Last checked at 
25 Sep 2013 07:00
25 September 2013
GRAPHITE ENTERPRISE TRUST PLC
UNAUDITED RESULTS FOR THE SIX MONTHS
TO 31 JULY 2013
Summary of the period
Graphite Enterprise made good progress in the six months to 31 July 2013 with the net asset value per share increasing by 8%. The performance of the portfolio was strong, driven by continued growth in underlying profits and by a number of successful realisations.
We are seeing many opportunities to invest in new funds and to acquire interests in existing funds and have doubled outstanding commitments since the year end. Our strong balance sheet leaves us very well placed to take advantage of further opportunities.
Over both the short and long term, the Company's net asset value has been one of the top performers in the listed private equity sector. The maturity of our portfolio and its strong recent performance make Graphite Enterprise very well positioned for future growth.
Mark Fane
Chairman
+8.1% | +9.3% | |
Net asset value per share The NAV per share increased to 682.3p, outperforming the FTSE All-Share Index which increased by 6.8% in the period
| Underlying value of the portfolio in local currencies The portfolio grew strongly, driven by underlying earnings growth and realisations
| |
£39.6m | £30.1m | |
Realisation proceeds 9.5% of the opening portfolio was realised in cash
| Investment in the portfolio The rate of investment was 27% higher than in the previous six months | |
£100m | £498m | |
Commitment to Graphite VIII After the period end, a commitment was made to Graphite Capital's latest buy-out fund | Net assets The Company's net assets were at an all time high |
Chairman's Statement
Summary
Graphite Enterprise performed well in the six months to 31 July 2013, with the net asset value per share increasing by 8.1%. By comparison, the Company's benchmark, the FTSE All-Share Index, rose by 6.8%. Performance has been consistently strong in recent years with the net asset value increasing by 18% over one year and by nearly 50% over three years, closing the period at an all-time high of 682.3p. The net asset value is now 28% above its peak prior to the financial crisis.
The growth in net asset value reflected a 9.3% increase in the value of the investment portfolio in local currencies. This was driven by a combination of growth in the underlying profits of unrealised investments and gains achieved on a number of successful realisations.
The share price increased only marginally over the period, rising by 0.4% to 489p, but this followed a very sharp increase in the previous six months. Over the 12 months to July the share price increased by 27.1% and over three years by 80.8%1. These figures compare with rises of 19.9% and 43.4% in the FTSE All-Share Index over the same periods. As the rise in the share price was lower than that of the net asset value, the discount widened to 28.3%. The share price has since risen to 512p reducing the discount to 25.0%.
At 31 July, total assets had risen to £508 million of which 89% was invested in the portfolio. The balance was held in cash and liquid assets and when this is added to the undrawn bank facility of £100 million, the Company has a high level of liquidity at more than £150 million. This has allowed us to materially increase the level of commitments to funds. Over £40 million of commitments were made in the six months to July and since then we have committed £100 million to Graphite Capital's latest fund. The commitment to Graphite, which was outlined in the year end accounts, brought total outstanding commitments to over £250 million. We expect to make further new commitments in the coming months.
31 Jul 2013 | 31 Jan 2013 | Change
| |
Net asset value per share | 682.3p | 631.5p | +8.1% |
Share price | 489.0p | 487.0p | +0.4% |
FTSE All-Share Index | 3,506 | 3,287 | +6.8% |
1 On a total return basis, including the effect of re-invested dividends.
Economic environment
The Company's investment programme continues to be focused on the more mature private equity markets, primarily in Western Europe. At 31 July, the largest exposure was to the UK, which accounted for 47% of the portfolio, with a further 41% in continental Europe.
The outlook for the UK is now looking more positive, with improved growth rates and a range of economic indicators pointing towards a continuation of economic expansion. The performance of major continental European economies has also improved and confidence in economic growth prospects currently outweighs concerns over the high levels of debt of some of the countries. While sentiment has undoubtedly improved, we continue to expect the recovery of many European economies to be relatively slow.
The resilience of the investment portfolio during the economic downturn demonstrated that the private equity model can survive and indeed prosper in difficult times. As the improved performance in the past six months suggests, a more favourable economic environment should prove to be very positive for the development of the portfolio.
Performance
Overview
The investment portfolio increased in value by 9.3% in local currencies over the six months to July having increased by 14.3% in the previous year. The increase in the sterling value of the portfolio was slightly higher at 11.0% as the euro strengthened against sterling during the period. As the investment portfolio accounted for just under 90% of net assets, this increased the net asset value by 9.9%. After costs and the payment of the dividend, the overall increase in the net asset value per share was 8.1%.
Portfolio
Nearly two thirds of the underlying growth in the portfolio came from increases in the valuations of the unrealised portfolio. This was driven by continued earnings growth and by debt pay-down, rather than by an increase in valuation multiples.
Gains on the realisation of portfolio companies accounted for just over a third of the growth during the period. It was pleasing that these realisations continued to be achieved at well above their carrying values.
As the largest 30 underlying companies accounted for 43% of the portfolio at 31 July, their performance will, to a large extent, determine the future performance of the Company. These investments performed well, with EBITDA2 increasing on average by 11% in the 12 months to June. By comparison, the aggregate EBITDA of the FTSE 250 fell by 2.7% in the same period.
2Earnings before interest, tax, depreciation and amortisation.
A more detailed analysis of the performance of the investment portfolio is given in the Manager's Review.
Discount
The share price rose substantially in the year to January 2013 while the discount narrowed materially, closing the year at 22.9%. Since then the share price has remained stable while the net asset value has increased, with the result that the discount has widened. The closing discount of 28.3% is narrower than the average over the downturn but wider than the longer term average. Since the period end, the share price has risen to 512p, reducing the discount to 25.0%.
The Board continues to believe that the key to narrowing the discount is to generate demand for the Company's shares through communication of the Company's strategy and of its consistently strong long term performance. To this end, we will continue to devote significant time to our investor relations programme for the remainder of this year and beyond.
Long term performance3
We have always measured performance against the benchmark of the FTSE All-Share Index and aim to outperform in the medium to long term. We continue to believe that this Index is the most relevant for most of our shareholders, over 60% of whom are private individuals.
Over ten years, both the net asset value and the share price have outperformed the FTSE All-Share. The net asset value grew by 183% and the share price by 156%, while the Index returned 152% over the same period. Similarly, over three years the Company has outperformed the Index on both measures.
Five year relative performance figures, which take their starting point as June 2008, are distorted by the timing and severity of the financial crisis. While the stock market fell sharply in the first half of 2008, the share price did not fall until the second half. The net asset value did not fall by as much as either the index or the share price and therefore did not recover as sharply. Comparative financial information is therefore both extremely time sensitive and difficult to interpret. For example, the share price underperformed the Index by 25% from June 2008 to July 2013, while in the period from December 2008 to July 2013 it outperformed by 99%.
