the next annual general meeting.
54 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
At the annual general meeting held on 17 July 2014, shareholders also
granted authority for the company to make market purchases of up to
5,541,100 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 17 October 2015 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 17 October 2015 or, if earlier, the
conclusion of the next annual general meeting.
Change of control rights
There are no special control rights in relation to the company’s shares.
Options granted under the company’s executive share option scheme
and its performance share scheme and awards made under its deferred
bonus plan 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
other senior executives 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 in the
directors’ remuneration report.
Investment trust status
Her Majesty’s Revenue and Customs has confirmed that Caledonia
has investment trust status for all financial periods from 1 April 2012.
Annual general meeting
The eighty-sixth annual general meeting of the company will be held at
Cayzer House, 30 Buckingham Gate, London SW1E 6NN on Thursday,
16 July 2015 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 to shareholders at the same time as this annual
report.
Directors
The directors of the company are shown on pages 30 and 31. All of the
directors served throughout the year other than Mr H Y H Boël and
Mr D C Stewart, who were appointed on 25 June 2014 and 17 March 2015
respectively. In addition, Mr C M Allen-Jones and Mr R Goblet d’Alviella
served as directors until their retirements from the board on 17 March
2015 and 25 June 2014 respectively. Mrs S C R Jemmett-Page will join
the board with effect from 1 July 2015.
Directors’ indemnity
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 or her for negligence,
default, breach of duty or breach of trust in relation to the affairs
of the company.
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 than twelve, unless the
shareholders resolve otherwise.
Following changes to the Financial Conduct Authority’s Listing Rules
introduced in May 2014, the election of those directors determined by
the board to be independent under The UK Corporate Governance Code
must be subject to the approval of both all shareholders of the company
and separately those shareholders who are not controlling shareholders,
being the Cayzer Concert party.
Customers and suppliers
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 does not follow any code or statement on
payment practice.
Going concern
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 and 23. In addition, note 22 to the
financial statements includes the group’s capital management policies
and procedures and processes for managing market risk 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 concern basis in preparing
the annual report and accounts.
Auditor
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 37 within the Audit Committee report.
Annual report 2015 Caledonia Investments plc
55
Strategic report
Directors’ report
Financial statements
Other information
(cid:18)ther governance matters continued
Cross references to information required to be disclosed by Listing Rule 9.8.4 R.
To comply with Listing Rule 9.8.4 C, the following table provides references to where relevant information required to be disclosed under Listing Rule
9.8.4 R can be found.
Location
Directors’ remuneration report – page 48. Waiver by Mr Boël
of all non-executive director fees to which he would otherwise
be entitled.
As above.
Other governance matters – page 54. Waiver of all
dividends by the trustee of the Caledonia Investments plc
Employee Share Trust, except to the extent of 0.0001%
of such dividends.
As above.
Corporate governance report – page 34. Relations with
controlling shareholders.
As above.
Listing Rule
9.8.4 R (5)
9.8.4 R (6)
9.8.4 R (12)
9.8.6 R (13)
9.8.4 R (14)(a)
9.8.4 R (14)(c)
Required information
Details of any arrangements under which a director has waived or
agreed to waive any emoluments from the company or any
subsidiary undertaking.
Where a director has agreed to waive future emoluments, details
of such waiver together with those relating to emoluments which
were waived during the period under review.
Details of any arrangement under which a shareholder has
waived or agreed to waive any dividends.
Where a shareholder has agreed to waive future dividends,
details of such waiver together with those relating to dividends
which are payable during the period under review.
A statement made by the board that the listed company has
entered into an agreement with a controlling shareholder under
Listing Rule 9.2.2 AR (2)(a).
A statement made by the board that:
1. the listed company has complied with the independence
provisions included in any agreement with a controlling
shareholder entered into under Listing Rule 9.2.2 AR (2)(a)
2. so far as the listed company is aware, the independence
provisions included in any agreement with a controlling
shareholder entered into under Listing Rule 9.2.2 AR (2)(a) have
been complied with during the period under review by the
controlling shareholder or any of its associates
3. so far as the listed company is aware, the procurement
obligation (as set out in Listing Rule 9.2.2 BR (2)(a) included in
any agreement entered into under Listing Rule 9.2.2 AR (2)(a)
has been complied with during the period under review by
a controlling shareholder.
56 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Responsibility 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
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 Act 2006.
Responsibility statements under the Disclosure and
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 IFRSs as adopted by the EU, give a true and fair view
of the assets, liabilities, financial position and profit of the group
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
Stephen King
Finance Director
27 May 2015
27 May 2015
Statement of directors’ responsibilities in respect of the
annual report and the financial statements
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 (‘IFRSs’) 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:
(cid:891) select suitable accounting policies and then apply them consistently
(cid:891) make judgements and accounting estimates that are reasonable and
prudent
(cid:891) state whether IFRSs 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
(cid:891) 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.
Annual report 2015 Caledonia Investments plc
57
Strategic report
Directors’ report
Financial statements
Other information
Independent auditor(cid:495)s report
to the members of Caledonia Investments plc only
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 2015 set out on pages 60 to 78. In our
opinion:
(cid:891) 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 2015 and
of the group’s profit for the year then ended;
(cid:891) 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);
(cid:891) 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
(cid:891) 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 greatest effect on our audit were
as follows:
Valuation of unlisted investments (£850.2m)
Refer to page 36 (Audit Committee report), page 64 (accounting policy)
and page 68 (financial disclosures)
The risk
50.9% of the group’s total assets (by value) is held in investments where
no quoted market price is available. Unlisted 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:
(cid:891) Enquiry of 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 all
Audit Committee meetings where we assessed the effectiveness of the
Committees’ challenge and approval of unlisted investment valuations.
(cid:891) 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 group’s approach to valuations.
(cid:891) 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 challenged the
appropriateness of the valuation basis selected as well as the underlying
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 arm’s-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.
(cid:891) 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.
(cid:891) For the valuation of fund interests we obtained and agreed the latest
reported net asset values from the fund managers. Our procedures
also included obtaining audited financial statements of the funds and
checking the historical accuracy of the net asset values.
(cid:891) Our procedures also included consideration of the appropriateness,
in accordance with relevant accounting standards, of the disclosures in
note 22 in respect of unlisted investments and the effect of changing
one or more inputs to reasonably possible alternative valuation
assumptions.
Carrying value of investments listed on recognised stock exchanges
(£648.6m)
Refer to page 37 (Audit Committee report), page 64 (accounting policy)
and page 68 (financial disclosures)
The risk
The group’s portfolio of listed equity investments makes up 38.8% of
the total assets of the group and is considered to be one of the key
drivers 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 judgement 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.
Our response
Our procedures over the completeness, valuation and existence of
the group’s listed equity investment portfolio included, but were not
limited to:
(cid:891) documenting and assessing the processes in place to record investment
transactions and to value the portfolio;
(cid:891) agreeing the valuation of 100 per cent of investments in the portfolio
to externally quoted prices; and
(cid:891) agreeing 100 per cent of investment holdings in the portfolio to
independently received third party confirmations.
3. Our application of materiality and an overview of the scope of our
audit
Materiality for the financial statements as a whole was set at £25m,
determined with reference to a benchmark of total group assets, of which
it represents 1.5%.
We report to the Audit Committee any corrected and uncorrected
identified misstatements exceeding £1.2m in addition to other identified
misstatements that warranted reporting on qualitative grounds.
