[PPT] - Graphite Enterprise Trust PLC Investing in long term growth 31 st PowerPoint Presentation

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Graphite Enterprise Trust PLC

Investing in long term growth 31st Annual General Meeting

11 June 2012

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31st Annual General Meeting

1.Introduction 2.Results 3.Investment activity 4.The portfolio 5.Share price and discount 6.Dividend 7.Outlook and conclusions

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Agenda

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1. Introduction

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1. Introduction

Hybrid fund and direct investor Focused strategy – European buy-outs Highly experienced team with direct investment backgrounds Consistently strong performance record Conservative approach to balance sheet management Well capitalised to take advantage of current opportunities

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Graphite Enterprise – Overview

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1. Introduction
Graphite Capital is a leading UK mid-market private equity firm:

− Founded in 1981 and wholly owned by its partners since 2001

Assets under management total £1.2 billion

− Direct buy-out funds investing in the UK mid-market − Third party fund investments and co-investments (only Graphite Enterprise)

The senior team has an average of 20 years of private equity experience
Graphite Capital has been making direct investments in the UK since inception

− Realised investments have generated a return of more than 35% pa since 1991

Graphite Enterprise has been making third party fund investments since 1989

− Realised funds and co-investments have generated more than 2 times cost The Manager of Graphite Enterprise is Graphite Capital

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1. Introduction
The UK mid-market is mainly covered through Graphite Capital funds
Continental Europe and other UK sectors are covered through third-party funds
The approach is led by quality of the manager, rather than by top-down allocations
Investments are made through a combination of:

− Primary commitments to new funds − Secondary purchases of existing funds − Direct co-investments alongside funds The focus is on established, top performing European buy-out managers

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1. Introduction

Graphite portfolio Third party portfolio 22% Funds 72% Direct co- invests 6% The portfolio combines Graphite Capital investments and third party investments

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Note All figures as at 30 April 2012

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1. Introduction
The funds team has extensive direct investing experience

− Well positioned to judge other private equity managers − Able to respond quickly to co-investment opportunities

We benefit from the market and sector knowledge of the direct investment team

− More current market view than can be obtained second hand

Our approach to fund investment is analytical and active

− An ability to appraise underlying companies is key to evaluating managers

The funds team is exclusively dedicated to Graphite Enterprise

− All relevant investment opportunities are allocated to the Company

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The combination of fund and direct investment experience gives a broad perspective

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2. Results

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2. Results

Jan 2012 Jan 2011 Change

Net asset value per share 569.4p 534.0p +6.6% Share price 357.0p 308.0p +15.9% FTSE All-Share Index 2,933 3,044

3.7%

The net asset value per share increased by 6.6% in the year to Jan 2012

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The share price and NAV per share both strongly outperformed a weak index:
The portfolio increased by 12.0% in local currency
This was driven by both profitable realisations and valuation increases

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2. Results

Apr 2012 Jan 2012 Change 3 months Change 15 months

Net asset value per share 584.2p 569.4p +2.6% +9.4% Share price 407.0p 357.0p +14.0% +32.1% FTSE All-Share Index 2,985 2,933 +1.8%

1.9%

The portfolio has continued to perform strongly in the quarter to Apr 2012

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Realisations have continued to drive the underlying performance of the portfolio
This has more than offset the weakening of the euro against sterling

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2. Results

Years to Apr 2012 3 5 10 Net asset value per share +37% +30% +135% Share price +152% +5% +115% FTSE All-Share Index +67% +9% +65% Long term net asset value performance is also strong

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The NAV per share has outperformed the Index in 17 of the last 20 years

– Tends to underperform when the Index is rebounding from a sharp fall

The Company has generated a return of more than 24x the amount initially subscribed

Notes 12, 37, 61 and 121 month periods to 30 Apr 2012. Figures are total return.

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2. Results

Year to April 2012 1 3 5 10 Graphite Enterprise NAV +5% +37% +30% +135% Peer group average NAV +3% +14% +20% +123% The net asset value has outperformed the peer group over all periods

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This outperformance is despite taking lower balance sheet risk than the peer group
At April 2012 Graphite Enterprise was:

− The best performer in the peer group since the start of the downturn (Dec 2007)

Notes Peer group: Conversus, F&C PE, Harbourvest, JPM PE, NBPE, Pantheon, Princess, SLEPET. Data: total return, local currencies (Morningstar). 12, 37, 61 and 121 month periods to 30 Apr 2012.

