REG - Literacy Capital PLC - Amendment to Management Fee/ Charitable Donations

Literacy CapitalAnnouncement

08/10/2024 07:00

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RNS Number : 2559H  Literacy Capital PLC  08 October 2024

The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any
member state of the European Economic Area, Canada, Australia, Japan or the
Republic of South Africa.

 

8 October 2024

 

Literacy Capital plc

 

Amendment to management fee and charitable donations effective from 1 January
2025

 

Literacy Capital plc ("Literacy", "BOOK" or the "Company"), announces a
variation to the terms of the investment management agreement between the
Company and its investment manager, Book Asset Management LLP ("BAM LLP" or
the "Investment Manager"); and an immaterial change to its investment policy
relating to the amount the Company may use to make charitable donations, each
with effect from 1 January 2025.

 

Management fee

 

Since Literacy was admitted to the Specialist Funds Segment of the London
Stock Exchange ("LSE") on 25 June 2021, net asset value ("NAV") per share has
increased by 225.4%, which is more than any other investment company listed on
the LSE over the same period. As Literacy's portfolio has grown considerably
in recent years, now numbering 19 different businesses, the Investment Manager
is keen to ensure that it has the resources necessary to build the scale and
capabilities within its team to continue to deliver strong investment returns
for shareholders. The Investment Manager is also keen to make investments in
its use of data, technology and back-office functions to improve its processes
and support for portfolio companies. Due to Literacy's focus on investing in
small businesses, the level of support that is required by and provided to the
portfolio companies is typically much higher than in other segments of the
private equity market.

 

The Company and the Investment Manager have therefore entered into an amended
and restated management agreement (the "New IMA") to provide for an increase
in the management fee payable to the Investment Manager to 1.5% of the
adjusted audited net asset value as at the end of that year (the "Increased
Management Fee"), effective from 1 January 2025. Under the terms of the
Company's existing investment management agreement, the Investment Manager is
currently entitled to a management fee in respect of each financial year equal
to 0.9% of the Company's adjusted audited net asset value as at the end of
that year. No other amendments to the Company's management arrangements are
made pursuant to the New IMA. For the avoidance of doubt, the basis of the
calculation of adjusted audited net asset value has not changed. The Company
will continue to pay zero performance fees and carried interest to BAM LLP,
whilst Paul Pindar and Richard Pindar will remain ineligible to receive
warrants, meaning the fees charged by the Investment Manager remain
substantially lower than private equity managers would ordinarily charge.

 

Charitable donations

 

The Company also announces an immaterial variation to its investment policy,
effective from 1 January 2025, regarding the amount which the Directors may
use for charitable donations. The Company has made charitable donations equal
to 0.9% of net assets in each financial year since 2018 as per the Company's
investment policy, which states "The Company may also make charitable
donations equal to 0.9% of net assets in each financial year, as determined by
the Board from time to time."

 

In 2018, the Company's net assets stood at £54 million and therefore the 2018
donation amounted to approximately £0.53 million. Given the growth of the
Company (to more than £300 million of net assets at the end of 2023), the
most recent annual donation provision equated to more than £2.75 million in
2023. The total charitable donation provision for each calendar year (shown in
£'000s) is shown in the table below:

 

                                          2018   2019   2020   2021     2022     2023
 Charitable donation provision (£'000s)   £532   £621   £772   £1,527   £2,314   £2,759

 

A major beneficiary of Literacy's donations has historically been Bookmark
Reading Charity. It is pleasing to note that Bookmark has now built an
increasingly professional and effective fundraising operation of its own which
significantly reduces its need for material donations from Literacy whilst
still having the funding needed to meet its ambitious plans to support 500,000
children over the next 3 years.

 

The Board has therefore concluded that reducing the Company's charitable
donation from 0.9% to 0.5% of net assets per annum enables the Company to
retain its unique feature of making a significant difference to children from
disadvantaged backgrounds, through continuing to make substantial seven-figure
donations on an annual basis, whilst allowing for the Increased Management Fee
to be paid without materially increasing the total cost of the combined
elements for shareholders.

 

The amendments highlighted above together increase the management fee and
charitable donation from 1.8% to 2.0%. The increased management fee will
support BAM LLP's efforts to add incremental value to BOOK's portfolio, which
is considered ultimately in the best long-term interest of both the fund's
shareholders and the charities that it supports. In turn, this will further
enhance its charitable goal of advancing the education of children in the
United Kingdom, in particular by promoting or supporting the development of
reading.

