ICG Enterprise Trust Regulatory News (ICGT)

GRAPHITE ENTERPRISE TRUST PLC

UNAUDITED RESULTS FOR THE SIX MONTHS

TO 31 JULY 2012

SUMMARY OF THE PERIOD

Continuing growth in a difficult environment

"The six months to 31 July 2012 was a period of steady progress for Graphite Enterprise. The portfolio continued to perform well in a tough economic environment, again demonstrating the strengths of the private equity model. Despite the negative effect of euro weakness, the Company's net asset value has grown. At the same time the share price has performed strongly, increasing by 7.8% over the period. This brings the increase over the 18 months to 31 July to 25%.

While private equity transaction volumes are currently relatively subdued, we are seeing many attractive opportunities to invest in new funds and to acquire interests in existing funds. Our conservative balance sheet management puts us in a very strong position to take advantage of these opportunities and we expect to do so in the second half of the year. The Company's ability to participate in the current round of new fund raisings will stand it in good stead in the coming years."

Mark Fane, Chairman

CHAIRMAN'S STATEMENT

overview

In the six months to 31 July, the net asset value per share of Graphite Enterprise increased by 1.4% and the share price by 7.8%. This was against a background of continued economic uncertainty and weak financial markets. Both the net asset value and the share price outperformed the Company's benchmark, the FTSE All-Share Index, which fell by 0.2%. The rise in the share price primarily reflected a narrowing of the discount from 37.3% at 31 January to 33.3% at 31 July.

The portfolio continued to perform well, with a number of profitable full and partial realisations being achieved and the earnings of the largest underlying companies continuing to grow. The impact of this performance was, however, partially offset by the fall in the euro which reduced the sterling value of the euro-denominated portfolio.

The 7.8% increase in the share price, when added to last year's sharp rise, brought the increase over 18 months to 25.0%. This reflected the combined effect of a substantial narrowing of the discount and the Company's net asset value growth over this period.

Economic environment

The Company's investment portfolio is focused principally on the mature European private equity markets. At 31 July over 85% of the portfolio was in Europe, with the UK accounting for almost half of the total portfolio and France, Germany and the Benelux countries for just over a quarter combined. The performance of these economies therefore has much the greatest impact on the performance of the portfolio.

Concerns over the sovereign debt of a number of eurozone countries, over the banking sector throughout Europe, and over the future of the euro continued to depress economic performance throughout the region. In this uncertain environment, the output of the UK is forecast to contract in 2012 and those of France, Germany and the Benelux countries are expected to grow only modestly at best. It remains to be seen whether recent action taken by central banks and politicians will stabilise the situation in the medium term but there is a general consensus that economic growth will remain subdued for some time.

We continue to have only limited exposure to those countries where concerns over sovereign debt remain greatest. At 31 July, Spain accounted for 4.7% of the portfolio, while Ireland, Portugal, Greece and Italy combined accounted for only 3.7%.

Although uncertainty invariably depresses economic growth it also creates opportunities. We continue to believe that private equity managers are ideally placed to identify these opportunities and to capitalise on them as they have done throughout the downturn.

Performance

Net asset value performance

The investment portfolio continued to perform well in the six months, increasing in value in local currency terms by 7.2%. This followed an increase of 12.0% in the previous financial year. Profitable realisations generated just under half of this uplift with increases in the valuations of unrealised investments accounting for the remainder. The latter were driven by a combination of earnings increases and debt pay-down rather than by changes in valuation multiples. The performance of the 30 largest underlying companies at 31 July, which together constitute more than two-fifths of the portfolio, is likely to be a key driver of future growth and it is encouraging that this remained strong, with average earnings increasing by more than 11%.

The euro fell by 5.3% against sterling during the period, reducing the sterling value of the Company's euro-denominated assets and cutting the gain on the portfolio in sterling terms by approximately half, from 7.2% to 3.8%. As just over 10% of total assets were in cash and liquid assets at the start of the period, this gain generated an increase in the net asset value per share of 3.5% before the costs of running and financing the Company and the payment of the dividend. After taking these into account the net asset value grew by 1.4%.

