Caledonia Investments Plc (CLDN) Earnings Call Transcript

Good morning, everyone, and thank you for joining us today for Caledonia Investments Plc Fund Spotlight. The presentation will commence shortly. A copy of the presentation slides are also available to download from the results center on Caledonia's website, www.caledonia.com. After the presentation, we will conduct a Q&A session. [Operator Instructions] Please note that this call is being live streamed to a webcast for a wider audience and will be recorded. I would now like to hand over to Mat Masters, Chief Executive Officer, to open the presentation. Please go ahead.

Hello. I'm Mat Masters, CEO of Caledonia Investments, and it is my pleasure to welcome you to our Funds Spotlight. This follows on from the private capital and public company spotlights, which are available on our website. The purpose of these events is to provide you with the opportunity to hear directly from our specialist investment team for them to explain the strategy and how it's executed. Today, you'll hear from Jamie Cayzer-Colvin, who leads our funds team, alongside Eloise Fox, who will take you through our North American strategy with the bulk of our NAV and future commitment is and Min Ong, who will provide an update on Asia. Before we get to the spotlight, a short reminder about Caledonia. We are long-term stewards of our shareholders' capital, including the Cayzer family who have entrusted us with theirs for generations. Looking after multigenerational capital shapes everything we do. We need to make returns but do so whilst limiting the risk of losing capital. We target absolute returns of inflation plus 3% to 6% and this influences the level of risk we're prepared to take. Over the last 10 years, our approach to investing has delivered results at the top end of this target range at 9.8% per annum, outperforming inflation by 6.5% per annum, and we have consistently increased our dividend for over half a century. Our approach to investing is straightforward. We invest in high-quality businesses and hold them for the long term. Our maxim, time well invested captures the essence of our approach perfectly. Our in-house investment team is fully aligned with shareholders. We do not manage anyone else's money, and there is no fundraising. Performance is measured against NAV per share over time and rewarded in Caledonia shares, so our incentives are directly tied to long-term value creation. Across all our investments, we look for the same 3 core ingredients: attractive markets to operate in, resilient businesses with strong fundamentals and return characteristics and management teams that are high quality and well aligned with shareholders. We are organized across 3 main strategies, giving us exposure to both private and public companies across a range of sectors and geographies. Each team takes a focused, concentrated approach while shareholders benefit from the diversification that comes from having exposure across all 3 strategies. Our public company's pool comprises 2 portfolios investing in high-quality businesses with good long-term prospects. We take a concentrated long-term approach seeking to buy well and hold durable compounders over time. Private capital invest alongside management teams in predominantly U.K. mid-market businesses. We typically hold a small number of investments, often as majority shareholder and work closely with management to build sustainable value using prudent leverage. Today, you will hear about our fund strategy, which provides us with diversified exposure to 2 great long-term markets and represents 30% of our NAV or GBP 894 million. We have chosen to focus our fund strategy on 2 areas in order to capitalize on attractive risk reward dynamics in the case of North America, and the opportunity to harness significant macro themes in Asia. Turning to North America lower mid-market first, which is where around 2/3 of the funds pool is invested. You'll hear how the funds in this market invest in small but profitable companies, often the first institutional capital into owner-managed businesses and then help them to improve and broaden their operations to allow them to grow in the world's largest market. The risk these funds take on is that smaller companies bring higher operational risk. But this is managed across a very well-diversified portfolio and we can offset this risk by the funds typically paying lower multiples and using less leverage than the larger part of the market. Our returns are primarily driven by operational improvement, backing private equity managers who are entirely aligned with us on this aim. And importantly, we are often the only European investor in these funds, giving us differentiated access to managers and opportunities that are not always available to international investors. The other 1/3 of the pool is invested in Asian private market funds, which focused on 2 important macro trends, a growing middle class and innovation. These funds take on early-stage risk with investments and typically don't use any leverage. This Asia exposure also provides a very good source of diversification for the portfolio. Across both these areas, we invest alongside the experienced, operationally focused managers with deep local knowledge and proven track records. This approach allows us to access high-quality opportunities that are difficult to reach directly from the U.K. while benefiting from disciplined manager selection, robust due diligence and ongoing portfolio monitoring. Funds play a key role in broadening our opportunity set, enhancing geographic and strategy diversification and complementing our direct investment capabilities. Thank you. I'll now hand you over to Jamie.

