Interim Results
Graphite Enterprise Trust PLC
20 September 2006
For immediate release
GRAPHITE ENTERPRISE TRUST PLC
UNAUDITED RESULTS FOR THE HALF YEAR
TO 30 JUNE 2006
SUMMARY OF THE PERIOD
Net assets per share +5.1%
Share price +0.5%
Realisations £57.5m
New commitments £83.5m
New investments £42.2m
FINANCIAL SUMMARY
Jun 2006 Dec 2005 Change
Net assets per share 418.6p 398.4p +5.1%
Share price 366.3p 364.3p +0.5%
PERFORMANCE
Years to 30 June 2006 1 3 5 10
NAV per share +16.8% +54.4% +45.1% +247.8%
Share price +18.9% +64.2% +48.0% +243.9%
FTSE All-Share Index +15.9% +50.5% +8.8% +59.9%
Chairman's Statement
Overview
Graphite Enterprise made steady progress in the first half of 2006 during a
period of volatility for quoted markets. The net asset value per share rose by
5.1% to 418.6p and the share price rose by 0.5% to 366.3p. These increases
compare with a rise of 4.2% in our benchmark, the FTSE All-Share Index. At the
period end shareholders' funds were £352.3 million.
The increase in net asset value per share was mainly the result of profitable
disposals and refinancings of underlying companies in the fund portfolio, and of
co-investments alongside funds.
The discount of the share price to the net asset value increased from a five
year low of 8.6% to 12.5% in the six months to 30 June 2006, having fallen from
14.1% in the previous six months. This increase was consistent with a general
widening of discounts in the private equity investment trust sector.
Our objective is to provide shareholders with long term capital growth. In the
five years to 30 June 2006 the FTSE All-Share Index rose by 8.8%, while the net
asset value per share of Graphite Enterprise rose by 45.1% and its share price
rose by 48.0%.
Longer term performance has also been strong, with increases of 247.8% in the
net asset value per share and 243.9% in the share price in the ten years to 30
June 2006. These movements compare with an increase of 59.9% in the FTSE
All-Share Index over the same period.
Six months to 30 June 2006
£m Opening Additions Disposals Gains & Closing
value losses value
Investment portfolio 174.4 42.2 (57.5) 16.3 175.4
FTSE option 20.2 - - 3.8 24.0
Total portfolio 194.6 42.2 (57.5) 20.1 199.4
Portfolio
The portfolio generated total gains of £20.1 million during the period,
representing 10.3% of its opening value. Of this amount, £16.3 million was
generated by the investment portfolio (9.3% of opening value) and £3.8 million
by the FTSE option (18.8% of opening value).
The largest gains in the investment portfolio came from HSBC Infrastructure
Fund, Preh and ICG Mezzanine 2000 fund.
The total value of the portfolio at 30 June 2006 was £199.4 million of which
£175.4 million was in the investment portfolio and £24.0 million was in the FTSE
option.
Overall, disposals exceeded additions by £15.3 million. Disposals continued at
a high level in the period and additions increased substantially as drawdowns of
commitments to funds made over the past 18 months accelerated.
At 30 June 2006, 54.3% (31 December 2005: 50.1%) of the investment portfolio was
invested in funds and 45.7% (49.9%) was held in direct investments.
£m 2002 2003 2004 2005 2006
1sthalf
Additions 47.1 35.0 29.3 45.5 42.2
Disposals 36.0 34.5 109.2 86.2 57.5
Disposals
The investment portfolio generated total proceeds of £57.5 million (June 2005:
£33.0 million) representing 33.0% of the opening value, and reflecting the
continuing strength of the market for disposals.
The largest disposal in the period was of the investment in U-POL which
generated proceeds of £12.7 million. The full value of this disposal was
reflected in the balance sheet at 31 December 2005.
The portfolio of HSBC Infrastructure Fund was sold to a new quoted company.
This generated proceeds of £6.8 million, with the remaining holding being valued
at a further £2.9 million at the period end.
£5.9 million was received from the sale of the interest in Aster City which was
held through the Hicks Muse Tate & Furst Europe fund.
The refinancing of Preh, a co-investment alongside the DBAG IV fund, returned
£5.8 million, and the remaining holding was valued at £1.8 million at 30 June.
A number of disposals by the ICG Mezzanine 2000 fund generated total
distribution proceeds of £5.4 million. In March we disposed of our interest in
Lion Capital I for £7.1 million at a small premium to our cost. The fund had
drawn down £2.8 million in the period.