Long term performance

The Company's net asset value has strongly outperformed its benchmark, the FTSE All-Share Index, over both five and ten years*. On a total return basis, which takes into account the effect of re-invested dividends, the Company has generated a return of 138% over ten years which is significantly greater than the return of 83% from the Index over the same period. Over five years, the net asset value has returned 24.3% while the Index has returned only 3.3%.

The net asset value has outperformed the Index in eight of the last ten years and in 16 of the last 20 years*, tending to underperform only when the Index has been rebounding from a sharp fall.

* Measured using the Company's half year reporting dates. The Company's year end changed from 31 December to 31 January during 2010 and the half year therefore moved from 30 June to 31 July.

Discount and share price

Discounts in the listed private equity sector remain well above their long term averages, although they are now significantly lower than during the worst of the financial crisis. Graphite Enterprise's discount is no exception to this, with a discount at 31 July of 33.3% compared with an average of 35% since the start of the downturn* but 11% in the 10 years prior to that.

The Board recognises that the discount is a source of concern for some investors and actively and regularly considers the Company's approach to this issue. We continue to believe that the principal driver of discounts is investor sentiment. In our view, therefore, the key to reducing the discount over the long term is continuing strong performance and effective communication of the Company's performance and strategy to existing and potential investors.

* For these purposes, deemed to be 31 December 2007

BALANCE SHEET

The balance sheet has been managed conservatively over an extended period. During the downturn, we took action to ensure that the Company's net asset value was protected and we subsequently put in place a bank facility to enable levels of investment to increase when opportunities arise. As set out below, the balance sheet remains strong, giving us the capacity to continue with an active investment programme at what we believe to be an attractive point in the economic cycle.

Investment portfolio

At 31 July the investment portfolio was valued at £392.6 million, a record for Graphite Enterprise. This represented 91.5% of total assets of £429.2 million, slightly higher than the 89.2% at 31 January, and the highest proportion of assets invested for many years.

A total of £30.3 million was invested in the portfolio during the period and £29.8 million of proceeds were received. With net investment in the portfolio in the period being only £0.5 million, much the largest element of the increase in the investment portfolio was the valuation gains discussed above, which totalled £14.4 million. Further details of these movements are set out in the Manager's Review.

Cash and commitments

Cash and liquid assets of £34.3 million at 31 July accounted for 8.0% of total assets, with other net current assets accounting for the balance of 0.5%. The bank facility remained undrawn at the period end. As the loan is structured as two facilities, of £30 million and €34.5 million, the available facility at 31 July was equivalent to £57.1 million bringing total liquidity to £91.4 million. Although undrawn, the bank facility supports the current level of outstanding commitments and gives us the capacity to increase these in the future.

Outstanding commitments to funds fell by £21.6 million to £121.2 million in the period, primarily because drawdowns of £25.5 million were considerably higher than the relatively low level of new commitments. The fall in the euro also reduced the sterling value of the outstanding amounts. If managers do not increase their current rate of investment, less than £40 million of these commitments are likely to be drawn down over the next 12 months.

The current level of commitments can comfortably be supported with cash balances and undrawn borrowings. A large number of fund opportunities are currently being reviewed and the surplus balance sheet capacity is likely to be used to support a significant level of fund commitments in the coming 12 to 18 months.

Foreign currency exposure

Investments in overseas companies together with foreign currency cash balances accounted for £203.4 million or approximately half of total assets at 31 July. Of this amount, £140.0 million was in eurozone countries and £43.0 million in the USA.

Rises in the euro and dollar against sterling increase the sterling values of our overseas investments, while falls in these currencies decrease their values. While the short term impact of currency movements is easy to calculate, the medium term effect is much more difficult to assess. For example, a rise in the euro immediately increases the reported value of our German investments. However, in the medium term this rise might reduce their international competitiveness and thereby reduce their profitability and ultimately their valuation.

The Company does not currently hedge its foreign currency risk, but the Board regularly reviews the Company's exposure and approach and will continue to do so.

