Interim report for seven mont

RNS Number : 2370T

Graphite Enterprise Trust PLC

24 September 2010

 



24 September 2010

GRAPHITE ENTERPRISE TRUST PLC

UNAUDITED RESULTS FOR THE SEVEN MONTHS

TO 31 JULY 2010

SUMMARY OF THE PERIOD

Net asset value per share The FTSE All-Share Index, the Company's benchmark, fell by 1.7%	+1.2%
Movement in underlying portfolio valuation Sales and profits of the 30 largest companies grew strongly	+6.5%
Level of investment Investments increased as a percentage of total assets from 67.1%	77.2%
Closing cash and cash equivalents Cash and cash equivalents accounted for 22.7% of total assets at the period end	£79.2m
Undrawn commitments The level of undrawn commitments fell by £41.8 million	£201.4m

FINANCIAL SUMMARY

	31 July 2010	31 Dec 2009	Change
Net asset value per share	469.6p	464.1p	+1.2%
Share price	278.5p	305.0p	-8.7%
FTSE All-Share Index	2,715	2,761	-1.7%

Chairman's Statement

Overview

During a period of continued volatility in financial markets, Graphite Enterprise's net asset value per share rose by 1.2% to 469.6p in the seven months to 31 July 2010, while its benchmark, the FTSE All-Share Index fell by 1.7%. As the discount of the share price to the net asset value per share widened from 34.3% to 40.7% during the period, the share price fell by 8.7% to 278.5p. Discounts in the listed private equity sector remained at high levels throughout the period and the Company's discount was in line with its peer group at 31 July 2010. At the end of the period shareholders' funds totalled £342.4 million.

The portfolio made good progress during the period, with the performance of the largest 30 underlying investments, which account for almost half of the portfolio, being particularly encouraging.  Over the last twelve months the great majority of these companies have increased profitability and in many cases the increases have been material.  Reflecting this performance, the valuation of the portfolio increased by 6.5% in local currency.  This was higher than the rise in the net asset value as adverse currency movements reduced the sterling value of euro denominated investments and a third of the opening net assets was in cash.  By the end of the period, we had increased the Company's level of investment to 77.2% of total assets and this has increased further since the period end.

In May we announced that the year end would be changing from 31 December to 31 January. This change allows us to collect more up to date valuation information before releasing the interim accounts. This is the first set of interim results issued to the new reporting date of 31 July and covers the first seven months of the year.  As a result of this change, 99.5% of June valuations were available to be included in these results.  Future interim results will cover six month periods from 1 February to 31 July.

As required by the Listing Rules, the Company has already released results covering the six months to 30 June 2010. When these results were issued in mid-July, no June valuation reports had been received from the managers of the Company's fund portfolio and the figures were therefore based primarily on March valuations. The reported net asset value per share at 30 June 2010 was 447.9p. 

The net asset value at 31 July of 469.6p was 4.8% higher than the 30 June figure as certain of the June valuations were materially higher than the March valuations used previously.

Economic environment

As 49.7% of the portfolio is in the UK and a further 39.2% is in continental Europe, the performance of these economies has much the greatest impact on the Company's overall performance.

After six quarters of recession in 2008 and 2009, the UK has now seen three consecutive quarters of weak growth. Although there are concerns that the government's announced public spending cuts may slow the recovery, most analysts are predicting an extended period of low growth rather than a further decline.

The eurozone economies contracted in aggregate by less than the UK during the downturn and came out of recession slightly earlier. However these economies are also forecast to recover very slowly. Within the eurozone, the performance of individual countries is likely to vary significantly, with France, which represents 12.5% of the Company's portfolio, growing more slowly than Germany, which represents 7.0%.

The private equity market

New investment activity in the private equity market continued to show signs of a recovery in the first half of 2010. A total of 167 buy-outs were completed in the first half of the year which represents almost two thirds of the number completed in the whole of 2009 and compares with only 107 completed in the first half of 2009. By value the increase was more pronounced, with €20.7 billion of buy-outs completed in the first half of 2010 representing almost four times the value completed in the same period in 2009 and only 12% less than in the full year 2009.

While the rise is encouraging, it should be stressed that this recovery was from a relatively low base, as activity levels fell very sharply in the second half of 2008, falling even further in the first half of 2009. By comparison, activity levels remain low compared with those at the height of the market in 2007 when 819 buy-outs were completed with a total value of €187 billion.