The Company's performance against the listed private equity sector continues to be very strong. Over five years, our net asset value total return is the best in our peer group4 and over both one and three years, it is the best of the funds-of-funds.
Years to 31 July | 3 | 5 | 10 |
Net asset value per share | +48.3% | +35.7% | +183.0% |
Share price | +80.8% | +22.8% | +156.1% |
FTSE All-Share Index | +43.4% | +47.6% | +152.4% |
Balance sheet and commitments
As reported in the year end accounts, we negotiated an increase in the bank facility from £60 million to £100 million in March. When added to cash balances of over £50 million, this provides us with the capacity to make substantial new long-term commitments to funds. Our medium term aim is to be broadly fully invested while ensuring that we have sufficient liquidity to be able to take advantage of any attractive investment opportunities that might arise.
Reflecting this objective, we have made substantial commitments to new funds since January with the result that the level of outstanding commitments has more than doubled. In the six months to July, £42 million of commitments were made to third party funds, which was more than 50% higher than in the whole of the previous financial year. In September the Company made a commitment of £100 million to Graphite VIII, Graphite Capital's most recent buy-out fund. This commitment, which is greater than the £70 million committed to the predecessor fund in 2007, reflects both the strong performance of the 2007 fund and our aim of maintaining Graphite-managed assets at between 20% and 25% of the portfolio.
The cash balance remained almost unchanged, with realisation proceeds offsetting new investment and other cash outflows. The level of investment increased slightly from 88% to 89% of the balance sheet total.
In the coming months we expect to make further commitments to new funds and aim to make further purchases of secondary fund interests and co-investments.
Investment portfolio £ million | Investment portfolio % total assets | Cash and liquid assets £ million | Cash and liquid assets % of total assets |
Commitments £ million | |
31 July 2013 | 451.1 | 88.8% | 56.7 | 11.2% | 251.5* |
31 January 2013 | 415.2 | 88.1% | 56.3 | 11.9% | 126.5 |
31 January 2012 | 377.7 | 89.2% | 45.9 | 10.8% | 141.2 |
31 January 2011 | 356.6 | 89.2% | 42.9 | 10.8% | 173.7 |
31 December 2009 | 231.2 | 67.1% | 113.4 | 32.9% | 243.2 |
* Pro forma figure as at 30 September 2013.
Outlook
The improvement in investor confidence reflected by the rises in stock markets over the last twelve months now appears to be more solidly grounded, with the UK and the other main economies in which we are invested reporting stronger economic growth.
Over the 12 months to July, the strong underlying performance of the portfolio, combined with the uplifts achieved on £87 million of realisations, were the drivers of an 18% increase in the net asset value. The net asset value is now 28% above its peak prior to the financial crisis.
We do not believe, however, that the impact of rising equity markets has yet been fully reflected in our portfolio, with valuation multiples remaining broadly unchanged. If this positive market backdrop persists, we expect good underlying company trading to drive stronger realisations and this in turn will drive the Company's net asset value performance.
Graphite Enterprise remains very well placed to take advantage of current investment opportunities, with significant net cash and the undrawn bank facility. We will continue to review the full range of fund and co-investment opportunities and we expect the second half of the year to be an active one for new investment.
Our portfolio performed well through the downturn and the performance over the last six months suggests that the Company is in a very good position to benefit from a period of economic growth.
Mark Fane
September 2013
MANAGERS REVIEW
SIX MONTHS ENDED 31 July 2013
PORTFOLIO PERFORMANCE
The portfolio performed strongly in the first half of the year rising in value by 9.3% in local currencies. Favourable currency movements raised the valuation increase in sterling to 11.0%.
The portfolio ended the period at its highest ever level of £451.1 million having risen by £35.9 million since 31 January. This was driven primarily by £38.4 million of valuation gains, with currency adding a further £7.0 million. These gains were partially offset by net realisations of £9.5 million.
£m | |
Opening portfolio | 415.2 |
Additions | 30.1 |
Disposal proceeds | (39.6) |
Net cash inflow | (9.5) |
Gains on disposals | 13.9 |
Unrealised valuation gains | 24.5 |
Total underlying valuation gains | 38.4 |
Currency | 7.0 |
Closing portfolio | 451.1 |
Uplifts in unrealised valuations accounted for almost two thirds of the underlying valuation increase, while gains on disposals accounted for the remainder. Valuation gains were primarily driven by strong earnings growth while multiples remained broadly stable.
Investment activity
The portfolio generated a net cash inflow of £9.5 million, with realisations of £39.6 million offsetting new investment of £30.1 million.
Realisations
We are encouraged by the steady flow of proceeds generated by the portfolio in the first half of the year. Full realisations generated £20.7 million of proceeds while partial sales and refinancings generated a further £18.9 million.
The largest realised gains in the period were generated by our sale of Dominion Gas and Doughty Hanson's disposal of Vue Entertainment. The £7.9 million received from the sale of Dominion represented the largest cash inflow in the period while the £8.2 million generated by Vue was not received until after the period end. Dominion and Vue were, respectively, the 11th and 21st largest underlying investments at the start of the period. Further details of the ten largest underlying realisations are set out in the Supplementary Information section later in this announcement.
The improved environment for realisations is reflected in the number of full realisations of 16 in the first six months compared with 9 in the previous six months and 14 in the whole of last year. Realisations continue to generate very substantial uplifts over the prior carrying values and in the first half this averaged 53%.
Full realisations from within our primary fund portfolio generated an average multiple of original cost of 2.1 and had been in the portfolio on average for 5.3 years. We generated 2.3 times cost from the sale of companies acquired through secondary fund purchases over a much shorter average holding period of 1.6 years.
The split between trade and private equity buyers was even at 44% of proceeds each, while public markets accounted for the remainder. It is also interesting to note that most of the realisations were of investments made prior to the financial crisis, with 2006 and 2007 vintage investments representing 12 of the 16 realisations.
Partial realisations included proceeds from the IPOs5 of HellermannTyton, Partnership and bPost. There were also several refinancings, the largest of which were AMS and Education Personnel, both of which we manage directly.
Total proceeds received were equivalent to 10% of the opening portfolio. This is in line with the rate of realisation achieved in the prior financial year of 20% per annum, but remains below the long term average rate of more than 30% per annum.
New investments
New investments of £30.1 million were 27% higher than in the previous six months. Drawdowns by funds of £18.4 million were broadly in line with our expectations and slightly higher than the previous six months. We increased new investments by a further £11.7 million through two secondary fund purchases, GCP Capital Partners Europe and Doughty Hanson V, and one direct co-investment, R&R Ice Cream.
