Interim Management Statement

RNS Number : 6225U

Graphite Enterprise Trust PLC

04 December 2013

 



4 December 2013

GRAPHITE ENTERPRISE TRUST PLC

INTERIM MANAGEMENT STATEMENT

QUARTER ENDED 31 OCTOBER 2013

Graphite Enterprise Trust PLC ('Graphite Enterprise' or 'the Company') presents its Interim Management Statement for the quarter ended 31 October 2013.

Performance summary

In the three months to 31 October 2013 the unaudited net asset value per share fell by 0.4% from 682.3p to 679.7p.  In a quarter when little new valuation information is usually received, the rise in the valuation of the portfolio in local currency was offset by adverse currency movements.  The net asset value per share has increased by 7.6% in the first nine months of the financial year and by 14.7% in the last 12 months.

The continued rise in the underlying value of the investment portfolio in local currencies generated a 2.2% increase in net asset value in the period. As the adverse currency movements were of a similar amount, expenses and other items accounted for the marginal fall in the net asset value.

The share price strongly outperformed the FTSE All-Share Index in the quarter, rising by 13.5% to 555.0p while the Index rose by 2.1%.  Over the twelve months to October, the share price increased by 32.6% against a rise of 18.5% in the Index.

Reflecting this strong share price performance, the discount has narrowed from 22.9% at the start of the year to 18.3% at 31 October.

Investment portfolio

Investment performance

The underlying value of the portfolio in local currencies rose by £11.1 million in the third quarter, increasing the net asset value by 2.2%. In the year to date, the portfolio has generated net asset value growth of 10.6%.

After positively affecting performance in the first half of the year, currency movements reduced the net asset value by 2.2% in the third quarter. Over nine months the net effect of currency movements has been to reduce the net asset value per share by 0.7%.

We had received September valuations for only 43% of the portfolio by the cut-off date. As many of those managers who did report do not prepare full portfolio revaluations at September, the great majority of the portfolio effectively remains at its reported June valuation.

The largest gains in the period were generated by Graphite Capital's disposals of the investments in Alexander Mann Solutions ("AMS") and Park Holidays.  Together these increased the net asset value by 1.3% in the quarter. Although neither transaction completed before the quarter end, the October net asset value reflects the prices agreed for both companies.

AMS was the Company's sixth largest underlying investment at 31 July. The exit was agreed in October and is expected to complete in December. The price achieved represents a multiple of 3.5 times original cost and an uplift of 48% to the gross carrying value of the investment at 31 July.

Park Holidays was the Company's fifth largest underlying investment at 31 July. The exit was completed in November. The price represents a multiple of 2.3 times original cost and an uplift of 18% to the gross carrying value of the investment at 31 July.

Proceeds

The portfolio generated £38.6 million of cash proceeds in the quarter. The largest cash receipts were of £7.9 million for Vue Entertainment and of £6.8 million for Willowbrook Healthcare. The valuation uplifts on both these exits were recognised in the previous quarter.

The proceeds from the AMS and Park Holidays disposals, which are likely to total approximately £26 million, should be received in the next few weeks.

In the first nine months of the financial year, the portfolio has generated proceeds totalling £78.2 million, equivalent to 18.8% of its opening value. Together with the expected proceeds from AMS and Park Holidays discussed above, proceeds for the full year will exceed £100 million for the first time since 2007.

A total of 28 full exits have been completed in the nine months to 31 October. Including the AMS and Park Holidays exits, the average uplift to the previous carrying value in the year to date is 39% at an average multiple of 2.1 times original cost.

Additions

A total of £21.6 million was invested in the quarter. Of this amount, drawdowns from funds accounted for £10.3 million and the secondary purchase of interests in two funds, managed by CVC and Charterhouse, accounted for a further £11.3 million.  

In the nine months to October, £51.7 million has been invested in the portfolio, of which £28.8 million was through drawdowns from funds and £22.9 million was through secondary purchases of fund interests and co-investments.

A total of 40 new underlying investments were made in the nine months to 31 October. The largest made in the quarter was Graphite Capital's acquisition of Hawksmoor, the operator of a chain of a London-based steak restaurants. The Company's share of this investment was £1.7 million.

Since the period end the Company has agreed to invest £5.6 million alongside TDR Capital in the buy-out of David Lloyd Leisure, which will become one of the Company's ten largest underlying investments.  We are reviewing a number of other co-investment opportunities and are also aware of significant potential investment activity by funds in our portfolio. If the more advanced of these transactions were to complete, the level of new investment in the final quarter would be materially higher than in any of the first three quarters.