Additions
Additions to the portfolio were £42.2 million, nearly three times the level in
the first half of 2005 and almost 40% more than in the second.
The two largest investments made in the period were of £8.2 million in
Micheldever Tyre Services, the UK's leading independent tyre distributor, and of
£7.2 million in Cinque Ports Leisure, the UK's third largest holiday home and
caravan park group. Both of these investments were made through Graphite
Capital Partners VI and alongside the fund as co-investments.
Other investments included £2.3 million in Avery Healthcare and £4.8 million in
a number of mezzanine debt investments
Commitments
£m Jun 04 Dec 04 Jun 05 Dec 05 Jun 06
Total commitments 94.0 83.3 125.7 147.7 183.1
A total of £83.5 million was committed to funds in the six months to 30 June
2006, compared with £50.7 million in the same period in 2005.
Details of the largest new commitments are set out below:
Fund Commitment £m
Fourth Cinven Fund 20.4
Charterhouse Capital Partners VIII 13.9
Euromezzanine 5 13.9
TDR Capital Fund II 13.8
Madison Dearborn Capital Partners V 13.0
Other 8.5
Total 83.5
o The Fourth Cinven Fund is a €6.5 billion fund which invests in large
pan-European buy-outs.
o Charterhouse Capital Partners VIII is a €4.0 billion fund which invests
in medium-sized and large buy-outs throughout Europe.
o Euromezzanine 5 is a €660 million fund which invests in mezzanine
finance throughout Europe but primarily in private equity transactions in
France.
o TDR Capital Fund II is a €1.75 billion fund which invests in
medium-sized and large European buy-outs.
o Madison Dearborn Capital Partners V is a $6.5 billion fund investing in
medium-sized and large buy-outs, mainly in North America.
Total commitments at the period end were £183.1 million, 24.0% higher than at
the beginning of the year.
Balance sheet
At 31 December 2005, cash and near cash balances marginally exceeded
commitments. Although disposals exceeded additions in the period, high levels of
new commitments resulted in outstanding commitments exceeding the level of cash
and near cash at 30 June 2006.
At 31 December 2005, the total portfolio was valued at £194.6 million,
representing 56.5% of total net assets. Cash and near cash totalled £149.9
million and commitments were £147.7 million, leaving £2.2 million of cash
uncommitted to the portfolio.
At 30 June 2006, the total portfolio was valued at £199.4 million, representing
55.8% of total net assets. Cash and near cash totalled £158.2 million and
commitments were £183.1 million, resulting in commitments exceeding cash and
near cash by £24.9 million, representing 7.0% of total net assets.
Fund commitments are typically drawn over a three to five year period. At the
current level they are expected to be funded by cash and by disposals from the
existing portfolio. We expect to increase the level of commitments further to
ensure that cash generated by disposals is reinvested more rapidly. The Board
regularly reviews the need for borrowing facilities to cover any potential
excess of fund drawdowns over available cash.
In October 2005, we purchased a call option over the FTSE 100 Index with a three
year maturity. This was to address the risk of underperformance which would
result from holding high levels of cash if the market were to rise.
The FTSE 100 Index rose by 3.8% to 5,833 in the six months to 30 June 2006 and
the value of the option rose by £3.8 million to £24.0 million. The cost of the
option was £14.0 million.
Graphite Enterprise was effectively 85.4% invested as a percentage of total net
assets at 30 June 2006 (31 December 2005: 87.2%), taking into account the effect
of the option.
We have continued to follow the policy of enhancing shareholder returns by
buying back shares when they are available in reasonable volumes at an
attractive discount. A total of 720,554 shares was bought back during the
period, at a total cost of £2.6 million. The average price paid was 358.3p, at
an average discount to net asset value of 11.1%. All shares bought back have
been cancelled.
Statement of Total Return and Dividend
The revenue return attributable to shareholders for the period was £2.9 million
or 3.4p per share (June 2005: £3.8 million, 4.3p). Although income from
investments was high, it was lower than the exceptional level of the same period
in 2005.
The final dividend in respect of 2005 of 4.3p per share was paid at the
beginning of June 2006. In accordance with IFRS, no provision was made for the
dividend at 31 December 2005. As a result, net assets were reduced by its
payment in the current year.
Outlook
In July and August, a total of £12.0 million was invested. This included a
co-investment of £4.3 million in Design Objectives, a designer and distributor
of papercraft products, which was made through and alongside Bowmark Capital
Partners III. Disposals in July and August totalled £7.0 million.
The private equity market remains active, with a reasonable balance between
opportunities for new investments and opportunities for disposals. The
turbulence of quoted markets in May did not have a significant effect on the
private equity market as a whole, although it has become harder to achieve
disposals through flotations.