The managers of our fund portfolio made 25 new investments in underlying companies in the six months which is consistent with the number in the second half of last year. The largest new underlying investment was R&R Ice Cream, alongside PAI Partners, in which we invested a total of £3.0 million including the direct co-investment noted above.
Further details of the two secondary fund purchases together with the ten largest underlying new investments, are set out in the Supplementary Information section later in this announcement.
New commitments
We made four new fund commitments in the period totalling £37.8 million. Two were to managers with whom we have a longstanding relationship, Cinven and CVC Capital Partners, and two were to new relationships, Towerbrook and IK Investment Partners. Further details of each of these new funds are set out in the Supplementary Information section later in this announcement.
All of these commitments are in line with our strategy of building long-term relationships with top performing managers and of subsequently partnering with them in selective co-investments and secondaries. While many investors have been rationalising manager relationships, in part due to continuing capital constraints, our strategy is to broaden the number of active relationships. In the last two years we have added seven new managers to the portfolio, and we plan to continue with this strategy in the second half of this year and into next year.
In addition to new primary fund commitments we added £4.3 million of new commitments alongside the secondary fund purchases and co-investment described above.
5Initial public offering.
CLOSING PORTFOLIO
At the period end, the portfolio was valued at £451.1 million and was broadly diversified with investments in 355 underlying companies across a wide range of sectors and geographies.
Achieving a balance between diversification and concentration remains an important element of our strategy. While the level of diversification within the portfolio reduces risk, many individual investments are still large enough to have an impact on overall performance, as demonstrated by the sales of Dominion and Vue.
The top ten underlying companies accounted for 23% of the value of the portfolio while the top 30 accounted for 43%. The performance of these 30 investments is therefore likely to be the main driver of the future performance of the Company. As outlined in the Chairman's Statement, their performance remained strong in the 12 months to 30 June 2013 with revenue growing by an average of 6% and EBITDA by an average of 11%.
The top 30 underlying companies were valued on an average multiple of 9.5 times EBITDA at July 2013. We consider this to be reasonable for the level of growth being achieved and for the quality of the underlying earnings. The leverage of these companies is generally modest, with net debt averaging 3.3 times EBITDA. This level of gearing should enhance future equity returns without posing undue financial risk.
Graphite Capital directly manages 22% of the portfolio by value including six of the top ten and nine of the top 30 underlying investments. This gives us a high level of influence over the development of a significant part of the Company's portfolio. It also provides valuable insights which help us to make more informed strategic and short term decisions on the management of the portfolio.
At 31 July, 99% of the portfolio was valued using June valuations. The portfolio was valued at an average of 1.4 times original cost in local currency, of which 0.4x times cost had already been realised. At these levels we believe there to be considerable potential for future growth as the portfolio matures. As almost 60% of the portfolio is in investments made in 2008 or before, managers will be looking to realise these investments when market conditions allow.
A detailed analysis of the portfolio is included in the Supplementary Information section later in this announcement.
EVENTS SINCE THE PERIOD END AND PRO FORMA BALANCE SHEET
Since the period end realisations have continued to be strong with proceeds of £25.6 million6 exceeding additions to the portfolio of £15.6 million. New investments include an £11.3 million secondary purchase of two funds: CVC Capital Partners V and Charterhouse Capital Partners IX. The former is a fund in which the Company already had a primary investment and the latter is new to the portfolio, although our relationship with the manager stretches back more than 20 years.
We are pleased that the Board has chosen to continue to support our direct investment team for the next five years with a commitment of £100 million to our new buy-out fund, Graphite Capital Partners VIII.
After taking account of the net cash inflow and new commitments since the period end, cash has increased to £65 million while commitments have increased to £252 million. Overcommitment, after taking account of the undrawn bank facility, currently stands at approximately 17% of net assets.
We estimate that approximately £50 million of current commitments will be drawn down over the next 12 months if the rate of investment is constant to the end of each fund's investment period. As this rate is unlikely to be sufficient to keep the Company close to full investment, we plan to continue making co-investments and secondary fund purchases in the remainder of the financial year, as well as further fund commitments. This is expected to have the effect of increasing the Company's overcommitment position further at the year end. As in the past, we will manage this prudently and will ensure that sufficient long term resources are available to fund these commitments.
6Including £8,2 million from Vue Entertainment, as reported above.
PROSPECTS
The outlook for realisations appears to be steadily improving and we expect this to continue in the remainder of the year.
The environment for new investment, while more challenging than that for realisations, is continuing to offer attractive opportunities for private equity managers who are prepared to be patient and selective. This applies both to the managers of our funds as they look to make direct investments, as well as to our own acquisitions of secondary fund interests.
The pipeline of funds being raised by high quality managers continues to be strong and we believe it is important for the long term performance of the Company to support our preferred managers by making primary commitments to their funds. We believe that this is a good time in the cycle to be making commitments to new funds as these should be drawn down as the major European economies continue to emerge from recession.
Our investment strategy gives us the flexibility to adapt the mix of investments, cash and commitments to changing market conditions and to deploy our cash where we see the best relative value. The strength of our balance sheet leaves us well placed to capitalise on the opportunities available in the near future while the strength of our portfolio should continue to drive the net asset value performance.
Graphite Capital
September 2013
SUPPLEMENTARY INFORMATION
The 30 largest fund investments
The 30 largest funds by value at 31 July 2013 are set out below.