Cash and liquid assets

In the three months to 31 October 2013, the portfolio generated a net cash inflow of £17.0 million. After taking account of other net outflows and currency movements, cash and liquid assets increased by £14.2 million to £69.5 million:

Movement in liquid assets	3 months to	9 months to
£m	31 October 2013	31 October 2013
Additions	(21.6)	(51.7)
Proceeds generated by the portfolio*	38.6	78.2
Net cash inflow from the investment portfolio	17.0	26.5
Non-investment cash flows	(2.5)	(12.1)
Net cash inflow	14.5	14.4
Effect of changes in foreign exchange rates	(0.3)	(0.1)
Total movement	14.2	14.3
Opening cash and liquid assets	55.3	55.2
Closing cash and liquid assets	69.5	69.5
*Including income

Balance sheet and commitments

The summary balance sheet and commitment position as at 31 October 2013 is set out below. The Company was 86% invested at that date.

	31 October 2013 £m	% of total assets	31 July 2013 £m	% of total assets
Total portfolio	434.3	86.0%	451.1	88.8%
Cash and liquid assets	69.5	13.7%	55.3	10.9%
Other net current assets	1.4	0.3%	1.4	0.3%
Total assets	505.2	100.0%	507.8	100.0%
Equity shareholders' funds	495.6		497.5
Undrawn bank facility 1	99.2		100.9
Total liquidity 2	168.7		156.2
Outstanding commitments	260.3		154.2
Overcommitment/(excess of liquidity over commitments) 3	91.6		(2.0)
Overcommitment/(excess of liquidity over commitments) as % of total assets	18.1%		(0.4%)

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

Total liquidity increased from £156.2 million to £168.7 million in the quarter, principally as a result of the high level of cash received from the portfolio.

Outstanding commitments increased by £106.1 million to a total of £260.3 million in the quarter, primarily because £100 million was committed to Graphite Capital's latest UK mid-market buy-out fund, Graphite Capital Partners VIII.

In addition, we made three new primary commitments totalling £19.9 million of which two were to new relationships with Nordic Capital and Permira and the third was to an existing manager, Hollyport. The secondary purchase of funds noted above added a further £5.3 million.

These increases were offset by drawdowns of £10.1 million, reductions due to currency movements of £4.2 million and other movements (principally the cancellation of commitments) of £4.8 million.

In the nine months to October, we have made commitments totalling £166.7 million: £157.7 million to nine new funds and £9.0 million acquired in four secondary purchases. We continue to review a number of primary and secondary opportunities and since the period end have committed £8.5 million to the latest fund raised by an existing manager in our portfolio, TDR Capital.

Events since the quarter end

Other than as discussed above, the Directors are not aware of any events or transactions which have taken place between 31 October 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 31 October 2013 are set out below:

	Fund	Outstanding commitment £ million	Year of commitment	Country/ region	Value £ million
1	Graphite Capital Partners VII * / **	7.7	2007	UK	48.8
	Mid-market buy-outs
2	Fourth Cinven Fund **	2.5	2006	Europe	30.3
	Large buy-outs
3	ICG European Fund 2006	2.6	2007	Europe	22.8
	Mezzanine loans to buy-outs
4	Graphite Capital Partners VI **	3.0	2003	UK	22.1
	Mid-market buy-outs
5	Euromezzanine 5	1.8	2006	France	21.6
	Mezzanine loans to mid-market buy-outs
6	CVC European Equity Partners V **	7.8	2008	Global	21.3
	Large buy-outs
7	Thomas H Lee Parallel Fund VI	4.0	2007	USA	20.6
	Large buy-outs
8	TDR Capital II	1.8	2006	Europe	17.0
	Mid-market and large buy-outs
9	Candover 2005 Fund **	0.3	2005	Europe	16.7
	Large buy-outs
10	Doughty Hanson & Co V **	6.6	2006	Europe	16.2
	Mid-market and large buy-outs
11	Activa Capital Fund II	2.3	2007	France	14.1
	Mid-market buy-outs
12	Apax Europe VII	0.6	2007	Global	13.6
	Large buy-outs
13	Deutsche Beteiligungs AG Fund V	0.9	2006	Germany	9.4
	Mid-market buy-outs
14	Doughty Hanson & Co IV	1.1	2005	Europe	9.0
	Mid-market and large buy-outs
15	Bowmark Capital Partners IV	2.1	2007	UK	8.4
	Mid-market buy-outs
16	PAI Europe V	0.5	2007	Europe	7.1
	Large buy-outs
17	CVC European Equity Partners Tandem	1.0	2006	Global	6.2
	Large buy-outs
18	Advent Central and Eastern Europe IV	2.2	2008	Europe	5.7
	Mid-market buy-outs
19	Charterhouse Capital Partners IX **	3.3	2008	Europe	5.1
	Large buy-outs
20	CVC European Equity Partners IV **	1.5	2005	Global	4.5
	Large buy-outs
21	BC European Capital IX	4.6	2011	Europe	4.1
	Large buy-outs
22	GCP Capital Partners Europe II **	1.7	2013	UK	3.9
	Small buy-outs
23	Charterhouse Capital Partners VIII **	1.2	2006	Europe	3.9
	Large buy-outs
24	Vision Capital Partners VII	0.7	2008	Global	3.4
	Secondary portfolios
25	Deutsche Beteiligungs AG Fund IV	-	2002	Germany	3.4
	Mid-market buy-outs
26	Fifth Cinven Fund	13.3	2012	Europe	3.2
	Large buy-outs
27	Apax Europe VII Sidecar 2	0.9	2007	Global	3.1
	Large buy-outs
28	Piper Private Equity Fund IV	1.1	2006	UK	3.0
	Small buy-outs
29	Charterhouse Capital Partners VII *	1.5	2002	Europe	2.9
	Large buy-outs
30	Vision Capital Partners VI	0.4	2006	Europe	2.7
	Secondary portfolios
	Total of the largest 30 fund investments	79.0			354.1
	Percentage of total investment portfolio				81.5%

