Interim Management Statement

RNS Number : 9993G

Graphite Enterprise Trust PLC

13 June 2013

 



13 June 2013

GRAPHITE ENTERPRISE TRUST PLC

INTERIM MANAGEMENT STATEMENT

QUARTER ENDED 30 APRIL 2013

Graphite Enterprise Trust PLC ('Graphite Enterprise' or 'the Company') presents its Interim Management Statement for the quarter ended 30 April 2013.

Unaudited net asset value

In the three months to 30 April 2013 the unaudited net asset value per share rose by 0.7% from 631.5p to 635.7p.

The increase in the underlying value of the investment portfolio, which represented 88.1% of total assets at the quarter end, generated a 1.5% increase in net asset value in the period. This was partially offset by currency movements, principally the depreciation of the euro against sterling, which reduced the net asset value by 0.5%, and by expenses and other items which accounted for a further reduction of 0.3%.

These results do not include the effect of the proposed dividend of 5.0p per share (£3.6 million in total or 0.8% of net asset value at the quarter end) which will be recorded in the second quarter if approved at the forthcoming Annual General Meeting.

Share price and discount

The share price rose by 1.0% to 492.0p in the quarter and by 20.9% over the twelve months to 30 April. The discount to net asset value improved slightly over the quarter to 22.6%.

Investment portfolio

Investment performance

The underlying value of the portfolio in local currencies increased by £7.1 million or by 1.5% of net asset value in Q1. The euro fell in value by 1.1% against sterling, reducing net asset value by 0.5%.  The overall increase in net asset value generated by the portfolio was therefore 1.0%.

March valuations had only been received for 43% of the portfolio by the cut-off date and many of those managers who had reported at March do not prepare full portfolio revaluations at that date. As a result, the great majority of the portfolio remains at its reported December valuation.

The largest gain recorded in the period related to the disposal by Graphite Capital of Dominion Gas, the Company's eleventh largest underlying investment at 31 January 2013. The exit was agreed in April but completed in May. The price achieved represented an uplift of 44% to the carrying value of the investment at 31 January and generated an increase of 0.5% in the net asset value in the quarter. The carrying value of this investment at the end of April was increased to reflect the exit price.

Five full exits were completed in the quarter. The average uplift against the previous carrying value was 51%.

Proceeds

Proceeds generated by the portfolio in the quarter totalled £15.2 million or 3.7% of its opening value. The largest cash inflow was of £2.6 million from the investment in HellermanTyton which was partially exited via an IPO in March.

We expect proceeds in the second quarter to exceed those received in the first. Cash of £4.8 million has been received since the quarter end and we will receive approximately £7.8 million from the sale of Dominion Gas.  We are aware of a further £5.5 million of proceeds which should be received in the next few weeks.

Additions

A total of £12.9 million was invested in the quarter. Of this amount, drawdowns from funds accounted for £9.4 million and the secondary purchase of an interest in a fund managed by GCP Capital Partners accounted for the remaining £3.5 million. The rate of drawdown was similar to the average for last year.

A total of thirteen new underlying investments were made in the quarter, none of which was large enough to enter the top 30.

Since the period end, a total of £3.1 million has been invested in the portfolio. We have exchanged contracts for a secondary purchase of a fund interest for £5.5 million and expect this to complete shortly. A further £1.5 million of drawdowns from funds are likely to be made in the next few weeks.

Cash and liquid assets

In the three months to 30 April 2013, the portfolio generated a cash inflow of £2.3 million. However, after taking account of other net outflows, cash and liquid assets fell slightly by £0.2 million to £55.0 million:

Movement in liquid assets	3 months to
£m	30 April 2013
Additions	(12.9)
Proceeds generated by the portfolio*	15.2
Net cash flow from the investment portfolio	2.3
Non-investment cash flows	(2.6)
Net cash outflow	(0.3)
Effect of changes in foreign exchange rates	0.1
Total movement	(0.2)
Opening cash and liquid assets	55.2
Closing cash and liquid assets	55.0
*Including income

Balance sheet and commitments

The summary balance sheet and commitment position as at 30 April 2013 is set out below. The Company remains 88.1% invested.