We have made substantial commitments to funds over the last eighteen months and
would expect the rate of new investments to remain high over the next twelve
months as these commitments are drawn down.
John Sclater
September 2006
The 30 Largest Underlying Investments
The table below presents the 30 companies in which Graphite Enterprise had the
largest investments by value at 30 June 2006. Values are shown as a percentage
of the total investment portfolio of £175.4 million.
Value as a % of
Year of Country / investment
Entity investment region portfolio
1 Micheldever
Distributor and retailer of tyres 2006 UK 4.7%
2 Go Plant
Operator of road sweeping vehicles 1995 UK 4.5%
3 Cinque Ports
Owner and operator of caravan parks 2006 UK 4.1%
4 Standard Brands
Supplier of household fire lighting products 2001 Europe 3.9%
5 Wagamama
Chain of Japanese noodle restaurants 1996 UK 3.9%
6 Huntress Search
Recruitment consultancy 2000 UK 3.1%
7 Intermediate Capital *
Provider of mezzanine finance 1989 Europe 3.1%
8 Kwik-Fit
Provider of automotive fast-fit services 2005 Europe 2.9%
9 OPD Group *
Group of specialist recruitment agencies 1991 UK 2.8%
10 Applied Energy
Manufacturer of ventilation and heating products 2001 UK 2.7%
11 Leading Edge
Printer of self adhesive labels and packaging 2003 UK 2.2%
12 JT Frith
Operator of discount warehouses 2004 UK 2.0%
13 Computacenter *
Provider of IT equipment and services to large 1985 UK 1.9%
organisations
14 Bridgewell *
Provider of corporate finance and broking services 2001 UK 1.8%
15 Avery Healthcare
Owner and operator of care homes for the elderly 2005 UK 1.6%
Total of the 15 largest underlying investments 45.2%
Value as a % of
Year of Country / total investment
Entity investment region portfolio
16 PIFC
Pensions and employment benefits consultancy 2002 UK 1.5%
17 Segur Iberica
Provider of security services and products 2004 Spain 1.4%
18 Christian Hansen
Supplier of natural ingredients to the food industry 2005 Global 1.3%
19 Golden Tulip
Developer and manager of hotels 2002 UK 1.2%
20 Weetabix
Manufacturer of breakfast cereals 2004 Global 1.2%
21 Elis
Provider of textile rental and hygiene services 2005 France 1.2%
22 Aktrion
Provider of outsourced managed services to 2004 UK 1.1%
manufacturers
23 TMP
Recruitment communications agency 2006 UK 1.1%
24 Integrity Software
Provider of software to small and medium-sized 2005 UK 1.1%
companies
25 Hellermann Tyton
Manufacturer of electrical and communications 2006 UK 1.1%
network components
26 Perstop
Manufacturer of chemical additives for the resin and 2005 Sweden 1.1%
coating industries
27 Moeller
Supplier of electrical components 2005 Germany 1.1%
28 Preh
Manufacturer of automotive components 2003 Germany 1.0%
29 Summit Medical
Manufacturer of medical devices and accessories 2001 UK 1.0%
30 Futura
Operator of charter airline services 2002 Spain 1.0%
Total of the 30 largest underlying investments 62.6%
* Quoted
The 15 Largest Fund Investments
The largest fund investments by value at 30 June 2006 are set out below.
