Interim Results
Graphite Enterprise Trust PLC
15 September 2005
GRAPHITE ENTERPRISE TRUST PLC
UNAUDITED RESULTS FOR THE HALF YEAR
TO 30 JUNE 2005
FINANCIAL RESULTS
30 Jun 31 Dec % change to
2005 2004 30 Jun 2005
Net assets per share 358.5p 324.9p* +10.4%
Share Price 308.0p 283.0p +8.8%
FTSE All-Share Index 2,560.2 2,410.8 +6.2%
* Restated for the adoption of International Financial Reporting Standards
HIGHLIGHTS
• Net assets per share rose by 10.4%.
• New commitments to funds totalled £50.7 million.
• Realisations from the investment portfolio totalled £33.0 million.
• Share buy backs totalled £9.1 million.
CHAIRMAN'S STATEMENT
Performance
The net asset value per share of Graphite Enterprise increased by 10.4% to
358.5p in the six months to 30 June 2005 and the share price increased by 8.8%
to 308.0p. These movements compare with an increase in our benchmark, the FTSE
All-Share Index, of 6.2%. At 30 June 2005 shareholders' funds were £310.2
million. The rise in net asset value was primarily the result of a number of
profitable disposals in a private equity market that had been unusually strong
in 2004 and remained buoyant in the first half of 2005.
Portfolio
In the six months to June a number of important disposals were completed,
generating substantial cash proceeds. Additions to the portfolio were at a
lower level, but significant new commitments were made to funds. Total proceeds
from the investment portfolio were £33.0 million while a total of £15.1 million
was invested in the portfolio. New commitments to funds totalled £50.7 million.
In June Wagamama was sold to Lion Capital with completion taking place in July.
We received cash proceeds of £7.0 million and re-invested a further £6.9 million
in the company formed by Lion Capital to effect the acquisition. The total
value of £13.9 million represents a surplus of £9.5 million over the carrying
value at the beginning of the year. Including the amount re-invested, total
proceeds over the life of the investment in Wagamama represent 4.9 times cost.
Ridgmont Care Homes was sold in April for £9.4 million, realising a surplus of
£4.9 million over the carrying value at December 2004. Total proceeds over the
life of the investment were £14.3 million representing 6.4 times cost.
The remaining investment in Leaderflush + Shapland was sold in the period for
£5.6 million and the investment in Babcock Borsig, which was held through
Deutsche Beteiligungs AG Fund IV, was sold for £4.5 million. In both cases the
proceeds significantly exceeded the carrying values at the beginning of the
year.
Graphite Enterprise made three commitments to funds in the period. These were
to Doughty Hanson & Co IV, Lion Capital I and PAI Europe IV.
The commitment to Doughty Hanson & Co IV was £15.1 million, of which £4.5
million has so far been drawn down to make investments in four companies. The
fund invests in leveraged buy-outs of businesses with enterprise values in
excess of €250 million, mainly in Europe.
The commitment to Lion Capital I was £14.9 million, of which £4.6 million has
been drawn down to make investments in three companies. The fund is focused on
buy-outs of consumer brand and media businesses across Europe. The manager is
the former European arm of Hicks Muse Tate & Furst, the U.S. private equity
firm.
The commitment to PAI Europe IV, which invests in large European buy-outs,was
£20.7 million. The manager, PAI Partners, is based in France and the fund is
likely to have a bias towards the French market.
Valuation movements
The value of the investment portfolio increased by £33.3 million of which £23.8
million was realised and £9.5 million was unrealised. The largest movements
were the increases in Wagamama (£9.5 million) reflecting the valuation achieved
on its sale, Jane Norman (£6.5 million) to reflect strong trading performance
and Ridgmont (£4.9 million). There were no substantial reductions in value in
the investment portfolio.
Balance sheet and liquidity
Total net assets were £317.1 million as at 30 June 2005. The investment
portfolio was valued at £166.9 million with cash and near cash holdings
accounting for the balance of £150.2 million. Undrawn commitments to the
portfolio were £125.7 million, bringing the total invested in or committed to
the investment portfolio to £292.5 million or 92.2% of net assets.
Uncommitted cash and near-cash was £24.6 million or 7.8% of total net assets.
Given the nature of our commitments to funds, which are contractual, long term
and binding, we believe that this figure is the best measure of liquidity.
