Caledonia Investments Plc (CLDN) Earnings Call Transcript & Summary

Good morning, everybody. I'm Mathew Masters, CEO of Caledonia Investments, and it really is my pleasure today to be able to introduce the Public Companies Spotlight. Now this follows on from the Public (sic) [Private] Companies Spotlight that we ran in January, which is available on our website and was very well received. The purpose of these Spotlights is to provide you with the opportunity to hear directly from our specialist investment team. They can explain their strategy and how it's executed. And I expect you'll hear how they benefit from being part of Caledonia as well. Telling people a bit more about Caledonia has really brought home during our recent results roadshow. Just before the roadshow, the team did a business breakdowns podcast on Watsco. You'll hear more about that later on. And a few people who we visited on the roadshow had tuned in and listened to it, and they said they found it very helpful in sort of just getting more feel and color about what we get up to at Caledonia. So I expect this will be more of the same. So just moving through this cautionary statement and to today's agenda. So after my introduction, I'll hand it over to Alan Murran, Ben Archer and Henry Morris, who will take you through the Spotlight. And then this will be followed by a panel discussion, which today has been chaired by Anthony Leatham, who's the Head of Investment Companies Research at Peel Hunt. We're very grateful for him helping out today. And then after that, we'll take questions from the room and online. And then we aim to bring the session to a close at around 12:15. So just let me give you a reminder about Caledonia. So at Caledonia, we think and act differently. We are long-term stewards of our shareholders' money, including the Cayzer family who have entrusted theirs to us for generations. And this sense of responsibility shapes everything we do, including our approach to evaluating risk and reward. So we don't use benchmarking in the business. Instead, we're targeting absolute returns beating inflation by 3% to 6% over the medium to longer term. And this aligns us directly with shareholders who are also looking to see their investment make real progress over time. And this influences the level of risk we take and are prepared to take with their capital. And over time, this approach has delivered results at the top end of our target range, and our track record also includes 58 consecutive years of increasing our dividend. Now the core of our investment success is simple. We make long-term investments in high-quality companies. Our maxim, Time Well Invested, perfectly explains our investment purpose. It reflects our commitment to making well-considered and well-founded long-term investments and being patient and disciplined in doing so. It also applies just as importantly to how we interact with our business partners and with our colleagues at Caledonia. Now I really think you will see how the rubber meets the proverbial road today on Time Well Invested with the Public Companies Spotlight. Last but by no means least on this slide, all the investments are made by our in-house team who are fully aligned with our shareholders. Remember, they don't manage anybody else's money. There's no fundraising and their performance is measured against their contribution to NAV per share growth, and they're rewarded in Caledonia shares. So their incentives are directly tied to long-term value creation. This slide provides an overview of our investment strategy. Each member of our 24 strong investment team specializes in one of the main areas and one of the strategies shown. Now the strategies are in good long-term areas and because there's no fundraising and the portfolios are concentrated and they take a long-term approach, the teams are under no pressure to invest. And so these ingredients combine to enable them to spend their time identifying the best opportunities to invest in at the right time. The strategies invest from Caledonia's balance sheet and have different liquidity profiles, which does provide synergies. Further, having the 3 different strategies provides the additional benefit to shareholders of diversification. Now we'll hear about public companies in a minute, so I won't steal their thunder. Just a reminder on private capital, we make direct investments into well-established, profitable mid-market companies in the U.K. We tend to be the majority shareholder, and we work in partnership with management over the longer term to improve the quality of businesses and help them grow. We use prudent capital structures. What does that mean? It means we use low levels of debt, and we don't pay speculative multiples. And we aim at any given time to hold between 5 and 10 companies. I'm really pleased that over the last 10 years, this portfolio has annualized at 12.4% per annum. The funds team invests behind proven private equity managers. Just under 2/3 of this area is focused on the American lower mid-market with the balance in more growth-orientated funds in Asia. The nature of funds investing means each fund invests in a series of different companies. And so the underlying exposure is extremely diversified with over 600 companies in that strategy. Again, very pleased that this has delivered returns of 13.3% annualized over the last 10 years. We have a central investment committee overseeing investment activity, ensure we benefit from the considerable experience and knowledge that we have around the business. So that's a summary of our investment strategies, and I'll hand over to Alan.

Thank you, Matt. So good morning. I'm Alan Murran, and I'm Co-Head of Caledonia's Public Companies business with responsibility for the capital portfolio. So thank you all for joining us today at the Public Companies Spotlight. The team and I are excited to be doing this. Our aim today is to give you real insight into 3 key things. Firstly, how we invest and the depth of work that we do. Secondly, what makes our public equity strategy attractive, successful and different from other standard equity managers. And then finally, how Caledonia's permanent capital structure and special culture gives us real advantages as investors and you as shareholders. So we benefit from permanent capital at Caledonia. So we invest from the balance sheet, and we're not measured against a quarterly index. So we're not worried about comparisons on that short basis. Instead, we focus on achieving attractive absolute returns. Also, we don't need to raise external money or manage inflows and outflows. And that gives us the ability to be long term. And this results in an important tangible difference. So as if you look at our portfolios, you can see that the average holding period is over 7 years and growing. And that's a massive difference to more standard equity managers who tend to hold for 1 year or less. But this is only valuable if it's used well. So as Ben Graham said, "In the short run, the market is a voting machine. And in the long run, it's a weighing machine. " And what he meant by this was that in the short run, stock market prices move around a lot based upon macro or sentiment. And so it's quite hard to make money as it's not very predictable on a repeatable basis. However, over the long run, the market is a weighing machine, and therefore, working out the weight or the value of a company, this is a much more repeatable process and one that we take advantage of. Now obviously, you need to pick the right companies to weigh to make this work. And so we have 2 concentrated portfolios, typically with around 15 to 20 holdings. In addition, we focus on quality, and we'll define this later in more detail, but that includes pricing power, excellent capital allocation and strong competitive position. And these are the ingredients for long-term compounding. Long-term ownership gives us deep knowledge from a risk management perspective. We think about how companies are impacted by cycles. And when I look at cycles, I think about things including management changes, CapEx cycles, macro shocks. And we look not only how these impact the numbers of the company, but also the behaviors at the company. So as we do management meetings, we track it, and we can see as a consequence, what they say and whether they do what they say they're going to do. Now having this type of knowledge means that we can act decisively when the stock market falls sharply and bargains are available. And so this is a really great way for us to contribute to Caledonia's NAV returns and also increases the margin of safety within our portfolio. And so a recent example of this was during the April sell-off on the back of President Trump's announcements around tariffs, and we were able to top up targeted holdings and initiate a new position. So in summary, I would highlight that we are focused solely on investing and aligned with our shareholders. It's a strategy that really utilizes the permanent capital from Caledonia and the benefits of that, allowing us to build concentrated high-quality portfolios that we hold for the long term and that has resulted in strong performance and a very different proposition to the standard equity managers offerings. And so with that, I'll hand over to my colleague, Ben, who will talk more about the team and how we execute our strategy.

