Interim Results
Graphite Enterprise Trust PLC
19 September 2007
19 September 2007
GRAPHITE ENTERPRISE TRUST PLC
UNAUDITED RESULTS FOR THE HALF YEAR
TO 30 JUNE 2007
SUMMARY OF THE PERIOD
Share price +13.3%
New commitments £132.7m
New investments £45.1m
Realisations £40.1m
Share buy backs £22.7m
FINANCIAL SUMMARY
Jun 2007 Dec 2006 Change
Net assets per share 484.3p 454.6p +6.5%
Share price 437.3p 386.0p +13.3%
Chairman's Statement
Overview
In the first six months of 2007, the net asset value per share of Graphite
Enterprise Trust PLC ('Graphite Enterprise') rose by 6.5% to 484.3p. The share
price rose by 13.3% to 437.3p, reflecting a narrowing of the discount between
the share price and net asset value per share from 15.1% to 9.7%. These
movements compare with an increase of 6.4% in our benchmark, the FTSE All-Share
Index. At 30 June 2007 shareholders' funds were £373 million.
Our objective is to provide shareholders with long term capital growth. As the
table below shows, both the net asset value per share and the share price of
Graphite Enterprise have consistently outperformed the FTSE All-Share Index over
the ten years to 30 June 2007.
Years to 30/6/07 1 3 5 10
NAV +15.7% +54.1% +76.3% +191.9%
Share price +19.4% +85.1% +102.4% +200.5%
FTSE All-Share +15.4% +53.7% +51.4% +56.9%
Investment portfolio
The investment portfolio performed well during the period with the opening
portfolio increasing in value by 9.6%. Fund investments accounted for over 60%
of the gains, reflecting their increased importance in the portfolio. Direct
investments accounted for the remainder of the gain.
£m June Dec June Dec June
2005 2005 2006 2006 2007
Additions 15.1 30.7 42.2 38.1 45.1
Disposals 33.0 53.2 57.5 31.4 40.1
As in the second half of 2006, additions to the investment portfolio exceeded
disposals. The net addition was £5 million with both new investments and
disposals continuing at high levels. Exposure to continental Europe and to
large buy-outs increased with a commensurate decline in UK and mid-market
buy-outs.
Management buy-outs continued to account for the great majority of new
investments with large buy-outs accounting for 70% of the £45 million invested
during the period and medium sized and small buy-outs a further 24%. The
balance was invested in the mezzanine and infrastructure sectors. Almost half
of the new investment was in continental Europe with the remainder divided
almost equally between the UK and the rest of the world.
Disposals totalled £40 million, equivalent to 19% of the opening value of the
portfolio. Although high in absolute terms, this was marginally lower than the
average proportion in the last three years. Buy-outs accounted for over 75% of
disposals with medium sized buy-outs accounting for £22 million and large
buy-outs £9 million. The UK portfolio generated 65% of the disposals.
At 30 June 2007 the investment portfolio was valued at £231 million compared
with £206 million at December 2006. Investment gains accounted for £20 million
of the £25 million of increase with net new investments accounting for the
remainder. As anticipated, fund investments continued to rise as a proportion
of the portfolio as the high level of commitments to funds in recent years was
reflected in an increase in drawdowns. At 30 June 2007 fund investments
accounted for 61.1% of the portfolio as compared with 55.1% at December 2006.
Further analysis of the portfolio and of commitments is set out in the tables in
the Portfolio Analysis section which follows this statement.
FTSE Option
In October 2005, we purchased an option over the FTSE 100 Index (the 'Index') to
address the risk of underperformance which would result from holding high levels
of cash in a rising market. The cost of the option was £14 million and this
gave Graphite Enterprise £120 million of exposure to the Index for three years.
As the Company has become more fully invested, cash and near cash balances have
fallen while the exposure to the Index has risen as the market has risen. As a
result, in June we disposed of 25% of the option. The proceeds from the
disposal were £10 million, representing a gain of £6 million over cost. At 30
June 2007 the level of the Index was 6,608, and the retained option had a value
of £28 million.
Commitments
£m Jun 05 Dec 05 Jun 06 Dec 06 Jun 07
Outstanding commitments 125.7 147.7 183.1 198.0 287.3
Total outstanding commitments rose by 45.1% to £287 million during the period,
with new commitments exceeding drawdowns and other movements by £89 million.
Commitments to funds totalled £133 million, of which £70 million was committed
to funds managed by Graphite Capital. A commitment of £50 million was made to
Graphite Capital Partners VII, a mid-market UK buy-out fund, with a similar
focus to previous Graphite Capital funds. A further £20 million was committed
to Graphite Capital Partners VII Top-Up Fund, a fund investing in larger
mid-market transactions.