Fund | Outstanding commitment £ million | Year of commitment | Country/region | Value£ million | |
1 | Graphite Capital Partners VII * / ** | 15.9 | 2007 | UK | 49.5 |
Mid-market buy-outs
| |||||
2 | Fourth Cinven Fund ** | 2.6 | 2006 | Europe | 32.3 |
Large buy-outs
| |||||
3 | ICG European Fund 2006 ** | 2.6 | 2007 | Europe |
25.4
|
Mezzanine loans to buy-outs
| |||||
4 | Doughty Hanson & Co V ** | 6.6 | 2006 | Europe | 23.8 |
Mid-market and large buy-outs
| |||||
5 | Euromezzanine 5 | 1.9 | 2006 | France | 22.8 |
Mezzanine loans to mid-market buy-outs
| |||||
6 | Thomas H Lee Parallel Fund VI | 4.2 | 2007 | USA | 22.0 |
Large buy-outs
| |||||
7 | Graphite Capital Partners VI ** | 5.1 | 2003 | UK | 21.2 |
Mid-market buy-outs
| |||||
8 | TDR Capital II | 1.9 | 2006 | Europe | 19.2 |
Mid-market and large buy-outs
| |||||
9 | Candover 2005 Fund ** | 0.6 | 2005 | Europe | 17.1 |
Large buy-outs
| |||||
10 | CVC European Equity Partners V | 5.8 | 2008 | Global | 16.8 |
Large buy-outs
| |||||
11 | Activa Capital Fund II | 2.7 | 2007 | France | 14.5 |
Mid-market buy-outs
| |||||
12 | Apax Europe VII | 0.7 | 2007 | Global |
14.0
|
Large buy-outs
| |||||
13 | Doughty Hanson & Co IV | 1.1 | 2005 | Europe | 10.8 |
Mid-market and large buy-outs
| |||||
14 | Deutsche Beteiligungs AG Fund V | 0.1 | 2006 | Germany | 8.9 |
Mid-market buy-outs
| |||||
15 | Bowmark Capital Partners IV | 2.3 | 2007 | UK | 8.1 |
Mid-market buy-outs
| |||||
16 | PAI Europe V | 0.5 | 2007 | Europe | 7.2 |
Large buy-outs
| |||||
17 | CVC European Equity Partners Tandem | 1.0 | 2006 | Global | 6.5 |
Large buy-outs
| |||||
18 | Charterhouse Capital Partners VIII ** | 1.3 | 2006 | Europe | 6.2 |
Large buy-outs
| |||||
19 | CVC European Equity Partners IV ** | 1.6 | 2008 | Global | 5.7 |
Large buy-outs
| |||||
20 | Advent Central and Eastern Europe IV | 2.7 | 2008 | Europe | 5.1 |
Mid-market buy-outs
| |||||
21 | GCP Capital Partners Europe II ** | 1.7 | 2013 | UK | 4.3 |
Small buy-outs
| |||||
22 | BC European Capital IX | 4.8 | 2012 | Europe | 3.9 |
Large buy-outs
| |||||
23 | Deutsche Beteiligungs AG Fund IV | - | 2002 | Germany | 3.7 |
Mid-market buy-outs
| |||||
24 | Apax Europe VII Sidecar 2 | 0.9 | 2007 | Global | 3.6 |
Large buy-outs
| |||||
25 | Vision Capital Partners VII | 0.7 | 2007 | Global | 3.6 |
Secondary portfolios
| |||||
26 | Charterhouse Capital Partners VII ** | 1.5 | 2002 | Europe | 3.2 |
Large buy-outs
| |||||
27 | Bowmark Capital Partners III | - | 2004 | UK | 3.0 |
Small buy-outs
| |||||
28 | Piper Private Equity Fund IV | 1.1 | 2006 | UK | 3.0 |
Small buy-outs
| |||||
29 | Segulah IV | 1.6 | 2008 | Sweden | 2.8 |
Mid-market buy-outs
| |||||
30 | Vision Capital Partners VI | 0.5 | 2006 | Europe | 2.8 |
Secondary direct portfolios
| |||||
Total of the largest 30 fund investments | 74.0 | 371.0 | |||
Percentage of total investment portfolio | 82.2% |
* Includes Graphite Capital Partners VII Top Up Fund and Top Up Fund Plus
** All or part of interest acquired through a secondary purchase
The 30 largest underlying INVESTMENTS
The table below presents the 30 companies in which Graphite Enterprise had the largest investments by value at 31 July 2013. These investments may be held directly or through funds, or in some cases in both ways. The valuations are gross and are shown as a percentage of the total investment portfolio.
Company | Manager | Year of investment | Country | Value as a % of investment portfolio | |
1 | Micheldever | ||||
Distributor and retailer of tyres | Graphite Capital | 2006 | UK | 3.7% | |
2 | Algeco Scotsman | ||||
Supplier and operator of modular buildings | TDR Capital | 2007 | USA | 3.2% | |
3 | CEVA | ||||
Manufacturer and distributor of animal health products | Euromezzanine | 2007 | France | 3.0% | |
4 | National Fostering Agency | ||||
Provider of foster care services | Graphite Capital | 2012 | UK | 2.6% | |
5 | Park Holidays UK | ||||
Operator of caravan parks | Graphite Capital | 2006 | UK | 2.4% | |
6 | Alexander Mann Solutions | ||||
Provider of recruitment process outsourcing solutions | Graphite Capital | 2007 | UK | 2.3% | |
7 | Education Personnel | ||||
Provider of temporary staff for the education sector | Graphite Capital | 2010 | UK | 1.6% | |
8 | U-POL | ||||
Manufacturer and distributor of automotive refinishing products | Graphite Capital | 2010 | UK | 1.6% | |
9 | Partnership * | ||||
Provider of retirement annuities | Cinven | 2008 | UK | 1.4% | |
10 | Avio | ||||
Manufacturer of aerospace and engine components | Cinven | 2007 | Italy | 1.4% | |
11 | CPA Global | ||||
Provider of patent renewal services | Cinven | 2012 | UK | 1.4% | |
12 | TMF | ||||
Provider of management and accounting outsourcing services | Doughty Hanson | 2008 | Netherlands | 1.3% | |
13 | Parques Reunidos | ||||
Operator of attraction parks | Candover | 2007 | Spain | 1.2% | |
14 | Stork | ||||
Provider of technical engineering services | Candover | 2008 | Netherlands | 1.2% | |
15 | Spire Healthcare | ||||
Operator of hospitals | Cinven | 2007 | UK | 1.1% | |
16 | London Square | ||||
Developer of residential housing | Graphite Capital | 2010 | UK | 1.1% | |
17 | Intermediate Capital Group * | ||||
Provider of mezzanine finance | ICG | 1989 | UK | 1.1% | |
18 | Quiron | ||||
Operator of private hospitals | Doughty Hanson | 2012 | Spain | 1.1% | |
19 | Ceridian | ||||
Provider of payment processing services | Thomas H Lee Partners | 2007 | USA | 1.1% | |
20 | Acromas | ||||
Provider of financial, motoring, travel and healthcare services | CVC / Charterhouse | 2007 | UK | 0.9% | |
21 | Spheros | ||||
Provider of bus climate control systems | Deutsche Beteiligungs | 2011 | Germany | 0.9% | |
22 | Evonik Industries * | ||||
Manufacturer of specialty chemicals | CVC | 2008 | Germany | 0.9% | |
23 | Stonegate Pub Company | ||||
Operator of pubs | TDR Capital | 2010 | UK | 0.8% | |
24 | Sebia | ||||
Provider of innovative laboratory instruments | Cinven | 2010 | France | 0.8% | |
25 | Guardian Financial Services | ||||
Provider of insured life and pension products | Cinven | 2011 | UK | 0.8% | |
26 | Standard Brands | ||||
Manufacturer of fire lighting products | Graphite Capital | 2001 | UK | 0.8% | |
27 | SAFE | ||||
Manufacturer of industrial components | Euromezzanine | 2006 | France | 0.7% | |
28 | Eurofiber | ||||
Provider of fibre optic network | Doughty Hanson | 2012 | Netherlands | 0.7% | |
29 | InnBrighton | ||||
Operator of pubs and bars | Graphite Capital | 2001 | UK | 0.7% | |
30 | HellermannTyton * Manufacturer of cable management systems and solutions |
Doughty Hanson |
2006 |
UK |
0.7% |
Total of the 30 largest underlying investments | 42.5% | ||||
* Quoted
Portfolio analySIS
The following tables analyse the companies in which Graphite Enterprise had investments at 31 July 2013.
