Caledonia Investments Plc (CLDN) Earnings Call Transcript & Summary

All right. Well, good morning, everybody. And I'm Mathew Masters, Chief Executive of Caledonia Investments. And it's my pleasure to welcome you all here today to the first in a series of 3 spotlights, where we're going to take you through each of the pools over the next sort of 12 months to help you better understand Caledonia, its portfolio, how we work, our prospects, and so you can perhaps better understand our rating. Now to enable us to be good stewards of your time, we're asking for questions to come at the end. So we'll have a presentation from myself and then from Tom. And you can see the agenda there, and then we'll take questions at the end. So before we get to Tom, just a reminder about Caledonia, and then I'll put it in a bit of context for Private Capital. So Caledonia has net assets of just under GBP 3 billion. And we are, as I say, a very self-managed investment company. You'll hear more about how that works from the Private Capital team later on this morning. But I think what you'll see is how Caledonia benefits from executing a strategy that's designed for and only for Caledonia with our in-house team. Caledonia is aiming to deliver long-term returns, moving our NAV per share ahead of inflation over time and that to be backing up a progressive dividend. And I think you'll hear today that, that inform to risk and reward. And within Private Capital, you'll hear that we don't use lots of leverage in our investments. So we don't take lots of financial risk, and we don't pay speculative multiples for businesses. So we keep the financial risk low. We also avoid taking on high levels of operational risk, so we don't get involved in turnarounds and things like that. And really, this straightforward approach to investing in companies and giving them time to develop has proven very successful over a very long period of time, as you can see from the charts on this slide. And it helped us keep the dividend ahead of inflation for 57 years. Now maybe I should have started with this, but the foundations of all of this is a very supportive long-term shareholder, the Cayzer family, who provide the company and the strategy with a lot of support. And their near-century long support for us is a really important factor when potential business partners are evaluating us, especially when we're talking about doing long-term partnerships in Private Capital. So this slide brings together our investment philosophy. We are focused on making long-term investments in companies and letting them drive returns rather than us trading and time well invested perfectly describes this approach. Now whilst we clearly have the balance sheet to be able to do this, we really need a really good team to go with it because there's no use having a long-term balance sheet and a short-term team or a team that's continually churning. So we benefit from each of the pools having expert teams, who have been working on these strategies for a long period of time, doing the work for us and only for us. Our selected investment strategies are in large and attractive markets, and the investment teams select only the best opportunities available within those markets. And the teams are only managing Caledonia's capital, investing from our balance sheet, so very aligned with shareholders. Performance is measured by the team's contribution to NAV, Caledonia's NAV and paid in Caledonia shares. This is a lot of alignment in the system of shareholders. They're not distracted by investing or fund rate -- sorry, they're not distracted from investing by fundraising or asset gathering. And these strategies are developed by and only for Caledonia. And they also inform each other. And this long-term approach of investing in high-quality companies and funds enables us to look through cycles and focus on fundamental opportunities. This summarizes our portfolio, which is designed to provide shareholders with a diversified exposure to companies globally within our 3 strategies. Each strategy is quite concentrated, and so they're only picking, as I say, the best opportunities available. Now shareholders have the benefit of this focus within each of the strategies, which I believe gives much better performance. But you get the 3 strategies, which are helping you manage risk and diversify your risk. The portfolios have different puts and takes. So they complement each other. So the quoted strategy, invest in high-quality listed companies, obviously, very liquid. Private Capital, where we partner with management teams to make long-term investments is obviously less liquid, but we have a lot more control over what's going on. And then our Funds pool enables us to access really good areas in parts of the world, which we couldn't do ourselves, so we can access the lower mid-market private equity market in America, which I would describe as sort of grassroots capitalism with lots of fundamental business drivers, and interesting growth in Asia, but does come with a level of fund commitments. So the 3 strategies complement each other in terms of exposure, diversification and liquidity characteristics. Now you can see the strategic allocation. And we do use those bands, and they're useful for planning because we're a long-term business, so you do need to plan, but we're not beholden to them. And we don't have to make annual top-down capital allocation decisions. Because we're self-managed, we're just responding to the opportunity set that presents itself to each of the teams. So the investment decision-making really is in touch with where the best opportunities is across the strategies. All investments are approved by a central investment committee, has each of the 3 pool heads on, the CEO, CFO and the Company Secretary. This prevents the investment pools having a sort of echo chamber, silo mentality. It maintains strategic discipline. And it makes sure that we're all talking to each other and sharing the best knowledge and practice that we can in making the best decisions. Before we move on to Private Capital, I'd just like to highlight why I think it's a great fit within the business. And I would say this about all the portfolios. So with Private Capital, over many years -- and we've been investing in private companies for a long, long time. We have demonstrated that this strategy works very well for us. We have a very differentiated approach to the market, the PE market. We certainly take less financial risk, and we deliver, I think you'll see, good returns. And so this is very well proven. This is a great aspect -- it's a well-proven strategy for Caledonia. An important ingredient in the success is that whilst we're highly selective -- so we're aiming to carry 5 to 10 holdings at any particular time, and we're quite long-term investors. So we're only occasionally in the market. We do manage to see a lot of opportunities, a lot of really good opportunities. So how do we manage that? Well, it's because of our track record, our reputation and obviously, all the hard work that the team does. So we get to select some really good opportunities because of the way we do it. And then finally, the intangible, which you probably might not pick up, is the benefit that the rest of Caledonia gets from the team and their colleagues in the businesses being around us and being with us. And we learn as much from them as perhaps they learn from us. It's really healthy for us. It's very healthy having colleagues, who are right up against the cold face of business, and it stops us at getting anywhere close to being in an ivory tower. And a recent example would be the project that led to time well invested being added to our logo, which I think perfectly describes how we operate with culture and values, et cetera. And that was inspired by a project that was carried out at Butcombe, one of our portfolio companies, and we were able to talk to them about it. So it's a great ecosystem. It's great having them in it, and I'm really looking forward to hearing Tom tell us more about it.