So good morning, everyone. My name is Ben Archer, and I co-head the public companies team at Caledonia, and it's great to see so many people in the room and online, and welcome from me, too. And here, you have the rest of the team. You can tell from the photos, we're a happy bunch. You'll hear from Henry and Lucy later, and Ollie and Lukas are here, too. So for those of you in the room, hopefully, you'll have a chance to speak to them all over lunch. And we've got something to be happy about because we really enjoy what we do, and we're a team that is passionate about investing. We love finding great companies. We love talking about great companies as a team, and we love investing in great companies for the long term. And Caledonia structure is really a key enabler of that and a huge attraction for us as a team. Nearly 100% of our time is focused on investing, which is pretty unusual in the public equity space. Broader marketing responsibilities have largely been outsourced to Matt and Rob. Thank you. And as we said, flows, active share, short-term noise are not things we have to worry about. So a very pure focus on investing, which we think is beneficial to Caledonia shareholders, too. It's also a very flat team structure with everyone having an equal vote on a new addition or a disposal. And that's underpinned by the fact that the team is rewarded on portfolio performance and not on ideas. And that helps drive a really cohesive team-based culture with constructive challenges, constructive discussion, which I think is essential when you're investing in companies for the long term like us. And lastly, we're also a very experienced team. There are over 100 years of experience between us and the fact that over 44 of that has been spent at Caledonia, I think, is a testament to both the company and team culture. The 2 portfolios we manage, capital and income are both global mandates to which we apply the same research methodology and operational discipline around quality, around liquidity and around broader risk management. They are global mandates, but the majority of the portfolio companies are headquartered in the U.S., U.K. and Europe, which is where we see most of the opportunities, remembering most of the companies are global in nature. The capital portfolio was around GBP 700 million at the end of March. It's a bit bigger today and has a target return of 10% per annum. It's an unconstrained mandate in that there is no income requirement, and it's an all-cap portfolio, albeit the majority of the holdings are skewed to larger companies where we can find liquidity to be able to act quickly when the market gives us that opportunity. Now it's important to stress this is not an out in our growth portfolio as some might assume because we have an income portfolio, too. We very much think about the risk we are taking for the return we want, and we are not investing in high risk. So we are not trying to invest in super high growth in the capital portfolio in the same way we're not trying to invest in super high yield in the income portfolio. What we're investing in is super high quality in both portfolios with a 10% plus target for capital and a 7% plus target for income that then compounds over the long term. And the income portfolio is managed in exactly the same way as capital. The only difference being that it has a 3.5% yield on cost objective, too. Why yield on cost and not running yield? Well, why we want to sell our best ideas just as the compounding is getting interesting? That is another key differentiator for us, certainly as compared to many income funds and aligns with our strategy of owning the best companies for the long term. This yield on cost metric was a key part of the income strategy reset that took place at the end of 2019 when we took the portfolio on as a team. And much like we had done with the capital portfolio 10 to 12 years ago, we repositioned it for quality. And we're now seeing the benefits of that come through in terms of performance with good portfolio income growth, which is contributing to Caledonia's costs and its dividend commitment. So what do we do day-to-day? What is the investment process? Let start with idea generation, which firstly can come from anyone on the team and usually does. It's very much a bottom-up approach, freed up by the fact that we have no reference to indices and so no relative weightings to think about. Perhaps more instructive here is the sectors we avoid, either because we don't think they are generally high quality enough or because we don't understand them or both. So an example of the former would be the bank sector. An example of the latter might be biotech. And so that naturally screens out a portion of the market. The fundamental analysis includes detailed reviews of annual reports, industry data, peer analysis and all that good work and also includes an ESG assessment or what we term responsible investing. And all in all, that work will take many, many months. Importantly, we build our own financial models. We don't rely on third parties. We take the data all the way back to pre-GFC, so we can really get a sense of how our company has performed over the long term and through cycles. We also undertake a separate quality assessment and benchmarking exercise, which we're going to come to in a moment. But that also includes thinking about a company's culture and whether a company will really make a strong long-term investment candidate for us. As part of the numbers, we calculate our Owners' Earnings for each company each year. Owners' Earnings approximates to free cash flow after maintenance CapEx, but before growth CapEx. And as such, we think it's a very good reflection of the true economic earnings available to an owner like ourselves. It is that long-term growth in Owners' Earnings together in yield that fundamentally underpins the long-term return assessment for a company while also informing us more broadly about the company's economics. An investment only reaches approval stage if the whole team are happy. And then it goes to the wider Caledonia Investment Committee for further discussion. Now assuming it's all approved, that does not typically mean we go out and buy the shares straight away. Valuation discipline is also core to our process, and we always look to have a margin of safety on purchases. That calculation is also underpinned by our Owners' Earnings analysis as well as other metrics like yield. And for each company, we have a long-term Owners' Earnings ratings range, which together with our forecasts, helps guide us to when we think the shares are good value, and Henry is going to draw that out later in the investment case. This helps ensure that multiple risk is minimized and obviously, returns potential enhanced. It also means we can often have a company on our approved list for many years without actually investing and then something like Liberation Day comes along, and we can deploy quite heavily. Portfolio construction. We believe in concentrated portfolios. Assuming you are spread across a few sectors, the benefits of diversification dissipate quite quickly beyond 15 to 20 holdings. So why take a portfolio above 20 holdings and therefore, compromise on quality. Better to focus on your best ideas, you can get a deep understanding and then act with conviction when you have that opportunity. In terms of risk and risk management, the main