	30 April 2013 £m	% of total assets	31 January 2013 £m	% of total assets
Total portfolio	417.7	88.1%	415.2	88.1%
Cash and liquid assets	55.0	11.6%	55.2	11.7%
Other net current assets	1.5	0.3%	1.1	0.2%
Total assets	474.2	100.0%	471.5	100.0%
Equity shareholders' funds	463.5		460.4
Undrawn bank facility 1	99.2		59.5
Total liquidity 2	154.2		114.7
Outstanding commitments	138.7		126.5
Overcommitment/(excess of liquidity over commitments) 3	(15.5)		11.8
Overcommitment/(excess of liquidity over commitments) as % of total assets	(3.3%)		2.5%

1. £50.0 million and €58.1 million translated into sterling at period end.

2. Cash and liquid assets plus undrawn borrowing facilities.

3. Outstanding commitments less total liquidity.

As previously reported, in March the Company entered into an agreement with The Royal Bank of Scotland and Lloyds Bank Corporate Markets to increase its bank facilities by £40 million. The Company now has access to facilities totalling £99.2 million of which £50.0 million is denominated in sterling and £49.2 million is denominated in euros. These remain undrawn.

Mainly as a result of the larger facilities, total liquidity has increased from £114.7 million to £154.2 million which more than covers existing commitments.

Outstanding commitments increased by £12.2 million to £138.7 million during the quarter as new commitments exceeded drawdowns.

We made three new primary commitments totalling £20.6 million of which two were to new relationships with Towerbrook and IK Investment Partners and the third was to an existing manager, Cinven. The secondary purchase of the GCP Capital Partners fund interest increased commitments by a further £1.8 million.

Drawdowns from funds reduced commitments by £9.4 million. Other items reduced commitments by a net £0.8 million.

The strength of the balance sheet is allowing us to increase commitments in what is an attractive market for fund investors. As previously reported, the Board has decided to make a commitment of at least £70 million to the next fund to be raised by Graphite Capital which we expect to be launched later this year. We also continue to review a number of opportunities to acquire secondary interests in funds and co-investments alongside funds.

Events since the quarter end

In June, Cinven achieved a stock market listing for Partnership and Doughty Hanson disposed of Vue Entertainment.  These were the Company's 19^th and 20^th largest underlying investments. The impact of these events has not been reflected in the net asset value at 30 April.

The Company retained the majority of its investment in Partnership after its listing. The share price of Partnership at 11 June and the exit price of Vue represent in aggregate an uplift of 71% to the carrying values at the end of the quarter, and an increase in the 30 April NAV of 1.2% on a pro-forma basis. Based on current performance, the uplift in Graphite Capital Partners VII is likely to generate a similar level of increase in net asset value in the quarter ending 31 July.

The Directors are not aware of any other events or transactions which have taken place between 30 April 2013 and the date of publication of this statement which have had a material effect on the financial position of the company.

Not audited or reviewed

This information has not been audited or reviewed by the Company's auditors.

For further information please contact:

Tim Spence	020 7825 5358
Emma Osborne	020 7825 5357

SUPPLEMENTARY INFORMATION

The 30 largest fund investments

The 30 largest funds by value at 30 April 2013 are set out below:

