Interim Results

RNS Number : 2212C

Graphite Enterprise Trust PLC

28 August 2008

 



28 August 2008

GRAPHITE ENTERPRISE TRUST PLC

UNAUDITED RESULTS FOR THE HALF YEAR

TO 30 JUNE 2008

SUMMARY OF THE PERIOD

Net asset value per share…………………………………………………………… The FTSE All-Share Index, the Company's benchmark, fell by 13.1%	+0.2%
Share price…………………………………………………………………………... The discount widened to 19.3%, moving into line with the peer group average	-11.4%
Net new commitments ……………………………………………………………. Total commitments at the period end were £346.4m	£64.9m
New investments…………………………………………………………………… Almost all new investments were made in the fund portfolio	£38.7m
Realisations …………………………………………………………………………. Proceeds were equivalent to 7.8% of the opening portfolio	£19.6m
Dividend……………………………………………………………………………. A dividend of 8.0p per share was paid in May	£5.8m

FINANCIAL SUMMARY

	30 June 2008	31 Dec 2007	Change
Net asset value per share	520.5p	519.4p	+0.2%
Share price	420.0p	474.0p	-11.4%
FTSE All-Share Index	2,856	3,287	-13.1%

  CHAIRMAN'S STATEMENT

Overview

In the six months to June 2008, the net asset value per share of Graphite Enterprise rose marginally to 520.5p and the share price fell by 11.4% to 420.0p. These figures compare with a fall of 13.1% in our benchmark, the FTSE All-Share Index, over the same period. Over twelve months, the net asset value per share has increased by 7.5%, the share price has fallen by 3.9% and the FTSE All-Share Index has fallen by 16.7%. Shareholders' funds at 30 June were £379.5 million.

The fall in the share price reflected a widening of the discount between the share price and the net asset value per share. The discount at June was 19.3% compared with 8.7% at December 2007 and 9.7% at June 2007. Discounts in the private equity investment trust sector have widened materially over the last twelve months and, after being at a significant premium to the sector at the end of last year, our discount has since moved into line with the sector average. 

The objective of the Company is to provide shareholders with long term capital growth and, as the table below shows, both the net asset value per share and the share price of Graphite Enterprise have consistently outperformed the FTSE All-Share Index over the ten years to June 2008.

Years to 30/6/08	1	3	5	10
NAV per share	+7.5%	+45.2%	+92.0%	+69.4%
Share price	-3.9%	+36.4%	+88.3%	+41.7%
FTSE All-Share	+16.7%	+11.5%	+44.9%	+4.1%

The private equity market

In last year's report, I commented that activity levels in the private equity sector had declined materially in the last quarter of 2007. This decline has continued in the first half of 2008 with preliminary figures suggesting that the value of management buy-outs completed in Europe in the first quarter was down by 54% compared with the same period in 2007 and the value in the second quarter was down by 62%. The total value of management buy-outs completed in the twelve months to June 2008 was at the same level as for the first six months of 2007. Clearly the shortage of bank debt has been a major factor in this decline but concerns over the general economic outlook and the reluctance of vendors to accept lower prices than they would have expected in 2007 have also been significant contributors. 

No figures are available for realisations but evidence suggests that the value of realisations has fallen even more markedly. It is possible that the rate of realisations will remain depressed for longer than the rate of new investment as investments made in the last two years, when prices were relatively high and debt more freely available, may be held for an extended period. If this proves to be the case, we would expect drawdowns from funds to materially exceed cash realisations for some time.

  The portfolio

In the six months to June the total value of the investment portfolio increased from £252.0 million to £280.0 million. Net new additions accounted for £19.1 million of this £28.0 million increase with portfolio gains accounting for the balance. 

£m, half years	June 2006	Dec 2006	June 2007	Dec 2007	June 2008
Additions	42.2	38.1	45.1	58.0	38.7
Disposals	57.5	31.4	40.1	66.7	19.6

Under new Stock Exchange rules introduced this year we are required to report interim results within two months rather than three months of the period end. We are therefore releasing the June results at the end of August rather than at the end of September. As we value our fund investments using the valuations prepared by the relevant fund managers and a number of the funds in which we are invested have not reported their June results in time for inclusion in this report, we are basing the June valuation on the latest available information. Where a fund has reported its June net asset value by 19 August this has been included in the Company's June valuation. Where a fund's June net asset value had not been received by 19 August, the Company's valuation has been based on the latest fund valuations received prior to June. In most cases these were little changed from the December 2007 valuations.

