Last checked at 
27 Aug 2009 16:10
| 27 August 2009 |
GRAPHITE ENTERPRISE TRUST PLC
UNAUDITED RESULTS FOR THE HALF YEAR
TO 30 JUNE 2009
SUMMARY OF THE PERIOD
| Share price………………………………………….……………………………………...… The discount to the net asset value per share narrowed from 58.4% to 30.2% | +49.2% |
| Net asset value per share……………………………………..……………………………... The FTSE All-Share Index, the Company's benchmark, fell by 1.7% | -11.0% |
| Closing cash and cash equivalents……………………………………………………………. Cash and cash equivalents accounted for 38.7% of total assets at the period end | £114.0m |
| Undrawn commitments ……………………………………………………………………... The level of undrawn commitments fell by £46.8m | £260.5m |
| Dividend…………………………………………………………………………………….... A dividend of 4.5p per share was paid in May | £3.3m |
FINANCIAL SUMMARY
| 30 June 2009 | 31 Dec 2008 | Change | |
| Net asset value per share | 399.7p | 449.0p | -11.0% |
| Share price | 279.0p | 187.0p | 49.2% |
| FTSE All-Share Index | 2,172 | 2,209 | -1.7% |
CHAIRMAN'S STATEMENT
Overview
In the six months to 30 June 2009, the net asset value per share of Graphite Enterprise fell by 11.0% to 399.7p while the share price rose by 49.2% to 279.0p. The FTSE All-Share Index, our benchmark, fell by 1.7% over the same period. Shareholders' funds at 30 June 2009 were £291.5 million.
The strong recovery in the Company's share price was driven by a narrowing of the discount of the share price to the net asset value from its very high level of 58.4% at December 2008 to 30.2% at June 2009. In response to deteriorating market conditions, we took a series of defensive actions in 2008 to conserve cash and strengthen the Company's position. The most important of these was selling a portfolio of fund investments and associated commitments at the end of the year. Although Graphite Enterprise has not been immune from market events, we believe that these actions have left the Company relatively well-placed. This view appears to be supported by the market and is reflected in the narrowing of the discount, which at 30.2%, was substantially lower than the average of the Company's peer group of 53.4%.
Since 30 June 2009 the share price has risen to 313.0p bringing the increase since the beginning of the year to 67.4%
The objective of the Company is to provide shareholders with long term capital growth as measured against the FTSE All-Share Index. As the table below shows, the net asset value per share has materially outperformed this benchmark over three, five and ten years to June 2009.
| Years to 30/6/09 | 1 | 3 | 5 | 10 |
| NAV per share | -23.1% | -4.5% | +27.2% | +42.5% |
| Share price | -33.6% | -23.8% | +18.1% | +0.9% |
| FTSE All-Share | -23.9% | -26.8% | -2.5% | -26.3% |
Economic environment
Over 80% of the Company's portfolio is invested in Europe of which 44% is in the UK and 24% is in France and Germany combined. The performance of these economies is therefore likely to have much the greatest impact on the overall performance of the portfolio.
In the first quarter of 2009 industrial output fell throughout Europe, in some cases dramatically, and unemployment continued to rise. Despite interest rates being cut to historic lows and government measures being introduced to support the major banks and to stimulate demand, concerns remained that the weakness of the banking system would make an already severe recession even deeper and more prolonged.
The recently announced figures for the second quarter present a less pessimistic picture but suggest that the performance of the European economies will diverge over the next twelve months. The UK economy remained in recession with output falling by 0.8% in the three months to June 2009 and there is widespread concern that future recovery is likely to be held back by high levels of government and consumer debt and by rising unemployment. By contrast the figures suggest that the combined output of France and Germany grew by 0.3% in the second quarter. Within the eurozone the picture is also mixed, with the overall GDP of the 16 nations falling by a further 0.1% despite the rises in France and Germany. However, this still represents a significant improvement on the first quarter, when GDP shrank by 2.5%.
Some degree of confidence appears to be returning to financial markets, as reflected in the recovery in equity markets since March. The performance of the banking sector in the first half of 2009 has been better than was feared at the low point of the crisis and bank profitability has started to recover.
The private equity market
The combination of the sharp economic downturn and of the crisis in the banking sector has had a severe impact on activity levels in the private equity market. The slowdown in buy-out activity that started in 2008 continued in the first half of 2009 with both the number and value of European buy-outs reaching a twelve-year low. In the six months to June 2009, the total value of all European buy-outs completed was €5.5 billion, compared with €72.5 billion in the twelve months to December 2008. The total number of buy-outs completed fell by 70% to 102 with the result that private equity backed transactions globally accounted for only 3.5% of first half mergers and acquisitions, the lowest percentage since 2000.
No new investments were completed in the large cap segment of the European buy-out market (defined as transactions with an enterprise value of more than €1 billion) in the first half of 2009. In the same period in 2008, eight buy-outs were completed in this segment, with a combined value of €13.7 billion. Although 17 investments were completed in the €100 million to €1 billion size range during the period with a total value of €3.4 billion, this was still well down on the previous year. In the first half of 2008, 92 investments were completed in this range, with a total value of €24.9 billion.