The remaining £63 million was committed to third party funds, of which £35
million was committed to large buy-out funds, £14 million to medium-sized
buy-out funds and £14 million to mezzanine funds. The largest of these
commitments was of £20 million to Apax Europe VII.
Balance sheet
At 30 June 2007, the Company had net assets of £382 million of which the
investment portfolio accounted for £231 million (60.5%). The Company had £122
million of cash and near cash. The option over the FTSE 100 Index was valued at
£28 million and gave the company exposure of £115 million (30.2% of net assets)
to the Index.
The proportion of assets in the investment portfolio has continued to increase
rising from 54.1% to 60.5% in the six months, whilst the proportion exposed to
the Index has fallen from 35.6% to 30.2% as a result of the partial disposal of
the option.
Assets invested as a percentage of total assets
% June Dec June Dec June
2005 2005 2006 2006 2007
Private equity 52.6 50.6 49.0 54.1 60.5
investments
Effect of FTSE option - 36.6 36.4 35.6 30.2
Total 52.6 87.2 85.4 89.7 90.7
Consistent with the objective of being more fully invested, the level of
overcommitment increased significantly in the period. At 30 June total
commitments of £287 million exceeded cash and near-cash by £165 million,
representing an overcommitment level equivalent to 43.2% of net assets compared
with 13.9% at December 2006.
Share buy backs
Since shareholders approved the proposal for a more active share buy back
programme, the rate of buy backs has accelerated.
In the first half of 2007 we bought back 5.3 million shares equivalent to 6.4%
of the opening share capital. The shares were acquired at prices of between
391p and 445p for a total cost of £23 million. They were acquired at an
average discount of 6.8% and as a result the net asset value per share was
enhanced by 3.4p.
The Company has authority from shareholders to purchase a further 8.5 million
shares in the period to the next Annual General Meeting.
Statement of total return and dividend
The revenue return attributable to shareholders for the period was £2.4 million
or 2.9p per share (June 2006: £2.9 million, 3.4p).
The dividend for the year to December 2006 of 6.5p per share was paid at the end
of May 2007. In accordance with IFRS no provision was made for the dividend as
at 31 December 2006.
Extraordinary General Meeting
At the Extraordinary General Meeting held in May, shareholders overwhelmingly
approved proposals for the future development of the Company. The proposals
were to:
• Amend the investment objective to reflect the increased emphasis on funds
in the portfolio;
• Increase the level of overcommitment to funds;
• Return capital to shareholders through a more active share buy back
programme;
• Invest in funds managed by Graphite Capital on substantially the same
terms as third parties; and
• Revise Graphite Capital's fee and incentive arrangements.
We believe this leaves the Company well placed for the next stage of its
development.
Outlook
In recent weeks there has been considerable volatility in the debt and equity
markets following a fall of confidence in the US sub-prime mortgage sector.
Short term interest rates have risen, and banks have become more cautious. This
has had an impact on the private equity sector, in particular on the syndication
of loans made to larger management buy-outs. It is too early to predict whether
there will be a lasting reduction in the appetite of lenders for private equity
transactions. In the short term, there is likely to be some reduction in
overall activity levels in the sector.
If conditions become more challenging, we believe that Graphite Enterprise is
well positioned, with its strong balance sheet, its substantial uninvested
commitments to high quality funds and its long experience of investing through
market cycles.