On this valuation basis, the investment portfolio generated a total gain of £8.7 million during the 6 months to June, equivalent to 3.4% of its opening valuation. Most of the increase came from a currency gain, with a 7.8% rise in the euro against sterling increasing the sterling value of our euro denominated investments. The value of the underlying investments remained broadly unchanged.

In the five years to December 2007 realisations have exceeded new investments by £132.2 million or 45.0%. This pattern was reversed in the first half of 2008, with new investments exceeding realisations by £19.1 million or 97.5%. Additions to the investment portfolio totalled £38.7 million while proceeds from realisations were £19.6 million.  

Almost all of the new additions were to the fund portfolio, with total drawdowns of £37.7 million representing 12.4% of undrawn commitments at the beginning of the period.   In each of the last three years, funds we have backed have drawn almost half of the opening undrawn commitments. The 12.4% of commitments drawn down in the first half of 2008 compares with 20.1% in the first half of 2007. This decline in new investment activity is in line with the general slowdown in the private equity sector referred to earlier.

Disposals in the period totalled £19.6 million or 7.8% of the opening portfolio valuation. This is considerably lower than the average over the last five years, during which an average of 23.0% of the opening portfolio valuation has been realised in each six month period. Although Continental European investments accounted for 39.3% of the opening portfolio they generated 58.6% of the proceeds. 

A total of £64.9 million was committed to five new funds in the period. These are managed by CVC Capital Partners, Advent International, Vision Capital, AnaCap Financial Partners and Newgate CSP.

At 30 June £230.1 million or 82.2% of the £280.0 million investment portfolio was in fund investments and £49.9 million was in direct investments. The fund portfolio consisted of investments in 34 funds valued at over £0.5 million of which the largest five accounted for 38.6% and the largest ten 59.9%. The direct portfolio was more concentrated, consisting of 18 investments of over £0.5 million of which the largest five accounted for 58.5% and the largest ten 82.4%. In looking at the level of diversification it must be remembered that each fund investment itself consists of a diversified portfolio of underlying unquoted investments. At 30 June Graphite Enterprise had investments in 300 companies of which 273 were held through funds.

Commitments

£m	Jun 06	Dec 06	Jun 07	Dec 07	Jun 08
Outstanding commitments	183.1	198.0	287.3	303.0	346.4

Balance sheet and commitments

At 30 June 2008 the investment portfolio accounted for 72.4% of net assets compared with 63.3% at December 2007. Cash and near cash of £106.7 million accounted for the balance. The level of cash fell by £28.5 million during the period due to a combination of operating and non-operating cash outflows. The operating outflow was £10.7 million and the non-operating outflow was £18.3 million.

The main element of the operating outflow was the £19.1 million of net additions to the portfolio discussed earlier. This was partially offset by the receipt of £7.7 million from the sale of the remainder of the FTSE option which brought total proceeds to £29.0 million, equivalent to 2.1 times cost. 

The non-operating outflow primarily reflected payments of £11.1 million for share buy-backs and of £5.8 million for the dividend. As it is extremely difficult to predict the timing of new drawdowns and realisations in the current economic environment, we are keeping the buy-back strategy under review.

Outstanding commitments to funds increased by £43.4 million to £346.4 million during the period. The new commitments discussed earlier exceeded drawdowns by £28.7 million. The remaining £14.7 million of the increase mainly resulted from the rise in the euro against sterling, increasing the sterling value of outstanding euro denominated commitments. Approximately 66.0% of our outstanding commitments to funds are denominated in euros and at the June exchange rate the sterling value of these was £16.6 million higher than it would have been had the rate remained unchanged. After deducting cash and near cash balances of £106.7 million from these commitments, the Company was £239.7 million or 62.0% overcommitted at 30 June 2008.  