The Company used £9.1 million for share buy backs in the period. In total 3.2
million shares were purchased and cancelled, equivalent to 3.6% of the shares in
issue at 31 December 2004. The buybacks were completed at an average price of
283.2p and at an average discount to net asset value of 14.6%.
Revenue account
Income has been unusually strong in the year to date, primarily as a result of
receipts on the disposal of investments. In the six months to 30 June 2005 a
total of £6.0 million was received, and more than £3.0 million has been received
since the period end.
It is likely that a special dividend will be paid to shareholders later in the
year as a result of this exceptionally high level of income.
Events since 30 June
Since 30 June, the investment in Jane Norman has been disposed of for total
proceeds of £21.3 million, realising a surplus of £7.3 million over the carrying
value at June. This had the effect, in isolation, of increasing the net asset
value per share by 6.0p, of which 4.1p was attributable to the capital account
and 1.9p was attributable to the revenue account. The investment achieved a
total return representing 2.9 times cost. A further fund commitment has been
made of £10.3 million to CVC European Equity Partners IV, a large European
buy-out fund.
International Financial Reporting Standards
International Financial Reporting Standards ('IFRS') have been applied for the
first time in this report. The impact on Graphite Enterprise has not been
significant. The main change is in the timing of recognition of dividends
payable by the Company, which are now shown in the period in which they are
declared. This had the effect of increasing the net asset value per share at 31
December 2004 from 320.6p to 324.9p. There have been some changes to the
format of the financial statements. The statement of total return is now called
the income statement, the format of the cash flow statement has changed, and a
new statement, the statement of changes in equity has been introduced. Further
explanation of the changes arising from the adoption of IFRS can be found in the
notes to the accounts.
Outlook
As we anticipated in the annual report, prices in the UK private equity market
have remained high, and conditions for disposals have been favourable. We
continue to believe that the market will fall from this cyclical peak in the
short to medium term. We are starting to see signs that banks are taking a more
cautious approach to providing debt to leveraged transactions and expect this to
feed through to lower prices in due course.
Against this market background, we have continued to dispose of mature
investments at the same time as substantially increasing our commitment to
funds, which we believe will be investing when conditions are more favourable.
The disposal of Jane Norman has increased the short term liquidity of Graphite
Enterprise. While we expect liquidity to fall as our substantial fund
commitments are drawn down, we will consider buying back more shares if they are
available in reasonable volumes at an attractive discount.
John Sclater
September 2005
For further information, please contact:
Rod Richards / William Eccles Tel: 020 7825 5300
Graphite Capital Management Limited
GRAPHITE ENTERPRISE TRUST PLC
UNAUDITED FINANCIAL INFORMATION FOR THE HALF YEAR TO 30 JUNE
Unaudited consolidated balance sheet 30 Jun 31 Dec
2005 2004* 2004*
£'000s £'000s £'000s
Non-current assets
Investments held at fair value
- Unlisted investments 152,586 189,997 133,998
- Listed investments 14,267 19,271 17,441
166,853 209,268 151,439
Current assets
Cash and cash equivalents 150,199 84,213 143,814
Trade and other receivables 618 1,281 1,342
150,817 85,494 145,156
Current liabilities
Trade and other payables (545) (1,341) (507)
Net assets 317,125 293,421 296,088
Capital and reserves
Called up share capital 8,652 9,080 8,972
Capital redemption reserve 752 324 432
Share premium 12,936 12,936 12,936
Capital reserve 276,518 252,654 257,707
Revenue reserve 11,362 10,457 11,432
Total equity attributable to equity shareholders 310,220 285,451 291,479
Minority interests 6,905 7,970 4,609
317,125 293,421 296,088
Net asset value per ordinary share (basic and diluted) 358.5p 314.4p 324.9p
* Restated for the adoption of International Financial Reporting Standards
Unaudited Consolidated Income Statement
Half year to 30 June 2005 Half year to 30 June 2004 * Year to 31 December 2004 *