risk is we get an investment wrong. However, the quality bias helps mitigate against this. And from a sizing perspective, the largest holding across our total AUM as at 31st of March was PMI, just under 10% of the total holding, and we wouldn't expect to go much above that. Day-to-day risk management is focused on really checking on the investment case, kind of the progress against our investment thesis and making sure we're happy with the sizing and the valuation of each company as well as the overall sector exposure. That means top slicing over the large positions, which is mainly because they've done very well or we think the valuation is looking a bit stretched as well as adding to additional existing holdings when the market provides that opportunity. Monitoring. Our long-term investment horizon means we tend to punch well above our weight in terms of investor access. And that includes both the C-suite, but also meeting regional management teams where we can get a real insight into local operations and local markets and also understand those internal relationships. And we do like meeting companies outside of their reporting cycle when the management team aren't focused on the quarter or the half year results, and we can really get a sense of how the long-term opportunity is playing out and the investment case. And all this means is our average holding period is very long at 7.4 years across both portfolios and actually 8.4 in capital. Given the income portfolio strategy reset 5.5 years ago, the average holding period for income is lower at 4.7 years, but still very long in the context of public equity investing. And given we generally expect to only change 1 or 2 positions a year in each portfolio, we expect both these numbers to continue to rise over time. Now these kind of PE-like holding periods, actually I'd say, in fact, longer than many PE holding periods are a reflection of our high conviction, long-term approach and our ability to look through cycles to ignore that short-term noise and indeed use market volatility to our advantage and then let the compounding do the work. But how do we measure quality? So let me introduce you to what we call our quality matrix. And it's really the key characteristics which we think are important in assessing a company's quality. I mean there are others around end markets and balance sheet, which we think are important, too, but we've captured the majority here. And by scoring each company on each metric, it not only acts as a benchmarking tool for the portfolio and the work in progress, the WIP list, but also helps inform us and promote debate amongst the team. Ultimately, the strength and resilience of the company's economics and Owners' Earnings derives from these quality metrics in our view. All our portfolio companies will score reasonably well on most of these metrics, but some are particularly strong in certain areas. So we're going to try to drive a few examples here by giving you some portfolio company examples. So let's start with business moat or the barriers to entry and resilience, which is the company I've included here is Thermo Fisher Scientific. This is a $150 billion market cap company that leads in the life sciences tools and services space and has been held in the capital portfolio since 2015. Its most resilience derives from a number of key areas, but 3 things I would call out are: One, it's highly embedded with customers, particularly in the pharma sector. 80% of its revenues are consumables and services, providing a sticky and predictable revenue stream, which is one of the patterns we really like. Two, it is one of the biggest players in life sciences. So it has the highest R&D budgets, helping them keep themselves ahead of peers and also means that a lot of researchers are trained on Thermo instruments on Thermo machines, which they're typically loyal to as they go through their careers. And three, it operates in highly regulated markets where products and consumables are often specified into a process, providing a barrier to rivals. Next, owner mentality. This can be both founder-led businesses, but also management teams who truly act like owners. There are many portfolio examples we could use, but a great example is Big Yellow Group. It's a leading self-storage company and is held in the income portfolio. And unlike many REITs, which are run by third-party managers for a fee and you might grow AUM for the sake of growing AUM, it is still run by the founders, Nick Vetch and Jimmy Gibson, who remain decent-sized shareholders. What are the key owners traits we would identify with Big Yellow? Well, first, the balance sheet is very conservative. It is in a sector that is typically highly geared, they are not. This conservatism extends to their asset base where almost all of their Big Yellow stores are freehold and the majority are based in the Southeastern London where land and supply is scarce, which also acts as their moat. Second, as owners, they are very thoughtful investors and allocators. It's their money, too. They are not going to overpay on new sites. Third, their owners' culture, which is set by Nick and Jimmy and is reflected in the long-term thinking, the patient deployment, very good employee engagement scores and a real focus on costs on expenses. And together an attractive sector, these are all ingredients that have driven an Owners' Earnings per share CAGR of 11% over the last 10 years, while the shares offer a 4.6% yield today. Digital. So what do we mean by digital? To us, it means to what extent is a company embracing technology and adapting to the changing environment, which has clearly accelerated in the last 2 years with AI. For this example, I thought I'd highlight RELX, which is a relatively recent investment from 2 years ago. Now RELX has several businesses and what these businesses share is that they all have huge amounts of content, huge amounts of data, much of it proprietary, which they then embed into technology solutions, and they then embed those tech solutions into the workflows of their customers, be it universities, insurance companies or the legal profession. Now in the context of AI, it's relevant to all areas of RELX's business, like it is to all businesses, I think. But where it has been most visible to date for RELX certainly is in its LexisNexis Legal offering, where it's a key reference tool for many legal professionals. And RELX is super fast at launching higher-value product iterations that have AI tools embedded, certainly faster than its peers as far as we can tell. And they've also launched a legal AI assistant, which they call Protege. Now that's enabled the growth rate of the Legal division to increase by 300 to 400 basis points in the last couple of years as the market has responded very positively it and they can really see the real value add from these new AI offerings. And the last thing I'd just highlight here is, and it's applicable to all 3 of those companies is that they each have a management team that has been there for 10 years plus. And their strategies have remained consistent throughout that period. Now that can't always be the case, but for us, that's also a great sign of quality. That's a great sign of a good culture and it's a sign that the strategy is right and working, and that really aligns with our long-term approach. On that, let me hand back to Alan to talk through 3 other examples.

