20th Mar 2008 15:02
Graphite Enterprise Trust PLC20 March 2008 GRAPHITE ENTERPRISE TRUST PLC UNAUDITED PRELIMINARY STATEMENT OF RESULTS FOR THE YEAR TO 31 DECEMBER 2007 HIGHLIGHTS OF THE YEAR Net asset value per share +14.3% Share price +22.8% New commitments to funds £186.0m Cash proceeds from the investment portfolio £106.8m Share buy-backs £31.1m FINANCIAL SUMMARY 2007 2006 Change Net asset value per share 519.4p 454.6p +14.3% Share price 474.0p 386.0p +22.8% Final dividend per share 8.0p 6.5p +23.1% FTSE All-Share Index 3,287 3,221 +2.0% PERFORMANCE Years to 31/12/07 1 3 5 10 Net asset value per share +14.3% +59.9% +97.1% +150.1% Share price +22.8% +67.5% +129.5% +154.8% FTSE All-Share Index +2.0% +36.3% +73.6% +36.3% Performance Graphite Enterprise Trust PLC ('Graphite Enterprise' or the 'Company') hadanother good year in 2007. The net asset value per share increased by 14.3% to519.4p and the share price by 22.8% to 474.0p. The strong share priceperformance reflected a narrowing of the discount from 15.1% to 8.7%. Theseincreases were significantly ahead of the Company's benchmark, the FTSEAll-Share Index, which rose by 2.0% over the same period. The net asset valueper share of Graphite Enterprise has now outperformed the FTSE All-Share Indexin eight out of the last ten years and in 13 out of the last 15 years. The objective of Graphite Enterprise is to provide shareholders with long termcapital growth through investment in unquoted companies, mainly throughspecialist funds but also directly. The growth in the net asset value per shareand share price of the Company have significantly exceeded that of the FTSEAll-Share Index over both five and ten years. In the five years to December2007, the net asset value per share rose by 97.1% and the share price by 129.5%. This compares with an increase in the FTSE All-Share Index of 73.6% over thesame period. Over ten years the net asset value per share and the share priceincreased by 150.1% and 154.8% respectively, compared with a rise in the FTSEAll-Share Index of 36.3%. Net income and gains attributable to shareholders for the year totalled £53.1million. Shareholders' funds closed the year a net £16.8 million higher at£391.0 million as £36.3 million was returned to shareholders through substantialshare buy-backs and through the dividend. Portfolio The investment portfolio performed well in the year, increasing by 26.8% overthe opening value. Both funds and direct investments contributed to this goodperformance. Realisations play an important role in driving private equityreturns and 2007 was the fourth consecutive year in which proceeds fromrealisations exceeded 50% of the value of the opening investment portfolio. Thiscompares with the average for the previous seven years of 31%. % 2003 2004 2005 2006 2007Disposals as a % of 20.8 56.6 56.9 51.0 51.8opening portfolio New investments increased by 28.4% to £103.1 million, with almost all of thembeing in the form of drawdowns from commitments made to funds. Despite thisincrease, the investment portfolio still generated £3.7 million of cash, asrealisations were also more than 20% higher at £106.8 million. As the underlyinginvestments made total gains of £49.6 million, the portfolio closed the year anet £45.9 million higher at £252.1 million. In line with the objective of increasing the weighting of the portfolio towardsfunds, the fund portfolio of £193.8 million accounted for 76.9% of theinvestment portfolio at the year end. This represented an increase of £83.0million over the previous year. The portfolio consisted of commitments to 40funds and investments in 238 underlying companies. The direct investmentportfolio is now a combination of direct investments made by Graphite Capitaland co-investments made alongside funds. It accounted for the remaining 23.1% ofthe investment portfolio at the year end. Half years ended Dec June Dec June Dec £m 2005 2006 2006 2007 2007Additions 30.7 42.2 38.1 45.1 58.0Disposals 53.2 57.5 31.4 40.1 66.7 A record £186.0 million was committed to new funds in 2007, with the largestcommitment being to Graphite Capital Partners VII, Graphite Capital's latestbuy-out fund. Graphite Capital generally raises funds every four years and thisfund was once again heavily oversubscribed with strong demand from investors inthe UK, continental Europe and the US. Graphite Enterprise committed £70.0million making it the largest investor. The remaining £116.0 million wascommitted to