Fundraising has also remained depressed with the amount raised in the first half of 2009 being the lowest for five years. A total of €5.9 billion was raised by European private equity funds in the period, 86% less than in the second half of last year. The average amount of time taken to raise a fund has increased significantly and in some cases is now over 18 months.
Debt financing for leveraged buy-outs has been severely constrained and has become increasingly expensive. As a result, the average level of buy-out debt fell from 47% in 2007 to 42% in 2008, the lowest level since 1994. The average cost of all tranches of debt has increased as banks now charge significantly higher margins than in the past.
Private equity groups are now looking for alternatives to conventional debt-intensive buyouts. Many will now consider acquiring distressed debt, using vendor financing or making minority, all-equity or infrastructure investments. They are also refocusing on investment areas in which they have most expertise.
Performance
Adverse currency movements accounted for almost two thirds of the 11.0% fall in the Company's net asset value in the six months to June. Sterling strengthened against both the euro and the US dollar during the period and this reduced the value of foreign currency denominated investments and the sterling value of the Company's cash balances. In aggregate, currency movements were responsible for a decline of 7.3% in the net asset value per share.
Falls in the underlying value of the investment portfolio and the cost of the 2008 dividend accounted for the remainder of the fall. As discussed in more detail in the next section, the underlying valuation of the portfolio in local currency fell by 4.4% in the period. However as the Company held significant levels of cash during the period the negative impact on the net asset value per share was limited to 2.5%.
The dividend for the year to December 2008 of 4.5p per share was accrued and paid in the second quarter of 2009, and this reduced the net asset value per share by 1.0%. The aggregate impact of other income and capital items was negligible.
The portfolio
In the six months to June 2009 the valuation of the investment portfolio fell by £23.1 million, or 11.4%, of which adverse currency movements accounted for almost two thirds. The underlying valuation of the portfolio fell by £8.3 million or 4.4%.
Under Stock Exchange rules introduced last year we are now required to report our interim results within two months of the period end. As the valuations of our fund investments are based on reports prepared by the managers of these funds and only one third by value of the June valuations had been received in time for inclusion in this report, we are basing the June valuation on the latest available information provided by each fund manager. If a fund had reported its net asset value by 14 August this has been included in the Company's June valuation, if not the valuation has been based on the most recent fund reports which had been received prior to June.
Although it is possible that the valuation of the portfolio will change when all the June figures have been received, from discussions held with portfolio managers we do not expect the total value of the changes to be material. In the December accounts we included a provision of £18.5 million (11.7%) against the value of the third party portfolio because many of the underlying portfolio companies were acquired with relatively high levels of debt and we were concerned that the value of the equity in those companies would be particularly sensitive to changes in profitability or in valuation multiples. From the figures that have been received so far, there is no evidence of widespread reductions with most portfolio valuations remaining broadly unchanged and in some cases having risen. However we have felt it prudent to leave a provision in place, with the figure of £13.5 million in the June accounts representing 10.0% of the valuation of the third party portfolio.
Both drawdowns and distributions remained at historically very low levels in the first half of the year reflecting the depressed level of new investment activity and minimal level of exit activity across all segments of the private equity market. Investments of £11.4 million were made in the period, representing only 3.7% of opening commitments and only £0.5 million of proceeds were received.
| £m, half years | June 2007 | Dec 2007 | June 2008 | Dec 2008 | June 2009 |
| Invested | 45.1 | 58.0 | 38.8 | 28.2 | 11.4 |
| Proceeds | 40.1 | 66.7 | 19.6 | 4.9 | 0.5 |
As at 30 June, Graphite Enterprise had holdings in 35 funds and in 15 direct investments. Third party private equity firms selected by the Manager were responsible for managing 31 of these funds and these 25 firms collectively managed 72% of the portfolio by value. Graphite Capital directly managed the remaining 28% of the portfolio.
As we noted in December, the Company's largest exposure is to the small and mid-market buy-out sectors, which together represented 43.9% by value of the portfolio at 30 June, compared with 40.9% at December. Large buy-outs represented 35.5% of the portfolio, which is a marginal fall from the 36.3% at December. The proportion of mezzanine and infrastructure investments fell from 21.0% to 19.0% of the portfolio by value. The portfolio is broadly diversified by industry sector. The 256 underlying companies in the portfolio operate across a range of sectors, the most important of these being, as was the case in December, business services, at 27.2% of the portfolio and manufacturing and engineering, at 17.6% of the portfolio.
Balance sheet and commitments
At 30 June 2009 the investment portfolio was valued at £180.0 million and accounted for 61.2% of net assets. Cash and net current assets of £114.2 million accounted for the remaining 38.8%.
The level of cash fell by £25.0 million during the period. Of this amount the net cash outflow was £15.2 million and the remaining £9.8 million represented a reduction in the sterling value of foreign currency denominated cash balances resulting from currency movements. The main elements of the cash outflow were net drawdowns from fund and direct investments of £10.9 million and the dividend payment of £3.3 million.