Income statement and dividend

Profit after tax attributable to shareholders was £5.4 million or 7.4p per share in the six months to 30 June 2008 (June 2007: £26.9 million: 33.4p). 

This comprised of a capital return of £3.2 million and a revenue return attributable to shareholders of £2.2 million. The revenue return per share increased from 2.9p to 3.0p. We recognised a VAT repayment including interest of £2.9 million in the first half of which £0.9 million was taken to revenue. In the absence of this amount, the revenue return would have been materially below last year and in line with my comments in the December 2007 accounts we continue to believe that the income for the full year will be lower than in 2007.

The dividend in respect of the year ended 31 December 2007 of £5.8 million or 8.0p per share was provided for in the first quarter of this financial year and paid in the second.  If the level of income falls in 2008 as anticipated the dividend is also likely to fall. 

Principal risks and uncertainties

The Company's principal risks and uncertainties in the remaining six months of the financial year are as follows:

• market risk including currency, interest rates and price risk;

• credit and investment risk; and

• liquidity risk.

An analysis of each of these risks is set out in more detail in Note 20 of the Company's Report and Accounts for the year to 31 December 2007.

Outlook

Over the last twelve months, attention in the private equity industry has been focused on the impact of the credit squeeze on activity levels. While it has clearly resulted in a sharp reduction in new investment and in realisations, its impact on the underlying investments has only been felt in certain sectors of the economy. Attention is now moving to how the industry will be affected by the anticipated slowdown in the wider economy. At this stage it is not clear how severe any downturn might be or how long it might last. It is therefore difficult to predict how private equity portfolios might be affected, or when activity levels will recover. It is quite possible that new investment will pick up more quickly than realisations as an economic downturn would create attractive investment opportunities but would make the realisation of investments less attractive.

At June, 70.1% of the Company's assets were invested in the unquoted portfolio with almost all of the balance held in cash. It therefore remains relatively underinvested. Outstanding commitments exceed the value of the investment portfolio and these should be drawn down in an attractive investment environment. As it is difficult to predict the speed at which these commitments will be drawn down we will be cautious in making new commitments until a clearer pattern emerges.

John Sclater

August 2008 

  PORTFOLIO ANALYSIS

Summary of changes to the portfolio

2008 £m	Opening  value	Additions	Disposals	Gains & losses	Closing value
Fund investments	193.8	37.7	(12.0)	10.6	230.1
Direct investments	58.3	1.0	(7.5)	(1.9)	49.9
Total investment portfolio	252.1	38.7	(19.5)	8.7	280.0

Investment portfolio - funds and direct investments 

30 June 2008 £m	Quoteds	Third party investments	Graphite investments	Totals
Fund investments	-	182.4	47.7	230.1
Direct investments	9.1	21.1	19.7	49.9
Totals	9.1	203.5	67.4	280.0

Additions 2008 £m	UK	Continental Europe	Rest of world	Total
Mid-market buy-outs	9.6	6.3	-	15.9
Large buy-outs	3.1	10.3	1.1	14.5
Small buy-outs	3.2	-	-	3.2
Infrastructure	0.4	-	-	0.4
Mezzanine	-	3.2	-	3.2
Quoted	1.5	-	-	1.5
Total	17.8	19.8	1.1	38.7

Disposals 2008 £m	UK	Continental Europe	Rest of world	Total
Mid-market buy-outs	6.5	2.8	-	9.3
Large buy-outs	-	7.7	-	7.7
Small buy-outs	1.3	-	-	1.3
Mezzanine	-	1.1	-	1.1
Quoted	0.2	-	-	0.2
Total	8.0	11.6	-	19.6

New commitments Fund	Investment type	Focus	Commitment £m
CSP Secondary Opportunities Fund II	Secondary fund	Global	10.0
Vision Capital Partners VII	Direct secondary portfolios	Europe	9.2
Advent Central and Eastern Europe IV	Mid-market  buy-out	Europe	7.9
CVC European Equity Partners V	Large buy-out	Europe	28.9
AnaCap Financial Partners II	Mid-market  buy-out	Europe	9.9
Other			(1.0)
Total			64.9