The group audit team performed the audit of the group as if it was a single
aggregated set of financial information. The audit was performed using
the materiality levels set out above and covered 100% of total group
revenue, group profit before tax, and total group assets.
58 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Scope of report and 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/auditscopeukco2014a, 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
27 May 2015
4. Our opinion on other matters prescribed by the Companies Act 2006
is unmodified
In our opinion:
(cid:891) the parts of the directors’ remuneration report to be audited have been
properly prepared in accordance with the Companies Act 2006;
(cid:891) 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;
(cid:891) 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:
(cid:891) 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
(cid:891) the Audit Committee report 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:
(cid:891) 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
(cid:891) 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
(cid:891) certain disclosures of directors’ remuneration specified by law are not
made; or
(cid:891) we have not received all the information and explanations we require
for our audit; or
(cid:891) a corporate governance statement has not been prepared by the
company.
Under the Listing Rules, we are required to review:
(cid:891) the directors’ statement, set out on page 55, in relation to going
concern; and
(cid:891) the part of the corporate governance statement on pages 32 to 34
relating to the company’s compliance with the ten provisions of the
2012 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Annual report 2015 Caledonia Investments plc
59
Strategic report
Directors’ report
Financial statements
Other information
Group statement of comprehensive income
for the year ended 31 March 2015
Revenue
Investment income
Other income
Gains and losses on fair value investments
Gains on fair value property
Total revenue
Management expenses
Other non-recurring expenses
Performance fees
Guarantee obligation provided
Warranty provision released
Profit before finance costs
Treasury interest receivable
Finance costs
Exchange movements
Profit before tax
Taxation
Profit for the year
Other comprehensive income items never
to be reclassified to profit or loss
Actuarial gain/(loss) on defined benefit
pension schemes
Tax on other comprehensive income
Total comprehensive income
Basic earnings per share
Diluted earnings per share
Note
Revenue
£m
2015
Capital
£m
Total
£m
Revenue
£m
2014
Capital
£m
1
1
8
2
15
15
3
4
5
24
5
7
7
47.2
0.5
–
–
47.7
(18.3)
(2.6)
–
–
–
26.8
0.3
(1.6)
1.2
26.7
2.9
29.6
–
–
29.6
53.7p
52.9p
–
–
179.9
0.3
180.2
(0.6)
–
(1.1)
(0.7)
–
177.8
–
–
–
177.8
0.3
178.1
(2.7)
0.9
176.3
323.3p
318.2p
47.2
0.5
179.9
0.3
227.9
(18.9)
(2.6)
(1.1)
(0.7)
–
204.6
0.3
(1.6)
1.2
204.5
3.2
207.7
(2.7)
0.9
205.9
377.0p
371.1p
41.1
0.5
–
–
41.6
(13.6)
–
–
–
–
28.0
1.2
(1.7)
(0.3)
27.2
1.5
28.7
–
–
28.7
51.9p
51.3p
–
–
151.4
–
151.4
(0.5)
–
–
(0.8)
3.5
153.6
–
–
–
153.6
0.8
154.4
1.4
(0.3)
155.5
279.2p
276.1p
Total
£m
41.1
0.5
151.4
–
193.0
(14.1)
–
–
(0.8)
3.5
181.6
1.2
(1.7)
(0.3)
180.8
2.3
183.1
1.4
(0.3)
184.2
331.1p
327.4p
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 78 are an integral part of these financial statements.
60 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Statement of financial position
at 31 March 2015
Non-current assets
Investments held at fair value through profit or loss
Investments in subsidiaries held at cost
Property, plant and equipment
Deferred tax assets
Employee benefits
Non-current assets
Current assets
Trade and other receivables
Current tax assets
Cash and cash equivalents
Current assets
Total assets
Current liabilities
Bank overdrafts
Interest-bearing loans and borrowings
Trade and other payables
Employee benefits
Current tax liabilities
Provisions
Current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Employee benefits
Deferred tax liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Capital reserve
Retained earnings
Own shares
Total equity
Undiluted net asset value per share
Diluted net asset value per share
Group
Company
Note
2015
£m
2014
£m
2015
£m
2014
£m
8
8
9
10
24
11
5
12
12
13
14
24
15
13
24
10
16
17
17
1,498.8
–
19.1
2.4
1.9
1,522.2
7.3
0.4
140.0
147.7
1,669.9
–
–
(16.0)
(2.4)
–
(10.4)
(28.8)
(9.0)
(5.0)
(0.2)
(14.2)
(43.0)
1,626.9
3.2
1.3
1.3
1,328.3
310.0
(17.2)
1,626.9
2952p
2906p
1,451.9
–
18.6
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
1,152.6
304.4
(17.2)
1,445.6
2624p
2593p
1,496.2
0.8
–
–
–
1,497.0
5.5
1.2
138.7
145.4
1,642.4
–
–
(11.7)
–
–
(9.0)
(20.7)
–
–
–
–
(20.7)
1,621.7
3.2
1.3
1.3
1,331.8
301.3
(17.2)
1,621.7
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
The financial statements on pages 60 to 78 were approved by the board and authorised for issue on 27 May 2015 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 78 are an integral part of these financial statements.
Annual report 2015 Caledonia Investments plc
61
Strategic report
Directors’ report
Financial statements
Other information
Statement of changes in e(cid:147)uity
for the year ended 31 March 2015
Group
Balance at 31 March 2013
Total comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with owners of the company
Contributions by and distributions to owners
Exercise of options
Share-based payments
Own shares purchased
Own shares cancelled
Dividends paid
Total transactions with owners
Balance at 31 March 2014
Total comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with owners of the company
Contributions by and distributions to owners
Exercise of options
Share-based payments
Own shares purchased
Own shares cancelled
Dividends paid
Total transactions with owners
Balance at 31 March 2015
Company
Balance at 31 March 2013
Profit and total comprehensive income
Transactions with owners of the company
Contributions by and distributions to owners
Exercise of options
Share-based payments
Own shares purchased
Own shares cancelled
Dividends paid
Total transactions with owners
Balance at 31 March 2014
Profit and total comprehensive income
Transactions with owners of the company
Contributions by and distributions to owners
Exercise of options
Share-based payments
Own shares purchased
Own shares cancelled
Dividends paid
Total transactions with owners
Balance at 31 March 2015
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 1,012.1
301.5
(17.0) 1,302.4
–
–
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
3.2
3.2
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
3.2
–
–
–
–
–
–
–
–
–
1.3
–
–
–
–
–
–
–
–
–
1.3
1.3
–
–
–
–
–
–
–
1.3
–
–
–
–
–
–
–
1.3
–
–
–
154.4
1.1
155.5
28.7
–
28.7
–
–
–
183.1
1.1
184.2
–
–
–
–
–
–
–
–
–
(15.0)
–
(15.0)
1.3 1,152.6
–
–
–
178.1
(1.8)
176.3
–
–
–
–
–
–
–
–
–
(0.6)
–
(0.6)
1.3 1,328.3
–
0.7
–
–
(26.5)
(25.8)
304.4
29.6
–
29.6
–
3.3
–
–
(27.3)
(24.0)
310.0
1.7
1.7
0.7
–
(1.9)
(1.9)
(15.0)
–
(26.5)
–
(0.2)
(41.0)
(17.2) 1,445.6
–
–
–
207.7
(1.8)
205.9
1.2
–
(1.2)
–
–
–
1.2
3.3
(1.2)
(0.6)
(27.3)
(24.6)
(17.2) 1,626.9
1.3 1,015.1
154.4
–
294.9
28.0
(17.0) 1,298.8
182.4
–
–
–
–
–
–
–
–
–
–
(15.0)
–
(15.0)
1.3 1,154.5
177.9
–
–
–
–
–
–
–
–
–
–
(0.6)
–
(0.6)
1.3 1,331.8
–
0.7
–
–
(26.5)
(25.8)
297.1
28.2
–
3.3
–
–
(27.3)
(24.0)
301.3
1.7
1.7
–
0.7
(1.9)
(1.9)
–
(15.0)
–
(26.5)
(41.0)
(0.2)
(17.2) 1,440.2
206.1
–
1.2
–
(1.2)
–
–
–
1.2
3.3
(1.2)
(0.6)
(27.3)
(24.6)
(17.2) 1,621.7
The accounting policies and notes to the financial statements on pages 64 to 78 are an integral part of these financial statements.