The level of outstanding commitments to funds fell by £46.8 million in the period to £260.5 million. Currency movements accounted for 59.4% of the fall and drawdowns, fund disposals and cancellations of commitments for the remaining 40.6%.
| £m | Jun 07 | Dec 07 | Jun 08 | Dec 08 | Jun 09 |
| Outstanding commitments | 287.0 | 303.1 | 346.4 | 307.3 | 260.5 |
Approximately 70.1% of our outstanding commitments to funds are denominated in euros and 4.1% are denominated in US dollars. At the June exchange rate the sterling value of these was £27.8 million lower than it would have been had the rates remained unchanged.
Drawdowns and disposals reduced commitments by £19.0 million during the period, with the drawdowns discussed earlier accounting for £9.7 million of the fall and the disposal of a fund interest releasing £9.3 million. We continue to adopt a cautious approach to new investment and have made no new fund commitments this year.
After deducting cash and net current assets from these commitments, the Company was £146.3 million, or 49.7%, overcommitted at 30 June 2009. This overcommitment percentage expresses the Company's net overcommitment as a percentage of its net asset value. This level of overcommitment is relatively conservative compared with the Company's peer group, which has an average overcommitment level of 91.0%. The Company also has significantly more cash than most other listed private equity fund of funds.
In forecasting future cash movements it is important to point out that most funds typically draw down cash for new investment over an investment period of five years and normally retain approximately 20% of commitments at the end of this period to fund follow-on investments and expenses. We estimate that if the funds in the Company's portfolio were to make drawdowns at a constant rate such that they had drawn down 80% of their total commitments at the end of their investment periods, and no proceeds were received from realisations, the annual net cash outflow would be between £55 million and £60 million. On this basis the Company should have sufficient cash reserves to meet all drawdown requirements for at least two years. Over the last twelve months the rate of drawdowns has been considerably lower than the constant rate used in these assumptions but we would expect this rate to start to accelerate next year.
We believe that the underlying portfolio has an attractive commitment profile as more than half of the outstanding commitments are to funds which are less than 25% drawn. These funds are well positioned to take advantage of the attractive investment opportunities which should be available over the next few years.
Income statement and dividend
The loss after tax attributable to shareholders was £32.6 million or 44.7p per share in the six months to 30 June 2009. This comprised a capital loss of £32.5 million, or 44.6p per share, and a revenue loss of £0.1 million, or 0.1p per share.
As we anticipated in the 2008 annual report, the revenue return, which determines the level of the annual dividend, has fallen substantially. The revenue loss of 0.1p per share in the first half compares with a return of 3.0p per share in the same period last year and a return of 5.1p in the full year to December 2008. The decline in revenues since 2008 is principally the result of lower cash balances and considerably lower interest rates.
The level of income in the second half of 2009 is unlikely to be higher than in the first and it is therefore possible that in 2009 the Company will have no net income with which to fund a dividend. As the Company has significant accumulated revenue reserves at 30 June, we could instead pay a dividend from these reserves. The Board will make this decision when the year end accounts are finalised in March 2010.
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 rate 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 19 of the Company's Report and Accounts for the year to 31 December 2008.
Outlook
Over the last twelve months the private equity sector has faced the most difficult conditions for almost twenty years. New investment and realisations have slowed dramatically and both are likely to remain depressed for the remainder of 2009 and probably well into 2010. Most attention has been focused on the performance of private equity backed companies as many entered the downturn with high levels of debt at a time when most lenders were seeking to reduce their exposure to the sector. Against this background, we have been relatively satisfied with the underlying performance of our portfolio in the first half of the year.
The next twelve months are likely to remain difficult, with conditions in the UK probably more challenging than in France or Germany. Provided the portfolio emerges from this period without the need for major equity injections, it should be well placed to recover value which has been lost over the last twelve months, as the gearing in the underlying portfolio should start to work in favour of the equity investor. We continue to believe that Graphite Enterprise is well positioned at this point in the economic cycle with over 35% of its net assets in cash which should be drawn down at a time when valuations are attractive.