INCOME STATEMENT

In the six months to 31 July, the total gain after tax attributable to shareholders was £9.4 million or 13.0p per share. This comprised a net capital gain of 11.1p per share and net revenue of 1.9p per share.

Net revenues in the six months totalled £1.4 million. This was materially lower than the level last year when net revenues for the full twelve months were £4.6 million. As we have discussed previously, income from the portfolio tends to fluctuate quite widely. This is because it is closely related to realisations as portfolio companies are often restricted from paying interest or dividends to the Company until they are realised. Last year's income was particularly high as the level of realisations increased materially, driven by the sale of four of the Company's five largest investments.

It is difficult to predict the level of income that will be received from the portfolio in the second half of the year, but net income for the full year is unlikely to reach the level of last year. However the Company has substantial revenue reserves which at 31 July totalled £11.8 million, equivalent to 16.1p per share.

OUTLOOK

We are encouraged by the ability of managers in our portfolio to grow and profitably dispose of companies in this difficult environment. Moreover, we believe that managers are generally cautious about new investment and are investing in high quality companies, which bodes well for the Company's future performance. As we expect market conditions to remain broadly unchanged for the remainder of the year, we would also expect the level of investment activity to be similar in the second half.

We continue to be pleased with the trading performance of the portfolio, with the growth in earnings of the largest 30 investments remaining in double digits. As we have discussed before, the performance of private equity backed companies through the downturn has been considerably stronger than many had predicted at its outset.

We have reviewed a large number of new fund opportunities so far this year, one of which completed in the six months to July. One further commitment was made after the period end and we expect to make further commitments in the remainder of the financial year as more managers complete fund raisings.

The Company's balance sheet remains strong. The liquid assets and undrawn bank facility, when set against the relatively low level of current commitments, provide ample scope to make new commitments and to acquire secondary interests and co-investments. Shareholders can be assured, however, that the balance sheet will continue to be managed conservatively.

The Company's net asset value is now well above its pre-financial crisis peak whereas equity markets remain substantially below theirs. We remain of the view that as confidence returns, investors will recognise the strength of the Company's position and the discount will continue to narrow.

Mark Fane

September 2012

MARKET REVIEW

SIX MONTHS ENDED 31 July 2012

As Graphite Enterprise invests almost exclusively in European buy-outs, this section focuses on developments in this market since the start of the year.

Investment activity

The slowdown in activity in the second half of 2011 continued in the first half of 2012. A total of 172 buy-outs were completed with a value of €21 billion. This was 23% lower by value than in the second half of last year and 50% lower than in the same period last year. The fall reflects the impact of the eurozone financial crisis, which has affected the confidence of private equity managers since the middle of last year.

Prices paid for new investments in the first half of 2012 were broadly unchanged from those paid last year, although data on pricing tends to be available only on a narrow sample of new investments. In general, prices for good quality companies remain relatively high by historic standards, but lower than those paid at the peak of the market in 2007. Debt levels for new buy-outs also remained broadly stable compared with last year, but again were significantly below 2007 levels.

Fundraising

In contrast with the slowdown in new investments, fundraising for European buy-outs continued to rise in the first half of 2012. Over €12 billion was raised for 13 funds, representing an increase by value of more than 25% on the previous six months and of 50% relative to the first half of 2011. Despite recent growth, fundraising remains significantly below the peak levels seen in 2006 and 2007 and, for a variety of reasons, many private equity fund investors remain capital-constrained.

A high proportion of buy-out managers are planning to raise funds in the next 12-18 months as the investment periods of funds raised in the boom years are due to expire. One recent survey indicated that more than 400 private equity funds focused on Europe are currently seeking capital.

The combination of increased demand for capital and a reduced supply from investors is making it difficult for managers to raise capital in the current market. As an investor in funds we view a scarcity of capital as positive, as it tends to lengthen the time available for due diligence and to improve the terms for investors. Furthermore, when that capital is deployed in new underlying investments the pricing and terms should be more attractive, reflecting the lower level of competition.

Secondary market

The market for secondary interests in funds remained strong in the first half of 2012. The volume of transactions was high and good quality funds continued to trade at relatively low discounts to reported net asset values. Volumes are expected to remain high for the near future, not least because mounting regulatory pressure on financial institutions may encourage banks and insurance companies to sell private equity assets.