Thanks, Mat. My name is Tom Leader. I head up the Private Capital team here at Caledonia, a position I've held for just about 4 years, and I've been with Caledonia for nearly 8 years now. But in fact, we've been operating within the Caledonia ecosystem, primarily with a Caledonia portfolio company since 2005. So I'll take you through our activities at Private Capital over the next 35, 40 minutes or so. But Private Capital on a page, in common with the rest of Caledonia, we approach Private Capital with a very long-term mindset. We have a buy-to-own mentality, and that contrasts with much of the rest of the private equity industry in the U.K. and indeed elsewhere, who typically have a buy-to-sell approach to private capital investing. So we are in the business of making investments rather than doing deals. We are -- we have been operating this strategy in pretty much this format certainly since 2012. But as Mat as alluded to, in fact, Caledonia's involvement in private capital dates long before that. We are a low volume, high-conviction player. We are not a deal shop. We have made, since 2012, 14 new investments only. So it's like 1, maybe 2 a year. And we've supplemented those with about 10 bolt-on transactions or add-on acquisitions across that portfolio of 14. Mat alluded to the fact that we adopt a partnership approach. We typically provide the capital resources in partnership with management to provide the day-to-day execution and management resource. But in addition to that, we provide a whole ecosystem of support to our portfolio companies, and that could be in arranging debt financing. It could be in M&A, a lot of our team worked closely with our portfolio companies on add-on acquisitions, certainly establishing the governance structure. We support them with data and digital strategies and also with their work in ESG. So it's not just money. It is an ecosystem of support, and there are, in fact, events throughout the year, where we introduce our respective management teams to each other, the most recent of which was, in fact, yesterday. As you would expect from an organization that has been around for nearly 150 years, we take pride in doing business the right way, and we adhere to the highest standard of governance and indeed responsible investment. In numbers, I mentioned 14 investments, since 2012, 10 bolt-ons, our value of the portfolio -- our net asset value in the portfolio back at September 2024 was GBP 850 million. And that is up from about GBP 0.5 billion 10 years ago, just to give you some scale there. But over that, period, we have generated GBP 1.1 billion in realization value on investments that we've made since 2012 and generated gains of over GBP 0.5 billion. So the returns on our realized investments averaged out at 17% IRR and about 1.8x money on money multiple. But if you look at the NAV total return over the last decade, it's 13%, and I'll come back to how that compares to the rest of the mid-market private equity industry in the U.K. a little later on in the presentation. So that is us on a page. You'll hear more on some of these topics and themes as we go through the rest of the slides. So the U.K. mid-market is pretty competitive, but we believe that we have some very strong attractions and advantages in the way we operate, which appeal and resonate with both management teams and selling shareholders. So #1, we are very high-conviction investors. We are under no pressure to invest or indeed divest within any specific time period. We do not operate the standard private equity limited partnership model, which forces PE firms to raise money, then invest it, work on realizing it in order that they can demonstrate a track record to raise their next fund. And we're just not on that hamster wheel. We don't play that game, and we can wait for the right opportunities as and when they arise. And when they do arise, we commit the necessary resource to execute them quickly. So high-conviction investors, #1. #2, we have the advantage of Caledonia's evergreen balance sheet. We offer, therefore, management teams no limit or no time limit on our money. We can and do hold investments for a very long time. We sold, in December, Bloom Engineering, possibly slightly longer than originally planned, but we've had that for over 30 years. 7IM, the sale most recently before Bloom, we had in the books for over 8 years. So we can and do hold things for a very long time. The flexibility that our balance sheet offers is central to that. But we are not forever investors. We do sell. We do sell when, in conjunction with our management partners, we deem the time to be right, and it could be driven by approaches from strategic trade investors or other financial investors. It could be because the capital requirements of the business outgrow our balance sheet, or it could be because of the natural evolution of the management team. There could be a desire coming from the management to crystallize the realization events. So there are many reasons, why they might sell, and -- but we don't keep things forever. And finally, we have a low-risk approach and appetite. We recognize that our flavor of capital, if you like, is not right in every situation. But where the vendors or management teams align with us in terms of their financial risk appetite, which translate into low levels of leverage, where they share our long-term view, where they find our alignment in capital structuring attractive. We -- our companies typically pay us an annual dividend, for example, which we share with management teams, where they like this partner approach I've alluded to, then we are the perfect solution. So in those situations, what we have found is that the M&A advisory community, the corporate finance houses really value having Caledonia in their processes because we are so different to the rest of the U.K. private equity industry. A few words on the team. We've got a frontline team of 11. We are, of course, supported by the broader Caledonia organization in finance, in treasury, in technology and in risk. So we leverage the resources of the group in those respects. And we have a frontline investment team of 8 people. We have a very strong preference to not only grow, but retain our own people. And if you look at this slide, Tim Lewis, Theo Tizard, James Lander, Joe Carter Hepplewhite, Will Sym and Rhydian, they -- Caledonia is their first job in private equity. So we have trained them and developed them over many years and are very pleased with the overall team that we've got. We supplement this team with specialist resource in 2 areas: #1, in origination. Origination efforts are led by Sophie Bell, who came to us from EY and, before all that, at OC&C. And in data and digital work, Rachel Pillsbury is our Director of Data and Analytics. And she works with, in fact, all of our portfolio companies, helping them define and implement their data and digital strategies. So our investment team are involved in the whole waterfront of origination, execution of new investments. They sit on the boards of all of our investee companies. We typically have 2 people on the board of each portfolio company and, when the time is right, through the exit process. So it is an end-to-end involvement over, as I alluded to, often many years. And a word on compensation, just to underline what Mat said, we have no carried interest scheme here. The team is rewarded through the LTIP program driven off NAV total return just like everybody else in the Caledonia organization across the different investment teams and our senior management. So we have a great team, who've been working together for a long time. And our -- a few words on our investment strategy and our portfolio. So we are targeted with developing and maintaining a portfolio of up to 10 companies and delivering returns of 14% per annum. That is the exam question set to us within the Private Capital team by the Board of Caledonia. And within that 14% return target, we also seek to generate 2.5% dividend yield or cost of investment. So that's what we are trying to do. We focus pretty much exclusively on U.K.