Objectives
Caledonia aims to achieve a long term total shareholder return in excess of the FTSE All- Share while maintaining a progressive annual dividend, through a focused portfolio of significant stakes in companies where it believes there to be good opportunities for building value.

Caledonia measures its performance over the long term by comparing its total shareholder return against the FTSE All-Share Total Return index over five and ten year periods.

Strategy
Caledonia's strategy is to invest in and actively manage significant stakes in 30 to 40 companies and situations where it believes there to be good opportunities for building value. Active management will usually be achieved by working closely and constructively with the investee management, often through board representation, as a long term supportive shareholder. Risk is managed by holding a diversified portfolio, with at least 50% of the portfolio in quoted securities or liquid assets. Caledonia self-manages its portfolio, using in-house expertise, as well as using third party managers who specialise in particular asset classes or geographical areas.

Caledonia seeks new investments with a typical size of £10m to £25m. Although Caledonia usually aims to have an influential minority stake it will, on occasion, be prepared to take a controlling interest where it believes that this will maximise shareholder value. When considering an investment opportunity, particular care is taken in appraising the capabilities and commitment of the management team of the prospective investee company. The anticipated total return from the investment, the strategy in relation to it, and the overall risks, are carefully analysed as part of the investment process.

Caledonia will invest part of its portfolio in third party managed funds. Again, a core skill is its ability to assess the capabilities and commitment of the fund management team and Caledonia will often seek to obtain a significant stake in the management company, thereby potentially enhancing returns to shareholders.

Caledonia seeks to work closely and constructively with the management of companies that it has backed and to make available the considerable experience of its own team to help the investee company's management to address the business issues. The strategy for each investment, including the returns and the timing of eventual disposal, is reviewed regularly. Investments are realised when it is believed that the funds released can provide better long term returns, but in a manner consistent with Caledonia's reputation as a supportive long term investor.

Whilst the source of funding for new investments generally comes from its own resources, Caledonia may at times seek to enhance returns by taking on moderate levels of gearing.

Tight control is exercised over costs, notwithstanding Caledonia's active and participative management style. Cost containment is significantly aided by managing the large majority of investments through the in-house management team.

Competitive advantages
Caledonia believes that its history and strategy deliver the following key competitive advantages:

• Favoured access - Caledonia's long established and valuable reputation as a supportive long term investor attracts a strong deal flow of opportunities not always available to others, which enables it to be highly selective in its investments.
• Long experience - Caledonia's management team has long experience of proactively working with the management teams of investee companies to identify and promote business growth opportunities.
• Self-management - Caledonia's portfolio is largely self-managed, thereby reducing third party fees and ensuring that performance gains accrue to Caledonia's shareholders. Where investments are made in managed funds, Caledonia seeks to secure a stake in the asset management business, to enhance further potential returns.
• Progressive dividends - Caledonia has a substantial level of distributable reserves to support its progressive dividend policy for the foreseeable future.