John Sclater
September 2007
Portfolio Analysis
Summary of changes to the portfolio
£m Opening Additions Disposals Gains & Closing
value losses value
Investment portfolio 206.2 45.1 (40.1) 19.8 231.0
FTSE option 29.7 - (9.7) 8.1 28.1
Total portfolio 235.9 45.1 (49.8) 27.9 259.1
Investment portfolio - funds and direct investments
£m Third party Graphite Totals
investments Capital
investments
Fund Investments 109.0 32.2 141.2
Direct Investments 27.7 62.1 89.8
Totals 136.7 94.3 231.0
Additions
£m Continental Rest of
Europe world
UK Total
Medium-sized buy-outs 2.5 3.3 - 5.8
Large buy-outs 4.3 15.7 11.4 31.4
Small buy-outs 5.0 - - 5.0
Infrastructure 0.4 - - 0.4
Mezzanine - 2.5 - 2.5
Quoted - - - -
Total 12.2 21.5 11.4 45.1
Disposals
£m Continental Rest of
Europe world
UK Total
Medium-sized buy-outs 17.4 3.3 1.3 22.0
Large buy-outs 3.4 4.9 0.5 8.8
Small buy-outs 1.1 - - 1.1
Infrastructure 4.1 - - 4.1
Mezzanine - 3.0 - 3.0
Quoted - 1.0 0.1 1.1
Total 26.0 12.2 1.9 40.1
New commitments
Investment type Focus Total fund Commitment
size £m
£m
Activa Capital Fund II Medium-sized buy-outs France 217 13.6
Apax Europe VII Large buy-outs Europe 7,565 20.5
Graphite Capital Partners VII Medium-sized buy-outs UK 475 50.0
Graphite Capital Partners VII Top Up Medium-sized buy-outs UK 81 20.0
Fund
Thomas H Lee Equity Fund VI LP Large buy-outs North 3,738 15.0
America
ICG European Fund 2006 Mezzanine Europe 857 13.6
Total 132.7
Sector analysis
% of total investment
portfolio
Business services 16.7%
Manufacturing and engineering 15.7%
Consumer goods and services 15.5%
Leisure 12.6%
Construction and building supplies 8.0%
Investment banking and finance 6.0%
Advertising and recruitment 6.5%
Retailing 5.4%
Other 13.6%
Total 100.0%
Year of investment
% of total investment portfolio
2007 14.3%
2006 29.3%
2005 9.5%
2004 8.1%
2003 4.7%
2002 and before 34.1%
Total 100.0%
Investment type
% of total investment portfolio
Medium-sized buy-out 50.2%
Large buy-out 28.4%
Quoted 8.2%
Small buy-out 5.8%
Mezzanine 5.7%
Infrastructure 1.7%
Total 100.0%
Geographic distribution
% of total investment portfolio
UK 62.9%
France 11.3%
Germany 5.9%
North America 5.5%
Spain 3.6%
Other European 9.4%
Rest of World 1.4%
Total 100.0%
The 30 Largest Underlying Investments
The tables on these two pages summarise the 30 largest underlying investments,
by value, in the Company's portfolio of funds and direct investments as at 30
June 2007. The valuations are gross, before any carry provision (where
relevant). Values are shown as a percentage of the total investment portfolio of
£231 million.
Value as a
% of
Year of Country / investment
Entity investment region portfolio
1 Wagamama
Chain of Japanese noodle restaurants 1996 UK 4.6%
2 Micheldever
Distributor and retailer of tyres 2006 UK 3.6%
3 Park Holidays UK (formerly Cinque Ports)
Owner and operator of caravan parks 2006 UK 3.5%
4 Huntress Search
Recruitment consultancy 2000 UK 3.3%
5 OPD Group *
Group of specialist recruitment agencies 1991 UK 3.2%
6 Intermediate Capital *
Provider of mezzanine finance 1989 Europe 2.7%
7 Standard Brands
Supplier of household fire lighting products 2001 Europe 2.2%
8 NES Group
Recruitment agency for technical contractors 2006 UK 2.1%
9 PIFC
Pensions and employment benefits consultancy 2002 UK 2.1%
10 Applied Energy
Manufacturer of ventilation and heating products 2001 UK 2.1%
11 Data Explorers Group
Provider of information to the global securities 2006 UK 2.0%
lending industry
12 Ossian Retail Group
Retailer of female fashions and homeware 2006 UK 1.9%
13 Design Objectives
Designer and distributor of papercraft products 2006 UK 1.9%
14 Weetabix
Manufacturer of breakfast cereals 2004 Global 1.8%
15 Golden Tulip
Developer and manager of hotels 2002 UK 1.4%
Total of the 15 largest underlying investments 38.4%
Value as a
% of total
Year of Country / investment
Entity investment region portfolio
16 Computacenter *
UK Provider of IT equipment and services to large 1985 UK 1.2%
organisations
17 Summit Medical
Supplier of medical devices and accessories 2001 UK 1.2%
18 Bridgewell *
Provider of corporate finance and broking services 2001 UK 1.1%
19 VWR International Inc.
Supplier of equipment and chemicals to laboratories 2007 USA 1.1%
20 Dominion Technology Gases
Supplier of diving gases to the offshore oil and gas 2007 UK 1.1%
industry
21 Preh
Manufacturer of automotive components 2003 Germany 1.0%
22 Leading Edge
Printer of self adhesive labels and packaging 2003 UK 1.0%
23 Aktrion
Provider of outsourced managed services to 2004 UK 1.0%
manufacturers
24 Ceva
Supplier of veterinary products 2003 France 0.9%
25 Maximuscle
Supplier of sports nutrition products 2004 UK 0.9%
26 Feretti
Manufacturer of luxury boats 2007 Italy 0.9%
27 Hellermann Tyton
Manufacturer of electrical and communications 2006 UK 0.8%
network components
28 Integrity Software
Provider of software to small and medium-sized 2005 UK 0.8%
companies
29 Dutch Cable
Operator of cable networks 2007 Netherlands 0.8%
30 Christian Hansen
Supplier of natural ingredients to the food industry 2005 Global 0.8%
Total of the 30 largest underlying investments 53.0%
* Quoted
The 15 Largest Fund Investments
The largest funds by value at 30 June 2007 are set out below.