-headquartered mid-market businesses. We are sector agnostic, which I'll come back to, but what is a mid-market business? Well, in our language, it is companies which have an enterprise value of between GBP 75 million at the bottom end and about GBP 250 million at the top end. That is the place that we explore for new opportunities. And what we are looking for is high-quality businesses. We are after robust established businesses, which we can see will deliver sustainable returns and sustainable shareholder value over the long term. So what does that mean? Well, we look for situations and businesses where we can see, in particular, 6 characteristics. #1, we want them to be operating in markets with favorable dynamics. So businesses with tailwinds rather than headwinds. This is why we've -- you've seen us deploy a lot of money in Financial Services. We are looking for businesses which are well positioned in their respective markets. So in Buffet-speak, businesses with a highly defensive moat. We are looking for companies with attractive financial metrics, which for us means businesses with double-digit EBITDA margins and 70% plus cash conversion. Strong management teams. As Mat alluded to, we do not get involved in management buy-ins. We like to work with established management teams, who've been working in their field or in that business for some years. And we want to see multiple levers for growth. And that means in any given business, lots of organic growth opportunities, which could be high returning capital expenditure opportunities. It could be opportunities around product or geographic expansion, it could be in M&A. So we want lots of different levers for growth across the board. And very importantly, we want there to be exit optionality. The IPO market is not a promising exit route for companies of the size in which we typically invest. But we do see the ability to sell businesses to other strategic trade or to other financial investors. So those for us are the characteristics of quality businesses, but we also look for quality investment opportunities. We have got a relatively small team, and we want to dedicate our time and resource to those opportunities, where our investment philosophy and our approach is value. And these are the things I referred to earlier, low appetite for high degrees of financial risk. We don't like MDIs or turnarounds or complex carve-outs, all of which bring tremendous operational risk. We want to operate in this partnership way with our management teams in preferably controlled buyout or significant minority participations. So the balance of a quality business and a quality investment opportunity is what gets us excited, and that is what we spend our days looking for. On origination, we focus our efforts on the intermediary market. Almost every single opportunity of the scale that we look at these businesses in the range of enterprise values between GBP 75 million and GBP 250 million, almost every single opportunity in that range will have an M&A adviser working for the vendors. There is -- it is extremely rare to find a totally proprietary deal, which doesn't have a professional intermediary on the other side of it. So we need to cover, and this is what Sophie Bell delivers for us, the whole waterfront of corporate finance and M&A advisers in the U.K. market. And in addition to that, we maintain a network of relationships with other brokers, lawyers, accountants, management teams. Very often we get introductions from our existing or previous management teams to new opportunities. So that supplements our coverage of the M&A community. And of course, as you would expect, we do develop our own outward-facing direct origination efforts in particular sectors or particular subsectors that we find interesting. In numbers, we source about 300 different opportunities to look at each year. And over the last decade, which is the period for which we have been keeping records, yes, that has added up to slightly more than 2,200 opportunities, since 2015. We, of course, know what a Caledonia deal looks like, going back to the quality business and quality investment opportunity. So we rapidly focus our resources on those situations which we deem to be the most attractive. Various other players in the market have got capital deployment targets, and they will almost invest in anything. We don't operate like that. And a statistic, I particularly like is this 45% conversion rate of bids -- of investments made to bids submitted. Now this, I think, speaks to 3 things: 1, a high conviction approach; 2, our ability to put ourselves in positions where we have a right to win. And I don't mean just through price. This is establishing our relationship and our approach in minds of vendors or management teams or their advisers. And also it speaks to our investment discipline to walk away from deals. You wouldn't want to see this figure at 100%. There's something definitely going wrong, if that's at 100%, nor do you want to see it at 0. So we are nicely positioned in the middle of the range, and what we want to win, we generally do. And equally, we are very happy to sit on the sidelines, when we perceive the market is too frothy. We chose to make no new platform investments in the period 2020 to 2022. This was a period characterized by a lot of operational turmoil driven by the COVID disruption, 0 interest rates, in fact, negative real interest rates. And that resulted in an environment where prices were extremely high, particularly in 2021 and 2022. But what we did do in that period was make several add-on acquisitions. The risk/reward profile for us on supporting a known management team in a known business to make an add-on acquisition in their sector is just much more attractive, when markets are frothy than investing money in a new platform. And naturally, as you would expect, we made several disposals, most notably Deep Sea Electronics, which we sold to a U.S. trade buyer in the middle of 2021. And at the end of 2021, we sold BioAgilytix to a consortium of investors led by Cinven. I'm now going to show you a short video about our newest investment, Direct Tyre Management. We completed this investment in August 2024, where we invested alongside the management team led by Leigh Goodland, GBP 55 million for a majority stake. And what you'll see in this video is Leigh Goodland, the CEO; and my colleague, James Lander, who is the investment director who led this particular acquisition for us, talk about cultural fit. I talked about our high conviction approach and indeed give some insights on how we structure our incentive programs for management. [Presentation]