Sector analysis

	% of total investment portfolio
Business services	24.7%
Manufacturing and engineering	17.9%
Consumer goods and services	11.0%
Leisure	10.5%
Retailing	7.6%
Healthcare and pharmaceuticals	6.1%
Construction and building supplies	5.5%
Newspaper, publishing and other media	5.4%
Financial services	3.7%
Other	7.6%
Total	100.0%

Year of investment

	% of total investment portfolio
2008	8.7%
2007	40.4%
2006	22.9%
2005	8.3%
2004	6.9%
2003	2.2%
2002	0.8%
2001	2.6%
2000	0.8%
1999 and before	6.4%
Total	100.0%

Investment type

	% of total investment portfolio
Large buy-outs	42.1%
Mid-market buy-outs	39.5%
Mezzanine	11.0%
Quoted	3.2%
Small buy-outs	3.2%
Infrastructure	1.0%
Total	100.0%

Geographic distribution

	% of total investment portfolio
UK	49.0%
France	14.5%
North America	10.3%
Germany	7.7%
Benelux	6.5%
Spain	4.2%
Other European	3.6%
Scandinavia	3.5%
Rest of World	0.7%
Total	100.0%

THE 30 LARGEST UNDERLYING INVESTMENTS

The table summarises the 30 largest underlying investments, by value, in the Company's portfolio of funds and direct investments as at 30 June 2008. The valuations are gross, before any carry provision (where relevant). Values are shown as a percentage of the total investment portfolio of £280 million. 

	Entity	Year of  investment	Country / region	Value as a % of investment portfolio
1	Micheldever
	Distributor and retailer of tyres	2006	UK	3.5%
2	Wagamama
	Operator of Japanese noodle restaurants	1996	UK	3.1%
3	Park Holidays UK
	Owner and operator of caravan parks	2006	UK	2.8%
4	Kurt Geiger
	Distributor of premium and luxury footwear	2008	UK	2.5%
5	Alexander Mann Solutions
	Provider of recruitment process outsourcing	2007	UK	2.3%
6	Intermediate Capital *
	Provider of mezzanine finance	1989	Europe	2.3%
7	Standard Brands
	Supplier of household fire lighting products	2001	UK	1.8%
8	NES Group
	Provider of specialist recruitment services	2006	UK	1.7%
9	EMI
	Publisher of music	2007	UK	1.7%
10	Weetabix
	Manufacturer of breakfast cereals	2004	UK	1.6%
11	Perstop
	Manufacturer of speciality chemicals	2005	Sweden	1.6%
12	Dominion Technology Gases
	Supplier of gases to the offshore oil and gas industry	2007	UK	1.3%
13	Ceridian
	Provider of human resources services	2007	USA	1.3%
14	Christian Hansen
	Supplier of natural ingredients to the food industry	2005	Global	1.2%
15	Stork
	Provider of engineering products and services	2008	Netherlands	1.1%
	Total of the 15 largest underlying investments			29.8%

* Quoted  

	Entity		Year of  investment		Country / region		Value as a % of investment portfolio
16	Data Explorers Group
	Provider of information to the global securities lending industry		2006		UK		1.1%
17	VWR International
	Supplier of equipment and chemicals to laboratories		2007		USA		1.1%
18	Spie
	Provider of technical contracting services		2006		France		1.1%
19	Saga/AA
	Provider of financial and consumer goods		2007		UK		1.0%
20	MCE
	Provider of industrial services		2007		Germany		1.0%
21	Ferretti
	Manufacturer of luxury boats		2007		Italy		1.0%
22	TMP
	Provider of recruitment advertising and related services		2006		UK		0.9%
23	Preh
	Manufacturer of automotive components		2003		Germany		0.9%
24	Clyde Bergemann
	Supplier of components for power generation industry		2005		Germany		0.9%
25	OPD Group *
	Provider of recruitment services		1991		UK		0.9%
26	Hellermann Tyton
	Manufacturer of electrical and communications network components		2006		UK		0.9%
27	Education & Adventure Travel Group
	Operator of school adventure, educational and ski trips		2004		UK		0.9%
28	Vivarte
	Retailer of footwear and clothing		2007		France		0.9%
29	Algeco Scotsman
	Manufacturer of modular buildings		2007		UK		0.8%
30	Aktrion
	Provider of outsourced managed services		2004		UK		0.8%
	Total of the 30 largest underlying investments					44.0%

* Quoted

THE 15 LARGEST FUND INVESTMENTS

The largest funds by value at 30 June 2008 are set out below.