30 largest investments* - revenue growth | ||
% growth | % by value | |
19.8% | ||
0-10% | 57.9% | |
10-20% | 14.4% | |
20-30% | 3.3% | |
30 largest investments* - EBITDA growth | ||
% growth | % by value | |
18.8% | ||
0-10% | 32.3% | |
10-20% | 18.5% | |
20-30% | 11.3% | |
>30% | 14.5% | |
* Excludes London Square and Guardian Financial Services where EBITDA is not a meaningful measure of performance.
30 largest investments# - enterprise value as a multiple of EBITDA | ||
Multiple | % by value | |
7.3% | ||
7.0-8.0x | 13.7% | |
8.0-9.0x | 23.4% | |
9.0-10.0x | 28.1% | |
10.0-11.0x | 7.3% | |
11.0-12.0x | 3.0% | |
>12.0x | 12.8% | |
30 largest investments# - net debt as a multiple of EBITDA | ||
Multiple | % by value | |
14.9% | ||
2.0-3.0x | 35.7% | |
3.0-4.0x | 11.1% | |
4.0-5.0x | 20.8% | |
5.0-6.0x | 5.7% | |
6.0-7.0x | 4.9% | |
>7.0x | 2.5% | |
# Excludes Intermediate Capital Group and Guardian Financial Services where these metrics are not meaningful.
Portfolio - Investment type
% of value of total portfolio | ||
Large buy-outs | 47.3% | |
Small and mid-market buy-outs | 39.4% | |
Mezzanine | 12.2% | |
Quoted | 1.1% | |
Total | 100.0% |
Portfolio - Geographic distribution*
% of value of total portfolio | ||
UK | 46.9% | |
France | 14.9% | |
North America | 11.1% | |
Germany | 7.1% | |
Benelux | 5.5% | |
Spain | 4.9% | |
Greece, Ireland, Italy, Portugal | 3.9% | |
Scandinavia | 2.9% | |
Other Europe | 1.6% | |
Rest of world | 1.2% | |
Total | 100.0% | |
* Location of headquarters of underlying companies in the portfolio. Does not necessarily reflect countries to which companies have economic exposure.
Portfolio - Year of investment |
Valuation as multiple of cost |
% of value of total portfolio | |
2013 | 1.0x | 4.4% | |
2012 | 1.2x | 12.1% | |
2011 | 1.3x | 11.4% | |
2010 | 1.4x | 14.9% | |
2009 | 2.1x | 1.8% | |
2008 | 1.1x | 10.9% | |
2007 | 1.7x | 22.4% | |
2006 | 1.3x | 15.1% | |
2005 | 0.8x | 0.9% | |
2004 and before | 1.6x | 6.1% | |
Total | 1.4x | 100.0% |
Portfolio - Sector analysis
% of value of total portfolio | ||
Business services | 21.4% | |
Industrials | 14.4% | |
Healthcare and education | 13.8% | |
Consumer goods and services | 12.6% | |
Leisure | 12.0% | |
Financial services | 9.8% | |
Automotive supplies | 5.9% | |
Media | 4.1% | |
Technology and telecommunications | 4.0% | |
Chemicals | 2.0% | |
Total | 100.0% |
Portfolio - Graphite and third party investments
£ million | Value of third party investments | Value of Graphite investments |
Total value | |
Fund investments | 322.5 | 71.8 | 394.3 | |
Direct investments | 30.6 | 26.2 | 56.8 | |
Total portfolio | 353.1 | 98.0 | 451.1 | |
Graphite investments | 21.7% | |||
Third party fund investments | 71.5% | |||
Third party co-investments | 6.8% |
Investment activity
New investments
Drawdowns | Co-investments and secondary fund purchases |
Total new investments | |
Financial period ending | £ million | £ million | £ million |
31 December 2004 | 22.8 | 6.6 | 29.4 |
31 December 2005 | 41.6 | 3.9 | 45.5 |
31 December 2006 | 74.6 | 5.7 | 80.3 |
31 December 2007 | 95.2 | 7.9 | 103.1 |
31 December 2008 | 65.8 | 12.1 | 77.9 |
31 December 2009 | 21.5 | 2.5 | 24.0 |
31 January 2011 | 65.6 | 19.2 | 84.8 |
31 January 2012 | 51.3 | 29.9 | 81.2 |
31 January 2013 | 48.8 | 5.2 | 54.0 |
Six months to 31 July 2013 | 18.3 | 11.8 | 30.1 |
Largest new underlying investments
Investment | Description | Country | Cost £ million |
R&R Ice Cream
| Manufacturer and distributor of ice cream products | UK | 3.0 |
Formal D
| Provider of services to automobile manufacturers and suppliers | Germany | 1.7 |
ista*
| Provider of consumption-dependent billing of energy costs | Germany | 1.6 |
AMCo | Distributor of niche generic pharmaceuticals | UK | 1.2 |
Law Business Review | Publisher of specialist information for the legal industry
| UK | 1.1 |
CompuCom | Provider of IT outsourcing | North America | 0.9 |
Cerved | Provider of credit and business information | Italy | 0.7 |
Ampelmann
| Supplier of gangway systems to the offshore energy sector | Netherlands | 0.7 |
Drake and Morgan | Operator of contemporary bars in London | UK | 0.7 |
Springer | Publisher of professional and academic media | Germany | 0.7 |
Total of 10 largest new underlying investments | 12.3 | ||
* ista was both sold and acquired by funds in the Company's portfolio in the period.
Realisations - 10 year record*
Financial period ending | £ million | % of opening portfolio |
31 December 2004 | 116.7 | 60.4% |
31 December 2005 | 93.8 | 61.9% |
31 December 2006 | 92.9 | 53.3% |
31 December 2007 | 112.4 | 54.5% |
31 December 2008 | 25.8 | 12.9% |
31 December 2009 | 14.0 | 7.3% |
31 January 2011 | 19.8 | 8.5% |
31 January 2012 | 92.9 | 26.0% |
31 January 2013 | 74.2 | 19.7% |
6 months to 31 July 2013 | 39.6 | 9.5% |
* Excluding secondary sales of fund interests.