So that was intro for you to Direct Tyre Management. The rest of our portfolio looks a little like this. So at September 30, we had 9 companies in the portfolio, of which DTM was one, and they have been in there for a month. We are sector agnostic. So in our current mix, we've got financial services, we've got consumer leisure, we have a couple of business -- services businesses, techie, manufacturing. So we have a broad spread of industries and sectors. We were 9 companies at September. We are now only 8 following the sale of Bloom Engineering in December, which we sold to another U.S. corporation public company called Wabtec. I mean ideally, we'd like 1 or 2 more investments and a touch less concentration. You can see from this chart that approximately 90% of our NAV is represented in 5 positions. So a little less concentration would be good. We are in almost exactly the middle of our strategic allocation range that Mat referred to. So that's 25% to 35% of the NAV of the group, and we're sitting at about 29% at the moment. Now we generally hold our assets at valuations, which are towards the bottom end of the range of fair value. So fair value is a requirement that we have to deliver. And I will cover that in a bit more detail. But our businesses are typically not held that -- at fancy multiples. The leverage across the portfolio, this is current leverage, is very low. 2x to 2.5x would be times EBITDA would be typical. Some of our businesses like Stonehage Fleming, for example, are much lower than that. In fact, Stonehage Fleming is currently less than 1x levered. And this has a dual benefit for us. #1, it allows our portfolio companies to reinvest their surplus cash flow in organic and inorganic growth because they are not in financing high-levels of leverage at what are now nearly 10% interest rates. And it also allows them to pay a running yield or dividend, which benefits both Caledonia and management alike because we are both invested in the ordinary equity of our businesses. A few other words on our portfolio. I mean, over the course of this presentation, you'll get insights into DTM, into Butcombe and into Stonehage Fleming. So whilst I'll leave you to read this in a bit more detail at your leisure, I just want to pick out 3 companies that we're not going to cover later on. The first is Cobepa. Cobepa is a slightly different animal to the rest of the companies in our portfolio. It is a Brussels-based investment company with net assets of nearly EUR 5 billion. We have had a strategic relationship and an equity interest in Cobepa, since 2004. So we've just passed our 20th year anniversary. And over that period, it has generated an IRR for us of a shade over 13%. But in addition, we cooperate with them on investment opportunities. We participated with them in the very successful investment in BioAgilytix, which generated net cash-on-cash returns of about 5x our original investment. And we have really stepped up our program of cooperation over the last 2 or 3 years, and we've looked at multiple potential investment opportunities with them over the recent months. Secondly, I'd like just to touch on AIR-serv. This was a very significant investment we made in April 2023, an investment initially valued at GBP 142 million. We covered this in some detail back in the results presentation, which some of you may have attended in May '24. But I'd just like to report that it's trading extremely well. There has been significant growth in profits over the first 18 or so months of our ownership. It paid its inaugural dividend to us back in the middle of 2024 and has got very good prospects. And finally, Cooke Optics, which we covered some length in our interim results presentation in November last year. Cooke, as you may recall, make very high-end cinematography lenses. And just to scale that for you, a typical Cooke lens might cost $30,000. It is a hugely respected brand within the industry. But it has been very hard hit by the Hollywood strikes, both actors and writers and the disruption that, that caused to the industry. It has not been helped by the recent fires in Los Angeles. And it is definitely taking longer than we anticipated to recover. We are working extremely closely with all the management team at Cooke to give them all the support they need. And in fact, we recruited a new Chief Executive, David Hancock, to help get it back on a great track, and David started in Leicester on the 6th of January. So I can spend a few moments talking about our investment in Stonehage Fleming. This is a minority investment. So it's not a control investment, so it's slightly different from the likes of DTM or Cooke or some of the other companies in the portfolio. But Stonehage is the leading independent multifamily office in Europe. It focuses on the ultra-high net worth wealth market, and that sector is the fastest-growing sector of the wealth market, and Stonehage is one of the premium brands in that market. We've been working closely with the management team over the last 5 years. We invested in Stonehage in July 2019, and we have been building a really first-class business of significant scale. Just to give you some data around that. We've got about 1,000 employees that we operate in 14 geographies and have 19 different offices. So it is a very big business in EBITDA terms. This is the biggest business in the portfolio. I'm very pleased to announce, as some of you may have seen, the appointment of a new Chief Executive, Stuart Parkinson, who joined the group on Monday this week, having previously been CEO of Lombard International and before that, having spent many years at HSBC in their private banking business. So why did we invest in Stonehage Fleming? #1, there was the fit and the relationship with management. We were working closely with the founders of the original Stonehage business, who had been leading the combined entity of Stonehage Fleming, since the merger between the 2 businesses in 2014. And they were a proven team who had been operating in the business for decades. So a very strong management team, operating in an extremely attractive market. The ultra-high net worth market is growing at a double-digit rate. The rich are, as you will have observed, getting richer. And Stonehage is the #1 in Europe, and we are expanding elsewhere, with a focus particularly on the U.S.A. Exceptionally high barriers to entry. The ultra-high net worth families, which the company serves are extremely demanding. They have very complex multi-jurisdictional affairs. And this makes them exceptionally sticky customers. It's very difficult for them to move or for them to find an alternative organization, which can suit their needs. And as a result, we have a 97% customer retention rate. It's got tremendous EBITDA margins and free cash flow. This is not an industrial business. The CapEx that we do invest is in the tech area. It's got very, very good cash conversion, which we have used to fund M&A, international expansion. Here we have made 3 acquisitions to date with Stonehage Fleming, financed almost entirely by cash generated with a little bit of extra leverage, but no new equity. We're in exclusivity on another business right now, and we've got a very interesting pipeline of future opportunities. So I mentioned that this is a minority investment or any material direct minority investment we had an inception about a 35% stake. And the money that we invested was used to retire some of the legacy shareholders in Stonehage Fleming and to clean up the capital structure. We were able, in the process, to negotiate a preferred ordinary share with significant downside protection. It's sort of so far in the money that it's not really an issue anymore, but we had initially tremendous downside protection and a suite of minority protection rights and, as usual, a couple of positions on the board. And it was a classic case, where the management and the vendors were very highly sensitive to the client reaction to a conventional private equity deal. And what they wanted was a blue chip family office style investor with a very long-term mentality, who would be known to and would not frighten the client base. So it was really a great marriage. It's performed very well over the last 5 years, since we've invested, and it's got very strong prospects under Stuart's leadership. And this is what the numbers look like. We invested just under GBP 90 million back in July 2019. It's valued in our books, right now, around about GBP 180-ish million. But we have taken, and you can see the green bar at the top of this slide, we've taken an annual dividend over the years. So we're holding it at about 2x, and it's generated in line with our objective around a 15% return with very low leverage. So it's been a great story so far and I think, will be a very promising contributor to our returns going forward. I can play you another video now about Butcombe Group. Some of you may remember this as Liberation Group. It has recently rebranded, reflecting the development of the business from its Channel Island roots to really an U.K. business. This is one of our longest-standing investments. It dates back to September 2016. But on the journey, we have made 2 very substantial bolt-on acquisitions. The first was of a group of pubs from Wadworth in 2020, at a time when all of the pubs that we bought were, in fact, closed compulsively by the government. And then we followed that up in 2022 with another bundle of pubs from Cirrus Inns, with which we merged. It's been led since 2019 by the very capable Jonathan Lawson. And you'll see in this video Jonathan talking to Tim Lewis, who sits on the operations Board about partnership and about the benefits of our long-term perspective and our ambition. So here is the video of Jonathan. [Presentation]