62 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Statement of cash flows
for the year ended 31 March 2015
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 operating activities
Investing activities
Purchases of investments
Proceeds from disposal of investments
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Net cash flow from/(used in) investing activities
Financing activities
Interest paid
Dividends paid to owners of the company
Proceeds from new borrowings
Repayment of borrowings
Proceeds from group company loans
Repayment of group company loans
Exercise of share options
Purchase of own shares
Net cash flow used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at year start
Cash and cash equivalents at year end
Note
Group
2015
£m
45.0
3.6
0.5
(18.8)
0.3
1.7
32.3
(240.4)
372.7
(0.5)
–
131.8
(1.6)
(27.3)
20.0
(51.0)
15.1
(11.6)
1.2
(1.8)
(57.0)
107.1
32.9
140.0
12
2014
£m
38.7
5.9
1.5
(15.6)
1.3
3.1
34.9
(327.1)
255.7
(0.1)
0.3
(71.2)
(2.5)
(26.5)
35.0
(14.9)
–
(0.4)
1.7
(17.0)
(24.6)
(60.9)
93.8
32.9
Company
2015
£m
45.0
2.6
–
(18.2)
0.3
2.0
31.7
(239.2)
358.7
–
–
119.5
(1.2)
(27.3)
–
(20.0)
9.0
(7.9)
1.2
(1.8)
(48.0)
103.2
35.5
138.7
2014
£m
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
The accounting policies and notes to the financial statements on pages 64 to 78 are an integral part of these financial statements.
Annual report 2015 Caledonia Investments plc
63
Strategic report
Directors’ report
Financial statements
Other information
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 27 May 2015.
These financial statements are presented in pounds sterling, as this is
the currency of the primary economic environment in which Caledonia
operates.
Key sources of estimation uncertainty
Fair values of financial instruments
Most 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 actively traded financial instruments, quoted market prices are readily
available. For other financial instruments, such as unlisted securities,
valuation techniques are used to estimate fair value. Valuation techniques
make maximum use of market inputs, 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 and therefore cannot be determined with
precision.
Significant accounting policies
Basis of accounting
These financial statements have been prepared in accordance with
International Financial Reporting Standards (‘IFRSs’) as adopted by 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 set out in the Statement of Recommended
Practice: Financial Statements of Investment Trust Companies and Venture
Capital Trusts (‘SORP’) issued by the Association of Investment Companies
in November 2014 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 55. Accordingly, they continue to adopt the going
concern basis of preparing the financial statements.
Adopted IFRSs
In the current year, the group has not adopted any new standards
or interpretations.
IFRSs not yet applied
At the date of approval of these financial statements, the following
standards had been issued by the IASB but not adopted by the EU:
(cid:891) IFRS 9 Financial Instruments
(cid:891) IFRS 15 Revenue from Contracts with Customers
The directors anticipate that the adoption of these standards in future
periods in their issued form will have no material impact on the financial
statements.
Assessment as investment entity
Entities that meet the definition of an investment entity within IFRS 10
are required to account for most investments in controlled entities as held
at fair value through profit or loss. Subsidiaries that provide investment
related services or engage in permitted investment related activities with
investees continue to be consolidated unless they are also investment
entities. The board has concluded that the company meets the definition
of an investment entity.
Basis of consolidation
In accordance with the IFRS 10/IAS 28 Investment entities amendments,
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 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.
64 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
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.
Employee benefits
Pension schemes
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 in other
comprehensive income.
Past service cost is recognised immediately in the period of a plan
amendment.
The retirement benefit obligation recognised in the statement of financial
position represents the present value of the defined benefit obligations
as reduced by the fair value of scheme assets. Any asset resulting from
this calculation is limited to the present value of available refunds and
reductions in future contributions to the plan.
Profit sharing and bonus plans
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.
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. In addition, the
parent recognises an increase in equity and an increase in subsidiary
investment equivalent to the amount of the share-based payment
transaction.
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
IFRS10, in the consolidated financial statements as if they arose in that
company. Own shares held by the employee share trust as at the
reporting date are accounted for as if they were treasury shares.
National Insurance on share option scheme gains and performance 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 has 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 future 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 future
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 held 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 or 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 24.
Annual report 2015 Caledonia Investments plc
65
Strategic report
Directors’ report
Financial statements
Other information
Significant accounting policies continued
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.
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.
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:
(cid:891) gains and losses on investments held at fair value through profit
or loss
(cid:891) gains and losses on derivatives used to hedge the fair value of
investments
(cid:891) expenses and finance costs incurred directly in relation to capital
transactions
(cid:891) actuarial gains and losses on defined benefit pension schemes
(cid:891) taxation on items recognised in the capital reserve.
Property, plant and equipment
Property is measured at fair value. Gains arising from changes in the fair
value are included in other comprehensive income for the period in
which they arise and losses included in profit or loss. To the extent gains
represent the reversal of cumulative losses previously recognised they
are included in profit or loss.
Plant and equipment is measured at cost less accumulated depreciation
and any accumulated impairment loss.
Assets in course of construction are measured at cost less any
accumulated impairment loss.
Depreciation is calculated to write off the fair value or cost of items of
property, plant and equipment less their estimated residual values using
the straight-line method over their estimated useful lives. Land and assets
in course of construction are not depreciated.
The estimated useful lives of property, plant and equipment are
as follows:
Buildings
Office equipment
25-50 years
3-5 years
Accumulated depreciation on revalued property is eliminated against
the gross carrying amount of the asset.
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.