	Fund	Outstanding commitment £m	Year of commitment	Country / region	Value £m
1	Graphite Capital Partners VI
	Mid-market buy-outs	9.5	2003	UK	32.3
2	Candover 2005 Fund
	Large buy-outs	6.4	2005	Europe	15.9
3	PAI Europe IV
	Large buy-outs	6.7	2005	Europe	15.4
4	Euromezzanine 5
	Mezzanine loans to mid-market buy-outs	2.5	2006	France	13.3
5	Doughty Hanson & Co IV
	Mid-market and large buy-outs	0.8	2005	Europe	11.8
6	Charterhouse Capital Partners VII
	Large buy-outs	4.1	2006	Europe	11.1
7	Fourth Cinven Fund
	Large buy-outs	12.6	2006	Europe	10.9
8	Madison Dearborn Capital Partners V
	Large buy-outs	2.3	2006	USA	9.4
9	CVC European Private Equity Partners IV
	Large buy-outs	1.8	2005	Europe	9.0
10	Thomas H Lee Equity Fund VI
	Large buy-outs	10.4	2007	USA	8.8
11	ICG European Fund 2006
	Mezzanine loans to buy-outs	14.9	2007	Europe	8.6
12	Graphite Capital Partners VII
	Mid-market buy-outs	41.2	2007	UK	8.1
13	Deutsche Beteiligungs AG Fund IV
	Mid-market buy-outs	0.8	2000	Germany	7.0
14	Terra Firma Capital Partners III
	Large buy-outs	8.4	2006	Europe	6.4
15	Graphite Capital Partners VII Top Up Fund
	Mid-market buy-outs	14.0	2007	UK	6.0
	Total of 15 largest fund investments	136.4			174.0
	Percentage of investment portfolio				62.2%

CONSOLIDATED INCOME STATEMENT

	Half year to 30 June 2008			Half year to 30 June 2007				Year to 31 December 2007
	(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 on investments held at fair value	202	3,677	3,879	1,456	27,887	29,343		5,563	54,077	59,640
Income from cash and cash equivalents	3,079	-	3,079	3,180	-	3,180		6,770	-	6,770
Other income	218	-	218	-	-	-		45	-	45
Foreign exchange gains and losses	-	569	569	-	(314)	(314)		-	544	544
	3,499	4,246	7,745	4,636	27,573	32,209		12,378	54,621	66,999
Expenses
Investment management charges (note 8)	(544)	(1,631)	(2,175)	(622)	(1,865)	(2,487)		(1,203)	(3,609)	(4,812)
VAT reclaim (note 9)	667	2,001	2,668	-	-	-		-	-	-
Other expenses	(515)	(73)	(588)	(703)	(27)	(730)		(1,328)	(90)	(1,418)
	(392)	297	(95)	(1,325)	(1,892)	(3,217)		(2,531)	(3,699)	(6,230)
Profit before tax	3,107	4,543	7,650	3,311	25,681	28,992		9,847	50,922	60,769
Taxation	(879)	(105)	(984)	(959)	559	(400)		(2,878)	1,083	(1,795)
Profit for the period from continuing operations	2,228	4,438	6,666	2,352	26,240	28,592		6,969	52,005	58,974
Attributable to:
Equity shareholders	2,228	3,168	5,396	2,352	24,571	26,923		6,969	46,143	53,112
Minority interests	-	1,270	1,270	-	1,669	1,669		-	5,862	5,862
Basic and diluted earnings per share (note 5)			7.4p			33.4p				67.6p