So that's a bit of an insight for you into Butcombe. I'm going to shift gears now and start talking about track record. There is quite a lot of data here, so bear with me. This chart on the left compares our performance to the performance of mid-market U.K. private equity firms as measured by the British Venture Capital Association, who produce a performance survey, in fact, every year. And if you look at the right-hand columns, you will see our 10-year performance, 13.1% in purple and the rest of the mid-market private equity industry in the U.K. at about 10.6%. So nicely ahead of the median returns in the industry. We also outperformed them over a shorter period, 3 and 5 years. And we do this despite using much lower leverage than is typical across the history. As I've mentioned, we're 2x, 2.5x, sometimes 3x at the initial point of investment. That compares with the industry, which might be 4x, 5x or 6x. And as you can imagine, that will generate substantial extra return unless, of course, it all blows up, in which case, you'll lose a lot more money more quickly. But -- so we generate this performance despite using lower leverage, and we do not use capital pool facilities. These are drawdown facilities, which allow private equity firms to essentially borrow the money from banks rather than drawing down from their investors for a period. That would typically add 1 or 2 percentage points of return. So despite doing either of those things, we've got better returns than the industry. And this speaks to our disciplined investment process. It speaks to our highly selective approach to investments, to choosing to stay out of market when it gets too frothy. So good investment returns over long periods of time. Digging deeper into realizations is selling well is itself a skill. We work extremely hard to prepare our businesses for sale. And typically, we'll run competitive auctions to extract the best value, when we judge the time is right. And as I mentioned earlier, we have generated over GBP 1.1 billion of proceeds from realizations on investments made since 2012, over GBP 0.5 billion of net gains, 1.8x cost. And that is for the avoidance of doubt, despite and it includes a loss on Buzz Bingo, which, as you will recall did not survive the perils of COVID. Now you might reasonably ask how aggressive or otherwise are our valuations across the portfolio. I mean this is a common question for investment trust with exposure to private capital assets. And as I alluded to earlier, we follow the principles of fair value accounting. They are codified in the rules set out by the international private equity and venture capital guidelines. And we attempt to -- and there is an element adjustment. We attempt to value our businesses at each reference date, and we do that twice a year, September and March at each reference date at the value you would get in a willing buyer, willing seller transaction. So that's what we try and do. But what the data shows, and this is a slightly complex graph, but on the X axis, you can see our IRR generated on any individual investment. And on the Y axis, you can see the percentage uplift in our NAV over the last 12 months of our holding period. And this chart covers all material exits that we've made since 2012. And just taking one -- an example, just to help me read and understand it. If you look at 7IM, which is sort of -- you can see the logo there. We generated a 15% IRR on the x-axis, and the uplift in the last 12 months was 40%. We sold Bloom in December, and the uplift on Bloom was also just over 40%. So we adopt this conservative approach. We're at the conservative end of fair value. And we typically, through good selling, good focus on the exit process, we're able to generate uplift on our holding value when we pass on these companies to the next owner. Some words on value creation. This is absolutely at the heart of our portfolio management activity for our investment team. This occupies in fact, more time than origination, the process of buying and the process of selling. This is where most of our time is spent with us, our team and, of course, our management teams. Now I'm just going to illustrate some of the approach through reference to 7IM, which we sold a year or so ago. The first thing is you've got to buy well. You want to buy a quality business at a good price. Easy to say, difficult to do. It is extremely difficult to recover from buying a bad business even if you pay a good price. You will all recall the Warren Buffet aphorism that when you combine a bad business with a good management, it is usually the reputation of the business that survives. So we try to avoid buying bad businesses. We try to buy well. There are several pillars to the value creation. The ones which are particularly important to 7IM were as follows. First of all, the strategy. The key to the whole investment strategy was a plan to pivot from being a pure-play investment manager serving the IFA community to being a vertically integrated platform-led wealth management business with a D2C capability. That was what we were trying to do. And it was all about capturing more of the value chain, improving client retention improving client stickiness and positioning the business so that at the point of exit, it would attract a higher multiple. The second thing was management. You've heard Jonathan Lawson talk about management at Butcombe. It was part of the original thesis here that we would have to manage an orderly succession of the founder management team. Some of you may recall, Tom Sheridan, or indeed the ubiquitous Justin Urquhart Stewart of red braces fame. We had to move the management team from the old founder generation to a new team. And we brought in Dean Proctor from Barclays who reinvigorated the senior leadership team. In Financial Services, I know a lot of you are in that business yourself, a good tech stack, a good tech platform is a source of competitive advantage, and it is also central to scalability. You may recall, while I talked about 7IM before, we took the AUM at 7IM from GBP 8-ish billion to over GBP 20 billion and the investment of over GBP 40 million that we made in the tech stack is central to our ability to do that without incurring additional OpEx, operational cost. Bolt-on M&A was an important part of the story here. Over the course of our ownership, we made 4 bolt-on acquisitions and in fact, signed exchange contracts on another one, just in the gap between exchange and closing, when we were selling the business. So lots of activity. And in doing so, we build a business that buyers could look at and say, yes, this is a platform capable of acquiring and integrating other wealth management businesses in the U.K., and that itself was a source of appeal, when we came to deliver the exit story. And finally, you've got to be able to sell well. We sold this business to Ontario Teachers' Pension Plan in a competitive auction, which closed in January 2024. It was -- we've had a lot of inbound interest from strategics from other private equity and financial investors. It was already our biggest asset. And it was very capital hungry. We had an extremely ambitious management team led by Dean and we concluded it was the right time to pass 7IM onto an investor, frankly, with deeper pockets and Ontario Teachers has got a balance sheet in excess of GBP 250 billion. But I'm pleased to say the business has continued to thrive under OTPP's ownership. We always like to see that, frankly. It's continued its strong growth, and I'm sure we will see more expansion from 7IM in the papers over the next year. It was a great story. We made over 15% IRR and 2.3x money-on-money multiple. What's particularly noticeable on this chart is the green bar. So all of our total proceeds of just under GBP 300 million, GBP 44 million came in the form of dividends taken out over the course of the 8 and a bit years, which we owned 7IM. So overall poster child of value creation and what you can do with a long-term perspective and a good management team. So you'll be pleased here, I'm nearly at the end. Just a couple of words in conclusion. We are, I believe, a very differentiated source of private capital in the U.K. mid-market. We do not operate or behave like a conventional private equity fund. We have a very experienced team who've been operating under this strategy, since 2012. We have a long-term buy-to-own mindset, which is supported by our evergreen balance sheet structure. We are a low-volume, very high conviction investor. We're not a deal shop, and we have no pressure to invest or divest, so we can pick our moment. We operate under the highest standards of governance and responsible investment. And we have delivered good returns for Caledonia, whilst also providing diversification benefits. We are the principal source of sterling exposure within the group, and we have a very different sort of portfolio from both the Funds pool and the quoted pool. So that, ladies and gentlemen, is all I wish to say formally, but we'd be delighted to answer any questions that you may have from the room in the first instance and then online, if any. Thank you.