Mark Fane
August 2009
PORTFOLIO ANALYSIS
Summary of changes to the portfolio
|
2009 £m | Opening value | Additions | Disposals | Gains & losses | Closing value |
| Fund investments | 158.2 | 9.7 | (0.4) | (21.2) | 146.3 |
| Direct investments* | 34.0 | 1.7 | (0.1) | (1.9) | 33.7 |
| Total investment portfolio | 192.2 | 11.4 | (0.5) | (23.1) | 180.0 |
Investment portfolio - funds and direct investments
| 30 June 2009 £m | Third party investments | Graphite investments | Total |
| Fund investments | 112.6 | 33.7 | 146.3 |
| Direct investments* | 16.9 | 16.8 | 33.7 |
| Totals | 129.5 | 50.5 | 180.0 |
* Including quoted investments
| Additions 2009 £m | UK | Continental Europe | Rest of world |
Total |
| Mid-market buy-outs | 2.2 | 3.5 | - | 5.7 |
| Large buy-outs | - | 2.2 | 2.2 | 4.4 |
| Quoted | 0.9 | - | - | 0.9 |
| Small buy-outs | 0.2 | - | - | 0.2 |
| Mezzanine | - | 0.2 | - | 0.2 |
| Total | 3.3 | 5.9 | 2.2 | 11.4 |
Sector analysis
| % of total investment portfolio | |
| Business services | 27.2% |
| Manufacturing and engineering | 17.6% |
| Consumer goods and services | 14.2% |
| Leisure | 9.4% |
| Healthcare and pharmaceuticals | 7.8% |
| Retailing | 5.7% |
| Media | 5.5% |
| Financial services | 2.9% |
| Construction and building supplies | 2.6% |
| Other | 5.1% |
| Total | 100.0% |
Year of investment
| % of total investment portfolio | |
| 2009 | 1.0% |
| 2008 | 20.1% |
| 2007 | 38.8% |
| 2006 | 22.6% |
| 2005 | 3.3% |
| 2004 | 5.1% |
| 2003 | 1.6% |
| 2002 | 0.7% |
| 2001 | 1.9% |
| 2000 and before | 4.9% |
| Total | 100.0% |
Investment type
| % of total investment portfolio | |
| Mid-market and small buy-outs | 43.9% |
| Large buy-outs | 35.5% |
| Mezzanine | 17.0% |
| Infrastructure | 2.0% |
| Quoted | 1.6% |
| Total | 100.0% |
Geographic distribution
| % of total investment portfolio | |
| UK | 43.9% |
| France | 14.6% |
| North America | 11.3% |
| Germany | 9.3% |
| Benelux | 9.3% |
| Spain | 4.9% |
| Scandinavia | 1.8% |
| Other European | 3.0% |
| Rest of World | 1.9% |
| 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 2009. The valuations are gross and are shown as a percentage of the total of these gross figures.
|
| Entity | Year of investment | Country / region | Value as a % of investment portfolio |
| 1 | Micheldever | |||
| Distributor and retailer of tyres | 2006 | UK | 5.8% | |
| 2 | Park Holidays UK | |||
| Operator of caravan parks | 2006 | UK | 2.9% | |
| 3 | MCE | |||
| Provider of industrial services | 2007 | Germany | 2.6% | |
| 4 | NES Group | |||
| Recruitment agency for technical contractors | 2006 | UK | 2.5% | |
| 5 | Kurt Geiger | |||
| Retailer and distributor of luxury footwear | 2008 | UK | 2.5% | |
| 6 | Alexander Mann Solutions | |||
| Provider of recruitment process outsourcings | 2007 | UK | 2.4% | |
| 7 | Ceridian | |||
| Provider of human resources and payment processing services | 2007 | USA | 2.2% | |
| 8 | Wagamama | |||
| Chain of Japanese noodle restaurants | 1996 | UK | 2.1% | |
| 9 | Svendborg Brakes | |||
| Provider of industrial brake solutions | 2008 | Denmark | 2.0% | |
| 10 | Norit | |||
| Supplier of water purification technologies | 2007 | Netherlands | 1.6% | |
| 11 | Data Explorers Group | |||
| Provider of information to the global securities lending industry | 2007 | UK | 1.6% | |
| 12 | Dominion Gas | |||
| Supplier of specialist gases | 2007 | UK | 1.5% | |
| 13 | TDR FS Co | |||
| Financial securities acquisition vehicle | 2008 | USA | 1.5% | |
| 14 | Ziggo | |||
| Cable operator | 2006 | Netherlands | 1.3% | |
| 15 | Evonik Industries | |||
| Diversified industrial group | 2008 | Germany | 1.3% | |
| Total of the 15 largest underlying investments | 33.8% |
|
| Entity | Year of investment | Country / region | Value as a % of investment portfolio | |||
| 16 | Stork | ||||||
| Diversified engineering group | 2008 | Netherlands | 1.2% | ||||
| 17 | Avanza Group | ||||||
| Operator of buses | 2007 | Spain | 1.2% | ||||
| 18 | Algeco Scotsman | ||||||
| Supplier and operator of modular buildings | 2007 | USA | 1.1% | ||||
| 19 | Intermediate Capital * | ||||||
| Provider of mezzanine finance | 1989 | UK | 1.1% | ||||
| 20 | TMF | ||||||
| Provider of management and accounting outsourcing services | 2008 | Netherlands | 1.1% | ||||
| 21 | Balta | ||||||
| Manufacturer of carpets and floor coverings | 2004 | Belgium | 1.1% | ||||
| 22 | West Corporation | ||||||
| Provider of outsourced communication services | 2006 | USA | 1.0% | ||||
| 23 | Optimum care | ||||||
| Owner and operator of care homes for the elderly | 2007 | UK | 1.0% | ||||
| 24 | Clyde Bergemann | ||||||
| Supplier of components for power generation industry | 2005 | Germany | 1.0% | ||||
| 25 | Weetabix | ||||||
| Manufacturer of breakfast cereals | 2004 | UK | 1.0% | ||||
| 26 | CEVA | ||||||
| Manufacturer and distributor of animal health products | 2007 | France | 1.0% | ||||
| 27 | Segur Iberica | ||||||
| Provider of security services | 2004 | Spain | 0.9% | ||||
| 28 | Alma Consulting | ||||||
| Provider of cost reduction and tax recovery services | 2007 | France | 0.9% | ||||
| 29 | Marken | ||||||
| Provider of specialist courier services | 2007 | UK | 0.9% | ||||
| 30 | Parques Reunidos | ||||||
| Operator of attraction parks | 2007 | Spain | 0.8% | ||||
| Total of the 30 largest underlying investments | 49.1% | ||||||
* Quoted
THE 15 LARGEST FUND INVESTMENTS
The largest funds by value at 30 June 2009 are set out below.
