Graphite Enterprise Trust PLC Investing in long term growth 34 th - - PowerPoint PPT Presentation

Graphite Enterprise Trust PLC

Investing in long term growth 34th Annual General Meeting

11 June 2015

34th Annual General Meeting

1.Introduction 2.Results and dividend 3.Investment activity 4.Portfolio 5.Discount 6.Balance sheet and buy-backs 7.Conclusion

Page 1

Agenda and speakers

Tim Spence Finance Director Emma Osborne Head of Fund Investment

• 1. Introduction

Page 2

• 1. Introduction

Focused strategy investing in European buy-outs of profitable companies

Page 3

• 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

Fund investments F.U.M. £0.4bn Graphite Enterprise is the only client Largest investor in Graphite Capital funds Realised return of >2x cost since 1989

The Manager of Graphite Enterprise is Graphite Capital, a leading UK PE firm

• 1. Introduction
• 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

 We apply our direct investment experience to managing our fund investments

Direct investments F.U.M. £1.0bn UK mid-market buy-outs 10-year life funds, institutional investors Gross realised return of 37% p.a. since 1991

75% 25%

Page 4

Graphite Capital

• 1. Introduction
• 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

We can access managers’ investment programmes in a number of ways

• 1. Introduction

Graphite portfolio Third party portfolio 26% Funds 59% (of which secondaries: 14%) Direct co- invests 15%

Discretionary investments make up 55% of the portfolio

Page 6

• 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.

• 2. Results and dividend

Page 7

• 2. Results and dividend: year to Jan-15

Jan-15 Jan-14 Total return 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 Company made further progress in the year, despite adverse currency

Page 8

• 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

• 2. Results and dividend: quarter to Apr-15

Apr 2015 Jan 2015 Total return 3 months Total return 12 months

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%

Activity in the quarter to April 2015 was relatively subdued

Page 9

• 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

• 2. Results and dividend

NAV and share price have outperformed the All-Share over 5 and 10 years

Page 10

• 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

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.

Years to Apr-151,2 Total return 3 5 10

Net asset value per share +24% +57% +135% Share price +49% +92% +128% FTSE All-Share Index +40% +54% +117%

• 2. Results and dividend

Graphite Enterprise has consistently outperformed the peer group average

Page 11

• 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.

• 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).

Years to Apr-151,3 Total return 3 5 10 Graphite Enterprise NAV growth 24% 57% 134% Peer group2 average NAV growth 22% 47% 127%

• 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

• 2. Results and dividend

Page 12

The total dividend is unchanged at 15.5p per share, a yield of 2.7%

• 3. Investment activity

Page 13

• 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

Our approach to fund investing is highly distinctive

• 3. Investment activity

• 3. Investment activity

Recent activity includes a mix of primary, secondary and co-investment

Page 15

Graphite Primary1 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.

• 3. Investment activity

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

New Graphite Capital investment in HCIG (£8.7m)

Page 16

• 3. Investment activity

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

New co-investment in Skillsoft (£8.0m)

Page 17

• 3. Investment activity

Silverfleet Capital Partners II

• €15 million (c.£12 million) commitment to a €850 million fund
• Focus on European, mid-market buy-outs (EVs €75 million to €250 million)
• Particularly targets companies with potential to grow through bolt-ons and/or roll-outs
• Offices in London, Munich and Paris with c.20 investment professionals
• Strong long-term track record, including as PPM Capital (c.115 investments since 1990)
• Fund I (the first post-2007 spin-out from Prudential plc) is fully invested in 10 companies
• Expected to generate co-investment opportunities

Bain Capital Europe IV

• €8 million (c.£6 million) commitment to a €3.5 billion fund
• Focus on European, upper mid-market buy-outs (EVs €400 million to €1.5 billion)
• Targets companies with potential for significant operational improvement
• Around 70 investment professionals (including c.25 dedicated to portfolio management)
• Bain Capital established in the US in 1984 (offices in 7 countries – London opened in 2000)
• Global operations of Bain Capital should facilitate internationalisation of investee companies
• Strong overall track record (38 European investments since 2000)
• Some potential for secondary deal flow given diverse investor base

New primary commitments

Page 18

• 4. Portfolio

Page 19

Page 20

The portfolio provides access to a wide range of managers

• 4. Portfolio

Pan-Europe large cap Pan-Europe upper mid-market Pan-Europe mid-market Mid-market country specific UK lower mid-market Other strategies USA

• 4. Portfolio

Page 21

Notes 1. Geography denotes where a company is headquartered. 2 All charts are based on underlying company data as at 30 April 2015.