Early indications suggest that the prices paid for new investments have been reasonably full. This is despite debt finance continuing to be relatively scarce, with the average level of buy-out debt falling to 32% of total transaction value compared with 67% in the year before the banking crisis. Sales from one private equity group to another appear to be a significant driver of the growth in activity, accounting for more than half of the value of completed transactions.

In contrast to the increase in investment activity, private equity fund raising remains depressed. A total of €8.9 billion was raised for 16 funds in the first half of 2010 compared with €27.8 billion raised in all of 2009 which in turn was the lowest level since 2004. European fund raising peaked in 2008 when €96 billion was raised for 156 funds.

The low level of new funds raised primarily reflects the fact that most private equity managers still have substantial uninvested cash from previous funds as investment activity has been low since the start of the financial crisis. Cash distributions have also been low over this period and this has reduced investor appetite for new funds.

In contrast, the market for secondary fund interests improved markedly in the first half of 2010 with discounts narrowing substantially. High quality funds are trading at prices close to reported net asset values. This reflects a rise in confidence in both earnings growth and valuations.

Performance

Net asset value per share

The investment portfolio continued to perform well in the period, rising in value by 6.5% in local currency. However as 53.5% of investments were denominated in euros at the start of the period, the fall in the value of the euro against sterling partially offset this increase. As a result, the rise in the sterling value of the portfolio was materially lower at 3.1%, or £7.1 million.

As the portfolio accounted for only two thirds of the Company's net assets at the start of the year, the rise in value of the portfolio had the effect of increasing the net asset value per share by 2.1%.

After taking account of the 2009 dividend which reduced the net asset value per share by 0.5%, and other items, the overall increase in the net asset value per share was limited to 1.2%.

Share price and discount

In the first seven months of the year the share price has been volatile, reflecting changes in sentiment towards the private equity sector. After starting the year at 305p, the share price reached a high of 358p in April before falling to a low of 258.5p in early July. It ended the period down by 8.7% at 278.5p.

Since the start of the financial crisis, the discount has generally been above 30%. At 31 July 2010 the discount of 40.7% was in line with the peer group of listed private equity funds of funds, having been at a premium to the sector at the start of the period. The Company's discount is materially higher than its long term average. In the ten years prior to the financial crisis, the average discount was 14.1%.

Discounts in the listed private equity sector widened very significantly in the last quarter of 2008. This was driven by concerns that listed vehicles might not be able to fund their outstanding commitments and that private equity backed companies were overvalued and had high levels of gearing. Although discounts have narrowed since then we believe they do not reflect fully the relatively robust performance of private equity portfolios through the downturn.

Investment activity

In line with the increase in activity levels in the private equity market as a whole, Graphite Enterprise's rate of investment increased materially in the first seven months of the year. However, the level of realisations remained low. We invested £37.6 million in the period and realised £6.7 million. Net investment therefore totalled £30.9 million which compares with only £10.9 million in the whole of 2009.

New investments

At £37.6 million, new investment was more than 50% higher in the first seven months of 2010 than in the twelve months to December 2009. Drawdowns of fund commitments accounted for 71.8% or £26.9 million of the total invested. The acquisition of a secondary interest in CVC European Equity Partners IV and three direct investments accounted for the balance.

Drawdowns in the seven months increased to 11.1% of opening commitments, compared with 3.7% in the first half of 2009 and 6.8% in the whole of 2009. Despite this rise in activity, the rate of drawdown remains relatively low compared with the levels experienced prior to the start of the financial crisis.

Over 80% of the total drawn down by funds for investment was used to finance the acquisition of new portfolio companies. Our funds completed 22 new investments of which eleven were made by mid-market buy-out funds, nine by large buy-out funds and two by mezzanine funds. Follow-on investments into existing portfolio companies accounted for less than 20% of the amount drawn down for investment. These were primarily for balance sheet restructurings but also included an element of funding for growth or acquisitions.

Realisations

The level of realisations remained low in the first seven months of 2010. The portfolio generated £5.4 million of proceeds in addition to which we sold one fund investment for £1.3 million, taking the total amount realised to £6.7 million, or 2.9% of the opening portfolio value. The current rate of realisations is clearly abnormally low. As an indication, in the ten years to 2007 the average annual level of realisations was 39.2% of the opening portfolio value.

In last year's annual report we predicted that the level of realisations would start to increase in the second half of 2010. As a number of portfolio companies are currently being marketed for sale, we continue to expect the level of realisations to be materially higher in the remainder of the financial year than in the first seven months. Any increase in realisations should also lead to an increase in the net asset value.  However, sale processes are by their nature unpredictable.