66 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
(cid:17)otes to the financial statements
1. Revenue
Investment income
Income from portfolio investments
Dividends from UK listed companies
Dividends from overseas listed companies
Dividends from unlisted companies
Distributions from limited partnerships
Interest on debt instruments
Scrip dividends
Income from unallocated investments
Dividends from unlisted companies
Other income
Property income
2. Expenses
Management expenses
Income statement revenue column
Personnel expenses
Depreciation
Auditor’s remuneration
Other administrative expenses
Directors’ fees and disbursements recharged
Management fees and recharges
Gain on disposal of plant and equipment
Other expenses
Income statement capital column
Transaction costs
Further information
Auditor’s remuneration
Fees payable to KPMG LLP were as follows:
Audit services
Annual report
Other services
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 24)
Equity-settled share-based payments (note 23)
National Insurance on share awards
2015
£m
9.8
9.9
17.6
7.8
1.3
0.4
46.8
0.4
47.2
2015
£m
0.5
2015
£m
12.9
0.3
0.2
5.5
(0.7)
(0.4)
–
0.5
18.3
0.6
18.9
2014
£m
9.9
7.8
15.9
4.9
2.6
–
41.1
–
41.1
2014
£m
0.5
2014
£m
9.6
0.1
0.2
4.9
(0.6)
(0.3)
(0.3)
–
13.6
0.5
14.1
2015
£m
2014
£m
0.1
0.1
0.2
2015
£m
7.2
0.9
0.5
0.2
3.3
0.8
12.9
0.1
0.1
0.2
2014
£m
7.1
1.0
0.4
0.3
0.7
0.1
9.6
The average number of employees, including executive directors,
throughout the year was as follows:
Average number of employees
3. Treasury interest receivable
Interest on bank deposits
Group facility fees
Loan impairment reversal
4. Finance costs
Interest on bank loans and overdrafts
Interest on loans from subsidiaries
5. Taxation
Recognised in comprehensive income
Current tax income
Current year
Adjustments for prior years
Deferred tax income/(expense)
Origination and reversal of temporary differences
Total tax income
Reconciliation of effective tax expense
Profit before tax
Tax expense at the domestic rate of 21%
(2014 – 23%)
Non-deductible expenses
Losses for the year unrelieved
Non-taxable gains on investments
Non-taxable UK dividend income
Tax exempt revenues
Other temporary differences
Over-provided in prior years
Tax income
Recognised in other comprehensive income
Deferred tax income/(expense)
On actuarial losses/(gains) on defined benefit
pension schemes
On share options and awards
2015
No
46
2014
No
45
2015
£m
0.2
0.1
–
0.3
2015
£m
1.6
–
1.6
2014
£m
0.3
0.1
0.8
1.2
2014
£m
1.6
0.1
1.7
2015
£m
2014
£m
0.7
1.9
2.6
0.6
3.2
0.8
1.7
2.5
(0.2)
2.3
2015
£m
204.5
2014
£m
180.8
(42.9)
(0.7)
(1.2)
37.7
4.1
3.8
0.5
1.9
3.2
(41.6)
0.1
(1.4)
35.4
6.0
2.2
(0.1)
1.7
2.3
2015
£m
2014
£m
0.5
0.4
0.9
(0.3)
–
(0.3)
Current tax assets
Current tax assets of £0.4m in the group and £1.2m in the company
represented tax loss relief surrender for settlement (2014 – company
£0.1m).
Annual report 2015 Caledonia Investments plc
67
Strategic report
Directors’ report
Financial statements
Other information
(cid:17)otes to the financial statements
6. Dividends
Amounts recognised as distributions to owners of the company in the
year were as follows:
8. Investments
Investments held at fair value
through profit or loss
Investments listed on a
recognised stock exchange
Unlisted investments
Investments held at cost
Service subsidiaries
Group
Company
2015
£m
2014
£m
2015
£m
2014
£m
648.6
850.2
703.2
732.7
1,498.8 1,451.9 1,496.2 1,435.9
648.6
847.6
703.2
748.7
–
0.8
1,498.8 1,451.9 1,497.0 1,436.7
0.8
–
The movements in non-current investments were as follows:
Group
Balance at 31 March 2013
Reclassifications
Purchases at cost
Disposal proceeds
Gains on investments
Rolled-up interest
Balance at 31 March 2014
Reclassifications
Purchases at cost
Disposal proceeds
Gains on investments
Rolled-up interest
Balance at 31 March 2015
Company
Balance at 31 March 2013
Reclassifications
Purchases at cost
Disposal proceeds
Gains on investments
Rolled-up interest
Balance at 31 March 2014
Reclassifications
Purchases at cost
Disposal proceeds
Gains on investments
Rolled-up interest
Balance at 31 March 2015
Listed
equity
£m
Unlisted
equity1
£m
Unlisted
debt
£m
Total
£m
691.9
–
140.6
(201.4)
72.1
–
703.2
(0.9)
131.8
(199.5)
14.0
–
648.6
691.9
–
140.6
(201.4)
72.1
–
703.2
(0.9)
131.8
(199.5)
14.0
–
648.6
440.1
12.6
182.7
(36.8)
78.3
–
676.9
(31.8)
97.9
(110.4)
154.6
–
787.2
455.5
12.6
183.4
(37.5)
78.3
–
692.3
(31.8)
101.2
(113.7)
154.6
–
802.6
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
–
32.7
240.8
11.1
(371.5)
(61.6)
179.9
11.3
(2.3)
(2.3)
63.0 1,498.8
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
–
32.7
242.9
9.9
(357.6)
(44.4)
177.3
8.7
(2.3)
(2.3)
45.8 1,497.0
1. Unlisted equity included limited partnership and open ended fund investments.
Rolled-up interest is the movement in the fair value of loan instruments
attributable to investment income.
Reclassifications in the current year reflected an investee de-listing and
the reorganisation of a portfolio of US private equity funds. In the prior
year, reclassifications represented a subsidiary debt to equity conversion.
Final dividend for the year ended
31 March 2014 (2013)
Interim dividend for the year ended
31 March 2015 (2014)
2015
2014
p/share
£m p/share
£m
35.7
19.7
34.3
19.1
13.8
49.5
7.6
27.3
13.4
47.7
7.4
26.5
Proposed final dividend for the
year ended 31 March 2015 (2014)
36.8
20.3
35.7
19.7
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 16 July 2015, will be payable on
6 August 2015 to holders of shares on the register on 10 July 2015.
The ex-dividend date will be 9 July 2015.
For the purposes of section 1158 of the Corporation Tax Act 2010
and associated regulations, the dividends payable for the year ended
31 March 2015 are the interim and final dividends for that year,
amounting to £27.9m (2014 – £27.1m).
7. Earnings per share
Basic and diluted earnings per share
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 profit attributable to shareholders (basic and diluted) was as follows:
Revenue
Capital
Total
2015
£m
29.6
178.1
207.7
2014
£m
28.7
154.4
183.1
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
2015
000’s
55,411
(16)
(296)
2014
000’s
56,222
(589)
(327)
55,099
55,306
873
628
55,972
55,934
68 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
9. Property, plant and equipment
Group
Under
construc-
tion
£m
Office
equip-
ment
£m
Property
£m
Cost
Balance at 31 March 2013
Acquisitions
Disposals
Balance at 31 March 2014
Acquisitions
Balance at 31 March 2015
Depreciation
Balance at 31 March 2013
Depreciation charge
Disposals
Balance at 31 March 2014
Depreciation charge
Eliminate depreciation
Balance at 31 March 2015
Revaluation
Balance at 31 March 2013
and 2014
Revaluation in the year
Eliminate depreciation
Balance at 31 March 2015
Carrying amounts
At 31 March 2013
At 31 March 2014
At 31 March 2015
20.0
–
–
20.0
–
20.0
–
–
–
–
(0.3)
0.3
–
(1.5)
0.3
(0.3)
(1.5)
18.5
18.5
18.5
–
–
–
–
0.5
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
1.4
0.1
(0.5)
1.0
–
1.0
(1.3)
(0.1)
0.5
(0.9)
–
–
(0.9)
–
–
–
–
0.1
0.1
0.1
Total
£m
21.4
0.1
(0.5)
21.0
0.5
21.5
(1.3)
(0.1)
0.5
(0.9)
(0.3)
0.3
(0.9)
(1.5)
0.3
(0.3)
(1.5)
18.6
18.6
19.1
Property is measured at fair value and comprised freehold land and
building partly occupied by the group and partly let out to third parties.