Largest underlying realisations
Investment | Manager | Realisation type | Proceeds £ million |
Dominion Gas | Graphite Capital | Trade | 7.9 |
Optimum Care | Graphite Capital | Trade | 3.7 |
Ziggo | Cinven | Public offering | 3.7 |
HellermanTyton | Doughty Hanson | Public offering | 2.6 |
Alexander Mann Solutions | Graphite Capital | Refinancing | 1.7 |
Education Personnel | Graphite Capital | Refinancing | 1.7 |
Partnership | Cinven | Public offering | 1.7 |
ista | Charterhouse/CVC | Private equity | 1.6 |
Tumi | Doughty Hanson | Public offering | 1.6 |
TeamSystem | ICG | Repayment of loan | 1.3 |
Total of 10 realisations | 27.5 | ||
* ista was both sold and acquired by funds in the Company's portfolio in the period.
Commitments analysis
Commitments at 31 July 2013
|
Original commitment1 £ million |
Outstanding commitment £ million |
Average drawdown percentage |
% of commitments |
Funds not yet in investment period | 12.1 | 12.1 | - | 7.8% |
Funds in investment period | 265.9 | 106.7 | 58.4% | 69.3% |
Funds post investment period | 462.2 | 35.4 | 92.3% | 22.9% |
Total | 731.2 | 154.2 | 78.9% | 100.0% |
1 Original commitments are translated at 31 July 2013 exchange rates
Commitments at 31 July 2013 - remaining investment period |
% of commitments |
Investment period not commenced | 7.8% |
> 5 years | 11.4% |
4-5 years | 12.1% |
3-4 years | 16.8% |
2-3 years | 5.3% |
1-2 years | 2.2% |
21.5% | |
Investment period complete | 22.9% |
Total | 100.0% |
Movement in outstanding commitments | Six months to 31 July 2013 £ million |
Opening outstanding commitments | 126.5 |
Drawdowns | (18.3) |
Primary commitments | 37.8 |
Secondaries and co-investments | 4.3 |
Currency | 2.6 |
Other | 1.3 |
Closing outstanding commitments | 154.2 |
FUND COMMITMENTS IN THE PERIOD
Primary commitments
CVC European Equity Partners VI
In July 2013 we committed €20 million to CVC VI, a €10.5 billion fund raised by CVC Capital Partners ("CVC").
As with its predecessor funds, CVC VI will focus on large buy-outs with a target minimum equity investment of over €100 million. CVC invests in a cross-section of global industrial and service businesses.
CVC was founded in 1981 and is one of the most highly regarded firms in Europe. We have invested with CVC since 2005 in three prior funds and have acquired secondary interests in two funds.
Fifth Cinven Fund
In March we committed €10 million a €5.3 billion fund raised by Cinven. We had already committed €10 million to the first closing in December 2011 and took the opportunity to increase our commitment in the final closing of the fund.
Cinven was founded in 1977 and is one of the leading European buy-out managers. We have a longstanding relationship with the firm dating back to 1994. More recently we invested in the predecessor fund, Fourth Cinven Fund, in 2006 and subsequently acquired a secondary interest in that fund as well as co-investing alongside it in CPA Global.
The latest fund will focus on large buy-outs in which it can invest more than €100 million of equity. Cinven focuses on six sectors across Europe: Business Services; Consumer; Financial Services; Healthcare; Industrials; and TMT.
IK VII
In March 2013 we committed €10 million to IK VII, a €1.3 billion fund raised by IK Investment Partners ("IK"). This is the first time we have committed to a fund managed by IK which was founded in 1989. IK invests in five core markets: Benelux, Denmark & Norway, France, Germany & CEE and Sweden & Finland.
The Fund will invest in mid-sized companies with strong cash flow and profit improvement potential, operating in mature industries with fundamental underlying growth. This strategy is consistent with the firm's prior funds. The majority of IK's investments to date have been made in the manufacturing and service industries.
Towerbrook IV
In February we committed $5 million to Towerbrook IV, a $3.5 billion upper mid-market US and European fund raised by Towerbrook. This is the first time we have invested with the group but we have followed its progress for a number of years.
Towerbrook was initially established in 2001 as part of Soros private equity. The Fund will seek to invest in situations characterised by high complexity and to partner with strong management teams to drive returns and in some cases, an investment's turnaround.
Secondary purchases
GCP Capital Partners Europe Fund II
In March 2013 we invested £3.5 million in an £87 million fund managed by GCP Capital Partners Europe ("GCP"). The fund is focused on the UK lower mid-market and was set up to acquire a portfolio of seven companies from exiting investors of the predecessor fund.
We invested £3.5 million in the portfolio with a further £1.75 million undrawn commitment. This is the first time we have invested with GCP.
Doughty Hanson & Co V
In June 2013 we acquired a secondary interest in Doughty Hanson Fund V for £5.5 million. Doughty Hanson Fund V is a €3 billion fund to which we made a €25 million commitment when it was raised in 2007. We also held a co-investment in one of fund's portfolio companies, Vue Entertainment. We first invested with Doughty Hanson in its fourth fund, raised in 2005.
Since acquiring this secondary interest Vue Entertainment has been realised. This generated a substantial uplift and ensures the secondary investment is off to a good start. The realisation of Vue, together with the sale of Avanza, has returned 39% of the cost of the portfolio of seven companies within two months.
CURRENCY EXPOSURE
|
31 July 2013 £ million |
31 July 2013 % |
31 January 2013 £ million |
31 January 2013 % |
Total assets* | ||||
- sterling | 274.7 | 54.1% | 256.7 | 54.5% |
- euro | 157.1 | 30.9% | 144.7 | 30.6% |
- other | 76.0 | 15.0% | 70.1 | 14.9% |
Total | 507.8 | 100.0% | 471.5 | 100.0% |
* Currency exposure is calculated using the location of the underlying portfolio companies' headquarters.