Hello. My name is Jamie Cayzer-Colvin, and I head the funds pool. As a member of the Cayzer family, it's a real privilege to be part of an enterprise that's flourished for 147 years across 6 generations and the seventh now joining us. My perspective is shaped by generations, not months, quarters or years, and that's why Caledonia's ethos, time well invested, ring so true and continues to inspire us today. As Mat said in his introduction, the funds pool strategy complements our direct investment strategies by providing diversification into markets that otherwise difficult to access. We do this through partnership with some of the best managers in the world. These managers have the skill to build better businesses, they can help companies fulfill their potential, who in turn generate shareholder value. Now before we go into the details of the portfolio, let me first explain how and why we do this. You will hear us talk about partnership a lot because partnerships are at the heart of what we do. We began this now proven process 16 years ago, focusing on Asia and North America, large markets with depth and long-term growth. Here, we have built extensive networks and deep market expertise. Given the scale and maturity of North America, it's not surprising that it now accounts for around 2/3 of our portfolio NAV. We have forged relationships with highly skilled, experienced managers where we can be truly aligned and share in their value creation approach. We prefer smaller funds where management fees only cover the running costs of the investment team and we like to be aligned with managers who are motivated to share in the value they create. Many of these managers do not market themselves outside their home regions. So gaining access will be almost impossible for investors here in the U.K. without our network. We invest only when we have deep conviction that the manager will deploy capital consistently and in line with our stated strategy. That conviction comes from getting to know them extremely well with frequent meetings. We often build a relationship over many years before committing to a fund. These are long-duration assets. So we seek to deploy capital steadily, not opportunistically and avoid market timing. Our goal is a consistent, well diversified exposure across managers, sectors and investment styles. Caledonia's unique structure enables us to block out the noise of the market, allowing us to take our time. After all, markets reward the patient investor. Investing does not end with committing capital. We monitor our managers through financial and operating reporting, performance benchmarking. And in most cases, we take a seat on the Funds Advisory Board, the [ LPAC ]. This gives us oversight and a voice on critical governance matters. We also engage directly in person with portfolio leadership ensuring transparency, accountability and adherence to investment objectives. The process we have developed gives investors diversification into markets they could not access alone, underpinned by a rigorous risk management system that delivers strong long-term performance. We have built our portfolio using the 3 Ts, team, thesis and track record. This thorough analysis often conducted over many years, allows us to build the conviction we seek. We start with the team. Some of the key questions we ask of them are what's the value creation skills that they bring to the portfolio companies? What is their depth and breadth of experience in both up and down cycles? Are the team hungry for success? And how well does their culture and incentive structure align with our own values and long-term objectives? We spent significant time with the managers to understand their leadership style, their succession planning and their ability to attract and retain top talent. Ultimately, we back people. And in our experience, the quality and character of the team is the single most important driver for long-term success. Next, we look at the thesis. We ask what is the manager's differentiated angle or edge in the current market? How clear and robust is the plan for value creation and risk management? Is the thesis supported by strong fundamentals, long-term trends and defensible market positions? We also test whether the thesis is robust and fits with the broader portfolio objectives and whether the manager has shown discipline in how they deploy capital. Our objective is simple, to back only those managers with a clear, compelling evidence-based thesis that can be executed in practice and not just in theory. Finally, we examined track record. We don't just look at headline returns. We break performance down by vintage year, sector, deal type, geography to understand what really drove results. Our process includes attribution analysis to separate genuine skill from luck or market beta. We review manager's price discipline on acquisitions. We examined exits to find out what the value creation drivers were and the consistency across cycles and the ability for the manager to generate multiple expansion. We referenced past investors and portfolio company executives to validate what we're told. We look for a proven, resilient, transparent track record that demonstrates repeatable results. Now executing this strategy requires a rigorous methodical process, and there are literally thousands of managers in our target markets. Through systematic desktop research, we narrow that universe to around 500 managers, all of whom of which met and actively monitored. From this group, we then reduced the number by half creating our focused pipeline. And from that pipeline, we have built an investment portfolio of 46 approved managers overseeing 82 underlying funds. This portfolio provides exposure to more than 600 companies. Our investment process is lengthy. We build confidence as we get to know our managers, and this is matched by a rigorous internal approval process with all commitments being approved by the Investment Committee. We conduct formal legal reviews of the limited partnership agreement, which governs the funds to ensure we negotiate the best possible investment terms and in most cases, we have a seat on the Funds Advisory Board. Once invested, monitoring is intensive. We meet each manager in person at least twice a year. We turned our annual and LPAC meetings as well as participating in quarterly update calls. I am proud to say that we know our managers extremely well. We take the word partnership very seriously. I'm immensely grateful to the team here at Caledonia, who spend a great deal of time on the road. I've been incredibly fortunate that soon after setting up the funds pool, I was joined by Min Ong and Eloise Fox, and the 3 of us have built the processes, relationships and portfolio you see today. You will shortly hear from both Min and Eloise. But before you do, I'd like to briefly mention 3 other colleagues who helped manage the portfolio. Geordie Cox, Freddie Buxton and Shengying Li. They bring legal and accountancy expertise, fund portfolio experience and regional perspective. Caledonia places great value on the next generation something reflected in our long-standing intern program, and it is especially pleasing to see Freddie return to Caledonia having first joined us as an intern a decade ago. The investment team is supported by Rachel Mack and Sarah Harcourt-Wood and her team, who doing an outstanding job of keeping everything running smoothly. Ours is a truly multicultural team with colleagues from China, Malaysia, Singapore, South Africa, Taiwan and Britain. I would now like to turn to the North American portfolio and introduce my colleague, Eloise Fox who will present the next section of this review.