Revenue Capital Total Revenue Capital Total Revenue Capital Total
return return return return return return
£'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Gains on investments - 33,266 33,266 - 28,007 28,007 - 38,256 38,256
held at fair value
Income 6,017 - 6,017 6,008 - 6,008 11,681 - 11,681
Foreign exchange gains - (372) (372) - (227) (227) - 269 269
and losses
6,017 32,894 38,911 6,008 27,780 33,788 11,681 38,525 50,206
Investment management (651) (1,944) (2,595) (576) (1,732) (2,308) (1,209) (3,626) (4,835)
charges
Other expenses (435) - (435) (368) (54) (422) (875) (88) (963)
(1,086) (1,944) (3,030) (944) (1,786) (2,730) (2,084) (3,714) (5,798)
Profit before tax 4,931 30,950 35,881 5,064 25,994 31,058 9,597 34,811 44,408
Taxation (1,143) 637 (506) (818) 818 - (1,864) 1,864 -
Profit for the period 3,788 31,587 35,375 4,246 26,812 31,058 7,733 36,675 44,408
Attributable to:
Equity shareholders 3,788 27,854 31,642 4,246 22,500 26,746 7,733 30,443 38,176
Minority interests - 3,733 3,733 - 4,312 4,312 - 6,232 6,232
Basic and diluted 35.6p 29.5p 42.2p
earnings per share
Dividends declared and
paid
- total paid (£'000s) 3,858 3,904 6,417
- per share (p) 4.3p 4.3p 7.1p
The column headed 'capital' includes all items of income and expense which
relate to investments held at fair value. The column headed 'revenue' includes
all other items of income and expense. The column headed 'total' represents the
income statement for the relevant period. All items in the above statement
relate to continuing operations.
* Restated for the adoption of International Financial Reporting Standards.
Unaudited Consolidated Cash Flow statement
Half year to Year to
30 June 31 December
2005 2004* 2004*
£'000s £'000s £'000s
Operating activities
Sale of portfolio investments 32,993 24,287 109,251
Purchase of portfolio investments (15,057) (12,461) (29,361)
Income received from investments 2,934 3,771 6,745
Other income 3,173 1,538 4,318
Investment management charges paid (2,029) (965) (3,770)
Other expenses (873) (951) (2,173)
Net cash inflow from operating activities 21,141 15,219 85,010
Financing
Investments by minority interests 99 90 221
Distributions to minority interests (1,499) (493) (5,907)
Purchase of ordinary shares (9,126) - (2,890)
Equity dividends paid (3,858) (3,904) (6,417)
Net cash outflow from financing activities (14,384) (4,307) (14,993)
Net increase in cash and cash equivalents 6,757 10,912 70,017
Cash and cash equivalents at beginning of year 143,814 73,528 73,528
Net increase in cash and cash equivalents 6,757 10,912 70,017
Effect of changes in foreign exchange rates (372) (227) 269
Cash and cash equivalents at end of year 150,199 84,213 143,814
* Restated for the adoption of International Financial Reporting Standards.
Unaudited Consolidated Statement of Changes in Equity
Half year to Year to
30 June 31 December
2005 2004 2004
£'000s £'000s £'000s
Total equity at the beginning of the period 296,088 266,719 266,719
Adoption of IAS 39 83* - -
Profit attributable to equity shareholders 31,642 26,746 38,176
Profit attributable to minority interests
3,733 4,312 6,232
Total profit for the period and total recognised income and 35,375 31,058 44,408
expense
Dividends declared (3,858) (3,904) (6,417)
Purchase of own shares (9,126) - (2,890)
Net distributions to minority interests (1,437) (452) (5,732)
Total equity at the end the of period 317,125 293,421 296,088
* The adoption of IAS 39 increased shareholders' equity by £83,000 and had no
impact on minority interests.
NOTES TO THE FINANCIAL INFORMATION
1 Adoption of International Financial Reporting Standards
(a) Basis of preparation
The consolidated financial information for the six months ended 30 June 2005 has
been prepared using the accounting policies expected to be used in the Group's
annual financial statements to 31 December 2005. These accounting policies will
be based on International Financial Reporting Standards ('IFRS') issued by the
International Accounting Standards Board ('IASB') that will be applicable and
adopted for use in the European Union for the Group's year ending 31 December
2005, except as noted below.
IAS 39 Financial instruments: recognition and measurement has been adopted for
the six months ended 30 June 2005 but comparative information has not been
restated as permitted by IFRS 1 First-time Adoption of International Financial
Reporting Standards. The effect of restatement would not have been significant.