It's [indiscernible] Securities. Very quickly, I think it was really useful. Can you talk a little bit more about sort of valuations and how you arrive at valuations as a portfolio companies and sort of keep them up to date quarter-on-quarter, year-on-year sort of how does the process work more specifically? There's a number of other questions we can also get. I guess, value creation, you said you spend most of your time on. It'd be great if you want to share some more sort of examples of initiatives that you do sort of across portfolio companies. You mentioned you had a data analytics, for example, worked with all portfolio companies. It would be great to hear more there.

Okay. Well, 2 questions there. So on valuation, as I mentioned, we follow the IPEV guidelines. We value our assets twice a year, not quarterly. The approach we take involves starting with comparable transaction multiples or comparable company -- quoted company multiples or other valuation metrics, which could be net assets or other factors. So we establish a range of comparable multiples for the business in question. We then apply that to an EBITDA figure. We obviously gather and calculate financial metrics from all our portfolio on a monthly basis. So we generate an EBITDA figure. That will give us multiplying 1 by the other, will give us an enterprise value, and that will flow down through the capital structure. We take off the debt instruments, if any, and allocate the remaining equity value across our instruments and those held by the management team. So that's the basic process, which is embedded within the IPEV guidelines. That is then reviewed internally within the Private Capital team. It then gets reviewed by the senior management, Rob and Mat. It goes through a review from our auditors, BDO, and ultimately signed by the Caledonia Audit Committee and the Board. So that is the process that we go through, and we've been following in -- pretty much unchanged for over a decade. On value creation, those levers I talked about are pulled with different levels of strength across the different companies. If Stonehage Fleming very much on the M&A -- on the add-on M&A lever. If you look at Butcombe, there is the team there who have invested literally millions over the last 8 years in organic investment. This is this -- if you go into our pubs across the South, you'll see many examples, where we have increased the number of rooms. We have improved the facilities. And these organic CapEx projects at Butcombe very often generate 20-odd percent ROCE. So it's an extremely good use of our cash flow. Clearly, when they're buying additional pub groups, they come to us for cash. But when they are on an organic program, they use the cash that they generate themselves. And by the way, that's the best investing we do in the business is that we can invest alongside one of our businessmen in their own businesses. It's the best risk/reward investing we do.