Thank you, Jamie. Good morning. I am Eloise Fox, and I run Caledonia's North American Funds program. I have had the great pleasure of working at Caledonia for the past 14 years, and I started this successful program when I joined the firm in 2012. Today, I'd like to tell you more about the attractions of U.S. lower mid-market private equity. The U.S. economy is dominated by small privately held businesses. There are 400,000 companies in the U.S., where EBITDA is in the range of $2 million to $10 million. In aggregate, it thought that these companies generate more than $10 trillion in revenue a year and employ over 48 million people. And this is typically where the lower mid-market is considered to sit. What makes this segment particularly compelling is the strength of the founder owner culture in the U.S. Founder owners have been instrumental in shaping corporate America, driving innovation and value across all ends of the market. These hard-working and adaptable entrepreneurs, often family backed or self-made embody agility, risk taking and hands-on management in a market where they possess a really deep local market knowledge. These are established businesses, cash generative and are typically started and grown primarily using the founders personal savings and the company's own profits without relying on any external investors. This approach allows the founder to maintain full control and operate leanly, but it often means slower growth due to the company being under invested. As a result, there's often clear headroom for value creation through targeted investment and professionalization. 57% of founder owners are 50 or more years old and, therefore, may be thinking about retirement plans, succession planning, partial liquidity or looking for a partner to help grow the business. This combination, depth of supply, resilient operating businesses and a consistent pipeline of founder transitions creates a significant opportunity set. Not only are there many companies in the lower mid-market. This part of the market is less intermediated and therefore, less efficient than large-cap private equity, resulting in lower entry valuations. There's less capital targeting this part of the market leading to reduced competition for deals and more attractive entry opportunities. As the chart illustrates, the lower mid-market consistently trades at materially lower and much more stable entry multiples than the broader U.S. buyout market. And as lower entry multiples can support this, typically lower levels of leverage are used in lower mid-market transactions versus larger deals. Here, we are trading greater operational risk for lower financial risk. There are many sources of untapped value, more often than not revolving around the founder. The companies are well run, but there's plenty of room for value creation. This is often focused on investing in and augmenting the management teams, improving our company's data and analytics and growing the company organically and inorganically through M&A, increasing scale by number of locations and service offerings. All of these operational levers create a more professionalized and scaled business, which is attractive to a broader buyer set, larger private equity funds as well as strategic buyers. All this generates the potential for outsized returns. The diligence process includes an assessment of a manager's pricing discipline as well as their exit discipline where consistency is key. To provide a real-life example of this, let me take you through a case study from one of our long-term fund relationships, CenterOak Partners. CenterOak is a Dallas, Texas-based private equity firm. The firm invests in business, industrial and consumer services and has a history of creating significant value through organizational development, operational improvements and transformational growth. We have partnered with them for 11 years and are invested in their Funds 1, 2 and 3. The CenterOak team spun out from another Dallas-based private equity firm, and we were able to diligence their prior track record in order to be comfortable backing a first-time fund. CenterOak Fund 1 is now fully realized and is a top quartile fund, having generated a 2.7x net money-on-money and a 28% net IRR. Funds 2 and 3 are tracking in line with our underwrite of 2.5x net money-on-money. CenterOak acquired Turf Masters in 2022, a leading provider of residential lawn care services. Turf Masters was founded in 2002 by Andy Kadrich, operating from his basement in Atlanta, Georgia, with just a handful of customers, and I have enjoyed spending time with Andy and hearing his amazing story firsthand. The Turf Masters business quickly grew to be a household name in Atlanta all of the while maintaining the high level of service and care that only a family-owned local company can provide. Turf Masters differentiates itself through high-quality application work, exceptional customer service, investment in best-in-class equipment and a people-first culture, focused on skills development and really meaningful career opportunities. At the time of CenterOak's acquisition in 2022, the company was a strong regional leader, serving approximately 100,000 customers. As the first institutional investor, CenterOak partnered closely with management to accelerate the company's evolution from a regional operator into one of the nation's premier residential lawn care platforms. Over the course of ownership, CenterOak invested behind the core value creation levers we like in the lower mid-market, talent, systems, expanded service offerings and scaled shared services. They supported 19 add-on acquisitions that expanded the branch network from roughly 20 to more than 40 locations and