Closing portfolio

At 31 July, Graphite Enterprise had holdings in 40 funds and in 19 direct investments. Third party private equity firms were responsible for managing 35 of these funds, and these 24 firms collectively managed over three-quarters of the portfolio by value. Graphite Capital directly managed 22.5% of the portfolio. In total the Company had holdings in 263 underlying companies.

The composition of the portfolio did not change materially in the period and remains well diversified by type of investment, sector, geography and vintage, while also being sufficiently concentrated for individual investments to have an impact on future performance. The top ten underlying companies represent 25.8% of the total portfolio while the top 30 account for 46.9%. It is encouraging to note that these larger investments have continued to perform well in the first half of 2010, growing sales and profits strongly.

Balance sheet and commitments

At 31 July 2010 the Company had total assets of £348.7 million of which the investment portfolio of £269.2 million accounted for 77%.

The level of cash fell by £34.8 million in the period from £114.0 million to £79.2 million, and as a percentage of total assets from 33% to 23%. Net investment in the portfolio of £30.9 million accounted for the great majority of the fall, with other cash outflows including income, expenses, the dividend and currency movements accounting for the balance.

In last year's Chairman's statement we anticipated that cash balances would fall as commitments were drawn down. The reduction in the first seven months was broadly in line with our expectations and is consistent with our strategy of being more fully invested at this point in the economic cycle.

Outstanding commitments to funds fell by £41.8 million or 17.2% from £243.2 million to £201.4 million. The increase in investment activity discussed earlier was the largest factor in this fall, with drawdowns of £26.9 million accounting for almost two thirds of the reduction. Commitment releases of £14.9 million and exchange rate movements of £8.7 million were the two other major contributors. These reductions were offset by £8.7 million of new commitments of which £6.0 million was to new funds.

Over 90% of outstanding commitments are to funds that are still in their investment periods. At 31 July, these funds had an average of 2.4 years in which to complete their investment programmes.

Movements in commitments
	£m
Opening commitments at 1 January 2010	243.2
Drawdowns	(26.9)
Commitments released	(14.9)
Currency movements	(8.7)
New fund commitments	6.0
Other commitment increases	2.7
Closing commitments at 31 July 2010	201.4

At 31 July 2010 Graphite Enterprise had cash of £79.2 million and outstanding commitments of £201.4 million. The level of overcommitment, defined as the amount by which commitments exceed cash balances, was therefore £122.2 million. A standard measure of liquidity in the listed private equity sector is the overcommitment percentage which expresses overcommitment as a percentage of total assets. At 31 July the Company was 35.0% overcommitted, down slightly from 37.7% at the end of 2009, primarily because outstanding commitments fell by more than cash.

In comparison with most other listed private equity funds of funds, many of which had net debt at the period end, the Company had materially higher levels of cash and a significantly lower percentage level of overcommitment. This higher level of liquidity gives the Company greater flexibility to take advantage of opportunities as they arise.

Currency

At the end of 2009, £158.7 million or 46.1% of the Company's net asset value was denominated in foreign currencies of which £140.9 million was in euros and £17.0 million in US dollars. Most of this exposure related to the investment portfolio as only a small proportion of cash was held in foreign currency. Two thirds of outstanding commitments were denominated in euros and less than 5% in US dollars.

In the seven months to 31 July 2010, the euro fell against sterling by 6.4% and the US dollar rose against sterling by 2.9%. As the Company's exposure to the euro is much greater than the exposure to the US dollar, the net effect of these movements was to reduce the value of the portfolio by £7.5 million, to reduce the value of foreign currency denominated cash by £0.7 million and to reduce outstanding commitments by £8.7 million.

As a result of these changes, at 31 July 2010, £167.8 million or 48.1% of the Company's net asset value was denominated in foreign currencies of which £148.9 million was in euros and £17.8 million in US dollars. Approximately 65% of outstanding commitments were denominated in euros and less than 5% in US dollars.

Income statement

The total profit attributable to shareholders for the period was £5.7 million or 7.8p per share. Of this amount, £5.2 million or 7.1p per share was capital gain and the remaining £0.5 million or 0.7p per share was net revenue.

The net revenue figure of £0.5 million for the period compares with the revenue loss in the first half of 2009 of £0.1 million. This is primarily because income from the portfolio rose to £1.0 million in the seven months, having been £0.2 million in first half of 2009. As we noted in the 2009 Annual Report, portfolio income is particularly hard to predict and tends to be linked to realisation activity. More than half of the income from the portfolio in the period was received following the disposal of one underlying company.