* 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 31 October 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	3.9%
2	Alexander Mann Solutions*
	Provider of recruitment process outsourcing solutions	Graphite Capital		2007	UK	3.5%
3	CEVA
	Manufacturer and distributor of animal health products	Euromezzanine		2007	France	3.1%
4	Park Holidays UK**
	Operator of caravan parks	Graphite Capital		2006	UK	3.0%
5	Algeco Scotsman
	Supplier and operator of modular buildings	TDR Capital		2007	USA	2.8%
6	National Fostering Agency
	Provider of foster care services	Graphite Capital		2012	UK	2.7%
7	Education Personnel
	Provider of temporary staff for the education sector	Graphite Capital		2010	UK	1.7%
8	U-POL
	Manufacturer and distributor of automotive refinishing products	Graphite Capital		2010	UK	1.7%
9	CPA Global
	Provider of patent renewal services	Cinven		2012	UK	1.4%
10	Avio
	Manufacturer of aerospace and engine components	Cinven		2007	Italy	1.4%
11	TMF
	Provider of management and accounting outsourcing services	Doughty Hanson		2008	Netherlands	1.3%
12	London Square
	Developer of residential housing	Graphite Capital		2010	UK	1.2%
13	Parques Reunidos
	Operator of attraction parks	Candover		2007	Spain	1.2%
14	Partnership ***
	Provider of retirement solutions	Cinven		2008	UK	1.2%
15	Stork
	Provider of technical engineering services	Candover		2008	Netherlands	1.2%
16	Spire Healthcare
	Operator of hospitals	Cinven		2007	UK	1.2%
17	Intermediate Capital Group ***
	Provider of mezzanine finance	ICG		1989	UK	1.1%
18	Evonik Industries ***
	Manufacturer of specialty chemicals	CVC		2008	Germany	1.1%
19	Quiron
	Operator of private hospitals	Doughty Hanson		2012	Spain	1.1%
20	Ceridian
	Provider of payment processing services	Thomas H Lee Partners		2007	USA	1.0%
21	Acromas
	Provider of financial, motoring, travel and healthcare services	CVC / Charterhouse		2007	UK	0.9%
22	Spheros
	Provider of bus climate control systems	Deutsche Beteiligungs		2011	Germany	0.9%
23	Stonegate Pub Company
	Operator of pubs	TDR Capital		2010	UK	0.8%
24	Sebia
	Provider of innovative laboratory instruments	Cinven		2010	France	0.8%
25	Guardian Financial Services
	Provider of insured life and pension products	Cinven		2011	UK	0.8%
26	Standard Brands
	Manufacturer of fire lighting products	Graphite Capital		2001	UK	0.8%
27	InnBrighton
	Operator of pubs and bars	Graphite Capital		2001	UK	0.7%
28	Eurofiber
	Provider of fibre optic network	Doughty Hanson		2012	Netherlands	0.7%
29	Gondola
	Operator of casual dining restaurants	Cinven		2006	UK	0.7%
30	Gerflor Manufacturer of PVC flooring	ICG		2011	France	0.7%
	Total of the 30 largest underlying investments					44.6%

* Sale agreed after the period end, completion subject to EU Competition Commission approval

** Sold after the period end

*** Quoted

Portfolio analySIS

The following five tables analyse the companies in which Graphite Enterprise had investments at 31 October 2013.