helped more than double the customer base. Equally important, more than 1/3 of EBITDA growth was organic, driven by new customer growth, disciplined pricing, strong retention and enhanced cross-selling of high-margin ancillary services. This investment exemplifies not only CenterOak's differentiated value creation approach but also reflects the broader repeatable playbook across our mid-market funds. The exit of Turf Masters was the second exit from Fund 2, a 2020 vintage Fund and the fourth CenterOak exit in the past 24 months all of which have been in the range of 2.2x to 3.5x net money on money. So how do we go about finding groups such as CenterOak and incredible founder owner such as Andy Kadrich? Over the past 14 years, we've systematically mapped the U.S. mid-market. We've identified around 1,500 mid-market managers who share a similar value creation mindset but each with their own sector or geographic focus. And importantly, many of these firms don't actively market in Europe and often even outside their own state, which means they're often under followed by international investors. On average, we've spent around 12 weeks a year in the U.S. for the past 14 years. Desktop research helps but there's no substitute for building relationships face-to-face and earning trust over multiple cycles. This graphic shows the focus of our time on the ground which was more dedicated to the coasts and large cities in the early years. New York, L.A., Boston, Chicago, before moving to the large states and large economies of Texas and Florida. So Dallas, Austin, Miami, and more recently, we've been deliberate about spending more time in the Midwest and the fly over states, places like St. Louis, Nashville, Jackson Hole and many others. These are large markets in their own right, with a high density of founder-owned businesses, but fewer private equity firms on the ground. That dynamic creates a real edge, more proprietary deal flow and typically lower entry valuations. This on-the-ground sourcing is also critical to our fund selection discipline. We're not just backing the same managers. We deliberately seek a renewing pipeline of emerging and next-generation managers because that's where alignment is strongest. In practice, we typically invest once the manager is proven, but before the firm becomes too large. Once fund scale beyond a certain point, incentives can shift from being hungry for capital gains to being driven by fee growth, and that's not where we want to be. As a result of these efforts, we've met around 1,000 managers over the years. We actively monitor about 400 as credible, investable opportunities within our strategy and have conducted detailed due diligence on about 150 firms. So how does this translate to our current portfolio? The detailed diligence undertaken on 150 firms has resulted in a current portfolio of 30 managers across 45 funds with typical commitments of $25 million to $30 million per fund. Currently, we are invested in around 200 underlying companies. With fund-to-fund holdings included, this would be in excess of 800 companies. These companies provide a balanced portfolio with exposure across a wide range of industry sectors. Industrials, consumer discretionary, health care and technology are the largest sector exposures. The same data cut by line of business rather than sector shows that the portfolio is 60% services focused with this being B2B and B2C services in the U.S. domestic economy, therefore, largely insulated from first-tier tariffs. To dive deeper into these underlying portfolio companies, this graphic shows that we are invested in businesses that provide essential recurring services and that benefit from long-term structural demand. I have already mentioned lawn care but we also have exposure to termite and pest control. Once your lawn is in good shape, it's important to keep the fire ants and armyworms at bay, not to mention the cockroaches and the mosquitoes. Heating, ventilation, air conditioning, essential for those bitterly cold winters and swelteringly hot southern summers as well as plumbing and electrical services. The trend of DIY has moved to one of do-it-for-me, particularly for younger generations. For even the simple matters of swimming pool maintenance or gardening, there is someone to do it for you. And no matter how many YouTube videos one watches, nobody wants to DIY their own electrics or reroof their in-house. Caledonia has a lot of exposure to these essential recurring services revenue streams across the portfolio. We also have exposure to automotive repair, an area supported by strong underlying fundamentals. The average age of a passenger car on the road in the U.S. is 14.5 years old. These cars need regular maintenance, whether as a result of collision repair or general maintenance due to wear and tear. We are invested in traffic management systems, including traffic lights, road markings, car park cleaning, paving, and it's not all traditional businesses. We also have exposure to cutting-edge technology within the industrial automation space with robotics and machinery automation to improve assembly lines and production efficiencies. So taken together, this portfolio represents a broad and diversified exposure to everyday America with a focus on essential services, recurring revenue and businesses positioned to compound through operational improvement. To bring further insight to our portfolio, we will now show a short video featuring one of our managers Boston-based New Heritage Capital. We have now New Heritage since 2014 and are invested in their funds 3 and 4. The funds have consistently been strong performers performing ahead or in line with our fund underwrite of 2.5x money-on-money.