Income from cash and cash equivalents has remained very low at £0.2 million, reflecting prevailing interest rates and the fall in cash balances during the period.

Net revenue for the financial year will primarily be determined by the level of realisations in the remainder of the period, as any proceeds are likely to include a substantial element of income.

Outlook

The increase in activity levels in the private equity market in the first half of the year suggests that, despite the continued economic uncertainty, confidence levels in the sector are recovering. Reflecting this increased activity, drawdowns from the Company's fund portfolio have been materially higher in 2010 than in 2009 and most indications suggest that this higher rate of investment will be maintained for the remainder of the year.

At the start of the year the Company was 67% invested. As realisations have been slower to recover than new investment, the Company has become steadily more invested as the year has progressed and if recent drawdowns are taken into account, the Company will be approximately 83% invested at the end of September.

Over the last two years we have continually adapted our strategy in response to changes in economic and market conditions. As conditions are likely to remain uncertain for some time we will continue to modify our investment approach to take account of changes in the relative value of different assets and to ensure that the balance of investments, cash and commitments is appropriate for the conditions at the time.

Mark Fane

September 2010

PORTFOLIO ANALYSIS

Investment portfolio - funds and direct investments

31 July 2010 £m	Third party investments	Graphite investments	Total
Fund investments	177.7	37.6	215.3
Direct investments*	30.8	23.1	53.9
Total	208.5	60.7	269.2

Summary of changes to the portfolio

2010 £m	Opening  value	Additions	Disposals	Gains & losses	Closing value
Fund investments	183.9	35.1	(6.2)	2.5	215.3
Direct investments*	47.3	2.5	(0.5)	4.6	53.9
Total investment portfolio	231.2	37.6	(6.7)	7.1	269.2

* Including quoted investment.

Additions 2010 £m	UK	Continental Europe	Rest of world	Total
Mid-market buy-outs	6.6	3.7	-	10.3
Large buy-outs	0.7	15.3	4.1	20.1
Small buy-outs	3.0	-	-	3.0
Infrastructure	-	-	-	-
Mezzanine	-	4.2	-	4.2
Quoted	-	-	-	-
Total	10.3	23.2	4.1	37.6

Disposals 2010 £m	UK	Continental Europe	Rest of world	Total
Mid-market buy-outs	1.1	2.4	-	3.5
Large buy-outs	-	-	0.1	0.1
Small buy-outs	0.2	-	-	0.2
Infrastructure	-	0.2	-	0.2
Mezzanine	-	2.7	-	2.7
Quoted	-	-	-	-
Total	1.3	5.3	0.1	6.7

Sector analysis

	% of total investment portfolio
Business services	22.1%
Manufacturing and engineering	15.0%
Consumer goods and services	18.1%
Leisure	13.0%
Healthcare and pharmaceuticals	9.5%
Retailing	4.7%
Media	4.4%
Financial services	2.9%
Infrastructure	2.7%
Construction and building supplies	2.2%
Other	5.4%
Total	100.0%

Investment type

	% of total investment portfolio
Mid-market and small buy-outs	42.2%
Large buy-outs	41.4%
Mezzanine	12.7%
Infrastructure	2.8%
Quoted	0.9%
Total	100.0%

Year of investment

	% of total investment portfolio
2001 and before	8.7%
2002	0.6%
2003	1.1%
2004	7.7%
2005	5.1%
2006	17.1%
2007	33.6%
2008	16.3%
2009	3.3%
2010	6.5%
Total	100.0%

Geographic distribution

	% of total investment portfolio
UK	49.7%
France	12.5%
North America	10.0%
Benelux	7.8%
Germany	7.0%
Spain	4.4%
Scandinavia	3.0%
Other European	4.5%
Rest of World	1.1%
Total	100.0%

Fund portfolio commitments	Original commitment*	Outstanding commitment	Average drawn down percentage	Percentage of commitments
	£m	£m
Funds in investment period	323.8	184.2	43.1%	91.5%
Funds post-investment period	276.4	17.2	93.8%	8.5%
Total	600.2	201.4	66.4%	100.0%

*Original commitments have been translated at 31 July 2010 exchange rates.

THE 30 LARGEST UNDERLYING INVESTMENTS

The table below summarises the 30 largest underlying investments, by value, in the Company's portfolio of funds and direct investments as at 31 July 2010. The valuations are gross and are shown as a percentage of the total investment portfolio.