10. Deferred tax
Group
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities were attributable to the following:
2015
Employee benefits
Other items
2014
Employee benefits
Other items
Assets
£m
Liabilities
£m
2.4
–
2.4
1.0
–
1.0
–
(0.2)
(0.2)
(0.1)
(0.2)
(0.3)
Net
£m
2.4
(0.2)
2.2
0.9
(0.2)
0.7
Movement in temporary differences during the year
2015
Employee benefits
Other items
2014
Employee benefits
Other items
Balance
at year
start
£m
Compre-
hensive
income
£m
Other
compre-
hensive
income
£m
Balance
at year
end
£m
0.9
(0.2)
0.7
1.4
(0.2)
1.2
0.6
–
0.6
(0.2)
–
(0.2)
0.9
–
0.9
(0.3)
–
(0.3)
2.4
(0.2)
2.2
0.9
(0.2)
0.7
Group and company
Unrecognised deferred tax assets
Deferred tax assets were not recognised in respect of the following items:
Tax losses
2015
£m
2.4
2014
£m
2.2
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 losses.
11. Trade and other receivables
Trade receivables
Non-trade receivables
and prepayments
Other receivables
Group
Company
2015
£m
4.8
1.9
0.6
7.3
2014
£m
5.5
1.8
–
7.3
2015
£m
4.6
0.9
–
5.5
2014
£m
4.7
0.9
–
5.6
12. Net cash and cash equivalents
Bank balances
Short term deposits
Cash and cash equivalents
Bank overdrafts
Group
Company
2015
£m
41.6
98.4
140.0
–
140.0
2014
£m
33.3
2.2
35.5
(2.6)
32.9
2015
£m
2.0
136.7
138.7
–
138.7
2014
£m
33.3
2.2
35.5
–
35.5
Bank overdrafts were included in current liabilities in the balance sheet.
13. Interest-bearing loans and borrowings
Current liabilities
Unsecured bank loans
Non-current liabilities
Unsecured bank loans
Group
Company
2015
£m
2014
£m
2015
£m
2014
£m
–
20.0
9.0
9.0
20.0
40.0
–
–
–
–
20.0
20.0
Annual report 2015 Caledonia Investments plc
69
Strategic report
Directors’ report
Financial statements
Other information
(cid:17)otes to the financial statements continued
14. Trade and other payables
16. Share capital
Balance at 31 March 2013,
2014 and 2015
Ordinary
shares
£m
Deferred
ordinary
shares
£m
Share
premium
£m
Total
£m
2.8
0.4
1.3
4.5
The number of fully paid shares in issue was as follows:
Balance at the year start
Shares cancelled
Balance at the year end
Ordinary
shares
2015
000’s
55,411
(30)
55,381
2014
000’s
56,222
(811)
55,411
Deferred
ordinary shares
2014
2015
000’s
000’s
8,000
8,000
–
–
8,000
8,000
The company had outstanding share options and performance share
scheme and deferred bonus awards (note 23).
As at 31 March 2015, the issued share capital of the company comprised
55,381,017 ordinary shares (2014 – 55,411,017) and 8,000,000 deferred
ordinary shares (2014 – 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 subsidiaries, 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.
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 the
company.
17. 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 ordinary shares in issue
at the year end less ordinary 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.
Net
assets
£m
1,626.9
1.2
1,628.1
2015
Number
of shares
000’s
55,107
924
56,031
Undiluted
Adjustments
Diluted
NAV
p/share
Net
assets
£m
2952 1,445.6
2.3
2906 1,447.9
(46)
2014
Number
of shares
000’s
55,090
748
55,838
NAV
p/share
2624
(31)
2593
Trade payables
Non-trade payables
and accrued expenses
Other payables
Group
Company
2015
£m
0.7
0.7
14.6
16.0
2014
£m
2.7
1.4
10.9
15.0
2015
£m
9.8
0.6
1.3
11.7
2014
£m
6.1
0.7
–
6.8
Other payables included short term lending by subsidiaries to
Caledonia Investments plc and Caledonia Treasury Ltd.
15. Provisions
Group
Balance at 31 March 2013
Provided during the year
Released during the year
Balance at 31 March 2014
Provided during the year
Balance at 31 March 2015
Company
Balance at 31 March 2013
Provided during the year
Released during the year
Balance at 31 March 2014
Provided during the year
Released during the year
Balance at 31 March 2015
Warranty
£m
3.5
–
(3.5)
–
–
–
Solvency
guarantee
£m
7.5
0.8
–
8.3
0.7
9.0
Litigation
£m
–
–
–
–
1.4
1.4
Warranty
£m
3.5
–
(3.5)
–
–
–
–
Bank
guarantee
£m
1.9
0.7
–
2.6
–
(2.6)
–
Solvency
guarantee
£m
7.5
0.8
–
8.3
0.7
–
9.0
Total
£m
11.0
0.8
(3.5)
8.3
2.1
10.4
Total
£m
12.9
1.5
(3.5)
10.9
0.7
(2.6)
9.0
The warranty provision relates to the disposal of an investment in 2006.
The provision was estimated based on the amount of the claim against
the company. The claim was determined in the prior year and the agreed
settlement covered by insurance.
The bank guarantee provision related to a bank loan drawn by a subsidiary
and lent to another subsidiary, which did not have sufficient resources
to settle the obligation in full. The provision was estimated based on the
expected shortfall should the loan be repaid. During the year, the ultimate
borrower was restructured and the loan obligation settled in full.
The solvency guarantee provision related to a subsidiary that had a claim
against it, but insufficient resources to settle any such obligations. The
provision was estimated based on the amount of the claim against the
subsidiary. During the year, the provision was increased based on a review
of the obligations.
The litigation provision related to a claim arising from the acquisition of
a subsidiary in 2013. The amount of the provision was estimated based
on the costs of defending the claim in the courts.
With the exception of the litigation provision, these provisions were
allocated to the capital reserve. As the matters that gave rise to the
provisions were expected to be resolved over the next year, all provisions
were classified as current liabilities.
70 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
18. Operating segments
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.
19. Related parties
Identity of related parties
The group and company had related party relationships with its
subsidiaries (note 25) and associates (note 26) and with its key
management personnel, being its directors.
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 group’s total assets. Cash and cash
equivalents and other items are not identifiable operating segments.
‘Other investments’ comprise subsidiaries not managed as part of the
investment portfolio.
Quoted pool
Unquoted pool
Funds pool
Income & Growth pool
Investment portfolio
Other investments
Total revenue/investments1
Cash and cash equivalents
Other items
Reportable total
Assets
2014
£m
92.1
80.0
21.3
0.2
Profit before tax
2015
£m
16.9
87.8
100.1
21.5
226.3
1.6
227.9
0.3
(23.7)
204.5
2014
2015
£m
£m
497.8
447.7
568.3
510.3
204.4
327.7
189.6
202.1
193.6 1,487.8 1,460.1
10.3
11.0
193.0 1,498.8 1,470.4
32.9
140.0
1.2
(13.4)
14.2
31.1
180.8 1,669.9 1,517.5
(0.6)
1. In 2014, total investments included property held at fair value of £18.5m.
Geographical segments
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.
2015
Revenue
Non-current assets
2014
Revenue
Non-current assets
UK
£m
US
£m
Other
£m
Total
£m
52.0
19.1
123.4
–
141.2
18.6
27.6
–
52.5
–
24.2
–
227.9
19.1
193.0
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.
Transactions with key management personnel
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 2015 (2014 – 35.4%).
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 in the directors’ remuneration
report on page 48.