In 2006, when we set up New Heritage Capital, we saw a real opportunity in the world of founder-owned businesses, both from the perspective of the investment opportunity, but also the opportunity for us to really be different as a firm. I think people do not fully appreciate that when you come across a successful founder-owned business, it was a very hard road for that company to get there. And there's a bit of natural selection going on. There's a natural selection of the management team that sort of put it all together, a natural selection of the niche strategy that they came up with to put it all together and that represents a terrific investment opportunity.

I think founder owners are sometimes undervalued by private equity. But the experience they've had of building their business from the ground up, of taking risks and saying, yes, when others might have been more conservative. We think that passion and that experience make them incredibly valuable assets for us to sort of invest behind. Value creation is a huge piece of how we add value and grow our businesses. And it's a big focus at the beginning of our investments. I think one of the core areas we focus on first is around management team augmentation. Sometimes that's a CFO. Sometimes that's a COO. One of the other core things we do upfront is around data and information. So a lot of founder-owned businesses in the lower middle market, they have good data, but they don't sort of use it to the best of their abilities. And often, when you have the right information in the right hands of senior leadership, you can just make better decisions. So we invest in systems and data information gathering techniques and analysis and reporting that puts that information in the hands of the C-level leadership so that they can make really good decisions about growing the business. The 3 key levers for us in driving equity value creation is really organic growth, acquisition, inorganic growth and multiple expansion. The organic growth, that is what we back in our founder owned businesses. We're backing companies that historically have grown 10%, 15%, 20%, and we're putting in place business plans that allow that sort of same organic growth to continue. The second piece is around acquisitions. We do acquisitions in most of our companies, but not all, but it is really more of a strategic value that we're trying to bring to the table. So if we're trying to enter a new market, a new geography. If we're trying to expand capabilities, if we're trying to build a certain type of customer base, we look at acquisitions as a way to enhance the overall positioning and strategy of the business. The last piece is really around multiple expansion, and it is a huge opportunity in the lower middle market to be able to continue to drive businesses and get that multiple expansion at the next liquidity event. Sometimes it's partly its size. So being able to bring a company from 5, 6, 7, 8 of EBITDA to 20 or 30 of EBITDA, really drives multiple expansion. But it's more than that, it tends to be a transformation of that business, putting in new people, new process, new infrastructure that allows that business to double and triple in size. That transformation that growth of the business to the next level really is the driver of where we can get strategic and financial buyers to pay significantly higher multiples on the back end. Some examples of our companies that we've invested with alongside our founders are really across broad industries, so business services, manufacturing and health care. But there's really niche-y, wonderful examples within those. So for example, we invested in a company called Revela Foods, which is the largest manufacturer of liquid pouch mac and cheese here in the United States. And it's a 100-year-old company that 4 founders sort of brought together. It was about bringing sort of savory ingredients and seasonings and flavorings into the center of the grocery aisle store.