|
31 July 2013 £ million |
31 July 2013 % |
31 January 2013 £ million |
31 January 2013 % |
Outstanding commitments | ||||
- sterling | 31.4 | 20.4% | 32.9 | 26.0% |
- euro | 113.6 | 73.7% | 87.0 | 68.8% |
- other | 9.2 | 5.9% | 6.6 | 5.2% |
Total | 154.2 | 100.0% | 126.5 | 100.0% |
UNAUDITED RESULTS FOR THE SIX MONTHS TO 31 JULY 2013
Consolidated Income Statement
Half year to 31 July 2013 | Half year to 31 July 2012 | Year to 31 January 2013 | |||||||
Revenue return | Capital return | Total | Revenue return | Capital return | Total | Revenue return | Capital return | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Investment returns | |||||||||
Gains and losses on investments held at fair value | 3,038 | 42,517 | 45,555 | 3,320 | 11,235 | 14,555 | 5,988 | 54,555 | 60,543 |
Income from cash and cash equivalents | 92 | - | 92 | 15 | - | 15 | 39 | - | 39 |
Return from current asset investments | 5 | (220) | (215) | 45 | - | 45 | 74 | - | 74 |
Other income | - | - | - | 26 | 8 | 34 | 4 | (8) | (4) |
Foreign exchange gains and losses | - | 145 | 145 | - | (222) | (222) | - | 418 | 418 |
3,135 | 42,442 | 45,577 | 3,406 | 11,021 | 14,427 | 6,105 | 54,965 | 61,070 | |
Expenses | |||||||||
Investment management charges | (710) | (2,132) | (2,842) | (645) | (1,934) | (2,579) | (1,337) | (4,010) | (5,347) |
Other expenses | (898) | (905) | (1,803) | (912) | (822) | (1,734) | (1,772) | (1,607) | (3,379) |
(1,608) | (3,037) | (4,645) | (1,557) | (2,756) | (4,313) | (3,109) | (5,617) | (8,726) | |
Profit before tax | 1,527 | 39,405 | 40,932 | 1,849 | 8,265 | 10,114 | 2,996 | 49,348 | 52,344 |
Taxation | (378) | 378 | - | (463) | 463 | - | (701) | 701 | - |
Profit for the period | 1,149 | 39,783 | 40,932 | 1,386 | 8,728 | 10,114 | 2,295 | 50,049 | 52,344 |
Attributable to: Equity shareholders |
1,149 |
39,594 |
40,743 |
1,386 |
8,062 |
9,448 |
2,295 |
46,597 |
48,892 |
Non-controlling interests |
- |
189 |
189 |
- |
666 |
666 |
- |
3,452 |
3,452 |
Basic and diluted earnings per share | 55.88p | 12.96p | 67.06p |
The columns headed 'Total' represent the income statement for the relevant financial periods and the columns headed 'Revenue return' and 'Capital return' are supplementary information. There is no Other Comprehensive Income.
Consolidated Balance Sheet
31 July | 31 July | 31 January | |
2013 | 2012 | 2013 | |
£'000 | £'000 | £'000 | |
Non-current assets | |||
Investments held at fair value | |||
- Unquoted investments | 446,246 | 390,022 | 411,606 |
- Quoted investments | 4,895 | 2,616 | 3,559 |
451,141 | 392,638 | 415,165 | |
Current assets | |||
Cash and cash equivalents | 35,481 | 7,323 | 28,778 |
Current asset investments held at fair value | 19,774 | 26,966 | 26,398 |
Receivables | 1,899 | 2,687 | 1,672 |
57,154 | 36,976 | 56,848 | |
Current liabilities | |||
Payables | 505 | 430 | 550 |
Net current assets | 56,649 | 36,546 | 56,298 |
Total assets less current liabilities | 507,790 | 429,184 | 471,463 |
Capital and reserves | |||
Called up share capital | 7,292 | 7,292 | 7,292 |
Capital redemption reserve | 2,112 | 2,112 | 2,112 |
Share premium | 12,936 | 12,936 | 12,936 |
Capital reserve | 465,004 | 386,875 | 425,410 |
Revenue reserve | 10,168 | 11,756 | 12,665 |
Equity attributable to equity holders | 497,512 | 420,971 | 460,415 |
Non-controlling interest | 10,278 | 8,213 | 11,048 |
Total equity | 507,790 | 429,184 | 471,463 |
Net asset value per share (basic and diluted) | 682.3p | 577.4p | 631.5p |
Consolidated Cash Flow Statement
Half year to | Half year to | Year to | |
31 July | 31 July | 31 January | |
2013 | 2012 | 2013 | |
£'000 | £'000 | £'000 | |
Operating activities | |||
Sale of portfolio investments | 36,608 | 26,016 | 70,922 |
Purchase of portfolio investments | (30,066) | (30,367) | (54,017) |
Net sale of current asset investments held at fair value | 6,410 | 8,033 | 8,615 |
Interest income received from portfolio investments | 1,464 | 2,863 | 4,670 |
Dividend income received from portfolio investments | 1,677 | 314 | 1,276 |
Other income received | 92 | 95 | 97 |
Investment management charges paid | (2,829) | (2,625) | (5,407) |
Other expenses paid | (697) | (306) | (815) |
Net cash inflow from operating activities | 12,659 | 4,023 | 25,341 |
Financing activities | |||
Investments by non-controlling interests | 94 | 213 | 432 |
Distributions to non-controlling interests | (1,053) | (1,624) | (1,724) |
Banking facility fee | (1,494) | (639) | (1,260) |
Equity dividends paid | (3,646) | (3,646) | (3,646) |
Net cash outflow from financing activities | (6,099) | (5,696) | (6,198) |
Net increase/(decrease) in cash and cash equivalents | 6,560 | (1,673) | 19,143 |
Cash and cash equivalents at beginning of period | 28,779 | 9,218 | 9,218 |
Net increase/(decrease) in cash and cash equivalents | 6,560 | (1,673) | 19,143 |
Effect of changes in foreign exchange rates | 142 | (222) | 419 |
Cash and cash equivalents at end of period | 35,481 | 7,323 | 28,778 |
Consolidated Statement of Changes in Equity
Group | Share capital | Capital redemption reserve | Share premium | Capital Reserve | Revenue reserve | Total shareholder equity | Non- controlling interest | Total equity |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Six months to 31 July 2013 | ||||||||
Opening balance at1 February 2013 | 7,292 | 2,112 | 12,936 | 425,410 | 12,665 | 460,415 | 11,048 | 471,463 |
Profit attributable to equity shareholders | - | - | - | 39,594 | 1,149 | 40,743 | - | 40,743 |
Profit attributable to non-controlling interests | - | - | - | - | - | - | 189 | 189 |
Profit for the period and total comprehensive income | - | - | - | 39,594 | 1,149 | 40,743 | 189 | 40,932 |
Dividends to equity shareholders | - | - | - | - | (3,646) | (3,646) | - | (3,646) |
Contributions by non-controlling interests | - | - | - | - | - | - | 94 | 94 |
Distributions to non-controlling interest | - | - | - | - | - | - | (1,053) | (1,053) |
Closing balance at 31 July 2013
| 7,292 | 2,112 | 12,936 | 465,004 | 10,168 | 497,512 | 10,278 | 507,790 |
Group | Share capital | Capital redemption reserve | Share premium | Capital Reserve | Revenue reserve | Total shareholder equity | Non- controlling interest | Total equity |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Six months to 31 July 2012 | ||||||||
Opening balance at1 February 2012 | 7,292 | 2,112 | 12,936 | 378,813 | 14,016 | 415,169 | 8,396 | 423,565 |
Profit attributable to equity shareholders | - | - | - | 8,062 | 1,386 | 9,448 | - | 9,448 |
Profit attributable to non-controlling interests | - | - | - | - | - | - | 666 | 666 |
Profit for the period and total comprehensive income | - | - | - | 8,062 | 1,386 | 9,448 | 666 | 10,114 |
Dividends to equity shareholders | - | - | - | - | (3,646) | (3,646) | - | (3,646) |
Contributions by non-controlling interests | - | - | - | - | - | - | - | - |
Distributions to non-controlling interest | - | - | - | - | - | - | (849) | (849) |
Closing balance at 31 July 2012
| 7,292 | 2,112 | 12,936 | 386,875 | 11,756 | 420,971 | 8,213 | 429,184 |
Group | Share capital | Capital redemption reserve | Share premium | Capital Reserve | Revenue reserve | Total shareholder equity | Non- controlling interest | Total equity |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Year to 31 January 2013 | ||||||||
Opening balance at1 February 2013 | 7,292 | 2,112 | 12,936 | 378,813 | 14,016 | 415,169 | 8,396 | 423,565 |
Profit attributable to equity shareholders | - | - | - | 46,597 | 2,295 | 48,892 | - | 48,892 |
Profit attributable to non-controlling interests | - | - | - | - | - | - | 3,452 | 3,452 |
Profit for the year and total comprehensive income | - | - | - | 46,597 | 2,295 | 48,892 | 3,452 | 52,344 |
Dividends to equity shareholders | - | - | - | - | (3,646) | (3,646) | - | (3,646) |
Contributions by non-controlling interests | - | - | - | - | - | - | 418 | 418 |
Distributions to non-controlling interest | - | - | - | - | - | - | (1,218) | (1,218) |
Closing balance at 31 January 2013 | 7,292 | 2,112 | 12,936 | 425,410 | 12,665 | 460,415 | 11,048 | 471,463 |
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 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 private equity funds but also directly. The half-yearly financial report was approved for issue by the Board of Directors on 24 September 2013.