nine funds and 62.4% of the total was with managers who we havepreviously backed. Balance sheet and share buy-backs At the year end the investment portfolio accounted for 63.3% of net assets,compared with 54.1% a year earlier. Cash and near cash balances, which fell by£11.7 million from £145.1 million to £133.4 million, accounted for a further33.5% with the remainder invested in the FTSE 100 option. As a result of the very high level of realisations noted earlier, the cashbalances have been considerably higher than normal in recent years. To addressthis we put proposals to shareholders to increase the level of overcommitment tofunds and to implement a more active share buy-back programme. These proposalswere overwhelmingly approved at the Extraordinary General Meeting held in May. The overcommitment level is the amount by which commitments exceed cash holdingsexpressed as a percentage of total net assets. In 2007 the overcommitment levelof Graphite Enterprise increased from 13.9% to 42.6%. This material changereflected a substantial increase in outstanding commitments to funds from £198.0to £303.0 million and the £11.7 million fall in cash and near cash balancesnoted earlier. The share buy- back programme both reduced cash balances andheld down the rise in the closing net assets. It is not easy to predict how levels of overcommitment will move over the nexttwelve months. If investment activity levels fall, less cash will be drawn downby funds to finance new investments but less cash is likely to be returned asrealisations will also be lower. A reduced level of new investment could alsodelay the planned fund raisings of private equity managers which in turn wouldreduce the level of new commitments. Despite these considerations we would stillexpect the level of overcommitment to increase in 2008. Commitments£m Dec 05 Jun 06 Dec 06 Jun 07 Dec 07Outstanding commitments 147.7 183.1 198.0 287.3 303.0 In May we announced plans to buy back up to £70.0 million of shares over thefollowing twelve to eighteen months. Since then the rate of buy-backs hasincreased markedly with £24.5 million of shares being acquired in the remainderof the year. This brought total buy-backs in 2007 to £31.1 million. Overall webought 8.6% of the shares in issue at the beginning of the year. The shareswere acquired at an average discount to net assets of 6.8% and the purchases hadthe effect of increasing the net asset value per share by 6.7p. Concerns over the impact on private equity of the tightening of the debt markethave caused discounts of quoted funds investing in the sector to widen. This hasenabled us to buy-back a further £10.0 million of shares in 2008 at a higheraverage discount of 9.6%. This brings the total value of share buy-backs sincethe May announcement to £34.5 million at an average discount of 6.8%. FTSE Option In October 2005 we purchased an option over the FTSE 100 Index as we wereconcerned that the high level of cash on the balance sheet at the time couldcause the Company to underperform against its benchmark, the FTSE All-ShareIndex, if the market were to rise sharply. The cost of the option was £14.0 million and it gave the Company effectiveexposure of £120.0 million to the FTSE 100 Index for three years. In 2007, ascash balances started to fall and new proposals were adopted to reduce cashlevels, we took the opportunity to begin to sell the option. During the year wesold part of the option for £21.3 million and in January 2008 we sold thebalance for £7.7 million. Over the life of the option the Company thereforereceived total cash proceeds of £29.0 million representing a multiple of 2.1times cost. Income statement and dividend Profit after tax attributable to shareholders increased to £53.1million in 2007or 67.6p per share. The capital return was £46.1 million and the revenue returnattributable to shareholders was £7.0 million. The revenue return per share,which determines the level of dividend, increased from 7.4p to 8.9p. As aresult, the board is proposing to increase the dividend from 6.5p to 8.0p pershare. In the last four years the dividend has increased from 4.3p to 8.0p per sharehaving been unchanged for many years. The majority of the income received inrecent years has come from interest on high levels of cash or cash equivalents.As one of the main objectives agreed at the EGM was to reduce the level of cash,interest income is likely to decline as the Company becomes more fully invested.We