The portfolio is well diversified by geography, sector and vintage

• 4. Portfolio

The portfolio strikes a balance between diversification and concentration

Page 22

• The top 30 underlying companies represent 45% of the portfolio
• This ensures individual winners can make a difference

− e.g. Education Personnel added 1.4% to NAV in the year and 4.3% over its life

• The top 30 companies are growing strongly and are valued at a discount to the listed sector

Top 30 FTSE 250

Revenue growth 12mths to 31 December 2014 +6% +0% EBITDA1 growth 12mths to 31 December 2014 +8% +2% EBITDA multiple at valuation 9.1x 10.6x

Note 1. EBITDA is a common measure of a company’s profitability and represents its earnings before interest, tax, depreciation and amortisation.

• 5. Discount

Page 23

• 5. Discount

The discount is currently in line with the long term average

Page 24

• The average discount over 20 years is 17%
• At 10 June, the discount was 15.1% (share price 579.5p, ex-div NAV 682.4p)

Note Peer group consists of: Aberdeen PE, Candover, Dunedin, Electra, F&C, HarbourVest, HgCapital, JP Morgan, NBPE, PIP, Princess, Private Equity Holding, Standard Life, SVG.

• 5. Discount

Page 25

The Company’s discount is among the narrowest of the PE funds of funds

• Over the past 12 months, average discounts have widened from 16% to 20%
• The Company has remained on one of the lowest discounts in the sector

Graphite Enterprise

• 6. Balance sheet and buy-backs

Page 26

• 6. Balance sheet and buy-backs

The portfolio has generated significant net cash inflows in recent years

Page 27

Note Gross investment cash flows in the left-hand chart exclude proceeds from secondary sales.

Total net inflows £114m

• 6. Balance sheet and buy-backs

Cash increased by £23m to £89m over the 12 months to Apr-15

Page 28

Notes 1. £50m and €62m translated at balance sheet date. The facility is fully undrawn.

• 2. Liquidity = undrawn facility plus cash of £89m.
• 3. Overcommitment = outstanding commitments less total liquidity.

Apr-15 £m Apr-15 % Investments 426 83% Cash 89 17% Other net current assets 1 Total assets less current liabilities 516 100% Outstanding commitments 228 Undrawn bank facility1 95 Total liquidity2 184 Overcommitment3 44 Overcommitment % 9%

• 6. Balance sheet and buy-backs

We have recently started a programme of share buy-backs

Page 29

• Cash balances are now £96 million

– The portfolio has generated a net £10m since the quarter end and buy-backs were £2.6m

• Adjusted for next week’s dividend of £11m, cash is £85m

– This remains higher than we would like

• Realisations are expected to continue at a high level

– The average over the last 4 financial years has been 27% of the opening portfolio – This would generate £117m this year

• Fund drawdowns are unlikely to absorb all of this
• Secondaries are highly priced and co-investments are sought after by many investors

– It is important to maintain pricing discipline and not dilute the quality of the portfolio

• We plan to continue to use share buy-backs to reduce cash balances

– In 2007/8 we bought back approximately £40m of shares – Since the year end we have bought 600k shares at an average price of 573p – This has utilised £3.5m of cash

• 7. Conclusion

Page 30

• 7. Conclusion
• The environment for realisations remains strong

– Private equity, trade buyers and public markets are all possible exit routes

• The portfolio continues to perform well

– Realisations continue to generate strong valuation uplifts – The maturing of the portfolio should be positive for returns

• The discount remains above levels normally seen in an economic upturn

– The valuation remains attractive

• We are committed to maintaining capital discipline

– Share buy-backs will be used to return surplus cash to shareholders

Page 31

Graphite Enterprise is well positioned to grow further

• 7. Conclusion
• Graphite Enterprise was the best performing investment trust over 25 years to October 20141
• To April 2015, an investment in Graphite Enterprise would have multiplied2:

– Nearly 11 times over 20 years, against 4.75 for the FTSE All-Share – Nearly 26 times over 25 years, against 8.25 for the FTSE All-Share

• UK house prices have multiplied only 3 times over 25 years3
• Cash on deposit would have also multiplied about 3 times over the same period
• The Company raised £23m of capital in 1981-3

– Including cash returned to shareholders, this has increased more than 28 times to date

Page 32

The record of long term growth remains extremely strong

Notes 1. Source: Association of Investment Companies.

