Caledonia Investments (CLDN) Investor Update summary

Investment Philosophy and Strategy

• Focus on long-term, high-quality investments targeting absolute returns above inflation by 3%-6% over the medium to long term, with a permanent capital structure enabling an unconstrained approach and stewardship of shareholder capital.

• Investment team is incentivized for long-term value creation, measured by NAV per share growth, and has over 100 years of cumulative experience fostering a research-driven culture.

• Portfolios are concentrated, typically 15-20 holdings, with a strong quality bias and long average holding periods exceeding seven years.

• Investment process is bottom-up, with detailed fundamental analysis, proprietary financial modeling, and a quality matrix to assess company attributes.

• Risk management includes position sizing, top-slicing of large holdings, and ongoing monitoring of investment theses and valuations.

Portfolio Structure and Performance

• Two main public equity portfolios: Capital (target 10%+ return, all-cap, unconstrained) and Income (target 7%+ return, 3.5% yield on cost, quality focus), with portfolio values of £698m (Capital) and £267m (Income).

• Capital portfolio has delivered a 165% cumulative return over 10 years (10.2% annualized), exceeding targets and outperforming UK CPIH.

• Income portfolio has a 10-year annualized return of 4.6% and a 5.8% dividend income CAGR, with repositioning for higher quality and yield-on-cost.

• Asset allocation between portfolios is managed to meet income needs and optimize capital deployment, with some overlap in holdings where criteria align.

• Global mandate: 66% North America, 27% UK, diversified across sectors, with U.S.-listed companies dominating but including global and select Asian exposure.

Quality Assessment and Case Studies

• Quality matrix evaluates companies on moats, owner mentality, digital adaptation, pricing power, capital allocation, and culture.

• Examples: Thermo Fisher, Big Yellow, RELX, Moody’s, Texas Instruments, POOLCORP, Oracle, Watsco, Fastenal.

• Fastenal case study: Selected for durable moat, decentralised model, and high margins; delivered 21% annualized total return in GBP since investment, with owners earnings per share up 47% (2019–24) and dividend yield at entry of 2.7%, growing at 12% CAGR over five years.

• Ongoing engagement with management and regular site visits cited as mutually beneficial for strategic insight.