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 30 June		As at 31December
	2008	2007	2007
	(unaudited)	(unaudited)
	£'000s	£'000s	£'000s
Non-current assets
Investments held at fair value
- Unquoted investments	270,828	212,090	242,354
- Quoted investments	9,136	18,880	9,737
- FTSE 100 Call Option	-	28,179	12,757
	279,964	259,149	264,848
Current assets
Trade and other receivables	2,897	111	575
Cash and cash equivalents	106,241	123,800	134,699
	109,138	123,911	135,274
Current liabilities
Trade and other payables	2,483	1,469	1,845
Net current assets	106,655	122,442	133,429
Net assets	386,619	381,591	398,277
Capital and reserves (note 7)
Called up share capital (note 7)	7,292	7,706	7,529
Capital redemption reserve (note 7)	2,112	1,698	1,875
Share premium (note 7)	12,936	12,936	12,936
Capital reserve (note 7)	343,761	338,484	351,663
Revenue reserve (note 7)	13,432	12,420	17,037
Equity attributable to equity shareholders (note 7)	379,533	373,244	391,040
Minority interests (note 7)	7,086	8,347	7,237
	386,619	381,591	398,277
Net asset value per ordinary share (basic and diluted)	520.5p	484.3p	519.4p

CONSOLIDATED CASH FLOW STATEMENT
				Half year to								Year to
					30 June						31 December
			2008				2007			2007
			(unaudited)				(unaudited)
			£'000s				£'000s			£'000s
Operating activities
Sale of portfolio investments			19,572				40,105			106,823
Purchase of portfolio investments			(38,704)				(45,438)			(103,536)
Sale of FTSE 100 Call option			7,693				9,662			21,310
Income received from investments			857				1,758			5,337
Other income received			3,297				3,181			6,815
Investment management charges paid			(909)				(2,502)			(4,809)
Other expenses paid			(937)				(490)			(1,576)
Taxation paid			(1,569)				(875)			(990)
Net cash (outflow)/inflow from operating activities			(10,700)				5,401			29,374
Financing activities
Investments by minority interests			281				246			465
Distributions to minority interests			(1,705)				(1,230)			(6,688)
Purchase of ordinary shares			(11,070)				(24,497)			(33,190)
Equity dividends paid			(5,833)				(5,242)			(5,242)
Net cash outflow from financing activities			(18,327)				(30,723)			(44,655)
Net decrease in cash and cash equivalents			(29,027)				(25,322)			(15,281)
Cash and cash equivalents at beginning of period			134,699				149,436			149,436
Net decrease in cash and cash equivalents			(29,027)				(25,322)			(15,281)
Effect of changes in foreign exchange rates			569				(314)			544
Cash and cash equivalents at end of period			106,241				123,800			134,699

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Half year to  30 June				Year to 31 December
		2008		2007		2007
		(unaudited)		(unaudited)
		£'000s		£'000s		£'000s
Total equity at the beginning of the period		398,277		380,955		380,955
Profit attributable to equity shareholders		5,396		26,923		53,112
Profit attributable to minority interests		1,270		1,669		5,862
Total profit for the period and total recognised income and expense		6,666		28,592		58,974
Dividends paid to equity shareholders (note 4)		(5,833)		(5,242)		(5,242)
Purchase of ordinary shares (note 6)		(11,070)		(22,707)		(31,100)
Net distribution to minority interests		(1,421)		(7)		(5,310)
Total equity at end the of period		386,619		381,591		398,277

Further analysis of the above movements is presented in note 7.

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 Wales and domiciled in England. The registered office is at 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. These consolidated interim financial statements were approved by the Board of directors on 27 August 2008. 

2 UNAUDITED INTERIM REPORT

The condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985 (section 434 of the Companies Act 2006). Statutory accounts for the year ended 31 December 2007 were approved by the Board of directors on 17 April 2008 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statements under section 237 of the Companies Act 1985 (section 498 of the Companies Act 2006).

This condensed consolidated interim financial information has been reviewed, not audited.

3 BASIS OF PREPARATION

The condensed consolidated interim financial information for the six months ended 30 June 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS34, 'Interim financial reporting' as adopted by the European Union. The condensed interim financial information should be read in conjunction with the annual financial statements for the year ending 31 December 2007, 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 2007, as described in those annual financial statements.