Despite discounts in the secondary market being relatively low, we believe that secondaries continue to offer attractive opportunities. We will continue to focus on funds with significant long-term growth potential rather than on those available on high entry discounts.

PORTFOLIO REVIEW

SIX MONTHS ENDED 31 July 2012

INVESTMENT PERFORMANCE

The portfolio continued to perform well in the first half of the year, despite a background of continued economic uncertainty, increasing in value by 7.2% in local currencies. This was partly offset by adverse currency movements, resulting in a net valuation increase in sterling of 3.8%.

Underlying earnings growth remained strong and several successful realisations were achieved at significant uplifts to previous holding values. Gains on disposals accounted for 47% of the £27.3 million valuation increase. The remaining 53% came from valuation uplifts which were principally driven by earnings growth.

* Includes income of £3.3 million generated by the portfolio in the period.

Investment activity

Investment activity was relatively subdued in the first half, with realisations and new investments broadly in balance, resulting in a small net cash investment of £0.5 million.

Realisations

The portfolio generated a steady flow of profitable realisations in the first half of the year despite a generally unhelpful economic backdrop. Proceeds of £29.8 million were received which was similar to the level in the second half of last year.

Five full realisations were completed in the period, generating £17.1 million of proceeds. The average uplift on sale was 65% while the average multiple of original cost was 2.8. The largest cash inflow was £8.7 million from the disposal of Data Explorers, the sixth largest underlying investment, which was sold at the start of the period.

Partial realisations generated a further £10.0 million. These included two IPOs: Ziggo and Tumi, which were the tenth and eleventh largest investments at the start of the year. We also generated £2.7 million of cash through the secondary sale of a fund investment.

In the annual report we predicted that realisations in the current year would be materially lower than last year, primarily because a number of our largest underlying holdings were realised last year. In the event, proceeds in the first half of this year were equivalent to 8% of the opening value of the portfolio. This represents an annualised rate considerably below both last year's 26% and the Company's long-term average rate of 35%. We are nonetheless encouraged by the continuing flow of realisations in this challenging environment.

New investments

New investments of £30.3 million were made in the first half of the year which was 40% lower than in the previous six months.

Drawdowns by funds represented £25.6 million of the total, which was broadly in line with our expectations. Two direct co-investments accounted for the remaining £4.7 million. These were in: CPA Global, a provider of intellectual property and legal services, in which we invested alongside the Fourth Cinven Fund; and Spheros, a provider of climate systems for buses, where we invested alongside Deutsche Beteiligungs AG V. Taken together with our indirect interests through the respective funds, these investments are now at numbers 17 and 25 respectively in our top 30 underlying investments.

The managers of our fund portfolio made 13 new investments in underlying companies in the six months. This compares with 21 made in the previous six months and reflects the slow-down in activity discussed above. Of these, nine were large buy-outs and four were small and mid-market buy-outs.

New commitments

We made one new primary fund commitment in the period. This was of €10 million, to Deutsche Beteiligungs AG Fund VI, a €700 million German mid-market buy-out fund. The manager, Deutsche Beteiligungs AG ("DBAG"), is one of the leading managers in Germany. We have invested successfully with DBAG for over ten years through two predecessor funds and two direct co-investments. This commitment is in line with a core part of our strategy of building long-term relationships with top performing managers and partnering with them in selective direct co-investments and secondaries.

CLOSING PORTFOLIO

Achieving a balance between diversification and concentration remains an important element of our strategy. At 31 July the Company had investments in over 300 underlying companies across a broad range of sectors in 27 different countries. Full details are set out in the supplementary information section later in this report. As investment activity was at a relatively low level in the six months, the composition of the portfolio did not change materially in the period.

While the level of diversification within our portfolio reduces risk, many individual investments are still large enough to have an impact on overall performance. At 31 July the top ten underlying companies accounted for 20% of the value of the portfolio while the top 30 accounted for 41%. These 30 larger investments are therefore likely to play a major role in determining the future performance of the Company. As outlined in the Chairman's Statement, their performance remains encouraging with growth in revenue averaging 14% and growth in EBITDA averaging 11% in the year to June 2012*.