So I'm going to talk through a couple more examples, starting with pricing power. So pricing power is a really important part of this matrix. And often, it's driven by a company having a super necessary product or limited competition. And for us, a company that has pricing power, we would define it as one that can consistently raise its prices above inflation without noticeably impacting demand. And it's very valuable as it drives operating leverage and has a nonlinear impact on earnings per share growth. And so Moody's is a great example of a business in the portfolio that has this. So they're a credit ratings agency. And what that -- what they do is they allow fixed income investors to assess credit risk on bonds. And there's 2 key reasons why this is such a great business. Firstly is around limited competition, and that's because most debt is rated by at least 2 or 3 rating agencies, and there are only 3 large ones globally. Secondly is around the necessity of the rating as many fixed income investors require a rating, so issuers need to have them. And so interestingly, a couple of years back, we had a meeting with the previous CEO of Moody's. And at the end of the meeting, he talked about a call that he had with Warren Buffett during the global financial crisis. At the time, Berkshire Hathaway were significant shareholders in Moody's. And he effectively wanted to speak to Warren because obviously, there's a lot of volatility going on in the market, and he wanted to see if Warren had any questions. And he only had one question, and that was, can you still raise prices? The CEO said, yes, and Warren Buffett hung up. Competition. So PMI, Philip Morris, is a company that also demonstrates pricing power. And this is partially driven by the fact that they have limited competition in their smoke-free business. By way of background, there's 2 core businesses at PMI. One is their legacy cigarettes business. And then the second one is the fast-growing smoke-free business. Inside that is their IQOS product, which is their heat-not-burn product and ZYN, which are nicotine pouches. Now if we look at their IQOS product, PMI were the first to scale this globally. This enabled them to get to a 75% market share in a growing category. And this success made them want to invest further into R&D, which then allowed them to continuously improve the product, which then allowed them to maintain dominant share whilst growing rapidly in this category. And what's also interesting that if you think about them converting users from cigarettes across all brands, so not just their own, into this new category, the economics are highly attractive. So back in 2016, PMI committed to a smoke-free future. And from that standing start, it's now 40% of their revenue. Turning to capital allocation. So this is also a critical component of long-term value creation. Now the ability to generate free cash flow is really only half the story. How you deploy that capital is super important. And Texas Instruments, who are a leading global semiconductor company are a great example of consistent, transparent capital allocation. So from a consistency perspective, TI made a shift about 15 years or so ago where they moved away from personal electronics, which had a very short product life cycle into more industrial and automotive, which had a much longer product life cycle and in addition, structural and content tailwinds. And as a consequence, the revenue shifted from around 40% at that point to around 70% today in those areas. And we reviewed management commentary from throughout this period, and you could see that the message is very clear and consistent. In addition, the management were willing to invest during downturns. So for example, they bought equipment at great prices for their fabs during the GFC, whilst others were pulling back. Secondly, around transparency. So TI publishes a capital allocation framework, and this is very rare for public companies. And their sole focus is around growing free cash flow per share. And the framework includes a lot of details around CapEx, R&D, dividends, share buybacks. And we feel that this consistency and transparency on capital allocation around this growing free cash flow per share is one of the reasons it's such a quality company. So obviously, this matrix is very important to assessing quality. And as we've done it for a number of years now, we see that a lot of business -- certain business traits drop out of it. And so I thought it would be kind of useful to bring to life a couple of these. So the first one is around decentralized structures. And so we think that these work for a couple of reasons. Firstly, employees feel empowered and so often think like owners. Secondly, it can preserve an entrepreneurial DNA even as the company scales. And then it also encourages accountability. But it's important to note that decentralization only works if incentives are aligned. And so we focus closely on this. And an example of a company that sits in this category is POOLCORP. So they are the dominant pool distribution company in North America. They have a wide network of around 450 branches throughout the states and decisions are encouraged by management to be made at these local branches so they can really tailor them to the local client base. And so we think that this is an important factor to their long-term success. We also like quality companies that have recurring revenues and an installed base of products or services. Now a lot of people would just think of SaaS businesses here, but POOLCORP and Thermo Fisher would sit here, too. Now one of the key questions for us, though, is why these revenues are recurring? Because from our perspective, it's actually okay if there's cyclicality to them. What we want is we want a product or a service that is vital to customers as that often leads to high retention and pricing power. And so a notable example of a company that sits here would be Oracle. And their enterprise resource planning software is embedded in the businesses and mission-critical for their customers. So it's very sticky. As once in the ecosystem, customers rarely leave. And Oracle have added a leadership position in this area now for decades. Finally, if we turn to another attractive trait, and that is around great cultures and like an owner's mentality. And this resonates with us here at Caledonia as we have these. And so culture is an important intangible because it can reinforce a moat. So for example, a frugal culture in a cost-sensitive industry can be a real edge. And Henry is going to bring this to life later with Fastenal. And so we value companies where leadership behaves like owners, making long-term decisions that can benefit us all as investors. So for example, investing through downturns, as I highlighted with Texas Instruments, so you can get your CapEx a lot cheaper or indeed funding projects that may depress near-term earnings, but then set up things beautifully for the future. So Ben covered Big Yellow, but another company that sits here is Watsco. Watsco are North America's largest distributor of air conditioning equipment. And so a number of years ago, they started to make investments into their technology and sales staff. And this initially depressed profits, but then has subsequently transformed the growth trajectory of the business. And in fact, it was what gave us the opportunity to buy at the start. Now I'd also highlight that actually Watsco hits all of these boxes. It's a decentralized business that has recurring revenues and an installed base and has its ownership mentality and great culture. And so my colleague, Lucy and I decided to do a deep dive podcast on it for something called Business Breakdowns series. And so Business Breakdowns is a leading investing podcast series with over 70,000 downloads for their episodes, and they have a target listener base of institutional investors. And as Matt already pointed out, we've had positive feedback from investors in Caledonia who have listened to it. Because of this depth of research, I think it gives a really good overview of what we do on the research side. So I do recommend to listen and there's details available on our website. So I'm going to play a short clip from that conversation now when Lucy captures their culture really well. And then after that, Henry is going to do a case study on Fastenal. [Presentation]