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

4 DIVIDENDS

									Half year to 30 June				Year to  31 December
								2008			2007			2007
Dividends paid or approved in the period								£'000s			£'000s			£'000s
8.0p per share (half year to 30 June 2007 and year to 31 December 2007: 6.5p per share)								5,833			5,242			5,242

5 EARNINGS PER SHARE

Half year to 30 June

Year to  31 December

2008

2007

2007

Revenue return per ordinary share

3.05p

2.91p

8.86p

Capital return per ordinary share

4.33p

30.44p

58.70p

Earnings per ordinary share (basic and diluted)

7.38p

33.35p

67.56p

Weighted average number of shares

73,114,359

80,718,407

78,620,500

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 June						Year to  31 December
						2008			2007				2007
Number of shares bought back						2,374,000			5,273,000				7,048,718
Average price per share						463.1p			427.6p				438.2p
Total cost including expenses						£11,069,901			£22,707,000				£31,100,000
Number of shares in issue at the end of the period						72,913,000			77,062,718				75,287,000

All shares bought back were subsequently cancelled.

7 CHANGES IN EQUITY

	Share capital £’000s	Capital redemption reserve £’000s	Share premium £’000s	Capital reserve £’000s	Revenue   reserve £’000s	Total shareholders’        equity    £’000s	Minority interest  £’000s	Total equity £’000s
Six months ended 30 June 2008
Opening balance at 1 January 2008	7,529	1,875	12,936	351,663	17,037	391,040	7,237	398,277
Profit for the period attributable to recognised income and expense	-	-	-	3,168	2,228	5,396	1,270	6,666
Dividends paid or approved	-	-	-	-	(5,833)	(5,833)	-	(5,833)
Purchase of own shares	(237)	237	-	(11,070)	-	(11,070)	-	(11,070)
Net distribution to minority interests	-	-	-	-	-	-	(1,421)	(1,421)
Closing balance	7,292	2,112	12,936	343,761	13,432	379,533	7,086	386,619
	Share capital £’000s	Capital redemption reserve £’000s	Share premium £’000s	Capital reserve £’000s	Revenue reserve £’000s	Total shareholders’        equity    £’000s	Minority interest  £’000s	Total equity £’000s
Six months ended 30 June 2007
Opening balance at 1 January 2007	8,233	1,171	12,936	336,620	15,310	374,270	6,685	380,955
Profit for the period attributable to recognised income and expense	-	-	-	24,571	2,352	26,923	1,669	28,592
Dividends paid or approved	-	-	-	-	(5,242)	(5,242)	-	(5,242)
Purchase of own shares	(527)	527	-	(22,707)	-	(22,707)	-	(22,707)
Net distribution to minority interests	-	-	-	-	-	-	(7)	(7)
Closing balance	7,706	1,698	12,936	338,484	12,420	373,244	8,347	381,591
	Share capital £’000s	Capital redemption reserve £’000s	Share premium £’000s	Capital reserve £’000s	Revenue reserve £’000s	Total shareholders’        equity    £’000s	Minority interest  £’000s	Total equity £’000s
Year ended 31    December 2007
Opening balance at 1 January 2007	8,233	1,171	12,936	336,620	15,310	374,270	6,685	380,955
Profit for the period attributable to recognised income and expense	-	-	-	46,143	6,969	53,112	5,862	58,974
Dividends paid or approved	-	-	-	-	(5,242)	(5,242)	-	(5,242)
Purchase of own shares	(704)	704	-	(31,100)	-	(31,100)	-	(31,100)
Net distribution to minority interests	-	-	-	-	-	-	(5,310)	(5,310)
Closing balance	7,529	1,875	12,936	351,663	17,037	391,040	7,237	398,277

8 RELATED PARTY TRANSACTIONS

INVESTMENT MANAGEMENT CHARGES

The investment management charges and irrecoverable VAT thereon set out in the table below were paid to the Manager, Graphite Capital Management LLP, in the period. The manager is a related party. The VAT reclaim shown in the table was accrued in the period but not paid (see note 9).