therefore expect future dividends to fall as interest income declines. The Board Peter Gray will be retiring from the board following the forthcoming AnnualGeneral Meeting. Peter has made a very valuable contribution to the Companysince his appointment to the Board in 2002. We have especially valued hisknowledge of the financial sector in general and of investment trusts inparticular. I would like to thank him on behalf of Graphite Enterpriseshareholders for all his hard work over the last six years and to wish him thevery best for the future. Market review and outlook The reduced availability and increased cost of debt funding (the 'creditcrunch') resulting from the sub-prime mortgage crisis in the US has had amaterial impact on activity levels in the private equity market. Figures fromthe Centre for Management Buy-Out Research suggest that after reaching a peak inthe second quarter of 2007, both the volume and value of transactions in the UKfell markedly in the second half of the year. Only three of the largest thirtytransactions completed in 2007 were closed in the last quarter. The mid-marketappears to have been less affected than the large buy-out sector as transactionsare less dependent on large syndicated debt packages. At this stage it is difficult to predict to what degree the disruption in thefinancial markets will affect the wider economy in the UK and in continentalEurope. Certain sectors will inevitably be more affected than others. AsGraphite Enterprise has an underlying investment portfolio which is broadlydiversified by company size, business sector and geographic region it shouldprove to be resilient. In the last three years we have committed a total of £421 million to new funds.As fund commitments are typically drawn down over a four to five year period,only 32% of these commitments were drawn down at December 2007. As a result,undrawn commitments exceeded the value of the investment portfolio at the yearend. This should ensure that if the economy weakens, as we believe is likely,Graphite Enterprise will be well positioned to take advantage of more attractiveinvestment opportunities than have generally been available for the last fewyears. John Sclater March 2008 For further information, please contact: Rod Richards / William Eccles Tel: 020 7825 5300Graphite Capital Analysis of investment activity 2007 £m Opening Additions Disposals Gains and Closing value value lossesInvestment portfolio 206.2 103.1 (106.8) 49.6 252.1FTSE Option 29.7 - (21.3) 4.3 12.7Total portfolio 235.9 103.1 (128.1) 53.9 264.8 Disposals2007 £m UK Continental Rest of world Total Europe Medium-sized buy-outs 59.6 9.2 1.4 70.2Large buy-outs 6.2 3.5 - 9.7Small buy-outs 10.9 - - 10.9Mezzanine - 4.5 - 4.5Infrastructure 6.7 - - 6.7Quoted 4.7 - 0.1 4.8Total 88.1 17.2 1.5 106.8 Additions2007 £m UK Continental Rest of world Total EuropeMedium-sized buy-outs 19.1 5.8 - 24.9Large buy-outs 10.9 28.3 21.8 61.0Small buy-outs 6.5 - - 6.5Mezzanine - 9.8 - 9.8Infrastructure 0.9 - - 0.9Quoted - - - -Total 37.4 43.9 21.8 103.1 New commitments to fundsFund Investment type Focus Total fund Commitment size £m £mGraphite Capital Partners VII Medium-sized buy-outs UK 475.0 50.0PAI Europe V Large buy-outs Europe 3,672.7 27.5ICG European Fund 2006 Mezzanine Europe 863.1 20.6Apax Europe VII Large buy-outs Europe 5,845.9 20.5Graphite Capital Partners VII Top Medium-sized buy-outs UK 80.5 20.0Up FundThomas H Lee Equity Fund VI Large buy-outs US 4,136.8 17.4Activa Capital Fund II Medium-sized buy-outs France 206.3 13.6Bowmark IV Medium-sized buy-outs UK 265.0 10.0Segulah IV Medium-sized buy-outs Scandinavia 367.5 3.6CSP Secondary Opportunities Secondary fund investments UK 6.0 2.5 FundOther 0.3Total 186.0 Analysis of the investment portfolio Funds and direct investments£m Third party Graphite Capital investments investments * TotalsFund Investments 154.8 39.0 193.8Direct Investments 26.3 32.0 58.3Totals 181.1 71.0 252.1 * Including quoted investments Country / region % of total investment portfolioUK 50.7%France 14.3%Germany 9.1%North America 9.0%Spain 3.7%Benelux 5.0%Scandinavia 3.0%Other European countries 4.4%Rest of world 0.8%Total 100.0% Sector % of total investment portfolioBusiness services 19.6%Manufacturing and engineering 17.7%Consumer goods and services 15.2%Leisure 10.9%Construction and building supplies 7.4%Healthcare and pharmaceuticals 6.2%Newspapers, publishing and other media 4.5%Transport and distribution 