It's important to us to have the representation of European capital in our firm. But it's very difficult to access specific European limited partners. There are very few that are coming over to actually get to know a $400 million fund in the U.S. Many might prefer to go through fund to funds or something like that. Caledonia is very unique where the senior professionals come and spend time getting to know a middle market firm such as ourselves well enough to be able to make a really well informed investment in us. And that allows us to have a relationship with a European limited partner that's very different than is typical. When we first met the Caledonia team, I think we were operating in a closet of an office with a really interesting strategy and a few great investments under our belt. The Caledonia team spent years visiting us, hearing our story, hearing what our plans were and checking as to whether or not we actually came through on those plans and ideas. And with after many years of those kinds of discussions and follow-up and then intense diligence I think from our perspective, that switch went on in Caledonia's mind that this is a great investment firm to back. Knowing us means understanding our investment strategy better and means being able to support our investment strategy better. For us, Caledonia has really turned out to be one of our core strategic limited partners.

Huge thanks to Mark Jrolf and Nickie Noriss at New Heritage Capital for their tremendous partnership with Caledonia and the successes we have shared. On performance, over the long term, returns have been strong. This has largely been due to solid underlying operating performance across the portfolio alongside a stronger exit environment over the period. Recently, returns have been impacted by a slowdown in the exit markets, but we remain confident in the quality of the underlying companies. In terms of cash flows, these are influenced by a number of factors, including commitment pacing, the speed at which the fund manager identifies opportunities and deploys capital, the growth trajectory of the underlying assets and importantly, liquidity in the exit market. The program is maturing with about 1/3 of North American NAV being owned for over 5 years. As the portfolio continues to develop, we would expect it to become increasingly cash generative under normal market conditions. Pleasingly, we are beginning to see an improvement in market engagement with transaction activity starting to pick up. To summarize, we believe the North American lower mid-market represents a really compelling opportunity set in private markets today. It is vast in scale and highly fragmented which means there is no shortage of opportunity and significant value can be created through disciplined sourcing and operational execution. Over the past 15 years, we've built a deep pipeline and portfolio of specialist managers who know this market intimately. They are on the ground. They see opportunities that others don't, and they have a proven track record of professionalizing founder-owned businesses and scaling them into higher quality platforms. The result is a portfolio with broad exposure to everyday American Life, underpinned by essential services and recurring revenue streams. Thank you for your time today. I'll now hand over to my colleague, Min Ong, who will take you through the Asia funds program.