Thank you very much, Lucy, and Alan. So my name is Henry Morris. I'm a Director in the public companies team. I'm going to talk to you today about a company that The Wall Street Journal once described as having the cheapest CEO in America, so much so that when traveling with his CFO to a conference in Chicago, they even shared a room in a motel outside the city limits because it was cheaper. I think it's just one snippet into the fascinating culture of Fastenal. So Fastenal is a distributor of industrial products in the U.S., and I'm going to discuss today what it was that caught our eye, the time line of the investment process and what we've done since we've invested in the company. Now we really like to understand the history of the company when we start to look at it. I think it often tells you a lot about their culture and values and how they've got to where they are. So Fastenal was founded in the late 1960s by a chap called Bob Kierlin. And like many good entrepreneurs, he came from a hard-working blue-collar background, which instilled that frugality as I mentioned at the start. He was also entrepreneurial, and it was actually while working as a boy at his father's auto shop that he noticed many customers would come in and purchase fasteners. So these are screws, bolts, nuts, things that tie things together. But there were many different permutations of these fasteners. So it was often quite difficult for his father to stock all the kind of products that customers wanted. And so he thought there was the need for a specialty hardware store that stocked all of the fasteners, hence, the name Fastenal. So with that mindset of concentrating on availability of stock, they opened their first store in Winona, Minnesota. This is a small Midwest town, about a 2-hour drive south along the Mississippi River from the Twin Cities. And from that first store, Fastenal has now expanded into a business with over $7.5 billion of revenues. It has 3,600 locations, of which more than 2,000 are in a customer's facility. And really at that stage, the customer has effectively outsourced their inventory and supply chain management to Fastenal. Now Fastenal has also been a pioneer in industrial vending, and you can see an example in the picture on the right there. These are particularly useful for larger SKUs such as safety supplies, which is now a large part of Fastenal's product mix. And if you think about a use case for this, imagine an Amazon employee picking or packing goods, they might need a new set of safety gloves or goggles. Rather than walk 300 to 400 meters to the end of the warehouse to fill in a paper form and hopefully get some gloves in their size, they can just go to the vending machine with their cards, get the gloves and carry on with their job. So it significantly improves employee productivity. Now Amazon also monitor how many gloves an employee is getting through. So it also greatly reduces theft and wastage. And finally, of course, all of these vending machines are linked to Fastenal's platform. So they know the amount of stock in each vending machine, and they can make sure that they're always fully supplied. So it's really more than just a sort of point-to-point industrial distributor. It's really an outsourced inventory management and procurement function for U.S. manufacturing. And I mentioned the culture at the start. Fastenal does have a genuinely differentiated culture, and that's really been driven by the founder, Bob Kierlin. It's one of frugality, empowerment and ownership. And I'll discuss that briefly in the next slide. So this is the quality matrix that Ben spoke about. It's sort of the lens we use to look at all of our companies to determine whether we think they're worth investing in. Now Fastenal ticks a number of these boxes, but there are just 3 I'll pull out. The first is business moat and resilience. So with Fastenal here, the key is their network of on-site locations at the customer facility. It's their own distribution fleet, which greatly improves their margins. And it's their scale and service culture. They've got very long-standing customer relationships. They're seen as an extremely reliable supplier. And that's critical if you're running a manufacturing plant where any stoppage of the line because of a missing bolt or screw could be really expensive. Next is digital. So Fastenal have really differentiated themselves versus other distributors by offering their vending machines and also what they call Fastenal managed inventory, which are effectively plastic boxes stocked with nuts and bolts in the assembly line of a customer. Now together, these account for over 40% of Fastenal sales, and they're all connected up via Bluetooth to Fastenal's platform. So this not only allows a more efficient restocking on Fastenal's part, but it also gives customers really unique data on consumption at point of use and all the analytics that go along with that. And again, if you compare this to a point-to-point distributor competitor like a Grainger, for example, who drops supply off at the back door of the warehouse, it's really not something they can offer and it is really something that is unique to Fastenal. The last one is owner mentality. So Bob Kierlin, the founder, was CEO until 2002. He was Chairman until 2014, and he actually continued to live in Winona and was often in and around the headquarters right up until his passing earlier this year. So the culture has remained very present, and there have only been 3 CEOs since Bob retired. They operate a decentralized model with very little bureaucracy. And right from the very beginning of the company to now, employees effectively run their own small business at branch level. They're incentivized by gross profit growth at the branch, and they're given a relatively free hand on how they do that. Now that means you have a very long-tenured employee base. In fact, over 95% of branch managers and above are internal hires. The last thing I'd mention, which is really sort of came to during our interactions with Fastenal is their openness and honesty. There's very little corporate spin. They're very transparent and interestingly, very willing to admit mistakes. That's something -- understandably that's quite rare in the corporate world. And it's a quality actually that Buffett talked about in his annual letter to shareholders this year. So what does this all mean? Well, first, it's a company that is simple to understand. There have been no big changes to geography or end market. There's no debt. Growth is entirely organic. They're easy to read financial statements with no adjustments, again, quite a rare sign. Next and critically, the moat is not just wide, but it is durable. So one of the things we really like about these B2B distributor businesses like Fastenal or POOLCORP or Watsco is there's very little sort of AI or software innovation risk. We sort of know what they'll be doing in 10 years' time. And in Fastenal's case, they've been installing vending machines for 16 years. They've actually been with a customer on site for even longer. So it would take a really long time for a competitor to try and break down their advantages. And this ultimately leads to a company that is delivering high single-digit organic revenue growth despite operating in a very mature end market. It's got attractive operating margins, good returns on capital employed. And actually, interestingly, from our point of view, it's highly free cash flow generative and pays out a good dividend. So it was suitable for both portfolios. So this next chart just shows -- so we talk about the research and investing time line. The chart here is the price to Owner's Earnings multiple for Fastenal. It's one of the valuation metrics we use when thinking about an appropriate multiple or price to enter into a stock. And again, I've used it here just to demonstrate our time line. So it was actually Matt when he led the team who first looked at Fastenal in 2017. As you can see from the chart, that Fastenal and the other distributors had derated with concerns about Amazon disrupting the business model. Having looked at Fastenal and a number of their competitors, we decided to start some deep work on Fastenal in mid-2019. And with other members of the team by early 2020, we concluded it had ticked all the quality boxes. So now what we need to do was raise for the price to be in the green. As it happens, in this case, COVID came along and gave us an opportunity to invest in the company much sooner than we might normally expect. Now given we knew the company so well, we were happy to invest in that very volatile period, and we were buying the shares in March 2020. But the fortunate thing was it gave us a really attractive margin of safety, and we're able to buy at an average multiple of 20x, which is close to the low since the GFC. Now once we own the stock, our aim is really to hold on to it, ideally, forever. And there's no real incentive to sell a position if it's done well after 12 months. It's simply not in our DNA. That's not to say we'll never take any action. And indeed, we did top slice some of the position at the end of last year. It had grown in size. And as you can see from the chart, the valuation was really pushing the very top of the historic range. But generally, we like to let the compounding work. And you can see the outcome here. So we've obviously been very pleased with the TSR since we've owned it. And I also think if you own a stock over a number of years, you really notice the absolute growth. So for example, the owner's earnings are nearly 50% higher than when we invested in the company 5 years ago, and the dividend has been growing at a 12% CAGR. Now that's not just to say that we sit and pat ourselves on the back and do nothing else afterwards. We continue to learn. We've been out to see Fastenal a number of times. We like to talk to the CFO, as Ben mentioned, usually outside of the earnings season. And one of the things this allows us to do is to really look under the hood. And we often try and ask management teams, for example, about their internal KPIs and keep a track on them. So for Fastenal, this might be new large customer signings, which are a good indicator of market share gains. And then the last thing I would say is there's a huge amount of reading involved in this job. And we really try to focus on content that an owner of the business or a customer or a competitor might read such as trade magazines or interviews or podcasts or books. And indeed, I've highlighted one here, this is called The Power of Fastenal People, which was really a leadership book that Bob Kierlin wrote, primarily aimed at his colleagues at Fastenal. But it's a wonderful book. And if you can't get hold of it, it's out of print, but I'd highly recommend reading it. But reading that just really instill -- you get a real good feeling for the culture of Fastenal. And you know that it's more than just words on a page, we can see it when we go out and visit the companies. For example, that willingness to admit mistakes is clearly highlighted in the book here. And lastly for me, I would just say that I think investing remains a highly relationship-driven business. Nothing beats going out to visit the company. And what we often find more often than not if we do and if we ask thoughtful and interesting questions that despite our relatively small size, so we're only in just in the top 100 shareholders of Fastenal, we tend to get good access to management and to broader employees. And I'll just end with this quote that was provided to us by the former CFO of Fastenal. And if I just read out the middle line there, "Caledonia's focus on long-term TSR and questions around strategy rather than quarters produces discussions that are engaging and mutually insightful; I had as much chance to learn as to educate in our discussion." So I think that encapsulates very nicely the quality of interaction that we aim to have with all of our corporates. And I hope that a quick dash through Fastenal has been interesting. Needless to say, I could go on for much longer. As Ben said, we really do love learning about great companies and people. But in the interest of time, I'm going to hand back to Alan.