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2. Results

Apr 2012 £m Jan 2012 £m Change £m Apr 2012 % Jan 2012 %

Investments 391 378 13 90% 89% Cash and liquid assets 43 44 (1) 10% 11% Other net current assets 2 2

Total assets

436 424 12 100% 100% Outstanding commitments 126 143 (17) Undrawn bank facility 60 60

Total liquidity1

103 104 (1) Overcommitment 2 23 39 (16) Overcommitment% 5% 9%

4%

The balance sheet remains strong

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The level of overcommitment is low – resources are available for new investment
The balance sheet structure is uncomplicated – ordinary shares, undrawn bank facility

Notes 1. Undrawn bank facility plus cash and liquid assets. 2. Outstanding commitments less liquidity

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3. Investment activity

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3. Investment activity

Disposal proceeds recovered strongly in the year to Jan 2012

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Note: Excludes proceeds from secondary sales

This year has started positively but we expect proceeds to be lower than last year

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3. Investment activity

Year to Jan 2012 Number Gross multiple

f cost

Gross valn. uplift on exit1 13 months to Jan 2011 2 9 2.5x 92% Year to Jan 2012 15 2.5x 51% Quarter to Apr 2012 4 2.9x 66% Total 28 2.5x 69% Realisations continue to generate significant uplifts over prior valuations

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Of the 28 disposals, 13 were to trade buyers

Notes 1 From most recent valuation prior to any uplift on disposal 2 Wagamama, Kwik-Fit, Preh: gains recognised in period to 31 Jan 2011; cash received in year to 31 Jan 2012

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3. Investment activity

Example – realisation of Phadia by Cinven

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Background

Phadia is a global market leader in in-vitro allergy testing
Cinven acquired Phadia for €1.3 billion in a secondary buy-out in Jan 2007
The entry multiple was 13 times EBITDA

Performance

Cinven helped Phadia to:

– Develop its sales force in the under-penetrated US market – Invest in new products, leveraging Phadia’s technical expertise – Expand its geographic reach into emerging markets – Implement best in class practices across all regions to improve efficiency

Phadia grew revenues by 12% pa and EBITDA by 14% pa from 2007 to 2010

Exit

Phadia was sold to ThermoFisher in Aug 2011 for €2.5 billion (15 times EBITDA)
The disposal achieved a multiple of cost of 3.4 times
Proceeds for Graphite Enterprise were £5.4 million and the uplift on disposal was 37%

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3. Investment activity

We have significantly increased secondary fund purchases and co-investments

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3. Investment activity

Background

Introduced in Aug 2011 to a portfolio of 19 funds being sold by a German Bank
We bid initially on four funds, reduced to three after due diligence

Secondary transaction

Graphite Enterprise acquired three funds for £16.8 million

– Fourth Cinven Fund (2006) – Candover 2005 (2005) – Charterhouse VII (2003)

Funds were 88% drawn on average
Pricing was based on Mar 2011 values, transfers completed Jan 2012

Rationale

Two funds were already in the portfolio, the third is managed by an existing manager

– We knew the managers and underlying portfolio companies well

Manager consent to transfers was required: relationships are important
Three realisations have already been announced

Example – Project Blackfriars (secondary purchase of three funds)

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3. Investment activity
There has been a good level of realisation activity:

– Data Explorers Full disposal to trade buyer − CPA Global Full disposal to private equity − Starbev Full disposal to trade buyer − Weetabix Majority disposal to trade buyer − F1 Partial disposal to financial buyers − Ziggo Partial IPO (Amsterdam) − Tumi Partial IPO (New York)

We have been actively making new investments:

– Rex Restaurants Graphite Capital buy-out − Spheros Co-investment alongside DBAG − CPA Global Co-investment alongside Cinven

We are evaluating a number of funds and expect to make several commitments

– A large number of high quality managers are raising funds − We are looking to increase the number of managers we back

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The current year has started positively

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4. Portfolio

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4. Portfolio

The portfolio is balanced and well diversified

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The portfolio comprised 48 funds and 24 direct investments at Apr 2012

– It provided exposure to 315 underlying companies

The largest 30 companies represented 40% of the portfolio value

Note Geography denotes where a company is headquartered

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4. Portfolio

Company Country Manager % of portfolio Distributer and retailer of tyres

1

UK Graphite 3.7% Provider of recruitment services

2

UK Graphite 2.2% Provider of foster care services

3

UK Graphite 2.2% Operator of caravan parks

4

UK Graphite 2.2% Manufacturer of automotive refinish products

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UK Graphite 1.7% Manufacturer and retailer of luxury luggage Doughty

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USA Hanson 1.6% Operator of cable TV networks

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Netherlands Cinven 1.6% Provider of recruitment process outsourcing UK Graphite

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1.5% Provider of technical engineering services Netherlands Candover

9

1.5% Operator of attraction parks

10

Spain Candover 1.5% 19.7%

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Graphite Capital directly managed 6 of the top 10 holdings at Apr 2012

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4. Portfolio

The Top 30 companies performed strongly in the year to Dec 2011

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Revenues grew by an average of 14% and EBITDA by an average of 13%
These companies were valued on a weighted average EBITDA multiple of 9.2x
Net debt represented 3.9x EBITDA

Note Data excludes two development capital investments (London Square, Willowbrook Healthcare) and Preh deferred consideration

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4. Portfolio

The portfolio was valued at 1.3x cost and had an average maturity of over 4 years

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Note Multiples of cost include amounts realised by current portfolio companies

The portfolio has considerable upside potential as it matures

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5. Share price and discount

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5. Share price and discount

The share price has strongly outperformed the All-Share Index since Jan 2011

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The share price:

– outperformed the Index by 19.6% in the year to Jan 2012 (+15.9% vs -3.7%) – outperformed the Index by 9.9% since the year end (+6.1% vs -3.8%) – outperformed the Index by 30.3% since Jan 2011 (+23.0% vs -7.3%)

Note To the close on 8 June (SP = 379p, FTAS = 2,822)

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5. Share price and discount

The discount on listed private equity is out of line with the investment trust sector

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5. Share price and discount

Graphite Enterprise’s discount is closely correlated with the listed private equity sector

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At 8 June the discount was 35.1% (share price 379p)

– The average discount in the 17 years prior to the financial crisis was 14% – The average discount in the 3 years since Q4 2008 is 35%

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5. Share price and discount

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The Graphite Enterprise discount is in line with the sector average

A number of listed private equity companies are returning cash to shareholders
There is no strong evidence that this materially reduces discounts

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5. Share price and discount

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Discounts are principally driven by sentiment towards the sector

Sentiment towards the sector has not fully recovered following the concerns of 2008/9
These concerns have, in the main, been addressed:

– Overcommitment  Balance sheets have been significantly strengthened – Discounts for secondaries  Secondary discounts are now 0-15% for high quality funds – High prices for acquisitions  Recent prices take account of current market conditions – High leverage  Debt levels have been reduced – Vulnerability to downturn  Performance through the downturn has been resilient – High valuations  Companies have been sold at significant premiums

Over the longer term sentiment should improve:

– Companies must demonstrate strong net asset value performance – Sound balance sheet management is critical – Communication of these strengths is key to overcoming preconceptions

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6. Dividend

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6. Dividend

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The Board is recommending that the dividend should be increased to 5.0p per share

The proposed dividend is more than twice the 2.25p per share paid last year
Net revenue per share increased from 1.51p to 6.33p in the year to Jan 2012
This was driven by an increase in realisations

– Income typically accrues until a portfolio company is sold

As income is linked to realisations, it is very difficult to forecast accurately

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6. Dividend

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Investment trusts are now able to pay dividends from capital reserves

The Board proposes to change the Company’s Articles to allow such payments

− This gives increased flexibility to adapt to changes

Some observers have suggested higher dividends could help close discounts:

− Could create new demand from investors seeking income

However other observers do not support this view:

− There are tax inefficiencies − Dividends from capital are intrinsically different to dividends from income

A small number of trusts have already announced dividend increases

− These have not had a material impact on discounts

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6. Dividend

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So far there is no evidence that yield is having a material impact on discounts

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7. Outlook and conclusions

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7. Outlook and conclusions
European economies are likely to remain depressed for some time

– They continue to be affected by uncertainty over the euro and the banking sector

Over 50% of the portfolio has been acquired since Jan 2008
Exposure is overwhelmingly to the UK and northern Europe

– Only 7% of the net assets are in southern Europe and only 1% in dedicated funds

Private equity managers are well placed to identify companies:

– which have traded strongly despite the economic environment, or – which are benefitting from austerity / low GDP growth

Debt finance remains available for high quality companies and sponsors
Commitments to new funds are likely to be materially higher than last year
Secondary and co-investment dealflow could well increase

– Capital for private equity is likely to become increasingly scarce

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The current economic uncertainty is likely to create opportunities

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7. Outlook and conclusions
The portfolio is growing strongly

– The top 30 investments have been performing particularly well – The portfolio has increased in value by 65% since Dec 2008

The Company’s portfolio has continued to generate substantial cash despite the downturn

– Since Dec 2008, £131 million or 68% of its opening value has been realised in cash – This is equivalent to 96% of the Company’s market cap at that date of £136 million

The balance sheet and level of commitments are appropriate for this point in the cycle

– The Company is 90% invested, compared with 58% at Dec 2008 – Liquidity is available to take advantage of opportunities which arise

Discounts remain wide by historic standards

– Balance sheets in the listed sector are considerably stronger than in 2008 – Discounts are more likely to narrow than to widen over the medium term

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Graphite Enterprise is well positioned to grow further

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Withheld:

55,111

Changes to the Articles to allow dividends to be paid from capital

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