	Entity	Year of  investment	Country / region	Value as a % of investment portfolio
1	Micheldever
	Distributor and retailer of tyres	2006	UK	5.9%
2	Wagamama
	Operator of Japanese noodle restaurants	1996	UK	4.5%
3	Park Holidays UK
	Operator of caravan parks	2006	UK	2.5%
4	Kurt Geiger
	Retailer and distributor of luxury footwear	2008	UK	2.2%
5	Standard Brands UK
	Manufacturer of domestic fire products	2001	UK	1.9%
6	NES Group
	Recruitment agency for technical contractors	2006	UK	1.9%
7	Data Explorers Group
	Provider of information to the global securities lending industry	2007	UK	1.9%
8	Ceridian
	Provider of human resources and payment processing services	2007	USA	1.7%
9	Alexander Mann Solutions
	Provider of recruitment process outsourcing	2007	UK	1.7%
10	Norit
	Supplier of water purification technologies	2007	Netherlands	1.6%
11	Evonik Industries
	Diversified industrial group	2008	Germany	1.5%
12	Algeco Scotsman
	Supplier and operator of modular buildings	2007	USA	1.4%
13	Ziggo
	Operator of cable TV networks	2006	Netherlands	1.1%
14	Clyde Bergemann
	Supplier of components for the power generation industry	2005	Germany	1.1%
15	Spire Healthcare
	Provider of healthcare	2007	UK	1.1%
	Total of the 15 largest underlying investments			32.0%

	Entity		Year of  investment		Country / region	Value as a % of investment portfolio
16	Weetabix
	Manufacturer of breakfast cereals		2004		UK	1.1%
17	Phadia
	Manufacturer of medical testing equipment		2007		Sweden	1.1%
18	Segur Iberica
	Provider of security services and products		2004		Spain	1.1%
19	Hellerman Tyton
	Manufacturer of high performance cable management products		2006		UK	1.1%
20	Avanza Group
	Operator of buses		2007		Spain	1.0%
21	Avio
	Manufacturer of aerospace engine components		2007		Italy	1.0%
22	CEVA
	Manufacturer and distributor of animal health products		2007		France	1.0%
23	Balta
	Manufacturer of carpets and floor coverings		2004		Belgium	1.0%
24	Intermediate Capital *
	Provider of mezzanine finance		1989		UK	1.0%
25	Elster
	Provider of metering technology		2005		Germany	1.0%
26	Univar
	Distributor of chemicals		2007		USA	0.9%
27	Kisimul School Group
	Provider of specialist education services		2006		UK	0.9%
28	Stork
	Diversified engineering group		2008		Netherlands	0.9%
29	TMF
	Provider of management and accounting outsourcing services		2008		Netherlands	0.9%
30	InnBrighton
	Operator of nightclubs, bars and pubs		2007		UK	0.9%
	Total of the 30 largest underlying investments					46.9%

* Quoted

THE 15 LARGEST FUND INVESTMENTS

The largest funds by value at 31 July 2010 are set out below.

	Fund	Outstanding commitment £m	Year of commitment	Country / region	Value £m
1	Graphite Capital Partners VI
	Mid-market buy-outs	5.5	2003	UK	23.4
2	Fourth Cinven Fund
	Large buy-outs	9.4	2006	Europe	15.5
3	ICG European Fund 2006
	Mezzanine loans to buy-outs	8.9	2007	Europe	15.1
4	Apax Europe VII
	Large buy-outs	7.6	2007	Global	13.2
5	Thomas H Lee Equity Fund VI
	Large buy-outs	9.6	2007	USA	11.5
6	Doughty Hanson & Co V
	Mid-market and large buy-outs	10.7	2006	Europe	11.3
7	Doughty Hanson & Co IV
	Mid-market and large buy-outs	-	2005	Europe	11.3
8	Graphite Capital Partners VII
	Mid-market buy-outs	28.9	2007	UK	9.7
9	Candover 2005 Fund
	Large buy-outs	2.2	2005	Europe	9.6
10	CVC European Equity Partners IV
	Large buy-outs	1.6	2005	Global	9.5
11	CVC European Equity Partners V
	Large buy-outs	16.1	2008	Global	7.3
12	CVC European Equity Partners Tandem
	Large buy-outs	2.6	2006	Global	6.8
13	TDR Capital II Fund
	Mid-market and large buy-outs	10.1	2006	Global	5.9
14	CSP Secondary Opportunities II
	Secondary fund investments	-	2008	Global	5.9
15	Euromezzanine 5
	Mezzanine loans to mid-market buy-outs	1.9	2006	France	5.6
	Total of the 15 largest fund investments	115.1			161.6
	Percentage of the investment portfolio				60.0%