• 2. Total return. Share price has increased 986% over 20 years and 2,497% over 25 years.
• 3. Source: Nationwide and Halifax house price indices have increased 216% and 191%.

Further information

Page 33

Page 34

The Graphite Enterprise team is highly experienced

Rod Richards Managing Partner, Investment committee member 29 years’ PE experience. Joined in

• 1986. Has led both the buy-out and

fund investment businesses for 15

• years. Degree in PPE from Oxford,

MBA from INSEAD. Emma Osborne Senior Partner, Head of Fund Investment 20 years’ PE experience. Joined in

• 2004. Previously at Merrill Lynch

(funds and co-investments), Morgan Grenfell PE (direct buy-out) and RBS (Mezzanine). Qualified as CA with Coopers & Lybrand. Degree in Economics and Politics from Bristol. Tim Spence Senior Partner, Finance Director Responsible for investor relations for Graphite

• Enterprise. Joined in 2005.

Previously at Deloitte (audit) where qualified as a chartered

• accountant. Degree in

Mathematics from Oxford. Andrea Fernandez Investment Director, Fund Investment Joined in 2011. Previously at Auda Alternative Investments (funds and co-investments), Lehman Brothers/Barclays Capital (equity capital markets). MBA from INSEAD. Degree in Finance and Entrepreneurship from Babson. Colm Walsh Investment Director, Fund Investment Joined in 2010. Previously at Terra Firma Capital Partners (finance) and Deloitte (audit). Degree in Economics from the LSE and is a CFA charterholder. Fiona Bell Investment Director, Fund Investment Joined in 2009. Previously at KPMG (audit) and JP Morgan Cazenove (corporate broking). Degree in Experimental Psychology from Oxford. Andy Gray Senior Partner Investment committee member 23 years’ PE experience. Joined in

• 1992. Joint head of direct

investment team. Previously at Morgan Grenfell Development

• Capital. Degree in Economics from

Stirling, MBA from Warwick.

Further information

Kane Bayliss Partner, Fund Investment Joined buy-out team in 2007. Previously at Terra Firma (direct buy-outs), Merrill Lynch (M&A) and Allens (solicitor). Degree in Law from Bond University (Australia) and MBA from INSEAD. Moved to fund team in January 2014.

Page 35

Graphite Capital’s buy-out investment team

Rod Richards Managing Partner 29 years’ PE experience. Joined in 1986. Has led both the buy-

• ut and fund investment

businesses for 15 years. Degree in PPE from Oxford, MBA from INSEAD. Simon ffitch Senior Partner 23 years’ PE experience. Joined in 1992. Joint head of direct investment team. Previously at LEK and Hill Samuel Development Capital. Degree in PPE from Oxford Andy Gray Senior Partner 23 years’ PE experience. Joined in 1992. Joint head of direct investment team. Previously at Morgan Grenfell Development

• Capital. Degree in Economics

from Stirling, MBA from Warwick. Markus Golser Senior Partner 17 years’ PE experience. Joined in 1997. Previously at Bain &

• Co. Degree in Business from

HEC, Paris, and MBA from Oxford. Mike Tilbury Senior Partner Mike Innes Senior Partner Stephen Cavell Senior Partner Head of Investor Relations

Portfolio team: James Markham Mudassir Khan Denise Bartolo Investment team: Humphrey Baker Rachael Whittaker Simon May Liam McGivern Alexandra Mills

Further information

Omar Kayat Partner Mark Hall Partner

Further information

Structure: Company registered in England and Wales Ticker: GPE.LN Investment trust tax status ISIN: GB0003292009 Registered company number: 01571089 SEDOL: 0329200 Listing: Premium London listing Website: www.graphite-enterprise.com Broker: J.P.Morgan Cazenove Manager: Graphite Capital Management LLP

Authorised and regulated by the Financial Conduct Authority under the Alternative Investment Fund Manager Directive

Graphite Enterprise is a founder member of LPEQ, an international industry association of listed private equity companies. www.lpeq.com

Graphite Capital supports Buttle UK

Page 36