Actually, [ Nathan, Pill Hunt ]. I just noted as you went through some of the examples. There's been a few where there's been a change of CEO recently. Maybe you could talk a bit about people in the business that you invest in, how important are they on day 1? What makes it necessary to see a change in leadership like that?

Well, we're very focused on the quality and integrity of our management partners. I mean, it is one of the key parts of any new investment decision. But when you have as longer-term view as we do, inevitably, there will be some change. People retire. They move on. There is just bound to be -- there is bound to be change. And we understand that and facilitate that, whether it's a deliberate part of the investment strategy like it was at 7IM or arises for another reason. And we will typically buy back ordinary shares and grow shares held by our management teams, who are leaving the business, and then we will resell it or reallocate it to new members of management coming in. The alignment around equity incentives is an extremely powerful motivator for our team. So we ensure that all are appropriately incentivized. So it's just the nature of the beast when you hold things for 8, 9, 10 years or sometimes longer.

I'm Alastair Laing from CG Asset Management. You have a number of portfolio companies that are very recognizably U.K. mid-market and could be in a number of, I'm sure they're better than other mid-market private equity funds, but 4 in the current portfolio, and you show excellent kind of exit history and returns. And then there are 2 companies Cobepa and Stonehage Fleming, which seem to me to be slightly different in nature. I don't know so much about Stonehage, but could be -- but clearly a very long-term investment, minority stakes. I can see how they would network and partner very closely with a firm like Caledonia. But presumably, you don't have the same strategic cloud around the table as a minority investor. How have the returns compared in those types of investments compared to the investments, where you have full control? And given that those 2 represent about 40% of the portfolio, should we kind of think of this as one integrated portfolio? Or do those kind of sit out there as long-term strategic partnerships? And then you have this kind of true U.K. mid-market thing, which is turning over a bit faster.

Well, let's deal with Cobepa first. I mean that you are right, is a slightly different asset and a different sort of investment. We first invested in Cobepa back in 2004. Initial investment was plus/minus GBP 50 million. It's now valued at approaching GBP 200 million. And back in 2017, we sold down a bit of our stake. So we are -- we took over GBP 50 million off the table. We're absolutely playing with the house's money at this point. It's been an extremely successful investment, and the IRR -- and they do pay an annual dividend. By the way, the IRR over that 20-year period is just a shade over 13%. So it actually compares as an investment, very comparably with what we generate from the rest of the portfolio. The big plus with Cobepa is that we do share deal flow. Cobepa is a private company. We have just over 5%. One of my colleagues is on the Board, and I sit on the Audit and Valuation Committee. And we speak to them every month about new deal opportunities. And that allows us to leverage their resources in Europe and indeed in the U.S., and BioAgilytix was a U.S. investment, and it has been very rewarding. So that is a special case within the portfolio. Stonehage Fleming is much less so. I mean, that is a business which although legally, it has its corporate location in fact in Guernsey, the real center of operations is in London. They have a big office and a huge team in St. James' Square. The family office and investment management activity is based in London. When we acquired it, it had EBITDA of around GBP 20 million. It's a lot higher than that now. And so it did fall into the mid-market financial services definition, when we made the initial investment. And what was slightly unusual was that it was not a control position. So we solved that problem with the preferred ordinary stake that we took and the array of control rights. So that one is pretty much like every other investment. A lot of activity in the U.K. The next biggest office is in the Channel Islands, but it now has a network across the world. And although we do buy typically U.K.-headquartered businesses, it is quite common for our portfolio to export or have operations in other European or indeed in North American countries. And the returns on that one are currently running at 15%, so bang in line with the -- with our long-term averages.