2 UNAUDITED INTERIM REPORT
This financial report does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year to 31 January 2013 were approved by the Board of Directors on 17 April 2013 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 498 of the Companies Act 2006.
This financial report has not been audited.
3 BASIS OF PREPARATION
The financial report for the six months ended 31 July 2013 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. This financial report should be read in conjunction with the annual financial statements for the year to 31 January 2013, 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 to 31 January 2013, 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.
The directors have, at the time of approving the report, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the forseeable future.
4 RECEIVABLES
The Company has access to bank facilities. The set up costs in relation to these were capitalised and are recognised over the lives of the facilities on a straight line basis. At 31 July 2013, £1,644,000 of bank facility costs are included within receivables. Of this £698,000 is expected to be amortised in less than one year.
6 EARNINGS PER SHARE
The earnings per share figures are based on the weighted average numbers of shares set out above.
7 FAIR VALUES ESTIMATION
IFRS 7 requires disclosure of fair value measurements of financial instruments categorised according to the following fair value measurement hierarchy:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
All private equity and quoted investments are valued at fair value in accordance with IAS 39. The Company's unquoted investments are all classified as Level 3 investments.
Fair value for unquoted investments is established by using various valuation techniques. Funds are valued at the underlying investment manager's valuation where this is consistent with the requirement to use fair value. Where this is not the case adjustments are made or alternative methods are used as appropriate. The most common reason for adjustments is to take account of events occurring after the date of the manager's valuation, such as realisations.
The fair value of direct unquoted investments is calculated in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") Guidelines issued in October 2006 and updated in September 2009. The primary valuation methodology used is an earnings multiple methodology, with other methodologies used where they are more appropriate.
The fair value of the Company's unlisted investments is sensitive to changes in the assumed earnings multiples. An increase in the earnings multiple would lead to an increase in the fair value of the investment portfolio and a decrease in the earnings multiple would lead to a decrease in the fair value.
The following tables present the changes in level 3 instruments for the period to 31 July 2013.
The following tables present the assets that are measured at fair value. The Group did not have any financial liabilities measured at fair value at these dates.
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8 INVESTMENT MANAGEMENT CHARGES
The investment management charges set out in the table below were payable to the Manager, Graphite Capital Management LLP, in the period. The Manager is a related party.
| Half year to 31 July 2013 | Half year to 31 July 2012 | Year to 31 January 2013 | |||||||
£'000 | £'000 | £'000 | ||||||||
Investment management fee | 2,817 | 2,579 | 5,276 | |||||||
Irrecoverable VAT | 25 | - | 71 | |||||||
2,842 | 2,579 | 5,347 | ||||||||
The allocation of the total investment management charges was unchanged in 2013 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. No fee is charged on cash or liquid asset balances. The amounts payable during the period are set out above.
At 31 July 2013 management fees of £77,000 (31 July 2012: £88,000) were accrued on the balance sheet.
The Company has borne management charges in respect of its investments in funds managed by Graphite Capital as set out below:
| Half year to 31 July 2013 | Half year to 31 July 2012 | Year to 31 January 2013 | |||||||
£'000 | £'000 | £'000 | ||||||||
Graphite Capital Partners VI | 224 | 246 | 513 | |||||||
Graphite Capital Partners VII | 226 | 349 | 855 | |||||||
450 | 595 | 1,368 | ||||||||
9 INCREASE IN BANK FACILITIES
On 27 March 2013, the Group entered into an agreement with The Royal Bank of Scotland ("RBS") and Lloyds Bank Corporate Markets ("Lloyds") to increase its bank facilities by £40 million to £100 million. The increase has a term of four years and expires in March 2017, two years after the current £60 million facility which expires in April 2015. Like the existing facility, the increase is structured as parallel sterling and euro facilities of £20 million and €23.6 million respectively. RBS and Lloyds continue to participate equally in the facilities.
The terms of the increase are a substantial improvement on those of the original facility. The arrangement fee is 1.75% and the non-utilisation fee is 1.05% per annum. The interest margin over LIBOR/EURIBOR on drawn amounts is 3.00% subject to certain covenants. As part of this agreement, the terms of the original £60 million facility have also been improved. The non-utilisation fee has been reduced from 2.00% to 1.90% and the interest margin over LIBOR/EURIBOR has been reduced from 3.50% to 3.00% subject to certain covenants.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that this half-yearly financial report has been prepared in accordance with IAS 34 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 in the first six months and any material changes in the related-party transactions described in the last annual report.
By the order of the Board
Mark Fane, Chairman
24 September 2013
Copies of the Interim Report will be available on the Company's website (see below) and posted to shareholders who have elected to receive a paper copy in early October 2013. Copies may be obtained during normal business hours from the Company's registered office thereafter.
For further information please contact:
Tim Spence / Emma Osborne
Graphite Capital
Tel: 020 7825 5300
www.graphite-enterprise.com