Fund Outstanding Year of Country /
commitment £m commitment region Value £m
1 Graphite Capital Partners VI
Medium-sized buy-outs 21.9 2003 UK 24.4
2 Corpfin Capital Fund II
Medium-sized buy-outs - 2000 Spain 8.3
3 PAI Europe IV
Large leveraged buy-outs 12.8 2005 Europe 7.8
4 Doughty Hanson & Co IV
Leveraged buy-outs of medium-sized to large 7.3 2005 Europe 7.7
companies
5 Barclays European Infrastructure Fund
Infrastructure projects 4.9 2002 UK 6.4
6 ICG Mezzanine Fund 2000
Mezzanine loans to medium-sized to large 0.8 2000 Europe 5.9
buy-outs
7 Euromezzanine 4
Mezzanine loans to medium-sized buy-outs 0.4 2003 France 5.1
8 Deutsche Beteiligungs AG Fund IV
Medium-sized buy-outs, primarily of 2.8 2000 Germany 4.9
manufacturers
9 Euromezzanine 5
Mezzanine loans to medium-sized buy-outs 9.1 2006 France 4.6
10 Activa Capital Fund
Medium-sized buy-outs 3.4 2002 France 3.2
11 Piper Private Equity Fund III
Small buy-outs of consumer businesses 0.8 2003 UK 3.0
12 HSBC Infrastructure Fund
Infrastructure projects 6.1 2001 UK/Europe 2.9
13 CVC European Private Equity Partners IV
Large buy-outs 7.1 2005 Europe 2.9
14 Charterhouse Capital Partners VI
Medium-sized to large buy-outs 0.1 1997 UK/France 2.4
15 Candover 2005 Fund
Large buy-outs 18.3 2005 Europe 2.2
Total of largest 15 fund investments 95.8 91.7
Percentage of total investment portfolio 52.3%
Portfolio Analysis
Sector analysis
% of total investment
portfolio
Business services 19.3%
Consumer goods and services 19.3%
Manufacturing and engineering 12.4%
Leisure 11.3%
Construction and building supplies 9.2%
Investment banking and finance 6.9%
Advertising and recruitment 5.9%
Retailing 5.1%
Other 10.6%
Total 100.0%
Geographic distribution
% of total investment
portfolio
UK 70.4%
France 10.0%
Germany 5.5%
Spain 5.3%
Other European 6.8%
North America 2.0%
Total 100.0%
Investment type
% of total investment portfolio
Medium-sized buy-out 57.0%
Large buy-out 14.6%
Quoted 11.2%
Mezzanine 8.9%
Infrastructure 5.3%
Small buy-out 3.0%
Total 100.0%
Year of investment
% of total investment portfolio
2006 18.8%
2005 17.4%
2004 11.7%
2003 7.1%
2002 8.2%
2001 12.9%
2000 and before 23.9%
Total 100.0%
Unaudited Consolidated Income Statement
Half year to 30 Jun 2006 Half year to 30 Jun 2005 Year to 31 Dec 2005
Revenue Capital Total Revenue Capital Total Revenue Capital Total
return return return return return return
£'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Investment returns
Gains and losses on 4,847 20,093 24,940 6,017 33,266 39,283 14,211 69,589 83,800
investments held at
fair value
Foreign exchange gains - (27) (27) - (372) (372) - (208) (208)
and losses
4,847 20,066 24,913 6,017 32,894 38,911 14,211 69,381 83,592
Expenses
Investment management (581) (1,744) (2,325) (651) (1,944) (2,595) (1,117) (3,350) (4,467)
charges
Other expenses (432) - (432) (435) - (435) (960) (288) (1,248)
(1,013) (1,744) (2,757) (1,086) (1,944) (3,030) (2,077) (3,638) (5,715)
Profit before tax 3,834 18,322 22,156 4,931 30,950 35,881 12,134 65,743 77,877
Taxation (959) 523 (436) (1,143) 637 (506) (3,193) 1,142 (2,051)
Profit for the period 2,875 18,845 21,720 3,788 31,587 35,375 8,941 66,885 75,826
Attributable to:
Equity shareholders 2,875 17,497 20,372 3,788 27,854 31,642 8,941 59,894 68,835
Minority interests - 1,348 1,348 - 3,733 3,733 - 6,991 6,991
Basic and diluted 24.0p 35.6p 78.8p
earnings per share
Dividends declared and
paid
- total paid (£'000s) 3,650 3,858 7,678
- per share (p) 4.3p 4.3p 8.8p
The column headed 'Total' represents the income statement for the relevant
period and the columns headed 'Revenue' and 'Capital' are supplementary
information.