The Group has adopted The Fair Value Option amendment to IAS 39 issued by the
IASB in June 2005 for these interim financial statements. This amendment has
not yet been adopted for use in the European Union. It is anticipated that
adoption will take place prior to the publication of the Group's next annual
report but there can be no certainty of this.
Due to the continuing work of the IASB and possible amendments to the
interpretive guidance, the Group's accounting policies, and consequently the
information presented, may change prior to the publication of the Group's first
annual financial statements under IFRS.
(b) Impact of transition
IFRS requires that dividends are recorded as a liability when declared and not
before. For Graphite Enterprise this has changed the period in which year end
dividends are recognised, increasing total shareholders' equity at 1 January
2004 by £3,904,000 and 31 December 2004 by £3,858,000. Shareholders' equity at
30 June 2004 was not affected. There were no other adjustments to previously
reported net assets or profit.
The adoption of IAS 39 for the period ended 30 June 2005 increased shareholders'
equity by £83,000 at 1 January 2005.
2 Unaudited Interim Report
The financial information contained in this interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
financial information for the half years ended 30 June 2005 and 30 June 2004 has
not been audited.
The information for the year ended 31 December 2004 has been extracted from the
latest published audited financial statements, as amended to comply with IFRS.
The audited financial statements for the year ended 31 December 2004 have been
filed with the Registrar of Companies. The report of the auditors on those
accounts contained no qualification or statement under section 237(2) or (3) of
the Companies Act 1985.
3 Geographical distribution of portfolio investments
UK Non-UK Total
% % %
Listed 8 - 8
Unlisted 65 27 92
73 27 100
4 Share buy backs
During the six months ended 30 June 2005, the Company bought back 3,200,000 of
its own shares in the market at an average price of 283.2p per share. All the
shares were subsequently cancelled. The number of shares in issue at 30 June
2005 was 86,525,000 (31 December 2004: 89,725,000, 30 June 2004: 90,800,000).
The total cost of these buy backs including related expenses was £9,126,000 and
they had the effect of enhancing net asset value per share by 2.7p.
There were no share buy backs in the six months ended 30 June 2004. During the
year ended 31 December 2004, the Company bought back 1,075,000 of its own shares
in the market at an average price of 266.9p per share. All the shares were
subsequently cancelled. The total cost of these buy backs including related
expenses was £2,890,000 and they had the effect of enhancing net asset value per
share by 0.6p.
5 Dividends
Half year to Year to
30 June 31 December
2005 2004 2004
£'000s £'000s £'000s
Dividends declared 3,858 3,904 6,417
As in previous years, the directors do not propose to pay an interim dividend.
6 Earnings per share
Half year to 30 Year to
June 31 December
2005 2004 2004
Basic and diluted: £'000s £'000s £'000s
Revenue return per ordinary share 4.26p 4.68p 8.54p
Capital return per ordinary share 31.35p 24.78p 33.61p
Earnings per ordinary share 35.61p 29.46p 42.15p
Weighted average number of shares 88,832,778 90,800,000 90,574,863
The earnings per share figures are based on the weighted average numbers of
shares set out above.
Copies of the Interim Report will be posted to all shareholders on or around 30
September 2005 and copies may be obtained during normal business hours from the
Company's registered office thereafter.
By order of the Board Registered Office
Graphite Capital Management Limited Berkeley Square House
Secretary Berkeley Square
London W1J 6BQ
Tel: 020 7825 5300
THE 10 LARGEST INVESTMENTS
Value at
30 June 2005
£'000s
1 Jane Norman 13,973
Retailer of women's fashion products
2 Wagamama 13,864
Chain of Japanese noodle restaurants
3 Hicks, Muse, Tate & Furst Europe Fund 10,076
Equity investor in large European buy-outs
4 ICG Mezzanine Fund 2000 9,654
Fund investing in mezzanine finance
5 Huntress Search 8,211
Recruitment consultancy
6 U-POL 8,026
Manufacturer of fillers, coatings and other automotive products
7 Corpfin Capital II 8,015
Fund investing in medium-sized buy-outs in Spain
8 Graphite Capital Partners VI 7,016
Fund investing in mid-market buy-outs in the UK
9 Intermediate Capital Group* 6,313
Provider of mezzanine finance
10 Preh 5,226
Manufacturer of automotive components
Total of ten largest investments 90,374
Percentage of portfolio investments 54.2%
* Quoted
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