| Fund | Outstanding commitment £m | Year of commitment | Country / region | Value £m | |
| 1 | Graphite Capital Partners VI | ||||
| Mid-market buy-outs | 6.1 | 2003 | UK | 22.1 | |
| 2 | ICG European Fund 2006 | ||||
| Mezzanine loans to buy-outs | 13.3 | 2007 | Europe | 10.9 | |
| 3 | Doughty Hanson & Co V | ||||
| Mid-market and large buy-outs | 10.9 | 2006 | Europe | 10.0 | |
| 4 | Thomas H Lee Fund VI | ||||
| Large buy-outs | 10.7 | 2007 | USA | 8.7 | |
| 5 | Fourth Cinven Fund | ||||
| Large buy-outs | 10.0 | 2006 | Europe | 8.4 | |
| 6 | Doughty Hanson & Co IV | ||||
| Mid-market and large buy-outs | 0.2 | 2005 | Europe | 8.2 | |
| 7 | Graphite Capital Partners VII | ||||
| Mid-market buy-outs | 31.4 | 2007 | UK | 7.6 | |
| 8 | Candover 2005 Fund | ||||
| Large buy-outs | 4.6 | 2005 | Europe | 6.9 | |
| 9 | Apax Europe VII | ||||
| Large buy-outs | 14.3 | 2007 | Global | 6.7 | |
| 10 | Deutsche Beteiligungs AG Fund V | ||||
| Mid-market buy-outs | 10.6 | 2006 | Germany | 5.5 | |
| 11 | Deutsche Beteiligungs AG Fund IV | ||||
| Mid-market buy-outs | 0.5 | 2002 | Germany | 4.6 | |
| 12 | TDR Capital II Fund | ||||
| Large buy-outs | 11.5 | 2006 | Global | 4.3 | |
| 13 | Euromezzanine 5 | ||||
| Mezzanine loans to mid-market buy-outs | 2.1 | 2006 | France | 4.2 | |
| 14 | CSP Secondary Opportunities II | ||||
| Secondary fund investments | 7.0 | 2008 | Global | 4.0 | |
| 15 | Barclays European Infrastructure Fund | ||||
| Infrastructure projects | 0.4 | 2001 | UK | 3.5 | |
| Total of the 15 largest fund investments | 133.6 | 115.6 | |||
| Percentage of the investment portfolio | 64.2% |
CONSOLIDATED INCOME STATEMENT
|
| |||||||||||
| Half year to 30 June 2009 | Half year to 30 June 2008 | Year to 31 December 2008 | |||||||||
| (unaudited) | (unaudited) | ||||||||||
| Revenue return | Capital return | Total | Revenue return | Capital return | Total | Revenue return | Capital return | Total | |||
|
| £'000s | £'000s | £'000s | £'000s | £'000s | £'000s | £'000s | £'000s | £'000s | ||
| Investment Returns | |||||||||||
| Gains and losses on investments held at fair value | 144 | (23,103) | (22,959) | 202 | 3,677 | 3,879 | 1,326 | (63,443) | (62,117) | ||
| Income from cash and cash equivalents | 775 | - | 775 | 3,079 | - | 3,079 | 5,001 | - | 5,001 | ||
| Other income | 72 | - | 72 | 218 | - | 218 | 298 | - | 298 | ||
| Foreign exchange (losses) and gains | - | (9,753) | (9,753) | - | 569 | 569 | - | 12,516 | 12,516 | ||
| 991 | (32,856) | (31,865) | 3,499 | 4,246 | 7,745 | 6,625 | (50,927) | (44,302) | |||
| Expenses | |||||||||||
| Investment management charges | (438) | (1,316) | (1,754) | (544) | (1,631) | (2,175) | (1,110) | (3,330) | (4,440) | ||
| VAT reclaim | 5 | 16 | 21 | 667 | 2,001 | 2,668 | 647 | 1,942 | 2,589 | ||
| Other expenses | (641) | (11) | (652) | (515) | (73) | (588) | (1,090) | (81) | (1,171) | ||
| (1,074) | (1,311) | (2,385) | (392) | 297 | (95) | (1,553) | (1,469) | (3,022) | |||
| (Loss)/profit before tax | (83) | (34,167) | (34,250) | 3,107 | 4,543 | 7,650 | 5,072 | (52,396) | (47,324) | ||
| Taxation | (5) | 5 | - | (879) | (105) | (984) | (1,337) | 396 | (941) | ||
| (Loss)/profit for the period from continuing operations | (88) | (34,162) | (34,250) | 2,228 | 4,438 | 6,666 | 3,735 | (52,000) | (48,265) | ||
| Attributable to: | |||||||||||
| Equity shareholders | (88) | (32,511) | (32,599) | 2,228 | 3,168 | 5,396 | 3,735 | (50,527) | (46,792) | ||
| Minority interests | - | (1,651) | (1,651) | - | 1,270 | 1,270 | - | (1,473) | (1,473) | ||
| Basic and diluted earnings per share (note 5) | (44.71p) | 7.38p | (64.09p) | ||||||||
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 | ||
| 2009 | 2008 | 2008 | |
| (unaudited) | (unaudited) |
| |
| £'000s | £'000s | £'000s | |
| Non-current assets | |||
| Investments held at fair value | |||
| - Unquoted investments | 175,776 | 270,828 | 188,137 |