Fund Outstanding Year of Country /
commitment £m commitment region Value £m
1 Graphite Capital Partners VI
Medium-sized buy-outs 17.8 2003 UK 31.7
2 Doughty Hanson & Co IV
Medium-sized and large buy-outs 1.4 2005 Europe 12.4
3 PAI Europe IV
Large buy-outs 7.9 2005 Europe 10.3
4 Euromezzanine 5
Mezzanine loans to medium-sized buy-outs 4.8 2006 France 8.6
5 Candover 2005 Fund
Large buy-outs 11.1 2005 Europe 8.2
6 Charterhouse Capital Partners VII
Large buy-outs 7.2 2006 UK/France 6.2
7 Corpfin Capital Fund II
Medium-sized buy-outs - 2000 Spain 6.2
8 Deutsche Beteiligungs AG Fund IV
Medium-sized buy-outs 0.9 2000 Germany 5.8
9 Madison Dearborn Capital Partners V
Large buy-outs 5.1 2006 North America 5.8
10 Fourth Cinven Fund
Large buy-outs 15.3 2006 Europe 4.8
11 Thomas H Lee Equity Fund VI
Large buy-outs 10.7 2007 North America 4.6
12 Piper Private Equity Fund III
Small buy-outs of consumer businesses 0.8 2003 UK 3.9
13 Barclays European Infrastructure Fund
Infrastructure projects 1.6 2002 UK 3.7
14 CVC European Private Equity Partners IV
Large buy-outs 4.5 2005 Europe 3.6
15 Activa Capital Fund
Medium-sized buy-outs 1.9 2002 France 3.5
Total of 15 largest fund investments 91.0 119.3
Percentage of investment portfolio 51.7%
Consolidated Income Statement
Half year to 30 June 2007 Half year to 30 June 2006 Year to 31 December 2006
(unaudited) (unaudited)
Revenue Capital Revenue Capital Revenue Capital
return return Total return return Total return return Total
£'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Investment Returns
Gains on investments 4,636 27,887 32,523 4,847 20,093 24,940 10,711 49,993 60,704
held at fair value
Foreign exchange gains - (314) (314) - (27) (27) - (705) (705)
and losses
4,636 27,573 32,209 4,847 20,066 24,913 10,711 49,288 59,999
Expenses
Investment management (622) (1,865) (2,487) (581) (1,744) (2,325) (1,193) (3,578) (4,771)
charges
Other expenses (703) (27) (730) (432) - (432) (90) (82) (1,002)
(1,325) (1,892) (3,217) (1,013) (1,744) (2,757) (2,113) (3,660) (5,773)
Profit before tax 3,311 25,681 28,992 3,834 18,322 22,156 8,598 45,628 54,226
Taxation (959) 560 (399) (959) 523 (436) (2,334) 1,071 (1,263)
Profit for the period 2,352 26,241 28,593 2,875 18,845 21,720 6,264 46,699 52,963
Attributable to:
Equity shareholders 2,352 24,572 26,924 2,875 17,497 20,372 6,264 43,120 49,384
Minority interests - 1,669 1,669 - 1,348 1,348 - 3,579 3,579
Basic and diluted 33.4p 24.0p 58.7p
earnings per share
The column headed 'Total' represents the income statement for the relevant
period and the columns headed 'Revenue' and 'Capital' are supplementary
information.