The key management personnel compensation was as follows:
Short term employee benefits
Post-employment benefits
Equity compensation benefits
Group
2015
£m
2.5
–
1.6
4.1
2014
£m
2.4
0.1
0.5
3.0
Total remuneration of directors is included in ’Personnel expenses’
(note 2).
During the year, the group invoiced and received £0.1m (2014 – £0.1m)
in rent and administration fees from The Cayzer Trust Company Ltd.
Other related party transactions
Investees
Transactions between the company and its subsidiaries were as follows:
2015
2014
Amount
of trans-
actions
£m
Balance
at year
end
£m
Amount
of trans-
actions
£m
Balance
at year
end
£m
–
–
0.1
–
14.8
3.3
(19.9)
1.4
5.5
(31.6)
1.7
5.9
38.5
(1.3)
–
–
(9.2)
–
–
–
–
–
43.0
(1.3)
13.6
0.7
(13.8)
3.0
–
–
144.5
15.7
(14.5)
–
–
–
(3.5)
–
–
–
–
–
4.5
–
Comprehensive income items
Guarantee fees receivable
Dividends receivable
on equity shares
Capital distributions receivable
Management fees payable
Taxation
Financial position items
Investments purchased
Investments sold
Equity subscribed
Capital contributions
Loans receivable
Loans payable
Annual report 2015 Caledonia Investments plc
71
Strategic report
Directors’ report
Financial statements
Other information
(cid:17)otes to the financial statements continued
Associates and joint ventures
Transactions between the company and group and associates and joint
ventures were as follows:
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.
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
2015
£m
2014
£m
2015
£m
2014
£m
Investments held at fair value
through profit or loss
1,465.4 1,380.1 1,480.8 1,395.5
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.
Increase in prices
Decrease in prices
Group
Company
2015
£m
146.5
(146.5)
2014
£m
138.0
(138.0)
2015
£m
148.1
(148.1)
2014
£m
139.5
(139.5)
The sensitivity to equity and fund investments has increased during the
year due to investment portfolio gains 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 and 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.
2015
2014
Amount
of trans-
actions
£m
Balance
at year
end
£m
Amount
of trans-
actions
£m
Balance
at year
end
£m
2.1
–
0.6
(39.5)
0.1
–
–
–
–
–
1.2
1.3
0.4
(2.8)
–
–
–
39.5
0.3
0.1
Company
Dividends receivable
on equity shares
Interest receivable
on loan securities
Taxation
Loans receivable
Other group companies
Directors’ fees receivable
Cayzer Family Archive
In the previous 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.
20. 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
Contracted but not called
Conditionally contracted
Group
Company
2015
£m
2014
£m
2015
£m
2014
£m
128.9
29.7
158.6
88.5
19.0
107.5
128.9
29.7
158.6
88.5
19.0
107.5
21. Contingencies
The 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 2015, there was a litigation claim outstanding in respect
of an investment made in 2013.
22. 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 to be held for the long term.
Risk analysis
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.
72 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
The fair values of the monetary items that have foreign currency exposure
were as follows:
Cash and cash equivalents
Group
Company
2015
£m
0.5
2014
£m
2.0
2015
£m
0.5
2014
£m
1.9
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 2015, the financial assets exposed to credit risk were
as follows:
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
2015
£m
–
–
2014
£m
0.2
(0.1)
2015
£m
–
–
2014
£m
0.2
(0.1)
The exposure to foreign currency has decreased during the year due to
the reduction in foreign denominated cash and cash equivalents.
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
to subsidiaries
Floating rate
Investments in debt
instruments
Interest-bearing loans
to subsidiaries
Cash and cash equivalents
Interest-bearing loans
and borrowings
Group
Company
2015
£m
2014
£m
2015
£m
2014
£m
–
2.6
9.0
9.1
–
–
9.0
–
16.2
32.2
16.2
32.2
14.6
140.0
21.5
32.9
–
138.7
–
35.5
(9.0)
(40.0)
–
(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.
Decrease in interest rates
Increase in interest rates
Group
Company
2015
£m
0.5
(0.5)
2014
£m
0.6
(0.6)
2015
£m
0.4
(0.4)
2014
£m
0.4
(0.4)
The group’s and company’s sensitivity to interest rates has changed in
the year due to a reduction in fixed interest loans, against an increase in
floating rate loans and net cash with a relatively lower rate of interest.
Investments in debt
instruments
Operating and
other receivables
Cash and cash equivalents
Group
Company
2015
£m
2014
£m
2015
£m
2014
£m
33.4
71.8
16.2
41.2
7.3
140.0
180.7
7.3
32.9
112.0
5.5
138.7
160.4
5.6
35.5
82.3
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.
At the year end, the group and company had cash deposits with the
Royal Bank of Scotland plc of £98.0m and £96.7m respectively.
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.
Fair value
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 payables, the carrying amounts approximate fair value due to the
immediate or short term nature of these financial instruments.
Liquidity risk
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, including the level of undrawn committed facilities.
Annual report 2015 Caledonia Investments plc
73
Strategic report
Directors’ report
Financial statements
Other information
(cid:17)otes to the financial statements continued
Investments held at fair value
Level 1
Level 2
Level 3
Group
Company
2015
£m
2014
£m
2015
£m
2014
£m
648.6
99.2
751.0
703.2
39.4
693.3
1,498.8 1,451.9 1,496.2 1,435.9
648.6
111.3
736.3
703.2
39.4
709.3
In the year, group and company investments with a value of £0.9m and
£2.9m were transferred from Level 1 to Level 3 and Level 2 to Level 3
respectively, as a result of there no longer being any observable market
data. In addition, the group transferred £5.5m from Level 2 to Level 3
in respect of property investments.
Movement in Level 3 financial instruments was as follows:
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
Group
Company
2015
£m
709.3
9.3
40.1
(158.5)
2014
£m
494.7
–
186.8
(45.2)
2015
£m
693.3
3.8
40.1
(149.0)
2014
£m
476.6
–
183.4
(40.5)
32.6
7.5
32.5
7.5
118.2
751.0
65.5
709.3
115.6
736.3
66.3
693.3
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.
Significant unobservable inputs used at 31 March 2015 in measuring
Level 3 financial instruments were developed as follows:
(cid:891) EBITDA multiples represent amounts that market participants would
use when pricing investments. EBITDA multiples are selected from
comparable public companies based on geographic location, industry,
size, target markets and other factors that management consider
reasonable. The traded multiples for comparable companies are
determined by dividing the enterprise value of the company by its
EBITDA. EBITDA multiples ranged from 5 to 12, weighted average 8.3.
(cid:891) Discounted cash flows use a medium term time horizon of five years
and a cost of capital of 10%.
(cid:891) Marketability discounts represent the adjustment to comparable
market multiples to reflect the illiquidity of the portfolio companies
relative to the comparable peer group. Management determines the
discount for lack of marketability based on its judgement, after
considering market liquidity conditions and company specific factors
such as the development stage of the portfolio company. Marketability
discount rates ranges from 10% to 30%, weighted average 20%.
The following table shows the group’s exposure to gross liquidity risks,
based on the undiscounted contractual maturities of the financial
liabilities:
2015
Unsecured loans
Subsidiaries
2014
Unsecured loans
Company
Subsidiaries
Group
Up to
1 year
£m
1 to
5 years
£m
Discount
£m
Net total
£m
0.1
9.2
(0.3)
9.0
1.4
20.3
21.7
24.3
–
24.3
(5.7)
(0.3)
(6.0)
20.0
20.0
40.0
Capital management policies and procedures
The group’s capital management objectives are:
(cid:891) to ensure that the group and company will be able to continue
as a going concern
(cid:891) 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
(2014 – £175m).