CONSOLIDATED INCOME STATEMENT

	Period from 1 January
	to 31 July 2010			Half year to 30 June 2009				Year to 31 December 2009
	(unaudited)			(unaudited)
	Revenue return	Capital return	Total	Revenue return	Capital return	Total		Revenue return	Capital return	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s		£'000s	£'000s	£'000s
Investment returns
Gains and losses on investments held at fair value	996	7,040	8,036	144	(23,103)	(22,959)		892	28,166	29,058
Income from cash and cash equivalents	221	-	221	775	-	775		1,020	-	1,020
Other income	414	-	414	72	-	72		117	-	117
Foreign exchange losses	-	(750)	(750)	-	(9,753)	(9,753)		-	(9,143)	(9,143)
	1,631	6,290	7,921	991	(32,856)	(31,865)		2,029	19,023	21,052
Expenses
Investment management charges	(555)	(1,663)	(2,218)	(438)	(1,316)	(1,754)		(887)	(2,662)	(3,549)
VAT reclaim	370	356	726	5	16	21		-	-	-
Other expenses	(658)	-	(658)	(641)	(11)	(652)		(1,170)	(68)	(1,238)
	(843)	(1,307)	(2,150)	(1,074)	(1,311)	(2,385)		(2,057)	(2,730)	(4,787)
Profit before tax	788	4,983	5,771	(83)	(34,167)	(34,250)		(28)	16,293	16,265
Taxation	(248)	248	-	(5)	5	-		(54)	-	(54)
Profit/(loss) for the period from continuing operations	540	5,231	5,771	(88)	(34,162)	(34,250)		(82)	16,293	16,211
Attributable to:
Equity shareholders	540	5,157	5,697	(88)	(32,511)	(32,599)		(82)	14,382	14,300
Non-controlling interests	-	74	74	-	(1,651)	(1,651)		-	1,911	1,911
Basic and diluted earnings per share (note 5)			7.81p			(44.71p)				19.61p

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	As at	As at
	31 July	30  June	31 December
	2010	2009	2009
	(unaudited)	(unaudited)
	£'000s	£'000s	£'000s
Non-current assets
Investments held at fair value
- Unquoted investments	266,524	175,776	228,464
- Quoted investments	2,672	4,201	2,757
	269,196	179,977	231,221
Current assets
Trade and other receivables	1,465	1,632	690
Cash and cash equivalents	79,244	114,050	113,970
	80,709	115,682	114,660
Current liabilities
Trade and other payables	1,252	1,451	1,284
Net current assets	79,457	114,231	113,376
Net assets	348,653	294,208	344,597
Capital and reserves
Called up share capital (note 6)	7,292	7,292	7,292
Capital redemption reserve (note 6)	2,112	2,112	2,112
Share premium (note 6)	12,936	12,936	12,936
Capital reserve (note 6)	309,605	257,555	304,448
Revenue reserve (note 6)	10,475	11,570	11,576
Equity attributable to equity holders (note 6)	342,420	291,465	338,364
Non-controlling interests (note 6)	6,233	2,743	6,233
	348,653	294,208	344,597
Net asset value per share (basic and diluted)	469.6p	399.7p	464.1p

CONSOLIDATED CASH FLOW STATEMENT
			Period from
			1 January to			Half year to			Year to
			31 July			30 June			31 December
			2010			2009			2009
			(unaudited)			(unaudited)
			£'000s			£'000s			£'000s
Operating activities
Sale of portfolio investments			6,652			520			13,074
Purchase of portfolio investments			(37,588)			(11,422)			(23,950)
Cash placed in escrow pending investment			-			(1,526)			-
Income received from investments			1,213			225			842
Other income received			221			1,066			1,137
Investment management charges paid			(2,048)			(1,889)			(4,398)
VAT reclaimed on investment management charges			-			2,352			2,271
Other expenses paid			(785)			(479)			(756)
Taxation paid			(58)			(726)			(789)
Net cash outflow from operating activities			(32,393)			(11,879)			(12,569)
Financing activities
Investments by non-controlling interests			58			-			-
Equity dividends paid			(1,641)			(3,281)			(3,281)
Net cash outflow from financing activities			(1,583)			(3,281)			(3,281)
Net decrease in cash and cash equivalents			(33,976)			(15,160)			(15,850)
Cash and cash equivalents at beginning of period			113,970			138,963			138,963
Net decrease in cash and cash equivalents			(33,976)			(15,160)			(15,850)
Effect of changes in foreign exchange rates			(750)			(9,753)			(9,143)
Cash and cash equivalents at end of period			79,244			114,050			113,970