Consolidated balance sheet
As at 30 Jun As at 31Dec
2007 2006 2006
(unaudited) (unaudited)
£'000s £'000s £'000s
Non-current assets
Investments held at fair value
- Unquoted investments 212,090 156,843 186,071
- Quoted investments 18,880 18,535 20,073
- FTSE 100 Call Option 28,179 24,060 29,760
259,149 199,438 235,904
Current assets
Trade and other receivables 111 157 433
Cash and cash equivalents 123,800 161,613 149,436
123,911 161,770 149,869
Current liabilities
Trade and other payables 1,469 3,579 4,818
Net current assets 122,442 158,191 145,051
Net assets 381,591 357,629 380,955
Capital and reserves
Called up share capital 7,706 8,415 8,233
Capital redemption reserve 1,698 989 1,171
Share premium 12,936 12,936 12,936
Capital reserve 338,484 318,007 336,620
Revenue reserve 12,420 11,921 15,310
Equity attributable to equity shareholders 373,244 352,268 374,270
Minority interests 8,347 5,361 6,685
381,591 357,629 380,955
Net asset value per ordinary share (basic and diluted) 484.3p 418.6p 454.6p
Consolidated Cash Flow Statement
Half year to Year to
30 Jun 31 Dec
2007 2006 2006
(unaudited) (unaudited)
£'000s £'000s £'000s
Operating activities
Sale of portfolio investments 40,105 57,420 88,904
Purchase of portfolio investments (45,438) (42,127) (79,680)
Disposal of FTSE 100 Call option 9,662 - -
Income received from investments 1,758 2,957 4,398
Other income 3,181 3,235 6,733
Investment management charges paid (2,502) (2,373) (4,806)
Other expenses (490) (400) (1,109)
Taxation (875) (91) (1,600)
Net cash inflow from operating activities 5,401 18,621 12,840
Financing
Investments by minority interests 246 66 141
Distributions to minority interests (1,230) (2,475) (2,546)
Purchase of ordinary shares (24,496) (1,793) (7,515)
Equity dividends paid (5,243) (3,650) (3,650)
Net cash outflow from financing activities (30,723) (7,852) (13,570)
Net (decrease)/increase in cash and cash (25,322) 10,769 (730)
equivalents
Cash and cash equivalents at beginning of period 149,436 150,871 150,871
Net (decrease)/ increase in cash and cash (25,322) 10,769 (730)
equivalents
Effect of changes in foreign exchange rates (314) (27) (705)
Cash and cash equivalents at end of period 123,800 161,613 149,436
Consolidated Statement of Changes in Equity
Half year to Year to 31
30 June December
2007 2006 2006
(unaudited) (unaudited)
£'000s £'000s £'000s
Total equity at the beginning of the period 344,529
380,955 344,529
Profit attributable to equity shareholders 26,924 20,372 49,384
Profit attributable to minority interests 1,669 1,348 3,579
Total profit for the period and total recognised income 28,593 21,720 52,963
and expense
Dividends paid to equity shareholders (5,243) (3,650) (3,650)
Purchase of ordinary shares (22,707) (2,594) (9,604)
Net distribution to minority interests (7) (2,376) (3,283)
Total equity at end the of period 381,591 357,629 380,955
Notes
1 GENERAL INFORMATION
Graphite Enterprise Trust PLC (the 'Company') and its subsidiary (together '
Graphite Enterprise' or the 'Group') are registered in England and Wales and
domiciled in England. The registered office is Berkeley Square House, Berkeley
Square, London W1J 6BQ. The Company's objective is to provide shareholders with
long term capital growth through investment in unquoted companies, mostly
through specialist funds but also directly.
2 BASIS OF PREPARATION
The financial information for the period ended 30 June 2007 has been prepared in
accordance with the Listing Rules of the Financial Services Authority (FSA) and
in accordance with the accounting policies that are expected to be adopted for
the year ending 31 December 2007, which are consistent with the accounting
policies which were set out in the 2006 consolidated financial statements.
The Group has chosen not to adopt IAS 34 'Interim Financial Reporting' in
preparing its 2007 interim accounts. The standard will be adopted in preparing
the 2008 interim accounts.
4 DIVIDENDS
Half year to Year to
30 June 31 December
2007 2006 2006
£'000s £'000s £'000s
Dividends paid or approved in the period 5,243 3,650 3,650
5 EARNINGS PER SHARE
Half year to Year to
30 June 31 December
2007 2006 2006
Revenue return per ordinary share 2.91p 3.39p 7.44p
Capital return per ordinary share 30.44p 20.64p 51.22p
Earnings per ordinary share (basic and diluted) 33.35p 24.04p 58.66p
Weighted average number of shares 80,718,407 84,752,111 84,181,632
The earnings per share figures are based on the weighted average numbers of
shares set out above.
6 SHARE BUY BACKS
Half year to Year to
30 June 31 December
2007 2006 2006
Number of shares bought back 5,273,000 720,554 2,539,282
Average price per share 427.6p 358.3p 375.6p
Total cost including expenses £22,707,000 £2,594,000 £9,604,000
Number of shares in issue at the end of the period 77,062,718 84,154,446 82,335,718
All shares bought back were subsequently cancelled.
Copies of the Interim Report will be posted to all shareholders on or around 28
September 2007 and copies may be obtained during normal business hours from the
Company's registered office thereafter.
By order of the Board
Graphite Capital Management LLP
Secretary
19 September 2007
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