The group’s total capital at 31 March 2015 was £1,626.9m
(2014 – £1,445.6m) and comprised equity share capital and reserves.
The group was 0.6% geared at the year end (2014 – 2.8%) and had
a further £166m of committed bank facilities.
The board monitors and reviews the broad structure of the group’s
and company’s capital on an ongoing basis. This review includes:
(cid:891) the planned level of gearing, which takes into account planned
investment activity
(cid:891) 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
(cid:891) the annual dividend policy.
The group’s objectives, policies and processes for managing capital are
unchanged from the preceding year.
The parent company is subject to the following externally imposed
capital requirements:
(cid:891) as a public limited company, the company is required to have
a minimum issued share capital of £50,000
(cid:891) 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, which
are unchanged since the previous year end.
Fair value hierarchy
The table below analyses financial instruments held at fair value according
to the subjectivity of the valuation method, using the following hierarchy:
Level 1
Level 2
Level 3
Quoted prices (unadjusted) in active markets for identical
assets.
Inputs other than quoted prices included within Level 1
that are directly or indirectly observable.
Inputs for the asset that are not based on observable
market data.
74 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
The table below sets out information about significant unobservable
inputs used at 31 March 2015 in measuring financial instruments
categorised as Level 3 in the fair value hierarchy;
Input
sensit-
ivity
+/-
Change
in valu-
ation
+/-
£m
Weighted
average
input
8.3x
20%
10%
10%
1.0x
1.0x
1%
1%
1%
0.1x
47.1
7.0
0.4
0.2
3.3
58.0
Fair
value
£m Unobservable input
Description/
valuation technique
Internally developed
Private companies
Earnings
277.0 EBITDA multiple
Discounted
cash flow
Net assets
Marketability discount
20.6 Discount rate
Marketability discount
32.9 Multiple
330.5
Externally developed
Private equity funds investments
Net asset value1 365.5
Private companies
External valuation2 55.0
420.5
751.0
1. The entity has determined that the net asset values reported by the fund managers
represents fair value at the reporting date.
2. The entity has determined that independent third party valuations represents fair
value at the reporting date.
Private equity fund investments, included in Level 3, are valued in
accordance with the valuation guidelines and are based on information
provided by the general partner. The general partners’ 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 managers.
23. Share-based payments
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. Nil-cost option
awards granted in 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. For nil-cost option awards granted
in 2013 and 2014, half of the shares comprised in the awards may be
exercised after three years, and half after five years.
The company also has a deferred bonus 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.
The terms and conditions of the grants outstanding as at 31 March 2015
were as follows, whereby all grants are settled by physical delivery of
shares:
Entitlement
Vesting
conditions
Number
of shares
Grant date
Share options
19.08.05
01.06.06
29.05.09
Option grant to senior staff
Option grant to senior staff
Option grant to senior staff
Note 1
Note 1
Note 1
Performance share scheme awards
28.05.12
12.06.13
03.07.13
27.11.14
Award grant to senior staff
Award grant to senior staff
Award grant to senior staff
Award grant to senior staff
Deferred bonus awards to senior staff
Compulsory award
12.06.13
Matching shares
12.06.13
Voluntary award
06.06.14
Compulsory award
06.06.14
Matching shares
06.06.14
Note 2
Note 3
Note 3
Note 4
Note 5
Note 6
Note 7
Note 5
Note 6
2,585
18,933
53,022
74,540
245,452
185,910
5,813
200,722
637,897
46,509
46,509
549
58,680
59,229
211,476
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/five years of service with vesting on a graduated basis
from 10% to 100% for annualised NAV total return of 3% to 10% and
(for investment executives) annualised pool total returns in a range
of 4% to 15%, in each case measured over three years for one-half of
the award and five years for the other half of the award. Investment
executives’ awards are measured as to 80% by reference to pool total
returns and 20% by reference to NAV total return, other than
Mr Cayzer-Colvin’s awards, which are 60% and 40% respectively.
5. Three years of service.
Annual report 2015 Caledonia Investments plc
75
Strategic report
Directors’ report
Financial statements
Other information
(cid:17)otes to the financial statements continued
6. 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%.
7. Three years of service or earlier termination of employment.
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:
2015
2014
Weighted
average
exercise
price
p/share
1589
1619
–
1560
Number
of options
000’s
146
(71)
–
75
Weighted
average
exercise
price
p/share
1487
1387
1055
1589
Number
of options
000’s
271
(118)
(7)
146
Outstanding at the year start
Exercised during the year
Lapsed during the year
Outstanding at the year end
The options outstanding at 31 March 2015 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 2010
Performance share awards granted in 2012
Performance share awards granted in 2013
Performance share awards granted in 2014
Performance share awards granted in 2015
Deferred bonus awards for 2011
Deferred bonus awards for 2013
Deferred bonus awards for 2014
2015
£m
–
–
0.7
0.8
0.4
0.2
0.5
0.7
3.3
2014
£m
0.1
(1.4)
0.8
0.7
–
–
0.5
–
0.7
24. Employee benefits
Group
Non-current assets
Defined benefit pension asset
Current liabilities
Profit sharing bonus
Non-current liabilities
Defined benefit pension obligations
National Insurance on share options, performance
shares and deferred bonus awards
Total employee liabilities
2015
£m
2014
£m
1.9
3.2
(2.4)
(2.1)
(3.8)
(2.8)
(1.2)
(5.0)
(7.4)
(0.6)
(3.4)
(5.5)
Defined benefit pension obligations
The group makes contributions to two (2014 – two) plans in the UK that
provide pension benefits for employees. Both schemes were closed to
new members in April 1996. New employees joining after that date were
offered alternative defined contribution pension arrangements.
Present value of funded obligations
Fair value of plan assets
Present value of net (assets)/obligations
2015
£m
42.6
(40.7)
1.9
2014
£m
38.5
(38.9)
(0.4)
Changes in the present value of defined benefit obligations were
as follows:
Balance at year start
Service cost
Interest cost
Actuarial (gain)/loss
Actual benefit payments
Balance at year end
Changes in the fair value of plan assets were as follows:
Balance at year start
Expected return on assets
Actuarial gain/(loss)
Employer contributions
Actual benefit payments
Balance at year end
2015
£m
38.5
0.3
1.6
3.5
(1.3)
42.6
2015
£m
38.9
1.7
0.8
0.6
(1.3)
40.7
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
2015
£m
0.3
1.6
(1.7)
0.2
2014
£m
39.2
0.3
1.6
(1.5)
(1.1)
38.5
2014
£m
37.4
1.6
(0.1)
1.1
(1.1)
38.9
2014
£m
0.3
1.6
(1.6)
0.3
76 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Sensitivities
The calculation of the defined benefit obligation is sensitive to the
assumptions set out above. The following table summarises the estimated
increase in defined benefit obligations to a change in individual actuarial
assumptions, 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 an assumption would
occur in isolation, as some of the assumptions may be correlated.
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
2015
£m
1.5
1.2
0.2
1.5
2014
£m
1.5
1.2
0.2
1.5
Risks
The schemes typically expose the group to risks such as:
(cid:891) Investment risk – the schemes hold their investments in equities and
bonds, the value of which fluctuates, whether caused by factors specific
to an individual investment, its issuer or factors affecting all instruments
traded in the market.