Right. So turning to performance. So we have a very good long-term track record. As you can see, we've achieved a cumulative return of 165% over the past 10 years. So that annualizes at just over 10%. That's ahead of Caledonia's target of inflation plus 3% to 6% and the capital portfolio's target of 10%. And that's really a function of our strategy, our investment process and the team that we have here. It's also very scalable and liquid, so we can continue to grow the size of our investments by simply putting more pounds into them whilst keeping the same benefits of concentration and focus that we have described. The portfolio also benefits from active risk management. So we've top sliced over GBP 215 million over the past 10 years, and that's been available and used for attractive opportunities within the broader Caledonia and within the public companies' portfolios. So with that, I'll hand over to Ben, who will cover the income performance and conclude before we go to our panel.

Okay. Thanks, Alan. So this shows the 10-year performance of the income portfolio. As I said earlier, the income portfolio was significantly repositioned in FY 2020 and FY 2021 after we took on the mandate at the end of 2019. And you can see the reset of the strategy on the chart there. So we pivoted to higher quality. We introduced that yield on cost metric, that concept. And just as a sense, we actually only retain 3 of the 20 companies we inherited. So there's been a significant change in the portfolio over the last few years. Now the income from this portfolio is growing nicely. And on a pro forma basis, today's portfolio would have delivered a 5.8% CAGR in terms of dividend income growth to Caledonia over the last 10 years. And hopefully, you can also see that the overall performance is improving too, as that compounding really begins to get going. So in summary, we provide Caledonia shareholders with a portfolio of high-quality companies, many of which are on the global stage. We're an experienced team, and we believe you build wealth by owning the best companies for the long term and not trading them frequently, which is what you see across most of the market. And that is reflected in our long holding periods in both portfolios, letting the compounding do the work. And Caledonia's structure is a key enabler of this differentiated approach with a combination of permanent capital and no benchmark enabling us to take advantage of opportunities and not to worry about flows, not to worry about market noise. And the output of this is strong long-term performance, which can be seen in the capital portfolio today and which is now coming through in the income portfolio following the strategy reset. So thank you all. That concludes the presentation, and we are now going to move on to the panel session and Q&A, which Anthony Leatham from Peel Hunt is going to moderate.

Great stuff. Thank you very much. Really interesting session and a lot of detail in there. Thank you very much for inviting me to facilitate this panel session. We'll spend a few minutes asking the questions and then open up to questions from the floor and online. But I think on the penultimate slide, it's really interesting, 2 portfolios, a really concentrated approach, GBP 1 billion invested in 30 companies. I'll bring you in here, Alan, and just ask maybe to add a bit more of the day-to-day. How is the team set up in terms of your coverage, the interaction between team members, maybe even the competition for capital?

Sure. So thanks. So we're effectively a team of 6 people. We've worked together now for a very long period of time. So we get on really well. We know each other's strengths and weaknesses. We're all generalists, but we know the portfolio companies extremely well. And I'd also say probably more importantly, we know how to identify these patterns of quality that I highlighted. I think in terms of coverage, each individual has probably more certain expertise in certain areas. But by conscious design, we make sure that some of the more important areas, for example, technology, B2B distributors or the REITs that where we have multiple team members who own that. In terms of the day-to-day and stock coverage, we work in pairs. So it's generally one of the team plus either Ben or I. And we find that gives us a 2 perspectives when we go to management meetings or Investor Days, and I find that's very been really beneficial.

So Ben, maybe extend that thought process. We heard a lot about the detailed analysis and if you like, the stock selection process. But maybe we could talk a bit more about risk, how do you manage risk? What would make you sell? Any examples that you've had?

Yes, sure. So in terms of risk, I guess there are many components of that. But the kind of the 3 main areas, I guess, we focus on is, one, getting the right company into each portfolio; two, thinking about the sizing of each position and also at the sector level. And then three, just the valuation. I can drill into each of those a bit more. But in terms of making sure we have the right companies, hopefully, it came across in terms of the amount of work we do for each position. There's an in-depth process that we go through. We have the quality matrix, which is a key part of that. And we really think long and hard before we make an investment or an investment gets approved. Now that doesn't mean to say that we don't make mistakes. And quite frankly, the investment thesis can change because a company has a strategic change or there's a change in management or there's an acquisition that means that it no longer is sort of doing what we think it's going to do. And that's the situation, we will look to replace it at some point because these portfolios are all about constantly improving the quality. So we change 1 or 2 positions a year, and that's all about quality improvement. In terms of sizing, I mentioned that PMI was the largest holding across both portfolios at around 10% of the total AUM at 31st of March. And we wouldn't want to go much above that from a risk management side. And what we do is we tend to top slice. And I guess the best examples of that are Microsoft and Oracle over the last 5 years, both done extremely well. And we've top sliced around GBP 60 million from both of these in total over that period. And we always have to weigh up how well they're doing with their sizing, but risk management demands that we do top slice them when they get to a certain size, and that's what we've done. And then I guess, finally, just on valuation, I think Fastenal is a great example of that. We always try to go into a new position with the margin of safety. In the case of Fastenal, we didn't have to wait very long because the pandemic turned up almost straight after it was approved. But then we also will top slice if the valuation is looking a bit stretched in our view. And one other thing maybe worth mentioning actually, and we think about it is that kind of the risk of emission actually because we do a lot of work on finding these new companies, getting them on to the approved list. And there is actually at least one company in that list that I can think of where it got very close to our buy flag, but didn't quite get there, and we didn't convert and has since done very, very well. Now that is hindsight investing, I know. But I guess it's just a reminder that the opportunities to buy these really high-quality companies don't come along very often. So when they do, you really got to take them.

And just I think it was mentioned a couple of times in the presentation, this WIP list, that's a sort of subs bench of ideas. Can you talk a bit more about that?

Yes, we have many lists. We have an approved list, which has been approved and we could go out and buy today if there was an opportunity in the market. And there's a WIP list of names that we're working on as a team. There are different prioritization on those depending on how strong we think they are as ideas and also the relative valuation.

Great stuff. Henry, almost every presentation that I hear these days involves reference to the use of artificial intelligence. How do you think about AI? And how do you bring it maybe into your process?

Yes. Well, I think AI is a tool. And like any new tool for it to be successful, really you need to have 2 conditions: one, that there's permission or encouragement within the firm to use it; and secondly, that we have proper training. I'm pleased to say at Caledonia, both of those conditions are met. I think from our point of view, there's 2 things that AI is useful for or at least understanding it. The first is knowing the implications on our companies of AI and how it might impact them. Clearly, there's a second thing, which is, does it make our research process more efficient. And I think in the early stages, it certainly is helpful, and we all actively use it. But what I would say is, and it perhaps came out with a culture of Fastenal, AI will not tell me what the taxi driver on the way to the Fastenal meeting thought of the company. It won't tell me that there's no reserve parking space to the CEO or CFO outside the company office or that there's a plaque inside with the 40-year tenure employees. So I definitely still think you need to go out and meet the people and visit the companies, but certainly for some early-stage research, it's very helpful.

I presume it also features as part of the analysis and investment thesis around just whether AI presents a threat to a business model?

Absolutely. And as I mentioned earlier, one of the things that I quite like sleep well at night stocks. And these distributors, for example, actually, they're using AI to help them, but there's not the same rapid innovation risk that you might have with some other industries.