Thank you, Eloise. Good morning, everyone. My name is Min Ong, I joined Caledonia 14 years ago, and I lead the firm's fund investments in Asia. Asia offers long-term growth driven by a rapidly expanding middle class and its growing role in global innovation providing differentiated return potential to active, selective investing. The first mega trend we want to highlight is the large and growing middle class in Asia that is driving domestic consumption. It is home to around 60% of the world's 8 billion population, but its share of the global middle class has risen from under 25% in 2010 to more than half today and estimated to rise even more to 2/3 by 2030. This effectively adds about 2 European unions worth of consumers or about 1 billion consumers in this decade. Share of spending by this middle class from Asia has also increased from 23% in 2010 to 57% today, potentially reaching 60% in 2030. These dynamics are underpinning rising living standards and sustained aspirational consumption across the region. In many markets, domestic demand is now sufficiently deep to support the scaling of high-quality businesses, reinforcing a virtual cycle of growth, investment and further consumption. The second mega trend to highlight is Asia's increasing role in global innovation and industrial capability. China's share of global R&D spend has risen from around 4% in 2000 to 26% in 2023, underscoring the region's deepening scientific and technical capacity. In biotechnology, cross-border partnerships is an increasing trend. Approximately 1/3 of the drug candidates recently licensed by large pharmaceutical companies originated from China. In electric vehicles, the scale of adoption and manufacturing advantage is clear. China dominates the global electric car market, accounting for roughly 2/3 of total EV sales and production. As automation becomes increasingly critical to competitiveness, China has moved decisively ahead in robotics, accounting for around 51% of global installations and reflecting the power of its deeply integrated supply chains, driving productivity and scalable lights-out manufacturing. So let's look at this from a portfolio perspective. On the left, you can see investments that have already been realized. And on the right, investments that have yet to realize. These illustrative examples evolve around the 2 themes described earlier. On the theme of domestic consumption, Imeik captures the enduring human preference for looking and feeling good. It is a leading Chinese medical and regenerative aesthetics company supported by strong in-house R&D, a deep clinical pipeline and the ability to scale clinically validated products at price points accessible to the middle class. The company listed on the Shenzhen Stock Exchange in September 2020, and the fund began selling down once the lockup period expired. A small amount of NAV remains but the position has largely been exited delivering a blended return of 30x. In the interest of life cycle coverage, we also invest at the other end. Our Korean fund acquired a pre-need funeral services platform in 2016 as organic growth and a merger with another leading player created the largest provider of its kind in Korea. The business was sold to a strategic buyer in 2025, generating a 3.6x return. On the theme of powering innovation, we have momentum and AI-driven autonomous driving software company with partnerships spanning General Motors, Toyota, Mercedes-Benz and BMW as well as mobility platforms such as Uber and Grab with an exit potentially being an IPO. Our CEO, Matt and our CFO, Rob has both experienced Momenta Power Vehicles in public roads in China. Their presence today at tests at the very least to the safety of the technology and they were no doubt also vouch for its stability and smoothness. The portfolio construction is the result of thoughtful, deliberate bottom-up work spending around 10 weeks each year on the ground in Asia, visiting portfolio companies, conducting on-site due diligence, stress testing processes, attending annual meetings and monitoring the portfolio. This frontline presence enables direct engagement with founders, industry participants, regulators and government bodies. Through our managers, we have access to highly driven founders who are deeply mission-led, technically exceptional and intensely focused on long-term value creation. These founders and fund managers we back are typically educated in both Asia and the West providing a differentiated perspective on technology and markets. With 3 native mandarin speakers, we're able to conduct deep local language diligence, broadened coverage efficiently and remain close to fast-moving developments through local media and social channels. The total portfolio value in the ground is GBP 313.8 million. The current portfolio comprises 15 managers across 35 funds and investments in 385 companies with fund of funds holdings included, this would be in access of 800 companies. The portfolio provides broad sector diversification with the heaviest weighting to health care at 33% followed by consumer discretionary at 24% and IT at 20%. The current weighted average age of these underlying companies is 5.5 years. Taken together, this illustrates a highly diversified portfolio that is aligned with the 2 mega trends discussed earlier. Macroeconomic uncertainty and foreign exchange movements across Asia have weighed in valuations and sentiment over the past 3 years, contributing to slower exit activity amid the prolonged weakness in IPO markets. This more broadly reflects weak market sentiment rather than any deterioration in underlying asset quality. Portfolio companies have continued to execute well operationally with our cash flows over the period broadly neutral, but more subdued recently, given Asia's greater reliance on IPOs as an exit route. In the past year, however, we have seen an improvement in IPO markets and are cautiously optimistic. In summary, Asia offers 3 core attractions for Caledonia. One, it is large and growing with significant scale, a rising middle class and increasingly self-sustaining domestic demand. Two, it is a center of innovation leading in strategic technologies, such as biotechnology, climate technology and robotics. Three, it provides diversification offering long-term structural growth exposure to one of the largest and fastest-growing regions in the world today. Thank you, and I'll now hand you back to Jamie.