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Period from  1 January to  31 July		Half year to  30 June		Year to 31 December
		2010		2009		2009
		(unaudited)		(unaudited)
		£'000s		£'000s		£'000s
Total equity at beginning of period		344,597		331,739		331,739
Profit/(loss) attributable to equity shareholders		5,697		(32,599)		14,300
Profit/(loss) attributable to non-controlling interests		74		(1,651)		1,911
Total profit/(loss) for the period and total recognised income and expense		5,771		(34,250)		16,211
Dividends paid to equity shareholders (note 4)		(1,641)		(3,281)		(3,281)
Net distribution to non-controlling interests		(74)		-		(72)
Total equity at end of period		348,653		294,208		344,597

Further analysis of the above movements is presented in note 6.

NOTES TO THE INTERIM REPORT

1. GENERAL INFORMATION

Graphite Enterprise Trust PLC (the "Company") and its subsidiaries (together "Graphite Enterprise" or the "Group") are registered in England and domiciled in England. The registered office is 4^th floor, 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. This report has been prepared for the seven month period ended 31 July 2010. This reflects the change in the Company's accounting reference date to 31 January 2011.  The Company will prepare its next statutory financial statements for the 13 month period ended 31 January 2011 and will revert thereafter to a six month reporting cycle. This interim report was approved by the Board of Directors on 23 September 2010.

2. UNAUDITED INTERIM REPORT

This financial report does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.  Statutory accounts for the year ended 31 December 2009 were approved by the Board of Directors on 31 March 2010 and delivered to the Registrar of Companies.  The report of the auditors on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statements made under section 498 of the Companies Act 2006.

This interim report has neither been reviewed, nor audited.

3. BASIS OF PREPARATION

This interim report for the seven months ended 31 July 2010 has been prepared in accordance with IAS34, "Interim financial reporting" as adopted by the European Union, except for the requirement to prepare comparative information as at 31 July 2009.  This financial report should be read in conjunction with the annual financial statements for the year ending 31 December 2009, which have been prepared in accordance with IFRSs as adopted by the European Union.

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2009, as described in those financial statements.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The Company has considerable financial resources and as a consequence, the directors believe that the Company is well placed to manage its business risks successfully. After making enquiries, the directors have a reasonable expectation that the Company will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this financial report.

4. DIVIDENDS

								Period from
								1 January to	Half year to	Year to
								31 July	30 June	31 December
								2010	2009	2009
Dividends paid or approved in the period								£'000s	£'000s	£'000s
The period from 1 January to 31 July 2010: 2.25p per share (half year to 30 June 2009 and year to 31 December 2009: 4.5p per share)								1,641	3,281	3,281

5. EARNINGS PER SHARE

						Period from
						1 January to	Half year to	Year to
						31 July	30 June	31 December
						2010	2009	2009
Revenue return per ordinary share						0.74p	(0.12p)	(0.11p)
Capital return per ordinary share						7.07p	(44.59p)	19.72p
Earnings per ordinary share (basic and diluted)						7.81p	(44.71p)	19.61p
Weighted average number of shares						72,913,000	72,913,000	72,913,000

The earnings per share figures are based on the weighted average numbers of shares set out above.