							Half year to 30 June						Year to  31 December
						2008			2007				2007
						£'000s			£'000s				£'000s
Investment management fee						2,175			2,119				4,261
Irrecoverable VAT thereon						-			368				551
VAT reclaim accrued (see note 9)						(2,668)			-				-
						(493)			2,487				4,812

The allocation of the total investment management charges was unchanged in 2008 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 Company has borne management charges in respect of its investments in funds managed by Graphite Capital as set out below:

							Half year to 30 June						Year to  31 December
						2008			2007				2007
						£'000s			£'000s				£'000s
Graphite Capital Partners V						31			10				19
Graphite Capital Partners VI						419			500				1,000
Graphite Capital Partners VII						500			-				250
						950			510				1,269

The amounts payable during the year are set out above. There were no outstanding balances as at 30 June 2008.

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:

						Half year to 30 June					Year to  31 December
Subsidiary				Nature of transaction	2008			2007			2007
					£'000s			£'000s			£'000s
Graphite Enterprise Trust LP				(Decrease)/increase in loan balance	(1,892)			4,006			7,840
				Income allocated	131			306			1,191
Graphite Enterprise Trust (2) LP				Increase in loan balance	2,066			-			-

	Amounts owed by subsidiaries						Amounts owed to subsidiaries
	Half year to 30 June			Year to 31 December			Half year to 30 June			Year to 31 December
Subsidiary	2008		2007	2007			2008		2007	2007
	£’000s		£’000s	£’000s			£’000s		£’000s	£’000s
Graphite Enterprise Trust LP	6,574		4,632	8,466			-		-	-
Graphite Enterprise Trust (2) LP	2,066		-	-			-		-	-

9 CONTINGENT ASSET

Graphite Enterprise Trust PLC may be entitled to repayments of VAT previously paid to Graphite Capital Management, the Manager. HM Revenue & Customs ('HMRC') confirmed in October 2007 that fund management services to investment trusts are exempt from VAT. The Manager charged VAT on its invoices to the Company for management fees up to and including the third quarter of 2007. The Manager has confirmed that it has lodged claims with HMRC to recover VAT paid from 2002 onwards. Separately, as a result of a decision concerning the way in which a cap was introduced on the time period for which overpaid VAT can be reclaimed, the Manager may also be able to reclaim VAT charged to the Company for the period from 1990 to late 1996. The Manager has not yet lodged claims in respect of this earlier period. The Company and the Manager have agreed that the net amount reclaimed by the Manager as a result of these two decisions (that is, the overpaid output VAT less the resulting reduction in input VAT recovered) will be passed to the Company.  

The Company has now been able to quantify the repayment and interest thereon relating to the period from 2002 onwards and judges that there is sufficient certainty over the recovery of these amounts to record them as assets. The VAT is £2,668,000 and the interest thereon is £217,000. The VAT has been allocated to income and capital in the ratio 25:75. The interest has been allocated to income.

Until all remaining uncertainties surrounding the reclaim process have been resolved, it is not practicable to quantify the amount of VAT recoverable relating to the second potential repayment with sufficient certainty. The total amount recovered is likely to be less than 0.5% of net asset value. Any recovery will be credited to the income reserve and realised capital reserve in the same proportion as originally charged. The amount and timing of this repayment are not certain and therefore it has not been recognised in these financial statements.

Statement of Directors' Responsibilities

The directors confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS34, 'Interim Financial Reporting' as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure and Transparency rules, namely:

• an indication of important events that have occurred during the first six months 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 financial year; and

• material related-party transactions in the first six months and any material changes in the related-party

  transactions described in the last annual report.

The directors of Graphite Enterprise Trust PLC are listed in the Graphite Enterprise Trust PLC Annual Report for 31 December 2007, with the exception of the following changes in the period:

Mr J Tigue was appointed on 28 March 2008 and Mr P Gray retired on 14 May 2008. A list of current directors is maintained on the Graphite Enterprise Trust PLC website: www.graphite-enterprise.com.

By the order of the Board

J. Sclater

27 August 2008

Copies of the Interim Report will be posted to all shareholders on or around 8 September 2008 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

27 August 2008

For further information, please contact:

Stephen Cavell/ Tim Spence Graphite Capital

Tel: [phone]

Independent Review Report to Graphite Enterprise Trust PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008, which comprises the income statement, balance sheet, statement of changes in equity, cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in the basis of preparation, the annual financial statements of the group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

London

27 August 2008

 

END

 

 

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