Unaudited Consolidated Balance Sheet As at 30 Jun As at 31 Dec
2006 2005 2005
£'000s £'000s £'000s
Non-current assets
Investments held at fair value
- Unquoted investments 156,843 152,586 159,286
- Quoted investments 18,535 14,267 15,065
- FTSE 100 Call Option 24,060 - 20,254
199,438 166,853 194,605
Current assets
Cash and cash equivalents 161,613 150,199 150,871
Trade and other receivables 157 618 1,404
161,770 150,817 152,275
Current liabilities
Trade and other payables 3,579 545 2,351
Net assets 357,629 317,125 344,529
Capital and reserves
Called up share capital 8,415 8,652 8,487
Capital redemption reserve 989 752 917
Share premium 12,936 12,936 12,936
Capital reserve 318,007 276,518 303,104
Revenue reserve 11,921 11,362 12,696
Equity attributable to equity shareholders 352,268 310,220 338,140
Minority interests 5,361 6,905 6,389
357,629 317,125 344,529
Net asset value per ordinary share (basic and diluted) 418.6p 358.5p 398.4p
Unaudited Consolidated Cash Flow Statement
Half year to Year to
30 Jun 31 Dec
2006 2005 2005
£'000s £'000s £'000s
Operating activities
Sale of portfolio investments 57,420 32,993 86,248
Purchase of portfolio investments (42,127) (15,057) (45,556)
Purchase of FTSE 100 Call option - - (14,028)
Income received from investments 2,957 2,934 6,634
Other income 3,235 3,173 6,688
Investment management charges paid (2,373) (2,029) (4,356)
Other expenses (400) (873) (1,123)
Taxation (91) - 312
Net cash inflow from operating activities 18,621 21,141 34,819
Financing
Investments by minority interests 66 99 205
Distributions to minority interests (2,475) (1,499) (5,414)
Purchase of ordinary shares (1,793) (9,126) (14,580)
Equity dividends paid (3,650) (3,858) (7,678)
Net cash outflow from financing activities (7,852) (14,384) (27,467)
Net increase in cash and cash equivalents 10,769 6,757 7,352
Cash and cash equivalents at beginning of period 150,871 143,814 143,727
Net increase in cash and cash equivalents 10,769 6,757 7,352
Effect of changes in foreign exchange rates (27) (372) (208)
Cash and cash equivalents at end of period 161,613 150,199 150,871
Unaudited Consolidated Statement of Changes in Equity
Half year to 30 Jun Year to
31 Dec
2006 2005 2005
£'000s £'000s £'000s
Total equity at the beginning of the period 344,529 296,088 296,088
Adoption of IAS 32 and IAS 39 - 83 83
344,529 296,171 296,171
Profit attributable to equity shareholders 20,372 31,642 68,835
Profit attributable to minority interests 1,348 3,733 6,991
Total profit for the period and total recognised income and 21,720 35,375 75,826
expense
Dividends paid to equity shareholders (3,650) (3,858) (7,677)
Purchase of ordinary shares (2,594) (9,126) (14,580)
Net distribution to minority interests (2,376) (1,437) (5,211)
Total equity at end the of period 357,629 317,125 344,529
Notes
1 GENERAL INFORMATION
Graphite Enterprise Trust PLC (the 'Company') and its subsidiary (together '
Graphite Enterprise' or the 'Group') are registered in England and Wales and
domiciled in England. The registered office is 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 both directly
and through specialist funds. These consolidated interim financial statements
were approved for issue by the Board of Directors on 19 September 2006.
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 2006 and 30 June 2005 has
not been audited.
The information for the year ended 31 December 2005 has been extracted from the
latest published audited financial statements. The audited financial statements
for the year ended 31 December 2005 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 BASIS OF PREPARATION
The financial information for the period ended 30 June 2006 has been prepared in
accordance with the Listing Rules of the Financial Services Authority (FSA) and
in accordance with the accounting policies that are expected to be adopted for
the year ending 31 December 2006, which are consistent with the accounting
policies which were set out in the 2005 consolidated financial statements.
The Group has chosen not to adopt IAS 34 'Interim Financial Reporting' in
preparing its 2006 interim accounts since adoption of this standard is not
mandatory until the EU Transparency Directive is implemented through the FSA's
Listing Rules.
4 DIVIDENDS
Half year to Year to
30 June 31 December
2006 2005 2005
£'000s £'000s £'000s
Dividends paid or approved in the period 3,650 3,858 7,678
5 EARNINGS PER SHARE
Half year to 30 Year to
June 31 December
2006 2005 2005
Revenue return per ordinary share 3.39p 4.26p 10.24p
Capital return per ordinary share 20.64p 31.35p 68.60p
Earnings per ordinary share (basic and diluted) 24.04p 35.61p 78.84p
Weighted average number of shares 84,752,111 88,832,778 87,311,470
The earnings per share figures are based on the weighted average numbers of
shares set out above.
6 SHARE BUY BACKS
Half year to 30 Year to
June 31 December
2006 2005 2005
Number of shares bought back 720,554 3,200,000 4,850,000
Average price per share 358.3p 283.2p 298.5p
Total cost including expenses £2,594,000 £9,126,000 £14,580,000
Number of shares in issue at the end of the period 84,154,446 86,525,000 84,875,000
All shares bought back were subsequently cancelled.
Copies of the Interim Report will be posted to all shareholders on or around 27
September 2006 and copies may be obtained during normal business hours from the
Company's registered office thereafter.
By order of the Board
Graphite Capital Management LLP
Secretary
20 September 2006
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