6.  CHANGES IN EQUITY

	Share capital £'000s	Capital redemption reserve £'000s	Share premium £'000s	Capital reserve £'000s	Revenue  reserve £'000s	Total shareholders'        equity   £'000s	Non-          controlling interest  £'000s	Total equity £'000s
Period from 1 January to 31 July 2010
Opening balance at 1 January 2010	7,292	2,112	12,936	304,448	11,576	338,364	6,233	344,597
Profit for the period attributable to recognised income and expense	-	-	-	5,157	540	5,697	74	5,771
Dividends paid or approved	-	-	-	-	(1,641)	(1,641)	-	(1,641)
Net distribution to non-controlling interests	-	-	-	-	-	-	(74)	(74)
Closing balance	7,292	2,112	12,936	309,605	10,475	342,420	6,233	348,653
	Share capital £'000s	Capital redemption reserve £'000s	Share premium £'000s	Capital reserve £'000s	Revenue reserve £'000s	Total shareholders'        equity   £'000s	Non-          controlling  interest  £'000s	Total equity £'000s
Half year to 30 June 2009
Opening balance at 1 January 2009	7,292	2,112	12,936	290,066	14,939	327,345	4,394	331,739
Loss for the period attributable to recognised income and expense	-	-	-	(32,511)	(88)	(32,599)	(1,651)	(34,250)
Dividends paid or approved	-	-	-	-	(3,281)	(3,281)	-	(3,281)
Closing balance	7,292	2,112	12,936	257,555	11,570	291,465	2,743	294,208
	Share capital £'000s	Capital redemption reserve £'000s	Share premium £'000s	Capital reserve £'000s	Revenue reserve £'000s	Total shareholders'        equity   £'000s	Non-          controlling  interest  £'000s	Total equity £'000s
Year ended 31 December 2009
Opening balance at 1 January 2009	7,292	2,112	12,936	290,066	14,939	327,345	4,394	331,739
Profit/(loss) for the period attributable to recognised income and expense	-	-	-	14,382	(82)	14,300	1,911	16,211
Dividends paid or approved	-	-	-	-	(3,281)	(3,281)	-	(3,281)
Net distribution to non-controlling interests	-	-	-	-	-	-	(72)	(72)
Closing balance	7,292	2,112	12,936	304,448	11,576	338,364	6,233	344,597

7. RELATED PARTY TRANSACTIONS

INVESTMENT MANAGEMENT CHARGES

The investment management charges set out in the table below were paid to the Manager, Graphite Capital Management LLP, in the period. The Manager is a related party.

						Period from
						1 January to	Half year to	Year to
						31 July	30 June	31 December
						2010	2009	2009
						£'000s	£'000s	£'000s
Investment management fee						2,246	1,754	3,489
Irrecoverable VAT						(28)	-	81
VAT reclaim accrued						(726)	(21)	(21)
						1,492	1,733	3,549

The allocation of the total investment management charges was unchanged in 2010 with 75% of the total allocated to capital and 25% allocated to income.

The management fee charged by the Manager is 1.5% of the value of invested assets and 0.5% of outstanding commitments, in both cases excluding funds managed by Graphite Capital.  The amounts payable during the year are set out above.  There were no unpaid invoices as at 31 July 2010. The Company has borne management charges in respect of its investments in funds managed by Graphite Capital as set out below:

						Period from
						1 January to	Half year to	Year to
						31 July	30 June	31 December
						2010	2009	2009
						£'000s	£'000s	£'000s
Graphite Capital Partners V						-	43	-
Graphite Capital Partners VI						283	222	438
Graphite Capital Partners VII						470	397	795
						753	662	1,233

OTHER RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation for the Group.

Significant transactions between the parent company and its subsidiaries are shown below:

		Period from
		1 January to	Half year to	Year to
		31 July	30 June	31 December
		2010	2009	2009
Subsidiary	Nature of transaction	£'000s	£'000s	£'000s
Graphite Enterprise Trust LP	Increase/(decrease) in loan balance	919	(10,100)	(11,385)
	Income allocated	196	49	335
Graphite Enterprise Trust (2) LP	Increase/(decrease) in loan balance	4,526	(558)	226
	Income allocated	2	2	10

Significant balances outstanding between the parent company and its subsidiaries are shown below:

	Period from 1 January to 31 July	Half year to 30 June		Year to 31 December	Period from 1 January to 31 July	Half year to 30 June	Year to 31 December
	2010		2009	2009	2010	2009	2009
Subsidiary	£'000s		£'000s	£'000s	£'000s	£'000s	£'000s
Graphite Enterprise Trust LP	3,579		3,945	2,660	-	-	-
Graphite Enterprise Trust (2) LP	8,601		3,292	4,075	-	-	-

Statement of Directors' Responsibilities

The directors confirm that this interim financial report has been prepared in accordance with IAS34 as adopted by the European Union with the exception of the omission of comparative information as disclosed in note 3 and that the interim management report includes a fair review of the following information:

• an indication of important events that have occurred during the first seven months of the year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the accounting period; and

• material related-party transactions in the first seven months and any changes in the related-party transactions described in the last annual report that have materially affected or could have a material effect on the financial position or performance of the Group.

By order of the Board

M Fane

Chairman

23 September 2010

Copies of the Interim Report will be posted to all shareholders in early October 2010 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

23 September 2010

For further information, please contact:

Stephen Cavell / Tim Spence Graphite Capital

Tel: [phone]

 

END

 

 

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