	Fund	Outstanding commitment £ million	Year of commitment	Country/ region	Value £ million
1	Graphite Capital Partners VII * / **	15.9	2007	UK	43.0
	Mid-market buy-outs
2	Fourth Cinven Fund **	2.5	2006	Europe	31.1
	Large buy-outs
3	Graphite Capital Partners VI **	5.1	2003	UK	30.9
	Mid-market buy-outs
4	ICG European Fund 2006 **	2.3	2007	Europe	24.2
	Mezzanine loans to buy-outs
5	Euromezzanine 5	1.8	2006	France	21.5
	Mezzanine loans to mid-market buy-outs
6	Thomas H Lee Parallel Fund VI	4.9	2007	USA	19.6
	Large buy-outs
7	TDR Capital II	1.8	2006	Europe	17.6
	Mid-market and large buy-outs
8	Candover 2005 Fund **	1.1	2005	Europe	17.2
	Large buy-outs
9	CVC European Equity Partners V	7.3	2008	Global	14.9
	Large buy-outs
10	Apax Europe VII	0.8	2007	Global	14.5
	Large buy-outs
11	Activa Capital Fund II	2.8	2007	France	13.7
	Mid-market buy-outs
12	Doughty Hanson & Co V	4.4	2006	Europe	13.4
	Mid-market and large buy-outs
13	Doughty Hanson & Co IV	1.1	2005	Europe	9.7
	Mid-market and large buy-outs
14	Deutsche Beteiligungs AG Fund V	0.1	2006	Germany	8.5
	Mid-market buy-outs
15	Bowmark Capital Partners IV	2.5	2007	UK	7.7
	Mid-market buy-outs
16	Charterhouse Capital Partners VIII **	1.3	2006	Europe	7.1
	Large buy-outs
17	CVC European Equity Partners Tandem	1.0	2006	Global	6.8
	Large buy-outs
18	PAI Europe V	1.1	2007	Europe	5.7
	Large buy-outs
19	CVC European Equity Partners IV **	1.5	2008	Global	5.6
	Large buy-outs
20	Advent Central and Eastern Europe IV	2.6	2008	Europe	5.0
	Mid-market buy-outs
21	Apax Europe VII Sidecar 2	1.0	2007	Global	3.6
	Large buy-outs
22	GCP Capital Partners Europe II	1.8	2013	UK	3.5
	Small buy-outs
23	Vision Capital Partners VII	0.8	2007	Global	3.4
	Secondary portfolios
24	Deutsche Beteiligungs AG Fund IV	-	2002	Germany	3.3
	Mid-market buy-outs
25	Segulah IV	1.1	2008	Sweden	3.3
	Mid-market buy-outs
26	Vision Capital Partners VI	0.5	2006	Europe	3.1
	Secondary portfolios
27	Charterhouse Capital Partners VII **	1.6	2002	Europe	3.0
	Large buy-outs
28	BC European Capital  IX	5.8	2012	Europe	2.9
	Large buy-outs
29	Piper Private Equity Fund IV	1.2	2006	UK	2.9
	Small buy-outs
30	Fifth Cinven Fund	14.3	2012	Europe	2.6
	Large buy-outs
	Total of the largest 30 fund investments	90.0			349.3
	Percentage of total investment portfolio				83.6%

* Includes Graphite Capital Partners VII Top Up Fund and Top Up Fund Plus

** All or part of interest acquired through a secondary fund purchase

The 30 largest underlying INVESTMENTS

The table below presents the 30 companies in which Graphite Enterprise had the largest investments by value at 30 April 2013. These investments may be held directly or through funds, or in some cases in both ways. The valuations are gross and are shown as a percentage of the total investment portfolio.

	Company	Manager	Year of investment	Country	Value as a % of investment portfolio
1	Micheldever
	Distributor and retailer of tyres	Graphite Capital	2006	UK	3.6%
2	Algeco Scotsman
	Supplier and operator of modular buildings	TDR Capital	2007	USA	2.9%
3	Alexander Mann Solutions
	Provider of recruitment process outsourcing	Graphite Capital	2007	UK	2.6%
4	Park Holidays UK
	Operator of caravan parks	Graphite Capital	2006	UK	2.3%
5	National Fostering Agency
	Provider of foster care services	Graphite Capital	2012	UK	2.2%
6	Dominion Gases **
	Supplier of specialist gases to the oil and gas industries	Graphite Capital	2007	UK	2.0%
7	Stork
	Provider of technical engineering services	Candover	2008	Netherlands	1.6%
8	U-POL
	Manufacturer and distributor of automotive refinishing products	Graphite Capital	2010	UK	1.6%
9	Avio
	Manufacturer of aerospace engine components	Cinven	2007	Italy	1.4%
10	CEVA
	Manufacturer and distributor of animal health products	Euromezzanine	2007	France	1.3%
11	Spire Healthcare
	Operator of hospitals	Cinven	2007	UK	1.3%
12	London Square
	Developer of residential housing	Graphite Capital	2010	UK	1.2%
13	Education Personnel
	Provider of temporary staff for the education sector	Graphite Capital	2010	UK	1.2%
14	Parques Reunidos
	Operator of attraction parks	Candover	2007	Spain	1.2%
15	Evonik Industries *
	Manufacturer of specialty chemicals	CVC	2008	Germany	1.2%
16	Willowbrook Healthcare
	Operator of care homes for the elderly	Graphite Capital	2008	UK	1.2%
17	CPA Global
	Provider of patent renewal services	Cinven	2012	UK	1.2%
18	Ceridian
	Provider of payment processing services	Thomas H Lee Partners	2007	USA	1.1%
19	Partnership ***
	Provider of retirement solutions	Cinven	2008	UK	1.1%
20	Vue Entertainment **
	Operator of cinemas	Doughty Hanson	2010	UK	1.1%
21	Intermediate Capital Group *
	Provider of mezzanine finance	ICG	1989	UK	1.0%
22	Stonegate Pub Company
	Operator of pubs	TDR Capital	2010	UK	0.9%
23	Acromas
	Provider of financial, motoring, travel and healthcare services	CVC / Charterhouse	2007	UK	0.9%
24	Spheros
	Provider of bus climate control systems	Deutsche Beteiligungs	2011	Germany	0.8%
25	Sebia
	Provider of in-vitro diagnostics	Cinven	2010	France	0.8%
26	TMF
	Provider of management and accounting outsourcing services	Doughty Hanson	2008	Netherlands	0.8%
27	InnBrighton
	Operator of pubs	Graphite Capital	2001	UK	0.8%
28	Guardian Financial Services
	Provider of personal insurance	Cinven	2011	UK	0.7%
29	AMCo
	Distributor of niche generic pharmaceuticals	Cinven	2012	UK	0.7%
30	Primavista Provider of maternity photography and sample packs	Activa II	2011	France	0.7%
	Total of the 30 largest underlying investments			41.4%