Thank you, Min. Thank you, Eloise, for those in-depth reviews of our portfolio. Here at Caledonia, we have developed an interesting and proven investment strategy, one that is not easy to replicate. It provides shareholders with exposure to global markets and investment products that are difficult to access from the U.K. without our network and resources. Hopefully, we've demonstrated that we have a highly skilled, experienced team that spends considerable amount of time on the ground, engaging directly with our markets and managers and that we interact with those opportunities through an appropriate cultural lens that helps gain better and original insight. You will have seen that the risk management systems that we have built around our team and investment processes would be very difficult to replicate. They reflect years of investment, hard learned experience and substantial resource, giving Caledonia a genuine competitive advantage. This, in turn, supports highly diversified portfolio giving our shareholders exposure to the rising middle class and global innovation in Asia and the broader North American lower mid-market. These are 2 of the largest and most dynamic markets in the world. Now all of today's presenters will be happy to answer your questions, and I shall now hand over to Rob Memmott, our CFO, to conduct that process.

On similar few themes and a few have come through already. We will group them together and address them collectively. And if we are unable to get to your question today due to time, then we will respond to you by e-mail shortly after the event. So I'll now hand over to the moderator to assemble a queue.

[Operator Instructions] The first question is from Anthony Leatham at Peel Hunt.

Some very interesting presentations there. I appreciate it. Just on the Asia portfolio. I was wondering if you could provide a little bit more detail on performance drivers as you've experienced them and maybe a comment on future commitment levels. And then on the North American portfolio, I think you described quite a lot of the businesses as representing kind of everyday America. I'm interested to learn more about how you've assessed the impact of tariffs on the underlying businesses and perhaps how the portfolio might behave in economic downturn?

Thanks, Anthony. Jamie will start with response to that.

Thank you. Just to reiterate, as Min said in the presentation, I mean, the last 3 years have been challenging and the sort of macroeconomic uncertainty, foreign exchange movements across Asia weighed on valuation sentiment contributing to any slowdown in exit activity. However, we remain confident about the underlying quality of our funds assets. And if we just look at the last 18 months, we've had several IPOs in the portfolio and looking forward over the next 6 months. We have got 4 companies that have been approved for IPO and another 6 that are filed. So hopefully, 10 IPOs in the next 6 months. On trade sales during the last 18 months, 9 of our companies were sold by a trade sale, and they averaged more than a 30% uplift in NAV that sale time. So I think it's fair to say, sort of cautiously optimistic, but there has been a lot of uncertainty out there, but we stick with the fundamentals of our assets. Maybe I should hand over to Eloise to take a little bit about tariffs on North America.

Yes, of course. Thank you, Jamie. So in terms of the exposure we have for the North American economy, in terms of tariffs and a broad economic downturn, they would have an impact on returns, but we don't think it would be catastrophic. Usually, in the downturn, demand will slow but not disappear. For example, households, property owners, we may delay optional upgrades, but repairs and maintenance and failures will continue and require action, and that's where we have a lot of exposure across our portfolio. And that's also where manager selection is key. So we're backing managers with operating partner capability and really hands-on experience running these types of businesses.