Portfolio - Investment type

		% of value of investment portfolio
Large buy-outs		45.9%
Small and mid-market buy-outs		41.6%
Mezzanine		11.4%
Quoted		1.1%
Total		100.0%

Portfolio - Geographic distribution*

		% of value of investment portfolio
UK		47.2%
France		14.2%
North America		10.6%
Germany		8.1%
Benelux		5.7%
Spain		4.5%
Greece, Ireland, Italy, Portugal		4.1%
Scandinavia		3.0%
Other Europe		1.5%
Rest of world		1.1%
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			% of value of   investment portfolio
2013			6.1%
2012			12.4%
2011			12.0%
2010			14.6%
2009			1.5%
2008			10.6%
2007			20.8%
2006			15.2%
2005			0.9%
2004 and before			5.9%
Total			100.0%

Portfolio - Sector analysis

		% of value of investment portfolio
Business services		22.2%
Industrials		15.4%
Healthcare and education		13.7%
Consumer goods and services		12.2%
Leisure		10.8%
Financials		9.6%
Automotive supplies		5.9%
Technology and telecommunications		4.1%
Media		3.9%
Chemicals		2.2%
Total		100.0%

Portfolio - Graphite and third party investments

£ million		Value of third party investments	Value of Graphite investments	Total value
Fund investments		309.5	72.1	381.6
Direct and co-investments		25.5	27.2	52.7
Total portfolio		335.0	99.3	434.3
Graphite investments				22.9%
Third party fund investments				71.3%
Third party co-investments				5.8%

Investment activity

The following two tables analyse the investment activity of Graphite Enterprise in the three months to 31 October 2013.

Largest new underlying investments

Investment	Description	Country	Cost £ million
Hawksmoor	Operator of steak restaurants	UK	1.7
Schulerhilfe	Provider of classroom-based tutoring services	Germany	1.2
Romans	Estate agents and letting agents	UK	1.0
Host Europe Group	Provider of hosting and internet domain services	UK	1.0
AVS Group	Provider of services for the traffic safety market	Germany	0.6
Total of 5 largest new underlying investments			5.5

Largest underlying realisations

Investment	Manager	Realisation type	Proceeds £ million
Vue Entertainment	Doughty Hanson	Private equity	7.9
Willowbrook Healthcare	Graphite Capital	Trade	6.8
Avanza	Doughty Hanson	Trade	3.1
ista	CVC/Charterhouse	Private equity	1.7
HellermanTyton	Doughty Hanson	Public offering	1.6
Total of 5 largest underlying realisations			21.2

Commitments analysis

The following three tables analyse Graphite Enterprise's commitments at 31 October 2013.

Commitments	Original commitment1 £ million	Outstanding commitment £ million	Average drawdown percentage	% of commitments
Funds in investment period	337.1	219.3	34.9%	84.2%
Funds post investment period	493.4	41.0	91.7%	15.8%
Total	830.5	260.3	68.7%	100.0%

¹ Original commitments are translated at 31 October 2013 exchange rates

Commitments - remaining investment period	% of commitments
> 5 years	16.0%
4-5 years	45.8%
3-4 years	6.9%
2-3 years	5.7%
1-2 years	0.8%
<1 year	9.0%
Investment period complete	15.8%
Total	100.0%

New commitments in the three months to 31 October 2013

Fund	Strategy	Geography	£ million
Primary commitments
Graphite Capital Partners VIII*	Mid-market buy-out	UK	100.0
Nordic Capital Partners VIII	Mid-market buy-out	Scandinavia	8.5
Permira V	Large buy-out	Global	8.4
Hollyport IV	Secondary portfolios	UK	3.0
Total primary commitments			119.9
Secondary purchase
Charterhouse Capital Partners IX	Large buy-out	Europe	3.3
CVC European Equity Partners V	Large buy-out	Global	2.0
Total			125.2

*Includes Graphite Capital Partners VIII Top Up Fund

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 has had the same manager 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 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 350 underlying companies. Graphite Capital directly manages many of the largest companies in the portfolio.

Since inception, the Company has increased the amount of capital raised almost 28 times

www.graphite-enterprise.com 

Graphite Capital

Graphite Capital is one of the UK's leading mid-market private equity firms with over £1.6 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 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 

 

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