* Quoted

** Sold after the period end

*** Floated and partially sold after quarter end

Portfolio analySIS

The following five tables analyse the companies in which Graphite Enterprise had investments at 30 April 2013.

Portfolio - Investment type

		% of value of total portfolio
Large buy-outs		46.6%
Small and mid-market buy-outs		42.3%
Mezzanine		10.1%
Quoted		1.0%
Total		100.0%

Portfolio - Geographic distribution*

		% of value of total portfolio
UK		48.9%
France		13.0%
North America		11.2%
Germany		7.5%
Benelux		4.9%
Spain		4.4%
Italy, Ireland, Portugal, Greece		4.1%
Scandinavia		2.9%
Other Europe		1.9%
Rest of world		1.2%
Total		100.0%

* Location of headquarters of underlying companies in the portfolio. Does not necessarily reflect countries to which companies have economic exposure.

Portfolio - Year of investment

	Valuation as multiple of cost	Primary portfolio % of total value	Secondary portfolio % of total value	Total Portfolio % of total value
2012 onwards	1.0x	12.5%	1.2%	13.7%
2011	1.3x	11.3%	0.3%	11.6%
2010	1.3x	14.2%	0.6%	14.8%
2009	2.0x	1.9%	0.2%	2.1%
2008	1.3x	10.4%	1.6%	12.0%
2007	1.5x	21.2%	3.6%	24.8%
2006	1.4x	11.4%	2.6%	14.0%
2005	1.0x	0.9%	0.0%	0.9%
2004	2.7x	2.1%	0.1%	2.2%
2003 and before	1.5x	3.6%	0.3%	3.9%
Total	1.4x	89.5%	10.5%	100.0%

Portfolio - Sector analysis

		% of value of total portfolio
Business services		20.2%
Healthcare and education		15.2%
Industrials		13.6%
Consumer goods and services		11.9%
Leisure		11.4%
Financials		9.4%
Automotive supplies		6.1%
Technology and telecommunications		4.1%
Chemicals		4.1%
Media		4.0%
Total		100.0%

Portfolio - Graphite and third party investments

30 April 2013 £ million		Value of third party investments	Value of Graphite investments	Total value
Fund investments		294.7	74.9	369.6
Direct investments		25.0	23.1	48.1
Total portfolio		319.7	98.0	417.7
Graphite investments				23.4%
Third party fund investments				70.6%
Third party co-investments				6.0%

Investment activity

Largest new underlying investments in the quarter

Investment	Description	Country	Cost £ million
Formel D	Services to automobile manufacturers and suppliers	Germany	1.7
AMCo *	Distributor of niche generic pharmaceuticals	UK	1.3
Law Business Review	Publisher of specialist information for the legal industry	UK	1.1
Cerved	Provider of credit and business information	Italy	0.7
Drake & Morgan	Operator of contemporary bars in London	UK	0.7
Total of 5 largest new underlying investments			5.5

* Merged with an existing underlying investment. Combined entity is the 30th largest underlying investment at 30 April.