3.5%Retailing 3.1%Investment banking and finance 2.5%Other 9.4%Total 100.0% Type % of total investment portfolioLarge buy-outs 42.3%Medium-sized buy-outs 40.7%Mezzanine 10.3%Quoted 3.7%Infrastructure 1.6%Small buy-outs 1.4%Total 100.0% Year % of total investment portfolio 2007 40.8%2006 24.8%2005 10.8%2004 7.0%2003 3.0%2002 1.5%2001 3.8%2000 and before 8.3%Total 100.0% Analysis of outstanding commitments % of total investment portfolio TypeLarge buy-out 48.3%Medium-sized buy-out 39.2%Mezzanine 6.8%Small buy-out 5.4%Infrastructure 0.3%Total 100.0% The 30 largest underlying investments The table below presents the 30 companies in which Graphite Enterprise has thelargest investments by value at 31 December 2007. The valuations are gross,before any carry provision (where relevant). Values are shown as a percentage ofthe total investment portfolio of £252.1 million. Entity Year of Country / Value as a % of investment region investment portfolio 1 Micheldever 2006 UK 3.8% Independent distributor of tyres 2 Wagamama 1996 UK 3.3% Chain of Japanese noodle restaurants 3 Park Holidays UK 2006 UK 3.0% Operator of caravan parks 4 Alexander Mann Solutions 2007 UK 2.5% Provider of recruitment process outsourcing 5 Intermediate Capital* 1989 Europe 2.5% Provider of mezzanine finance 6 Moeller 2005 Germany 2.2% Supplier of electrical components 7 Standard Brands 2001 Europe 1.9% Manufacturer of branded firelighters 8 NES Group 2006 UK 1.8% Recruitment agency for technical contractors 9 Data Explorers Group 2007 UK 1.7% Information provider to global securities lending industry 10 EMI 2007 UK 1.7% Music publishing and recording 11 Preh 2003 Germany 1.7% Manufacturer of control system devices 12 Weetabix 2004 Global 1.6% Manufacturer of breakfast cereals Entity Year of Country / Value as a % of investment region investment portfolio 13 Dominion Technology Gases Supplier of specialist gases 2006 UK 1.4% 14 Ceridian Provider of human resources and payment 2007 USA 1.4% processing services 15 Perstorp Manufacturer of specialty chemicals 2005 Sweden 1.3% 16 VWR International Distributor of equipment and chemicals to 2007 USA 1.2% laboratories 17 Kwik-Fit Provider of automotive fast-fit services 2005 UK 1.2% 18 AA/Saga Provider of financial and consumer services 2007 UK 1.2% 19 Hellermann Tyton Manufacturer of solutions for communication 2006 UK 1.1% networks 20 Kaufman & Broad Housebuilders 2007 France 1.1% 21 OPD Group* Group of specialist recruitment agencies 1991 UK 1.1% 22 Christian Hansen Supplier of natural food ingredients 2005 Global 1.1% 23 Ferretti Manufacturer of luxury boats 2007 Italy 1.0% 24 Summit Medical Supplier of medical devices and accessories 2001 UK 1.0% 25 Balta Manufacturer of floor and wall coverings 2004 Belgium 1.0% Entity Year of Country / Value as a % of investment region investment portfolio 26 TMP Provider of recruitment, advertising and 2006 UK 1.0% related services 27 Aktrion Provider of managed outsource services 2004 UK 0.9% 28 Tumi Manufacturer and retailer of performance 2004 USA 0.9% luggage and accessories 29 Clyde Bergmann Supplier of components for power generation 2005 Germany 0.8% industry 30 Design Objectives Designer and distributor of papercraft 2006 UK 0.8% products Total of the 30 largest underlying investments 47.2% *QuotedThe 15 largest fund investments The largest funds by value at 31 December 2007 are set out below. Fund Outstanding Year of Country / commitment £m commitment region Value £m1 Graphite Capital Partners VI Medium-sized buy-outs 10.2 2003 UK 31.62 Doughty Hanson & Co IV Medium-sized and large buy-outs 1.1 2005 Europe 18.73 PAI Europe IV Large buy-outs 6.9 2005 Europe 15.94 Candover 2005 fund Large buy-outs 10.6 2005 Europe 11.75 Euromezzanine 5 Mezzanine loans to medium sized buy-outs 3.8 2006 France 10.96 Madison Dearborn Capital Partners Large buy-outs 2.2 2006 USA 9.27 Charterhouse Capital Partners VIII Large buy-outs 5.4 2006 Europe 8.88 CVC European Equity Partners IV Large buy-outs 7.8 2005 Europe 8.09 Fourth Cinven Fund Large buy-outs 14.3 2006 Europe 7.410 Deutsche Beteiligungs AG Fund IV Medium-sized buy outs 0.8 2000 Germany 7.011 ICG European Fund 2006 Mezzanine loans to buy-outs 15.4 2007 Europe 6.312 Thomas H Lee Equity Fund VI North Large buy-outs 11.6 2007 America 6.013 Terra Firma Capital Partners III Large buy-outs 8.4 2006 Europe 5.714 Apax Europe VII Large buy-outs 17.1 2007 Europe 4.815 Graphite Capital Partners VII