The top 30 investments were valued at an average of 9.0 times EBITDA, which we consider reasonable for the level of growth achieved and for the quality of the underlying earnings. In general, the leverage of these companies is modest, with net debt averaging 4.0 times EBITDA. This should enhance future equity returns without undue financial risk.

At 31 July, 99% of the portfolio was valued using June valuations. The portfolio was valued at an average of 1.3 times original cost in local currency, of which 0.3 times cost had already been realised. At these levels we believe there is considerable potential for future growth as the portfolio matures. As over half of the portfolio is in investments made prior to 2008, managers will be looking to exit many companies when market conditions allow.

* Excludes three companies where EBITDA is not a meaningful measure.

PROSPECTS

Since 31 July we have invested £1.7 million in the buy-out of Explore Learning, the UK's leading provider of after-school tuition for children aged between five and fourteen. The investment was made through Graphite Capital Partners VII and was the third investment made by this fund in 2012, reflecting an active year for Graphite Capital's direct investment team. Explore Learning follows the acquisition of National Fostering Agency, a provider of foster care services, in January and the investment in Rex Restaurants, a leading London restaurant operator, in April.

In September we made a €10 million commitment to a new mezzanine fund raised by Intermediate Capital Group plc ("ICG"). ICG is one of our most profitable historic relationships dating back to 1989. As credit remains severely limited, we believe that now is an attractive time to be investing in mezzanine.

As outlined in the market review section, many high quality new funds are currently being raised or are expected to launch in the next 12 months. These give us the opportunity to secure access to the best investment opportunities over the next four to five years alongside top performing buy-out managers. We believe that committing to these funds is important for our long-term performance, not only because we believe that the funds themselves will perform well but also because they should generate secondary and co-investment opportunities. We are therefore at a relatively advanced stage of due diligence on a number of funds and would expect to make commitments before the year end. As the balance sheet remains strong, we will also be actively pursuing opportunities to acquire funds in the secondary market and to make further direct co-investments.

The outlook for realisations remains somewhat uncertain. It is encouraging that exits have been and are still being achieved, with £8.7 million generated by the portfolio since 31 July. This is despite the economic uncertainty and the continued shortage of bank debt. In light of this, it is reasonable to expect that realisations will continue at similar levels in conditions which are likely to remain equally challenging.

As the past few years have demonstrated, we have a robust portfolio that is capable of generating growth in difficult times. Equally, our strong balance sheet allows us to capitalise on new opportunities as they present themselves. We believe this leaves the Company well positioned for the remainder of the year and beyond.

Graphite Capital

September 2012

Supplementary Information

Portfolio analysis

The following four tables analyse the closing portfolio by value.

Portfolio - Investment type

Portfolio - Geographic distribution

Portfolio - Year of investment

The 30 Largest Underlying InvestmentsThe tables below and on the following pages present the 30 companies in which Graphite Enterprise had the largest investments by value at 31 July 2012. These investments may be held directly, through funds, or in some cases both. The valuations are gross and are shown as a percentage of the total investment portfolio.

The 30 Largest Fund Investments

Portfolio - Sector analysis

Investment activity

New investments

Largest new underlying investments

* In addition, in the previous financial year, £2.1 million was invested in Spheros through Deutsche Beteiligungs AG V and £3.0 million was invested in NFA through Graphite Capital Partners VII and directly.

Realisations - 10 year record*

*Excluding secondary sales of fund interests.

Full realisations

*Investment was held both directly and through a fund

Commitments

* Original commitments are translated at 31 July 2012 exchange rates.

Portfolio Statistics

Currency exposure

Currency exposure is calculated using the headquarter location of the underlying portfolio companies.

Consolidated Income Statement

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

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

7 CHANGES IN EQUITY

8 RELATED PARTY TRANSACTIONS

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.

The allocation of the total investment management charges was unchanged in 2012 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. At 31 July 2012 management fees of £88k (31 July 2011: £1,367k) 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: