Final Results

Graphite Enterprise Trust PLC 20 March 2008 GRAPHITE ENTERPRISE TRUST PLC UNAUDITED PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR TO 31 DECEMBER 2007 HIGHLIGHTS OF THE YEAR Net asset value per share +14.3% Share price +22.8% New commitments to funds £186.0m Cash proceeds from the investment portfolio £106.8m Share buy-backs £31.1m FINANCIAL SUMMARY 2007 2006 Change Net asset value per share 519.4p 454.6p +14.3% Share price 474.0p 386.0p +22.8% Final dividend per share 8.0p 6.5p +23.1% FTSE All-Share Index 3,287 3,221 +2.0% PERFORMANCE Years to 31/12/07 1 3 5 10 Net asset value per share +14.3% +59.9% +97.1% +150.1% Share price +22.8% +67.5% +129.5% +154.8% FTSE All-Share Index +2.0% +36.3% +73.6% +36.3% Performance Graphite Enterprise Trust PLC ('Graphite Enterprise' or the 'Company') had another good year in 2007. The net asset value per share increased by 14.3% to 519.4p and the share price by 22.8% to 474.0p. The strong share price performance reflected a narrowing of the discount from 15.1% to 8.7%. These increases were significantly ahead of the Company's benchmark, the FTSE All-Share Index, which rose by 2.0% over the same period. The net asset value per share of Graphite Enterprise has now outperformed the FTSE All-Share Index in eight out of the last ten years and in 13 out of the last 15 years. The objective of Graphite Enterprise is to provide shareholders with long term capital growth through investment in unquoted companies, mainly through specialist funds but also directly. The growth in the net asset value per share and share price of the Company have significantly exceeded that of the FTSE All-Share Index over both five and ten years. In the five years to December 2007, the net asset value per share rose by 97.1% and the share price by 129.5%. This compares with an increase in the FTSE All-Share Index of 73.6% over the same period. Over ten years the net asset value per share and the share price increased by 150.1% and 154.8% respectively, compared with a rise in the FTSE All-Share Index of 36.3%. Net income and gains attributable to shareholders for the year totalled £53.1 million. Shareholders' funds closed the year a net £16.8 million higher at £391.0 million as £36.3 million was returned to shareholders through substantial share buy-backs and through the dividend. Portfolio The investment portfolio performed well in the year, increasing by 26.8% over the opening value. Both funds and direct investments contributed to this good performance. Realisations play an important role in driving private equity returns and 2007 was the fourth consecutive year in which proceeds from realisations exceeded 50% of the value of the opening investment portfolio. This compares with the average for the previous seven years of 31%. % 2003 2004 2005 2006 2007 Disposals as a % of 20.8 56.6 56.9 51.0 51.8 opening portfolio New investments increased by 28.4% to £103.1 million, with almost all of them being in the form of drawdowns from commitments made to funds. Despite this increase, the investment portfolio still generated £3.7 million of cash, as realisations were also more than 20% higher at £106.8 million. As the underlying investments made total gains of £49.6 million, the portfolio closed the year a net £45.9 million higher at £252.1 million. In line with the objective of increasing the weighting of the portfolio towards funds, the fund portfolio of £193.8 million accounted for 76.9% of the investment portfolio at the year end. This represented an increase of £83.0 million over the previous year. The portfolio consisted of commitments to 40 funds and investments in 238 underlying companies. The direct investment portfolio is now a combination of direct investments made by Graphite Capital and co-investments made alongside funds. It accounted for the remaining 23.1% of the investment portfolio at the year end. Half years ended Dec June Dec June Dec £m 2005 2006 2006 2007 2007 Additions 30.7 42.2 38.1 45.1 58.0 Disposals 53.2 57.5 31.4 40.1 66.7 A record £186.0 million was committed to new funds in 2007, with the largest commitment being to Graphite Capital Partners VII, Graphite Capital's latest buy-out fund. Graphite Capital generally raises funds every four years and this fund was once again heavily oversubscribed with strong demand from investors in the UK, continental Europe and the US. Graphite Enterprise committed £70.0 million making it the largest investor. The remaining £116.0 million was committed to nine funds and 62.4% of the total was with managers who we have previously backed. Balance sheet and share buy-backs At the year end the investment portfolio accounted for 63.3% of net assets, compared with 54.1% a year earlier. Cash and near cash balances, which fell by £11.7 million from £145.1 million to £133.4 million, accounted for a further 33.5% with the remainder invested in the FTSE 100 option. As a result of the very high level of realisations noted earlier, the cash balances have been considerably higher than normal in recent years. To address this we put proposals to shareholders to increase the level of overcommitment to funds and to implement a more active share buy-back programme. These proposals were overwhelmingly approved at the Extraordinary General Meeting held in May. The overcommitment level is the amount by which commitments exceed cash holdings expressed as a percentage of total net assets. In 2007 the overcommitment level of Graphite Enterprise increased from 13.9% to 42.6%. This material change reflected a substantial increase in outstanding commitments to funds from £198.0 to £303.0 million and the £11.7 million fall in cash and near cash balances noted earlier. The share buy- back programme both reduced cash balances and held down the rise in the closing net assets. It is not easy to predict how levels of overcommitment will move over the next twelve months. If investment activity levels fall, less cash will be drawn down by funds to finance new investments but less cash is likely to be returned as realisations will also be lower. A reduced level of new investment could also delay the planned fund raisings of private equity managers which in turn would reduce the level of new commitments. Despite these considerations we would still expect the level of overcommitment to increase in 2008. Commitments £m Dec 05 Jun 06 Dec 06 Jun 07 Dec 07 Outstanding commitments 147.7 183.1 198.0 287.3 303.0 In May we announced plans to buy back up to £70.0 million of shares over the following twelve to eighteen months. Since then the rate of buy-backs has increased markedly with £24.5 million of shares being acquired in the remainder of the year. This brought total buy-backs in 2007 to £31.1 million. Overall we bought 8.6% of the shares in issue at the beginning of the year. The shares were acquired at an average discount to net assets of 6.8% and the purchases had the effect of increasing the net asset value per share by 6.7p. Concerns over the impact on private equity of the tightening of the debt market have caused discounts of quoted funds investing in the sector to widen. This has enabled us to buy-back a further £10.0 million of shares in 2008 at a higher average discount of 9.6%. This brings the total value of share buy-backs since the May announcement to £34.5 million at an average discount of 6.8%. FTSE Option In October 2005 we purchased an option over the FTSE 100 Index as we were concerned that the high level of cash on the balance sheet at the time could cause the Company to underperform against its benchmark, the FTSE All-Share Index, if the market were to rise sharply. The cost of the option was £14.0 million and it gave the Company effective exposure of £120.0 million to the FTSE 100 Index for three years. In 2007, as cash balances started to fall and new proposals were adopted to reduce cash levels, we took the opportunity to begin to sell the option. During the year we sold part of the option for £21.3 million and in January 2008 we sold the balance for £7.7 million. Over the life of the option the Company therefore received total cash proceeds of £29.0 million representing a multiple of 2.1 times cost. Income statement and dividend Profit after tax attributable to shareholders increased to £53.1million in 2007 or 67.6p per share. The capital return was £46.1 million and the revenue return attributable to shareholders was £7.0 million. The revenue return per share, which determines the level of dividend, increased from 7.4p to 8.9p. As a result, the board is proposing to increase the dividend from 6.5p to 8.0p per share. In the last four years the dividend has increased from 4.3p to 8.0p per share having been unchanged for many years. The majority of the income received in recent years has come from interest on high levels of cash or cash equivalents. As one of the main objectives agreed at the EGM was to reduce the level of cash, interest income is likely to decline as the Company becomes more fully invested. We therefore expect future dividends to fall as interest income declines. The Board Peter Gray will be retiring from the board following the forthcoming Annual General Meeting. Peter has made a very valuable contribution to the Company since his appointment to the Board in 2002. We have especially valued his knowledge of the financial sector in general and of investment trusts in particular. I would like to thank him on behalf of Graphite Enterprise shareholders for all his hard work over the last six years and to wish him the very best for the future. Market review and outlook The reduced availability and increased cost of debt funding (the 'credit crunch') resulting from the sub-prime mortgage crisis in the US has had a material impact on activity levels in the private equity market. Figures from the Centre for Management Buy-Out Research suggest that after reaching a peak in the second quarter of 2007, both the volume and value of transactions in the UK fell markedly in the second half of the year. Only three of the largest thirty transactions completed in 2007 were closed in the last quarter. The mid-market appears to have been less affected than the large buy-out sector as transactions are less dependent on large syndicated debt packages. At this stage it is difficult to predict to what degree the disruption in the financial markets will affect the wider economy in the UK and in continental Europe. Certain sectors will inevitably be more affected than others. As Graphite Enterprise has an underlying investment portfolio which is broadly diversified by company size, business sector and geographic region it should prove to be resilient. In the last three years we have committed a total of £421 million to new funds. As fund commitments are typically drawn down over a four to five year period, only 32% of these commitments were drawn down at December 2007. As a result, undrawn commitments exceeded the value of the investment portfolio at the year end. This should ensure that if the economy weakens, as we believe is likely, Graphite Enterprise will be well positioned to take advantage of more attractive investment opportunities than have generally been available for the last few years. John Sclater March 2008 For further information, please contact: Rod Richards / William Eccles Tel: 020 7825 5300 Graphite Capital Analysis of investment activity 2007 £m Opening Additions Disposals Gains and Closing value value losses Investment portfolio 206.2 103.1 (106.8) 49.6 252.1 FTSE Option 29.7 - (21.3) 4.3 12.7 Total portfolio 235.9 103.1 (128.1) 53.9 264.8 Disposals 2007 £m UK Continental Rest of world Total Europe Medium-sized buy-outs 59.6 9.2 1.4 70.2 Large buy-outs 6.2 3.5 - 9.7 Small buy-outs 10.9 - - 10.9 Mezzanine - 4.5 - 4.5 Infrastructure 6.7 - - 6.7 Quoted 4.7 - 0.1 4.8 Total 88.1 17.2 1.5 106.8 Additions 2007 £m UK Continental Rest of world Total Europe Medium-sized buy-outs 19.1 5.8 - 24.9 Large buy-outs 10.9 28.3 21.8 61.0 Small buy-outs 6.5 - - 6.5 Mezzanine - 9.8 - 9.8 Infrastructure 0.9 - - 0.9 Quoted - - - - Total 37.4 43.9 21.8 103.1 New commitments to funds Fund Investment type Focus Total fund Commitment size £m £m Graphite Capital Partners VII Medium-sized buy-outs UK 475.0 50.0 PAI Europe V Large buy-outs Europe 3,672.7 27.5 ICG European Fund 2006 Mezzanine Europe 863.1 20.6 Apax Europe VII Large buy-outs Europe 5,845.9 20.5 Graphite Capital Partners VII Top Medium-sized buy-outs UK 80.5 20.0 Up Fund Thomas H Lee Equity Fund VI Large buy-outs US 4,136.8 17.4 Activa Capital Fund II Medium-sized buy-outs France 206.3 13.6 Bowmark IV Medium-sized buy-outs UK 265.0 10.0 Segulah IV Medium-sized buy-outs Scandinavia 367.5 3.6 CSP Secondary Opportunities Secondary fund investments UK 6.0 2.5 Fund Other 0.3 Total 186.0 Analysis of the investment portfolio Funds and direct investments £m Third party Graphite Capital investments investments * Totals Fund Investments 154.8 39.0 193.8 Direct Investments 26.3 32.0 58.3 Totals 181.1 71.0 252.1 * Including quoted investments Country / region % of total investment portfolio UK 50.7% France 14.3% Germany 9.1% North America 9.0% Spain 3.7% Benelux 5.0% Scandinavia 3.0% Other European countries 4.4% Rest of world 0.8% Total 100.0% Sector % of total investment portfolio Business services 19.6% Manufacturing and engineering 17.7% Consumer goods and services 15.2% Leisure 10.9% Construction and building supplies 7.4% Healthcare and pharmaceuticals 6.2% Newspapers, publishing and other media 4.5% Transport and distribution 3.5% Retailing 3.1% Investment banking and finance 2.5% Other 9.4% Total 100.0% Type % of total investment portfolio Large buy-outs 42.3% Medium-sized buy-outs 40.7% Mezzanine 10.3% Quoted 3.7% Infrastructure 1.6% Small buy-outs 1.4% Total 100.0% Year % of total investment portfolio 2007 40.8% 2006 24.8% 2005 10.8% 2004 7.0% 2003 3.0% 2002 1.5% 2001 3.8% 2000 and before 8.3% Total 100.0% Analysis of outstanding commitments % of total investment portfolio Type Large buy-out 48.3% Medium-sized buy-out 39.2% Mezzanine 6.8% Small buy-out 5.4% Infrastructure 0.3% Total 100.0% The 30 largest underlying investments The table below presents the 30 companies in which Graphite Enterprise has the largest investments by value at 31 December 2007. The valuations are gross, before any carry provision (where relevant). Values are shown as a percentage of the total investment portfolio of £252.1 million. Entity Year of Country / Value as a % of investment region investment portfolio 1 Micheldever 2006 UK 3.8% Independent distributor of tyres 2 Wagamama 1996 UK 3.3% Chain of Japanese noodle restaurants 3 Park Holidays UK 2006 UK 3.0% Operator of caravan parks 4 Alexander Mann Solutions 2007 UK 2.5% Provider of recruitment process outsourcing 5 Intermediate Capital* 1989 Europe 2.5% Provider of mezzanine finance 6 Moeller 2005 Germany 2.2% Supplier of electrical components 7 Standard Brands 2001 Europe 1.9% Manufacturer of branded firelighters 8 NES Group 2006 UK 1.8% Recruitment agency for technical contractors 9 Data Explorers Group 2007 UK 1.7% Information provider to global securities lending industry 10 EMI 2007 UK 1.7% Music publishing and recording 11 Preh 2003 Germany 1.7% Manufacturer of control system devices 12 Weetabix 2004 Global 1.6% Manufacturer of breakfast cereals Entity Year of Country / Value as a % of investment region investment portfolio 13 Dominion Technology Gases Supplier of specialist gases 2006 UK 1.4% 14 Ceridian Provider of human resources and payment 2007 USA 1.4% processing services 15 Perstorp Manufacturer of specialty chemicals 2005 Sweden 1.3% 16 VWR International Distributor of equipment and chemicals to 2007 USA 1.2% laboratories 17 Kwik-Fit Provider of automotive fast-fit services 2005 UK 1.2% 18 AA/Saga Provider of financial and consumer services 2007 UK 1.2% 19 Hellermann Tyton Manufacturer of solutions for communication 2006 UK 1.1% networks 20 Kaufman & Broad Housebuilders 2007 France 1.1% 21 OPD Group* Group of specialist recruitment agencies 1991 UK 1.1% 22 Christian Hansen Supplier of natural food ingredients 2005 Global 1.1% 23 Ferretti Manufacturer of luxury boats 2007 Italy 1.0% 24 Summit Medical Supplier of medical devices and accessories 2001 UK 1.0% 25 Balta Manufacturer of floor and wall coverings 2004 Belgium 1.0% Entity Year of Country / Value as a % of investment region investment portfolio 26 TMP Provider of recruitment, advertising and 2006 UK 1.0% related services 27 Aktrion Provider of managed outsource services 2004 UK 0.9% 28 Tumi Manufacturer and retailer of performance 2004 USA 0.9% luggage and accessories 29 Clyde Bergmann Supplier of components for power generation 2005 Germany 0.8% industry 30 Design Objectives Designer and distributor of papercraft 2006 UK 0.8% products Total of the 30 largest underlying investments 47.2% *Quoted The 15 largest fund investments The largest funds by value at 31 December 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 10.2 2003 UK 31.6 2 Doughty Hanson & Co IV Medium-sized and large buy-outs 1.1 2005 Europe 18.7 3 PAI Europe IV Large buy-outs 6.9 2005 Europe 15.9 4 Candover 2005 fund Large buy-outs 10.6 2005 Europe 11.7 5 Euromezzanine 5 Mezzanine loans to medium sized buy-outs 3.8 2006 France 10.9 6 Madison Dearborn Capital Partners Large buy-outs 2.2 2006 USA 9.2 7 Charterhouse Capital Partners VIII Large buy-outs 5.4 2006 Europe 8.8 8 CVC European Equity Partners IV Large buy-outs 7.8 2005 Europe 8.0 9 Fourth Cinven Fund Large buy-outs 14.3 2006 Europe 7.4 10 Deutsche Beteiligungs AG Fund IV Medium-sized buy outs 0.8 2000 Germany 7.0 11 ICG European Fund 2006 Mezzanine loans to buy-outs 15.4 2007 Europe 6.3 12 Thomas H Lee Equity Fund VI North Large buy-outs 11.6 2007 America 6.0 13 Terra Firma Capital Partners III Large buy-outs 8.4 2006 Europe 5.7 14 Apax Europe VII Large buy-outs 17.1 2007 Europe 4.8 15 Graphite Capital Partners VII Medium-sized buy-outs 45.2 2007 UK 4.5 Total of largest 15 fund investments 160.8 156.5 Percentage of total investment portfolio 62.0% GRAPHITE ENTERPRISE TRUST PLC Preliminary Statement (unaudited) for the year ended 31 December 2007 SUMMARY CONSOLIDATED BALANCE SHEET (unaudited) 2007 2006 At 31 December £'000s £'000s Unquoted investments 242,354 186,071 Quoted investments 9,737 20,073 252,091 206,144 FTSE 100 Call Option 12,757 29,760 Total investments held at fair value 264,848 235,904 Net current assets 133,429 145,051 Total assets less current liabilities 398,277 380,955 Minority interests (7,237) (6,685) Equity attributable to equity holders 391,040 374,270 SUMMARY CONSOLIDATED INCOME STATEMENT (unaudited) For the year ended 31 December 2007 2006 Revenue Capital Total Revenue Capital Total £'000s £'000s £'000s £'000s £'000s £'000s Gains and losses on 5,563 54,077 59,640 3,978 49,993 53,971 investments held at fair value Income from cash and cash 6,770 - 6,770 6,531 - 6,531 equivalents Other income 45 - 45 202 - 202 Foreign exchange gains and losses - 544 544 - (705) (705) 12,378 54,621 66,999 10,711 49,288 59,999 Expense Investment management charges (1,203) (3,609) (4,812) (1,193) (3,578) (4,771) Other expenses (1,328) (90) (1,418) (920) (82) (1,002) (2,531) (3,699) (6,230) (2,113) (3,660) (5,773) Profit before tax 9,847 50,922 60,769 8,598 45,628 54,226 Taxation (2,878) 1,083 (1,795) (2,334) 1,071 (1,263) Profit for the year from continuing operations 6,969 52,005 58,974 6,264 46,699 52,963 Attributable to: Equity shareholders 6,969 46,143 53,112 6,264 43,120 49,384 Minority interests - 5,862 5,862 - 3,579 3,579 Basic and diluted earnings 67.56p 58.66p per share CONSOLIDATED CASH FLOW STATEMENT (unaudited) For the year ended 31 December 2007 2006 £'000s £'000s Operating activities Sale of portfolio investments 106,823 88,904 Purchase of portfolio investments (103,536) (79,680) Sale of FTSE 100 Call Option 21,310 - Income received from investments 5,337 4,398 Other income received 6,815 6,733 Investment management charges paid (4,809) (4,806) Other expenses paid (1,576) (1,109) Taxation paid (990) (1,600) Net cash inflow from operating activities 29,374 12,840 Financing activities Investments by minority interests 465 141 Distributions to minority interests (6,688) (2,546) Purchase of ordinary shares (33,189) (7,515) Equity dividends paid (5,243) (3,650) Net cash outflow from finance activities (44,655) (13,570) Net decrease in cash and cash equivalents (15,281) (730) Cash and cash equivalents at beginning of year 149,436 150,871 Net decrease in cash and cash equivalent (15,281) (730) Effect of changes in foreign exchange rates 544 (705) Cash and cash equivalents at end of year 134,699 149,436 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited) For the year ended 31 December 2007 2006 £'000s £'000s Total equity at the beginning of the year 380,955 344,529 Profit attributable to equity shareholders 53,112 49,384 Profit attributable to minority interests 5,862 3,579 Total profit for the period and total recognised income and 58,974 52,963 expense Dividends to equity shareholders (5,242) (3,650) Purchase of ordinary shares (31,100) (9,604) Net distribution to minority interests (5,310) (3,283) Total equity at the end of the year 398,277 380,955 The Directors propose a final dividend in respect of the year ending 31 December 2007 of 8.0p payable on 22 May 2008 to shareholders who are on the register of members on 11 April 2008. The above financial information comprises non-statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2006 has been extracted from published accounts for the year ended 31 December 2006, which have been delivered, to the Registrar of Companies and on which the report of the auditors was unqualified. The Annual General Meeting will be held at 11:30 a.m. on Thursday 14 May 2008 at The Mount Vernon Room, The Westbury Hotel, Conduit Street, London W1. The registered office of the Company is 4th Floor, Berkeley Square House, Berkeley Square, London W1J 6BQ. For the year ended 31 December 2007 copies of the audited Report and Accounts will be posted to shareholders on or about 11 April 2008 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 20 March 2008 This information is provided by RNS The company news service from the London Stock Exchange

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