Graphite Enterprise Trust PLC Investing in long term growth 34 th Annual General Meeting 11 June 2015
34 th Annual General Meeting Agenda and speakers 1.Introduction Tim Spence Finance Director 2.Results and dividend Emma Osborne Head of Fund Investment 3.Investment activity 4.Portfolio 5.Discount 6.Balance sheet and buy-backs 7.Conclusion Page 1
1. Introduction Page 2
1. Introduction Focused strategy investing in European buy-outs of profitable companies ● The focus is on established, top performing European buy-out managers − investing in mature, profitable companies ● The Company invests in: − the UK mid-market through Graphite Capital’s in -house funds − continental Europe and other UK sectors, through third party funds ● The approach is led by quality of the manager − No top-down allocations based on sector or geography Page 3
1. Introduction The Manager of Graphite Enterprise is Graphite Capital, a leading UK PE firm ● 34-year history; experienced and cohesive team ● Specialises in both direct and fund investments, with dedicated teams for both ● Graphite Enterprise represents a significant proportion of our funds under management Direct investments Fund investments F.U.M. £1.0bn F.U.M. £0.4bn 75% 25% UK mid-market buy-outs Graphite Enterprise is the only client 10-year life funds, institutional investors Largest investor in Graphite Capital Graphite Capital funds Gross realised return of 37% p.a. since 1991 Realised return of >2x cost since 1989 We apply our direct investment experience to managing our fund investments Page 4
1. Introduction We can access managers’ investment programmes in a number of ways ● Primary commitments to new funds – A binding commitment to fund a future investment programme (“blind pool ”) – Forms the basis of our relationships with managers – Creates opportunities for other types of investment ● Secondary purchases of existing funds – Interests in existing funds can be purchased in the secondary market – Ability to increase exposure to portfolios we like, although liquidity is variable – Also increases control over our investment programme ● Direct co-investments alongside funds – We may be invited to invest directly in a company, alongside a fund – Typically, no fees are charged by the manager – Greater discretion and control over the investment programme Page 5
1. Introduction Discretionary investments make up 55% of the portfolio Graphite portfolio Third party portfolio Direct co- 26% Funds 59% (of which secondaries: 14%) invests 15% ● 25 active third party manager relationships ● 3 Graphite Capital funds, 53 third party funds and 18 co-investments ● Over 380 underlying companies in total, but the top 30 make up 45% by value Note All figures as at 30 April 2015. Page 6
2. Results and dividend Page 7
2. Results and dividend: year to Jan-15 The Company made further progress in the year, despite adverse currency Total Jan-14 return Jan-15 12 months Net asset value per share 695.2p 677.2p +5.0% Share price 575.0p 563.5p +4.6% FTSE All-Share Index 3,622 3,497 +7.1% ● The portfolio continued to perform well, growing by 12.3% in local currencies – After adverse currency movements, the increase was 8.4% – This translated into a 7.2% increase in the NAV before expenses Page 8
2. Results and dividend: quarter to Apr-15 Activity in the quarter to April 2015 was relatively subdued Jan Total return Total return Apr 2015 3 months 12 months 2015 Net asset value per share 697.9p 695.2p +0.4% +3.7% Share price 578.0p 575.0p +0.5% +3.6% FTSE All-Share Index 3,760 3,622 +5.1% +7.5% ● As usual at a quarter end, little new valuation information was available ● The disposal of National Fostering Agency added 0.5% to NAV in the quarter Page 9
2. Results and dividend NAV and share price have outperformed the All-Share over 5 and 10 years Years to Apr-15 1,2 3 5 10 Total return Net asset value per share +24% +57% +135% Share price +49% +92% +128% FTSE All-Share Index +40% +54% +117% ● The net asset value has increased for six consecutive financial years ● Over that period, the portfolio generated gross cash of £460m, 40% more than NAV at Dec-08 ● In the six years since March 2009, shareholders have made a total return of 3.75 times Page 10 Notes 1. Measured using the Company’s reporting dates, i.e. 36, 61 and 121 month periods to 30 April 2015, as the Company changed its year end during 2010. 2. Source: Morningstar, the Company.
2. Results and dividend Graphite Enterprise has consistently outperformed the peer group average Years to Apr-15 1,3 3 5 10 Total return Graphite Enterprise NAV growth 24% 57% 134% Peer group 2 average NAV growth 22% 47% 127% ● This outperformance is despite taking lower balance sheet risk ● Many peers have benefitted from higher US dollar exposure / lower euro exposure Notes 1. 12, 36, 61 and 121 month periods to 30 April 2015. Page 11 2. Peer group - funds-of-funds: Aberdeen, F&C PE, HarbourVest, JPM PE, Pantheon, Princess, Private Equity Holding, SLEPET; directs: Better Capital 2009 and 2012, Candover, Dunedin, Electra, HgCapital, NB Private Equity, SVG Capital. 3. Data: total return, GBP (source: Morningstar, Company).
2. Results and dividend The total dividend is unchanged at 15.5p per share, a yield of 2.7% ● The total consists of a final dividend of 10.0p and a special dividend of 5.5p ● The final dividend represents an increase of 33% over last year ─ We hope to maintain it at this level ─ It reflects likely income in the next few years ─ Income is linked to realisations, although there is not a direct correlation ─ Realisations are projected to remain strong ● The Board has also proposed a special dividend ─ This partly reflects the additional income in the year ─ It is partly funded from revenue reserves to maintain the total at last year’s level Page 12
3. Investment activity Page 13
3. Investment activity Our approach to fund investing is highly distinctive ● Our direct investment experience gives us an edge over other investors in funds – Primary commitments: well positioned to judge / challenge other private equity managers – Secondary purchases: detailed understanding of the companies being acquired – Co-investments: able to effectively analyse, and respond quickly to, opportunities – More current market view than can be obtained indirectly ● The two businesses have strong common themes: – Focus on building long term relationships with managers – But robust challenge when necessary – Preference for quality over value Page 14
3. Investment activity Recent activity includes a mix of primary, secondary and co-investment Graphite Primary 1 Secondary Co-investments Year ended 31 Jan 2015 Since year end Note 1. Non cash; represents a binding commitment to fund a future investment programme. Page 15
3. Investment activity New Graphite Capital investment in HCIG (£8.7m) Background ● Recruitment company serving range of specialist areas within the UK public & private sectors ● Trades under a number of brands ● Focused on health & social care, social housing, construction & infrastructure, engineering ● 14 offices across the UK, 500+ employees ● Secondary buy-out completed in November 2014 Opportunity ● Sector in which Graphite has extensive experience ● Outlook for targeted niche sectors is positive ● Balanced exposure to public sector (frontline services) and private sector Why HCIG ● Expanding rapidly through combination of organic growth, acquisitions and new brands ● Successful “incubator” model: provides shared central services, takes majority stake ● Grew revenues by 28% in the 12 months to September 2014 ● Very strong record of profit growth ● High quality and diversified customer base ● Highly experienced and incentivised management team Page 16
3. Investment activity New co-investment in Skillsoft (£8.0m) Background ● Global leader in the provision of “off the shelf” e -learning content (e.g. IT and business skills) ● Content library monetised through annual subscription model (usually on a “per seat” basis) ● Customers are mainly global enterprises (including c. 50% of the Fortune 500) ● Acquired by Charterhouse IX in April 2014 ● Co-investment finalised in late October following completion of sizeable bolt-on Opportunity ● Business model provides platform for price optimisation on top of underlying market growth ● Core business expansion into other adjacent subject areas (e.g. compliance training) ● e-learning penetration in Continental Europe is immature ● Significant potential for further bolt-ons (with track record of generating material synergies) Why Skillsoft ● Dominant market share ● Resilient, highly cash generative business model ● Diversified customer base with no concentration risks ● Large and comprehensive library represents a significant barrier to entry ● Proven management team Page 17
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