| - Quoted investments | 4,201 | 9,136 | 4,041 |
| 179,977 | 279,964 | 192,178 | |
| Current assets | |||
| Trade and other receivables (note 6) | 1,632 | 2,897 | 2,750 |
| Cash and cash equivalents | 114,050 | 106,241 | 138,963 |
| 115,682 | 109,138 | 141,713 | |
| Current liabilities | |||
| Trade and other payables | (1,451) | (2,483) | (2,152) |
| Net current assets | 114,231 | 106,655 | 139,561 |
| Net assets | 294,208 | 386,619 | 331,739 |
| Capital and reserves | |||
| Called up share capital (note 8) | 7,292 | 7,292 | 7,292 |
| Capital redemption reserve (note 8) | 2,112 | 2,112 | 2,112 |
| Share premium (note 8) | 12,936 | 12,936 | 12,936 |
| Capital reserve (note 8) | 257,555 | 343,761 | 290,066 |
| Revenue reserve (note 8) | 11,570 | 13,432 | 14,939 |
| Equity attributable to equity shareholders (note 8) | 291,465 | 379,533 | 327,345 |
| Minority interests (note 8) | 2,743 | 7,086 | 4,394 |
| 294,208 | 386,619 | 331,739 | |
| Net asset value per share (basic and diluted) | 399.7p | 520.5p | 449.0p |
| CONSOLIDATED CASH FLOW STATEMENT | ||||||||||||
| Half year to | Year to | |||||||||||
| 30 June | 31 December | |||||||||||
| 2009 | 2008 | 2008 | ||||||||||
| (unaudited) | (unaudited) | |||||||||||
| £'000s | £'000s | £'000s | ||||||||||
| Operating activities | ||||||||||||
| Sale of portfolio investments | 520 | 19,572 | 24,454 | |||||||||
| Sale of portfolio of fund interests | - | - | 54,949 | |||||||||
| Purchase of portfolio investments | (11,422) | (38,704) | (77,869) | |||||||||
| Sale of FTSE 100 Call option | - | 7,693 | 7,693 | |||||||||
| Cash placed in escrow pending investment (note 6) | (1,526) | - | - | |||||||||
| Income received from investments | 225 | 857 | 1,791 | |||||||||
| Other income received | 1,066 | 3,297 | 5,299 | |||||||||
| Investment management charges paid | (1,889) | (909) | (3,204) | |||||||||
| VAT reclaimed on investment management charges | 2,352 | - | - | |||||||||
| Other expenses paid | (479) | (937) | (1,412) | |||||||||
| Taxation paid | (726) | (1,569) | (1,731) | |||||||||
| Net cash (outflow)/inflow from operating activities | (11,879) | (10,700) | 9,970 | |||||||||
| Financing activities | ||||||||||||
| Investments by minority interests | - | 281 | 580 | |||||||||
| Distributions to minority interests | - | (1,705) | (1,899) | |||||||||
| Repurchase of ordinary shares | - | (11,070) | (11,070) | |||||||||
| Equity dividends paid | (3,281) | (5,833) | (5,833) | |||||||||
| Net cash outflow from financing activities | (3,281) | (18,327) | (18,222) | |||||||||
| Net decrease in cash and cash equivalents | (15,160) | (29,027) | (8,252) | |||||||||
| Cash and cash equivalents at beginning of period | 138,963 | 134,699 | 134,699 | |||||||||
| Net decrease in cash and cash equivalents | (15,160) | (29,027) | (8,252) | |||||||||
| Effect of changes in foreign exchange rates | (9,753) | 569 | 12,516 | |||||||||
| Cash and cash equivalents at end of period | 114,050 | 106,241 | 138,963 | |||||||||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Half year to 30 June | Year to 31 December | |||||
| 2009 | 2008 | 2008 | ||||
| (unaudited) | (unaudited) | |||||
|
|
| £'000s |
| £'000s |
| £'000s |
| Total equity at the beginning of the period | 331,739 | 398,277 | 398,277 | |||
| (Loss)/profit attributable to equity shareholders | (32,599) | 5,396 | (46,792) | |||
| (Loss)/profit attributable to minority interests | (1,651) | 1,270 | (1,473) | |||
| Total (loss)/profit for the period and total recognised income and expense | (34,250) | 6,666 | (48,265) | |||
| Dividends paid to equity shareholders (note 4) | (3,281) | (5,833) | (5,833) | |||
| Repurchase of ordinary shares (note 7) | - | (11,070) | (11,070) | |||
| Net distribution to minority interests | - | (1,421) | (1,370) | |||
| Total equity at end the of period | 294,208 | 386,619 | 331,739 | |||
Further analysis of the above movements is presented in note 8.