(cid:891) Interest rate risk – the schemes’ liabilities are assessed using market
rates of interest, based on corporate bond yields, to discount the
liabilities and are therefore subject to any volatility in the movement
of the market rate of interest. The net interest income or expense
recognised in profit or loss is calculated using the market rate of
interest.
(cid:891) Inflation risk – a significant proportion of the benefits under the
schemes are linked to inflation. Although the schemes’ assets are
expected to provide a good hedge against inflation over the long term,
movements over the short term would increase the schemes’
net deficit.
(cid:891) Mortality risk – in the event that members live longer than assumed,
the liabilities may turn out to have been understated originally and
a deficit may emerge if funding has not been adequately provided for
the increased life expectancy.
Amounts recognised in other comprehensive income were as follows:
2015
£m
2014
£m
Actuarial gains/(losses) arising from
financial assumptions
Actuarial gains from demographic adjustments
Actuarial gains from experience adjustments
Actuarial gains/(losses) in the year
(6.2)
2.5
1.0
(2.7)
An analysis of plan assets at the end of the year was as follows:
Equities
Bonds
Cash
2015
£m
29.8
5.6
5.3
40.7
1.1
–
0.3
1.4
2014
£m
26.4
5.6
6.9
38.9
The analysis of plan assets above included an underlying asset allocation
of investment funds.
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
RPI price inflation
2015
%
3.1
4.1
3.1
3.1
2014
%
4.2
5.0
3.5
3.5
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% pa. Life
expectancy on retirement in normal health is assumed to be 27.7 years
(2014 – 27.6 years) for males and 29.0 years (2014 – 28.8 years) for
females who are currently 62 years of age.
Expected contributions to group post-employment benefit plans for the
year ending 31 March 2016 were £0.2m (2015 – £0.7m).
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. A summary of the recent
funding obligations and weighted average duration of the defined benefit
obligation was as follows:
Amber Industrial Holdings
pension scheme
Caledonia Pension Scheme
Obligations at
31 Mar 2012
£m
Weighted
average
duration at
31 Mar 2015
Years
12.1
27.4
16
17
Annual report 2015 Caledonia Investments plc
77
Strategic report
Directors’ report
Financial statements
Other information
(cid:17)otes to the financial statements continued
25. Subsidiaries
Significant subsidiaries were as follows:
Country of
Shares held
domicile
Ordinary
UK
Capital
UK
UK
Ordinary
Netherlands Member
contribution
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Luxembourg Ordinary
Preferred
Ordinary
Ordinary
Ordinary
Name
Amber 2010 Ltd
Brookshire Capital LLP
Buckingham Gate Ltd1
Coöperatieve Caledonia
Netherlands Holding WA
Caledonia Lion Ltd
Caledonia Choice Ltd
Caledonia Group
Services Ltd1
Caledonia Treasury Ltd1 UK
UK
Deveronside Trading
Company Ltd
Easybox Sarl
UK
UK
UK
Edinmore Estates Ltd
UK
Edinmore Properties Ltd UK
UK
Edinmore Investments
Four Ltd
Sloane Club
Management Ltd
Sloane Club Properties
LLP
Southoak Ltd
Sterling Industries PLC
UK
UK
UK
UK
26. Interests in associates
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:
Name
B&W Group Ltd
Eredene Capital plc
General Practice
Investment Corp Ltd
Marwadi Shares &
Finance Ltd
Satellite Information
Services Ltd
Country of
domicile
UK
UK
UK
India
Shares held
Preferred
Ordinary
Ordinary
Preference
Ordinary
Ownership
2015
%
20
21
24
100
32
2014
%
20
21
24
100
32
UK
Ordinary
23
23
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:
Ownership
2015
%
100
70
100
100
93
98
100
100
100
100
100
100
100
100
2014
%
100
80
100
100
98
100
100
100
100
100
100
100
100
Ordinary
100
100
Capital
100
100
Ordinary
Ordinary
Preference
Ordinary
100
100
80
68
100
100
80
68
Assets
Liabilities
Equity
Revenues
Loss
2015
£m
340.9
(182.7)
158.2
369.6
(5.5)
2014
£m
921.5
(586.4)
335.1
775.3
(5.3)
TGE Marine AG
Germany
1. Subsidiaries included in the consolidated financial statements as service companies
controlled by the company, in accordance with the IASB Investment entities
exemption.
A complete list of investments in subsidiaries will be submitted with
the company’s annual return to the Registrar of Companies.
78 Annual report 2015 Caledonia Investments plc
Strategic report
Directors’ report
Financial statements
Other information
Company performance record
A ten year record of the company’s financial performance is as follows:
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Profit/
(loss) for
the year
£m
349.4
136.1
(43.9)
(325.5)
312.4
84.1
(93.2)
209.4
183.1
207.7
Diluted
earnings
per share
p
549.2
226.9
(76.0)
(564.1)
539.6
145.1
(161.8)
366.5
327.4
371.1
Annual
dividend
p
29.6
31.1
32.5
33.8
35.3
37.1
42.9
47.2
49.1
50.6
Net
assets
£m
1,307
1,323
1,252
906
1,182
1,259
1,134
1,302
1,446
1,627
Diluted
NAV per
share
p
2044
2258
2155
1559
2034
2165
1977
2305
2593
2906
Share
price
p
1980
2066
2050
1289
1625
1725
1486
1840
1923
2281
Rolling ten years annualised
Total share-
holder return
%
14.9
15.0
12.6
9.4
11.5
10.5
8.1
13.6
8.9
7.5
FTSE All-Share
Total Return
%
8.4
7.7
3.5
(0.7)
2.6
4.7
5.2
10.7
8.6
7.7
1. Profits, earnings and net assets from 2013 were from the group results, prepared in accordance with IASB Investment Entities amendments to IFRS 10 Consolidated Financial
Statements. Pre-2013, they were from the company results.
2. Annual dividends are stated in relation to the year’s results from which they were paid.
Annual report 2015 Caledonia Investments plc 79
Strategic report
Directors’ report
Financial statements
Other information
Information for investors
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 £15,240, for the tax year ending 5 April 2016.
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 request from the company.
Caledonia Investments Share Savings Scheme
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 website or by request from the
company.
PEPs and ISAs
Caledonia’s shares can be treated as qualifying investments for the
purposes of the PEP and ISA rules.
Share prices
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.
The ISIN code for Caledonia’s ordinary shares is GB0001639920.
Monthly net asset value
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.
Dividends, change of address and
other shareholder services
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. You can elect for the dividend
reinvestment plan online at www.capitashareportal.com, where
you can view the terms of service, or you can request an application
form by telephone 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
9.00am to 5.30pm. Alternatively, an application form can be
requested by email from shares@capita.com.
80
Annual report 2015 Caledonia Investments plc
Directors and advisers
Chairman
Roderick D Kent2
Executive directors
William P Wyatt (Chief Executive)2
Stephen A King (Finance Director)
Jamie M B Cayzer-Colvin
Non-executive directors
Harold Y H Boël1,2
Stuart J Bridges1,2,4
The Hon Charles W Cayzer2
Charles H Gregson (Senior Independent)2,3,4
David C Stewart1,2,3
Robert B Woods CBE2,3,4
1. Member of the Audit Committee
2. Member of the Nomination Committee
3. Member of the Remuneration Committee
4. Member of the Governance Committee
Secretary
Graeme P Denison
Registered office
Cayzer House
30 Buckingham Gate
London SW1E 6NN
Registered number
Registered in England no 235481
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
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Annual report 2015 Caledonia Investments plc 81
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
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