Medium-sized buy-outs 45.2 2007 UK 4.5 Total of largest 15 fund investments 160.8 156.5 Percentage of total investment portfolio 62.0% GRAPHITE ENTERPRISE TRUST PLC Preliminary Statement (unaudited) for the year ended 31 December 2007 SUMMARY CONSOLIDATED BALANCE SHEET (unaudited) 2007 2006 At 31 December £'000s £'000s Unquoted investments 242,354 186,071Quoted investments 9,737 20,073 252,091 206,144FTSE 100 Call Option 12,757 29,760Total investments held at fair value 264,848 235,904Net current assets 133,429 145,051Total assets less current liabilities 398,277 380,955Minority interests (7,237) (6,685)Equity attributable to equity holders 391,040 374,270 SUMMARY CONSOLIDATED INCOME STATEMENT (unaudited) For the year ended 31December 2007 2006 Revenue Capital Total Revenue Capital Total £'000s £'000s £'000s £'000s £'000s £'000sGains and losses on 5,563 54,077 59,640 3,978 49,993 53,971investments held at fairvalueIncome from cash and cash 6,770 - 6,770 6,531 - 6,531equivalentsOther income 45 - 45 202 - 202Foreign exchange gains andlosses - 544 544 - (705) (705) 12,378 54,621 66,999 10,711 49,288 59,999 ExpenseInvestment management charges (1,203) (3,609) (4,812) (1,193) (3,578) (4,771)Other expenses (1,328) (90) (1,418) (920) (82) (1,002) (2,531) (3,699) (6,230) (2,113) (3,660) (5,773) Profit before tax 9,847 50,922 60,769 8,598 45,628 54,226 Taxation (2,878) 1,083 (1,795) (2,334) 1,071 (1,263)Profit for the year fromcontinuing operations 6,969 52,005 58,974 6,264 46,699 52,963 Attributable to:Equity shareholders 6,969 46,143 53,112 6,264 43,120 49,384Minority interests - 5,862 5,862 - 3,579 3,579 Basic and diluted earnings 67.56p 58.66pper share CONSOLIDATED CASH FLOW STATEMENT (unaudited) For the year ended 31 December 2007 2006 £'000s £'000sOperating activitiesSale of portfolio investments 106,823 88,904Purchase of portfolio investments (103,536) (79,680)Sale of FTSE 100 Call Option 21,310 -Income received from investments 5,337 4,398Other income received 6,815 6,733Investment management charges paid (4,809) (4,806)Other expenses paid (1,576) (1,109)Taxation paid (990) (1,600)Net cash inflow from operating activities 29,374 12,840 Financing activitiesInvestments by minority interests 465 141Distributions to minority interests (6,688) (2,546)Purchase of ordinary shares (33,189) (7,515)Equity dividends paid (5,243) (3,650)Net cash outflow from finance activities (44,655) (13,570) Net decrease in cash and cash equivalents (15,281) (730) Cash and cash equivalents at beginning of year 149,436 150,871Net decrease in cash and cash equivalent (15,281) (730)Effect of changes in foreign exchange rates 544 (705)Cash and cash equivalents at end of year 134,699 149,436 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited) For the year ended 31 December 2007 2006 £'000s £'000s Total equity at the beginning of the year 380,955 344,529 Profit attributable to equity shareholders 53,112 49,384Profit attributable to minority interests 5,862 3,579Total profit for the period and total recognised income and 58,974 52,963expenseDividends to equity shareholders (5,242) (3,650)Purchase of ordinary shares (31,100) (9,604)Net distribution to minority interests (5,310) (3,283)Total equity at the end of the year 398,277 380,955 The Directors propose a final dividend in respect of the year ending 31 December2007 of 8.0p payable on 22 May 2008 to shareholders who are on the register ofmembers on 11 April 2008. The above financial information comprises non-statutory accounts within themeaning of Section 240 of the Companies Act 1985. The financial information forthe year ended 31 December 2006 has been extracted from published accounts forthe year ended 31 December 2006, which have been delivered, to the Registrar ofCompanies and on which the report of the auditors was unqualified. The Annual General Meeting will be held at 11:30 a.m. on Thursday 14 May 2008 atThe Mount Vernon Room, The Westbury Hotel, Conduit Street, London W1. Theregistered office of the Company is 4th Floor, Berkeley Square House, BerkeleySquare, London W1J 6BQ. For the year ended 31 December 2007 copies of the audited Report and Accountswill be posted to shareholders on or about 11 April 2008 and copies may beobtained during normal business hours from the Company's registered officethereafter. By order of the Board Graphite Capital Management LLP Secretary 20 March 2008 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ICG Enterprise Trust