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. This half-yearly financial report was approved by the Board of directors on 27 August 2009.
2 UNAUDITED INTERIM REPORT
The half-yearly financial report does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2008, were approved by the Board of directors on 8 April 2009 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 made under section 498 of the Companies Act 2006.
This half-yearly financial report has been reviewed, not audited.
3 BASIS OF PREPARATION
This half-yearly financial report for the six months ended 30 June 2009 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 half-yearly financial report should be read in conjunction with the annual financial statements for the year ending 31 December 2008, 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 2008, 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.
At the date of issue of these financial statements, the following Standards and Interpretations relevant to the Company were in issue but not yet effective:
IFRS 3 (Amended): 'Business Combinations'
IAS 27 (Amended): 'Consolidated and Separate Financial Statements'
At the date of issue of these financial statements, the following Standard relevant to the Company was in issue but not yet endorsed by the European union:
IFRS 7 (Amended): 'Financial Instruments: Disclosures'
The directors do not anticipate that the adoption of any of these new or revised Standards in future periods will have a material impact on the financial statements of the Company.
4 DIVIDENDS
| Half year to 30 June | Year to 31 December | |||||||||||||
| 2009 | 2008 | 2008 | ||||||||||||
| Dividends paid or approved in the period | £'000s | £'000s | £'000s | |||||||||||
| Half year to 30 June 2009: 4.5p per share (half year to 30 June 2008 and year to 31 December 2008: 8.0p per share) | 3,281 | 5,833 | 5,833 | |||||||||||
5 EARNINGS PER SHARE
| | | | | | Half year to 30 June | Year to 31 December | |||
| | | | | | 2009 | | 2008 | | 2008 |
| Revenue return per ordinary share | (0.12p) | | 3.05p | | 5.12p | ||||
| Capital return per ordinary share | | (44.59p) | | 4.33p | | (69.21p) | |||
| Earnings per ordinary share (basic and diluted) | (44.71p) | | 7.38p | | (64.09p) | ||||
| Weighted average number of shares | 72,913,000 | | 73,114,359 | | 73,012,852 | ||||
The earnings per share figures are based on the weighted average numbers of shares set out above.
6 TRADE AND OTHER RECEIVABLES
Trade and other receivables include a balance of £1.5 million which was placed into escrow in relation to an investment which was on-going at the period end. Of this amount, £0.2 million has subsequently been invested and the remainder has been returned to the Company.
7 SHARE BUY-BACKS
| | | | | | Half year to 30 June | | Year to 31 December | ||
| | | | | | 2009 | | 2008 | | 2008 |
| Number of shares bought back | - | | 2,374,000 | | 2,374,000 | ||||
| Average price per share | - | | 463.1p | | 463.1p | ||||
| Total cost including expenses | | - | | £11,069,901 | | £11,069,901 | |||
| Number of shares in issue at the end of the period | 72,913,000 | | 72,913,000 | | 72,913,000 | ||||
All shares bought back in previous periods were subsequently cancelled.
8 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 2009 | ||||||||
| Opening balance at 1 January 2009 | 7,292 | 2,112 | 12,936 | 290,066 | 14,939 | 327,345 | 4,394 | 331,739 |
| (Loss) for the period attributable to recognised income and expense | - | - | - | (32,511) | (88) | (32,599) | (1,651) | (34,250) |
| Dividends paid or approved | - | - | - | - | (3,281) | (3,281) | - | (3,281) |
| Repurchase of own shares | - | - | - | - | - | - | - | - |
| Net distribution to minority interests | - | - | - | - | - | - | - | - |
| Closing balance | 7,292 | 2,112 | 12,936 | 257,555 | 11,570 | 291,465 | 2,743 | 294,208 |
| Share capital £'000s | Capital redemption reserve £'000s | Share premium £'000s | Capital reserve £'000s | Revenue reserve £'000s | Total shareholders' equity £'000s | 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) |
| Repurchase 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 | |
| Year ended 31 December 2008 | ||||||||
| Opening balance at 1 January 2008 | 7,529 | 1,875 | 12,936 | 351,663 | 17,037 | 391,040 | 7,237 | 398,277 |
| (Loss)/Profit for the period attributable to recognised income and expense | - | - | - | (50,527) | 3,735 | (46,792) | (1,473) | (48,265) |
| Dividends paid or approved | - | - | - | - | (5,833) | (5,833) | - | (5,833) |
| Repurchase of own shares | (237) | 237 | - | (11,070) | - | (11,070) | - | (11,070) |
| Net distribution to minority interests | - | - | - | - | - | - | (1,370) | (1,370) |
| Closing balance | 7,292 | 2,112 | 12,936 | 290,066 | 14,939 | 327,345 | 4,394 | 331,739 |
9 RELATED PARTY TRANSACTIONS
INVESTMENT MANAGEMENT CHARGES
The investment management charges set out in the table below were paid to the Manager, Graphite Capital Management LLP, in the period. The Manager is a related party.