Okay. Ben, I'm going to put you on the spot here. Your favorite company in the portfolio and why?

It'll be a cop-out, but we really -- we don't have favorite companies. It's not really, I guess, the way the team is wired. We're much focused on portfolio. There's always going to be some years where you have really good performers and less good performers, but we're really focusing on the opportunity over the 10 years. And I think that really comes back to, hopefully, again, the way the team is set up. So again, to stress, we are rewarded on portfolio performance, not on ideas. So people are not attached to particular ideas. And the fact that there's a sort of good degree of -- a very flat structure means that there's a good degree of discussion and constructive challenge across all portfolio names. And we always continue to look to improve the quality of each portfolio over time by gradually replacing names as we see fit.

Okay. Well, I didn't get my company, but I take your point. I'll start with you, Alan, but maybe for the whole panel. If we could take a step back from the detail of the companies, and maybe bring everyone up to speed with your view of the world. Obviously, there's a lot to take on, whether it's tariffs. We talked about what happened in April and the impact of Liberation Day, but now we're dealing with the shortest ceasefire in history, where to for interest rates, oil prices, supply chains. There's a lot to take on. I'll hand you that baton now.

Okay. I'll try my best to answer that. Let me try and do it in 2 ways. Firstly, I'll talk a little bit about what we did in the sell-off, and then I can cover a little bit the way we think about macro. In terms of what we did in the sell-off, so these are opportunities that as long-term investors, we want to take advantage of, right? Because it's a great way to make money when you have great prices available. And so in April, we spent around GBP 50 million, and we did that in 2 ways. Firstly, was around targeted top-ups of existing holdings. And then secondly, was initiation of a new position. When I'm trading in this sort of period, I think about probably 2 key things. So firstly is around the valuation of the businesses that we're looking to add to. Is this a great business that we're getting a really great price right now? And then the second one is around risk and it's trying to understand what is causing this particular selloff. And is that having a material impact on the business. And a great example would be we topped up a name called Charter Communications. So they're a U.S. cable business. So effectively, they have no direct impact from President Trump's tariffs. And so this is a great way to take advantage of negative sentiment and yet not be impacted by the risk that it was generating. It's also worth saying we also can buy a new position. In COVID, we bought Fastenal. And in April, I'm happy to disclose that we bought into Charles Schwab. So this is a fantastic company that we've been following for years now. It's a leader in the U.S. wealth management and brokerage space with over $10 trillion of assets under management. And in April, we got a really great opportunity to buy into that. And so we're very excited about that holding. And maybe I'll briefly talk about the macro. And I don't know, Ben, if you want to cover tariffs.

Yes, sure.

So on the macro side of things, I think what's important to be aware of is that we don't try and predict macro, but we're very cognizant of the impacts on valuations. So for example, be that systemic sort of things in terms of interest rate moves that we had over the last couple of years when it pushed out the swap curve, we like change the way we've valued things. And then secondly, whether there's any specific macro that impacts the operations of our businesses. And so that we're obviously very cognizant of. So we don't spend time on predicting, but we reflect it where appropriate.

Yes. I mean, I guess on tariffs, we had a -- when you do have these macro events or these geopolitical events, you have a good look at the portfolio and see what sort of impact there might be on your portfolio companies. And we are mindful that the tariffs are in sort of gray area here. We'll see what happens on the 9th of July. But we actually think that kind of overall, we have quite limited impact on the portfolio. There are a few companies around the edges, but not a big impact. I think from the broader Trump administration and the kind of the policy agenda, the bigger impact we've probably seen is on kind of research budgets. So obviously, you've seen the Trump administration had a bit of a war on certain universities, which is affecting grants to certain parts of the research environment in the U.S., the ecosystem there. And there's obviously a big debate on the kind of the National Institute of Health budgets for 2026. Now the NIH in the U.S. is one of the big -- it is the big federal funder of research, particularly early-stage research that then feeds into the life sciences players like Thermo Fisher. So where we are seeing is some hesitation around there. We'll see what happens with the House and the Senate in terms of the NIH budget for next year. That's going to happen over the next few months. And -- but it's interesting to see, perhaps looking back to the first Trump administration in 2016, there was the same discussion and the NIH budget actually went up. So we'll see what the outcome of that is. Having said that, the companies we're in and particularly Thermo Fisher, we are -- we think the life sciences market generally is a great place to be for the long term, and Thermo Fisher is super well placed to enjoy that over the longer term.

Great stuff. Thank you very much for that. All the great answers and detail there. I might hand over to Matt for concluding remarks and Q&A.

Thanks, Anthony. Have we got any questions? We got one over here.

I just wanted to sort of get a feel for how do you allocate between the sort of 2 portfolios. Is there sort of periodic rebalancing and kind of what triggers that? And you mentioned that Philip Morris was in both. So what is the sort of degree of overlap between the 2?

Ben, why don't you pick that up?

So across the total public company side, we have obviously an asset allocation framework that takes in private companies as well as the funds team within Caledonia. And then that is then split between capital and income. And income we feel is at the right level now. So at the AUM we're around sort of GBP 270 million, 275 million. That's the right level to generate the level of income that Caledonia would like from it in terms of contribute to its costs and dividends. So in terms of the broader asset allocation, the spare capacity will go to capital if there's the opportunity to add. In terms of holdings, there are obviously -- it's a slightly different universe of stocks to be fish in for the income and capital, but there are companies that overlap. Fastenal was a good example because actually, in normal times, the income portfolio wouldn't have been able to buy that because the yield is typically too low. But we were able to buy it in March 2020 when the yield jumped because of the pandemic. And so that went in. In terms of PMI, that was one actually that met all the requirements for the income portfolio and the capital portfolio from day 1. And we sort of had an investment in PMI in capital since 2016. And when we took on the income portfolio, it was very natural for us to say, well, we knew PMI very well, that can come into the income portfolio too, because it meets all the criteria.

I'd also add that there's -- sometimes in the states, you get companies which have a slightly different capital allocation strategy. So for example, Watsco do pay basically mostly dividends is the way they do it. They don't do buybacks. And in Texas Instruments, they also basically hand back all their free cash flow. So there's a way that effectively allows you sometimes to get a higher growth name in the states, like a really good quality name that will meet the income portfolio's requirements.

Question around the geographic sort of weighting. I suppose, clearly, you're heavily sort of overweight -- not overweight, but you've got a massive allocation towards U.S. companies. Looking towards other geographies around the world, how do you look at the world, I suppose? Some big companies in Asia that are exciting?