Largest underlying realisations in the quarter

Investment	Manager	Buyer type	Proceeds £ million
HellermanTyton	Doughty Hanson	Public offering	2.6
Ziggo	Cinven	Public offering	1.9
Education Personnel	Graphite Capital	Refinancing	1.7
Tumi	Doughty Hanson	Public offering	1.6
Sunrise Communications	CVC	Recapitalisation	1.0
Total of 5 largest underlying realisations			8.8

Commitments analysis

Commitments at 30 April 2013	Original commitment1 £ million	Outstanding commitment £ million	Average drawdown percentage	% of commitments
Funds not yet in investment period	11.7	11.7	-	8.4%
Funds in investment period	222.7	93.8	57.9%	67.7%
Funds post investment period	433.8	33.2	92.4%	23.9%
Total	668.2	138.7	79.2%	100.0%

¹ Original commitments are translated at 30 April 2013 exchange rates

Commitments at 30 April 2013 - remaining investment period	% of commitments
Investment period not commenced	8.4%
> 5 years	6.9%
4-5 years	22.4%
3-4 years	9.1%
2-3 years	2.0%
1-2 years	1.1%
<1 year	26.2%
Investment period complete	23.9%
Total	100.0%

New commitments in the quarter

Fund	Strategy	Geography	£  million
Primary commitments
Fifth Cinven Fund	Large buy-out	Europe	8.7
IK VII	Mid-market buy-out	Europe	8.7
Towerbrook IV	Upper mid-market buy-out	USA/Europe	3.2
Total primary commitments			20.6
Secondary purchase
GCP Capital Partners Europe II	Small buy-out	UK	1.8
Total			22.4

NOTES

Graphite Enterprise Trust PLC

Graphite Enterprise Trust PLC ("Graphite Enterprise" or "the Company") aims to provide shareholders with long term capital growth through investment in unquoted companies. To achieve this, the Company invests in private equity funds and also directly in private companies.

The Company was listed in 1981 and has invested exclusively in private equity and been managed by Graphite Capital throughout its life.

Graphite Enterprise provides access to a diverse portfolio of buy-outs of mature, profitable companies in established European private equity markets. The Company invests in in UK-based mid-market companies through funds managed directly by Graphite Capital. Typically these will make up 20-25% of the portfolio. Investments in other UK companies and in overseas markets are made through funds managed by third parties. The Company does not invest in start ups or early stage businesses. Direct investments in companies may be made alongside both Graphite Capital and third party funds.

Shareholders of Graphite Enterprise gain exposure to a diverse portfolio of buy-outs of mature, profitable companies in established European private equity markets, with over 300 underlying companies. Graphite Capital directly manages many of the largest companies in the portfolio.

Since inception, the Company has generated a return of more than 26 times the amount subscribed.

www.graphite-enterprise.com 

Graphite Capital

Graphite Capital is one of the UK's leading mid-market private equity firms with over £1.2 billion of funds under management. It has raised and managed funds for 32 years. The senior management team has worked together for 16 years.

Graphite Capital manages both direct investments in portfolio companies and private equity fund investments.

Direct investments are predominantly made through limited life funds which have a global institutional investor base. The focus of direct investments is on UK mid-market buy-outs of companies valued at between £40 million and £150 million across a range of industry sectors.

Fund investments are made exclusively by Graphite Enterprise. Fund investments focus mainly on European buy-out funds, but there is also some exposure to the USA and to growth capital and mezzanine funds. The investment strategy is to back private equity managers with strong track records operating in mature markets, with the aim of building long term relationships.

As it has a long experience both of managing its own funds and of investing in third party funds, Graphite Capital has an unusually broad perspective when assessing fund and co-investment opportunities. Graphite Enterprise benefits from both the expertise of a dedicated fund investment team as well as the insights of Graphite Capital's direct investment team.

www.graphitecapital.com 

 

END

 

 

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