| | | | | | Half year to 30 June | | Year to 31 December | ||
| | | | | | 2009 | | 2008 | | 2008 |
| | | | | | £'000s | | £'000s | | £'000s |
| Investment management fee | 1,754 | | 2,175 | | 4,440 | ||||
| VAT reclaim accrued (see note 10) | | (21) | | (2,668) | | (2,589) | |||
| | 1,733 | | (493) | | 1,851 | ||||
The allocation of the total investment management charges was unchanged in 2009 with 75% of the total allocated to capital and 25% allocated to income.
The management fee charged by the Manager is 1.5% of the value of invested assets and 0.5% of outstanding commitments, in both cases excluding funds managed by Graphite Capital. The amounts payable during the year are set out above. There were no unpaid invoices as at 30 June 2009 and £0.8 million was accrued in respect of unbilled management fees. 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 | ||
| | | | | | 2009 | | 2008 | | 2008 |
| | | | | | £'000s | | £'000s | | £'000s |
| Graphite Capital Partners V | 43 | | 31 | | - | ||||
| Graphite Capital Partners VI | 222 | | 419 | | 764 | ||||
| Graphite Capital Partners VII | | 394 | | 500 | | 784 | |||
| | 659 | | 950 | | 1,548 | ||||
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 | 2009 | | 2008 | | 2008 |
| | | | | | £'000s | | £'000s | | £'000s |
| Graphite Enterprise Trust LP | (Decrease)/increase in loan balance | (10,100) | | (1,892) | | 5,579 | |||
| | Income allocated | 49 | | 131 | | 335 | |||
| | | | | | | | |||
| Graphite Enterprise Trust (2) LP | (Decrease)/increase in loan balance | (558) | | 2,066 | | 2,850 | |||
| | Income allocated | 2 | | - | | 10 | |||
Significant balances between the parent company and its subsidiaries are shown below:
| 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 | 2009 | 2008 | 2008 | 2009 | 2008 | 2008 | ||||
| £'000s | £'000s | £'000s | £'000s | £'000s | £'000s | |||||
| Graphite Enterprise Trust LP | 3,945 | 6,574 | 14,045 | - | - | - | ||||
| Graphite Enterprise Trust (2) LP | 3,292 | 2,066 | 3,850 | - | - | - | ||||
10 CONTINGENT ASSET
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. During 2008 the Manager lodged claims with HMRC to recover back VAT paid from 2002 onwards. At 31 December 2008 a receivable for this back VAT of £2.3 million along with £0.3 million of interest was outstanding. In June 2009 the whole of the back VAT was received and most of the interest was received with the remainder received in July 2009.
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 be able to reclaim VAT charged to the Company for the period from 1990 to late 1996. The claim has been lodged and is still outstanding. Until the remaining uncertainties surrounding the reclaim process have been resolved, it is not practicable to quantify the amount of VAT relating to the second potential repayment with sufficient certainty and accordingly no asset has been recognised in these accounts. 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 it has therefore not been recognised in these financial statements.
Statement of Directors' Responsibilities
The directors confirm that this half-yearly financial report has been prepared in accordance with IAS34 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, 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 that have taken place in the first six months of the financial year 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 2008, with the exception of the following changes in the period:
Mr J Sclater retired as Chairman of the Board and a Director on 19 May 2009 and Mr M Fane became Chairman on that date. A list of current directors is maintained on the Graphite Enterprise Trust PLC website: www.graphite-enterprise.com.
By the order of the Board
M. Fane
Chairman
27 August 2009
Copies of the Interim Report will be posted to all shareholders in early September 2009 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 2009 |
For further information, please contact:
| Stephen Cavell/ Tim Spence Graphite Capital | Tel: 020 7825 5300 |
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 2009, which comprises the consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity, consolidated 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 2009 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 2009
Note:
The Interim Report is published on the www.graphite-enterprise.com website, which is maintained by the Company's Manager, Graphite Capital Management LLP (GCM LLP). The content and integrity of the website maintained by GCM LLP or any of its subsidiaries is, so far as it relates to the Company, the responsibility of GCM LLP. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Overseas visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the Interim Report may differ from legislation in their jurisdiction.