Sure. So yes, we have around 65% across both portfolios that are headquartered in the U.S. Actually, when you look across the portfolio, most of the companies have effectively global revenue streams. But stepping back, what we're looking for, as we sort of tried to laid out is really quality. So we're looking at the sort of quality -- this quality matrix, and we're trying to find the companies that are really in the right tail of that. The sort of 2 standard deviation, 3 standard deviation, really high quality. And so that's what we look for. And what we sometimes find is that you kind of get these great business models at scale and liquidity, you only really find those quite often in the States. So that's why that's more of an output. In terms of other areas, so we do have a holding in Alibaba. This is a company -- is a smaller holding within the capital portfolio. It's been there a few years now. And it's a way -- it's an extremely large company that we feel is very attractively priced with a lot of kind of interesting dynamics, but it's something that we picked it from a quality basis. And then also, it's a great way to kind of have exposure to Asia and sort of follow that space given its global impacts.

The only thing I would just add is, again, I mean, these are generally global businesses, but because the U.K. and Europe is generally more income rich and the U.S. is generally more growth rich, the kind of the income portfolio is slightly higher weighting to U.K. and Europe and the capital portfolio is slightly higher weighting to the U.S. And that's just the nature of where we fish.

Matt and Rob had promised me a lovely presentation, and it exactly turned out that. So thoroughly enjoyed it. Thank you very much. In terms of high-quality companies, these are proper old established companies. I wish one of my grandfathers had established them. That would have been different. And these are really high-quality companies. I've got zero doubts about them. The only problem in my head is around their valuations. And I'm glad Ben, at 2, 3 occasions, you mentioned the word top slicing. And if you see these are first-class companies, they may be listed in the U.S., but they genuinely are global companies. And what has happened is because of the U.S. listing, they've enjoyed a very good P multiple reratings over the last 10, 15 years. And -- but where we are right now, I mean, the valuations are really a thorn in the neck. What are your thoughts around that?

Well, let me start. I mean, I think we take a step back, I mean, first of all, the strategy, we really want to be long-term owners. So we think that is the best way to generate strong long-term returns. Market timing, actually, we're not too bad in terms of buying when there have been sell-offs, but generally, it's quite hard to do. So we think about backing the best companies, so long term is the best way to get those strong long-term performance. And I guess within that, you have to think about the sizing of the positions, which I mentioned top slicing several times, it's something that particularly with the U.S. names, has occupied our thinking a lot over the last few years. And hopefully, you can see that with Microsoft and Oracle, in particular, as an example. But across the portfolio, there have been top slicing. And I would say, mainly the U.S. names. Having said that, we know these companies really well. We think on a 10-year view, they're going to continue to do really well. So we don't think it's worth chopping and changing for the sake of a few points, particularly when some of these companies are growing at 10%, 15%, 20%, particularly in the case of Microsoft, and those multiples come down quite quickly.

Yes. I'd also add actually something interesting that we also -- as well as top slice, we actually buy back, right? So we have bought Microsoft in the last couple of years. We have bought Oracle. We bought Oracle in April. So what's kind of interesting actually, and we're cognizant of the market environment. So when rates capped out at the end of '22, actually, what happened was some of the higher multiple names became significantly cheaper than what was deserved. So actually, we bought Microsoft. We bought Oracle at the start of that period. So we can do the opposite, too. So we're cognizant of those market moves. And so that's how we think about it.

Just thinking of the approved list, how many stocks are on that roughly? And what's the capacity to bring them into the portfolio with what you said about the -- you're happy with the diversification?

So on the approved list today, we have 5 approved names. We think around 5 to 10 is about the right number for our -- in terms of capacity and our team. And we obviously hold those up against the existing holdings, and we will hopefully replace them over time. But that's not to say that one in -- sorry, one out is then one in. If we think it's the right thing to do to sell an existing holding because it no longer meets our requirement, then we will and then we'll wait for that opportunity to hopefully put in one of the approved list names when that market -- when the market gives us an opportunity.

That's it for the room, I think.

Yes. I'm quite conscious of time, so I'll take a couple of questions online. The first is similar in terms of risk of what Anthony asked then. But when analyzing companies, how do you avoid falling victim to the halo effect as described by Phil Rosenberg in his seminal book? For those unfamiliar with the concept, it describes how investors frequently take successful companies and then attribute their success to elements of their strategy. For unsuccessful firms, they attribute their failure to factors that may or not have been relevant. This classic example in the book is Cisco when it was a hot stop in the late 1990s. Investors, analysts and media queued up to attribute Cisco's successful growth to a decentralized business approach, entrepreneurial culture and the ability to make lucrative bolt-on acquisitions. Then when things fell apart in the early 2000s, the same group of people attributed the company's problems to overexpansion, lack of focus, especially with regard to cost control and weak corporate culture.

Yes. So I think John Chambers, Cisco's CEO, is a very interesting character. And if you look at the valuation of Cisco in the dot-com era and going into that, it went astronomical. So it's quite an interesting -- so that's why you can't separate necessarily quality -- you have to link the quality of the business and the valuation. Ultimately, we found that -- and you see this statistically that persistence of quality. So actually, you do find that a business with certain attributes does persist over time. You have to be aware of hubris around it. So we're cognizant of that. So I think that's kind of how we think about it.

And then the final question, given the closed-end nature of the fund and the long-term horizon, have you considered abandoning the income strategy and purely focusing on the higher total return delivered by the capital strategy?

Maybe at last, I have a question to answer. So the answer is we're delighted with both strategies. They do add to the diversification. And interestingly, in the year that's just passed, the income strategy actually performed stronger than the capital strategy. So it's still early in the innings judging performance. And additionally, we do like the income that the income strategy provides. We do like the fact that the capital strategy has no income target. So it's completely unconstrained. And it's good for Caledonia to have that income coming in. Thank you, I will bring the session to a close. So we're nearly there. So first of all, many thanks. Many thanks to Anthony. Many thanks to Alan, Ben and Henry and Lucy for putting it all together and the rest of the team at Caledonia for putting on what I think is a great Spotlight and putting yourselves in the best possible light. And I hope you agree with me that it really does show how the rubber meets the road on time well invested. You should really feel how that approach to investing actually works in practice. And you would have felt that before as well, hopefully, with the Private Companies Spotlight. I found we have a very experienced and capable team, and they work as a team. They have a very clear strategy and a great track record, and it demonstrates a very repeatable investment process and performance, which we're very pleased with. And they do benefit from being within Caledonia. I like to think, and I think they have said it themselves that we provide them with great support and stability to execute their strategy and critically be very patient about when they invest. And they're waiting for the right opportunities, but when those opportunities come along, we're right behind them and they move. And they -- you get these bargains, they're there for a couple of hours. You have to move quickly because they can be fleeting. And by doing that on every single position, just means we're installing a margin of safety against our shareholders' capital when we move from cash into shares. So thank you very much for that. Just as a reminder, we've got the Private Capital Spotlight on our website. This will be on the website, and we've got the Funds Spotlight to look forward to in January. And with that, I'll bring the session to a close.