Should we -- are there any online?

Yes. So we'll start with a question about Stonehage. Tom, given the fact of restricting the choice of funding partner, how difficult will it be to exit this investment? And what constraints are there in your ability to do so as a minority investor?

Well, that's a good question. What we've seen over the last 5 or 6 years is a tremendous amount of private equity and financial investor interest in the ultra-high-net-worth sector. As I said, when describing Stonehage, it is -- that sector is the fastest-growing piece of the wealth market. There are a number of very active players among the U.S. private equity community, who are building -- Stonehage Fleming lookalikes in North America. So I think selling it to another financial investor is probably the most likely outcome in due course. But it's not the only outcome. Stonehage Fleming has an enviable client base that many corporates would like to get hold of. So we do have the exit optionality that I listed in 1 of our 6 characteristics that we look for in all of our investments.

A question from [ Peter Erkan ] on Buzz Bingo. I want to balance my question by some referral to your many successes buy, and I'm interested in discovering why you lost patients with Buzz Bingo? The fact that buyers were intermediate capital suggests to me at the time that the situation in Buzz was not without hope?

So Buzz Bingo had approximately 120 large retail, predominantly leasehold sites and over 3,500 staff. So overnight, it was shut down by government fiat, and we had at that moment, an extremely expensive rent roll, an extremely expensive payroll before furlough kicked in. So the operating losses on a monthly basis were very considerable. We worked extremely hard with the -- Chris, Mathew and the rest of the team there. We put in some emergency funding in mid-2020. Then we did a CVA and renegotiated most of the leases across the 120 strong footprint. And in fact put some more money to support Buzz in September 2020, which you may recall, preceded yet more lockdowns when the process repeated. It became clear that the additional financial support that we put in, in September 2020 was just insufficient to see the business through to cash flow breakeven. And at that point, we entered into discussions with Intermediate Capital Group, who were the lender to Buzz. So it wasn't like a new private equity investor came in to invest in the business. Intermediate Capital had a very significant debt position in the business, and effectively, they took control.

Can I ask one question just because you obviously also have the public expertise, et cetera, within Caledonia. So for your targets set, have you or would you look at -- take privates as well in the U.K. market given current valuation?

We have looked to take privates many times over the years. And there are some private equity groups, who specialize in that area. They are complicated. You get much less access to information and to management. They're all expensive to execute, and they are quite high risk. So we have looked at them, and I am absolutely certain we will look at them again. And there are new companies in the smaller end of the U.K. market, which would fit the bill for us. They're of the size and nature, but we haven't done one in recent years, but that is not to say that we won't do one in the future.

William Hill asks, DTM would seem an ideal company for an IPO. Why do you think they chose to go private equity group with Caledonia and not seek a stock market flotation? If a company like this cannot be floated, it does not say much for the future of the U.K. new issues market?

Well, in due course, maybe. It will be floating -- but right now, it is too small -- unquestionably, it is just not mature enough and ready enough to go through the rigors of an IPA. But who knows? Maybe in due course, in 6, 7 years' time, we will -- if the U.K. IPO market is open for business, we'll give it a go. Who knows?

On the reporting side, have you considered at all publishing some kind of aggregate revenue growth and EBITDA growth numbers to save us a lot of time messing around the company's house?

I'll leave that to the CFO.

Thank you. Well, I think you've seen over the last 18 months significant additional disclosure, including the Capital Market Spotlight event, which we've put on today. And we will repeat an event for the quoted team and also for the Funds team over the next year or so. And I think we have increased the disclosure. We'll take some of that feedback. But we clearly needed to be sort of sensitive in certain cases, depending on where the business are in their sort of cycle.

Okay. I think we've got one more online. [ Stephen Peak ] says you described yourself as a responsible investor owner. On disposal, what happens if the best bid is from an irresponsible investor owner?

Well, fortunately, we haven't had to cross that bridge yet. We have sold to Wabtec, a large U.S. public corporation, to Ontario Teachers, very well-respected pension plan in the U.S., to Generac and other U.S. -- sorry, in Canada. Generac and other U.S. public corporation. So we haven't been in the territory, where we've been selling businesses to rogue or irresponsible investors. I mean our whole objective over the course of our ownership is to make businesses better and more valuable. You heard Jonathan Lawson talk about that and to position them in such a way as they will be attractive to new owners, who will continue to invest in growth. So we just haven't had to cross that bridge, and I hope we don't have to.

Great. I think we're about upon time. So thank you, everybody, for your questions and attendance. And we look forward to talking to you all soon.