 

No other changes have been made to the Company's investment policy. Any such
donations shall be at the discretion of the Board. The change in the
investment policy highlighted above is not considered to be a material change
of the Company's investment policy and therefore the change does not require
the prior approval of shareholders in accordance with the Company's voluntary
compliance with UK Listing Rule 11.4.14R.

 

A full text of the revised investment policy will shortly be available on the
Company's website at www.literacycapital.com
(file:///C:/Users/RichardPindar/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/EA17L3BD/www.literacycapital.com)
, following it becoming effective on 1 January 2025.

 

Shareholder consultation and related party transaction

 

The Board Directors who are independent of the Investment Manager (the
"Independent Directors"), have taken account of the views of major
shareholders of the Company, who were consulted on the proposed changes. The
Investment Manager (and its associates) and the Independent Directors hold c.
45% of shares in the Company and therefore certain independent shareholders
were also consulted, representing c. 20% of shares held, and were also
supportive of the changes mentioned above.

 

The Company is not admitted to the Official List and as such the Company is
not subject to the UK Listing Rules of the Financial Conduct Authority (the
"UK Listing Rules"). Nevertheless, as a matter of good corporate governance,
in entering into the New IMA the Company has voluntarily complied with UK
Listing Rules 8 and 11 (as currently in effect) on related party transactions
as if the Company were subject to the UK Listing Rules.

 

In voluntary compliance with UK Listing Rule 11.5.4(1) (as currently in
effect), the Company has received advice from Singer Capital Markets Advisory
LLP, as the Company's financial adviser, that the Increased Management Fee
brought about by the entry into the New IMA is fair and reasonable so far as
the shareholders of the Company are concerned. In providing its advice, Singer
Capital Markets Advisory LLP has taken into account the Independent Directors'
commercial assessment of the New IMA and the views of the majority of
shareholders. The Independent Directors for these purposes are Simon Downing,
Christopher Sellers and Rachel Murphy. Paul Pindar and Richard Pindar are not
considered to be Independent Directors for these purposes as they are
principals of the Investment Manager.

 

Commenting on the changes to investment policy, Richard Pindar, CEO of the
Investment Manager and Director of Literacy Capital plc said:

"We are immensely proud of the contributions BOOK has made to charitable
causes since inception over seven years ago, witnessing first-hand the
significant difference that donations have made to children from disadvantaged
backgrounds, through the hard work of Bookmark and other charities. Due to the
success of BOOK and its growth in net assets, we are delighted that we can
continue to provide meaningful financial contributions to support the vital
efforts of UK literacy charities, whilst maintaining our capacity to invest in
private businesses where we see a clear route to creating additional value."

 

-ENDS-

 

For further information, please contact:

 

 Literacy Capital plc / Book Asset Management LLP:

 Richard Pindar / Aasha Tailor

 +44 (0) 203 960 0280 / +44 (0) 203 960 0285

 MHP Group:

 Reg Hoare / Ollie Hoare / Matthew Taylor

 book@mhpgroup.com (mailto:book@mhpgroup.com)

 +44 (0) 7817 458 804 / +44 (0) 7827 662 831

 Singer Capital Markets Securities Limited:

 Alaina Wong

 +44 (0) 20 7496 3000

 

About Literacy Capital plc

 

Literacy Capital (BOOK.L) is a closed-end investment company that was
co-founded by Paul Pindar and Richard Pindar in 2017 with £54m of capital.
Literacy listed on the London Stock Exchange's Main Market in June 2021,
before gaining Investment Trust status on 1 April 2022. The Company focuses on
opportunities to invest for the long-term in growing private businesses where
a clear route to creating additional value can be seen with its support.

 

It also has a unique charitable objective, making annual donations to
charities focused on improving UK literacy in children. £10.0 million has
been donated or reserved for donation to charities since the trust's creation
in 2017. For more information, please visit our website:
www.literacycapital.com
(https://protect.checkpoint.com/v2/___http:/www.literacycapital.com___.bXQtcHJvZC1jcC1ldXcyLTE6bmV4dDE1OmM6bzpkYTNjNDFmNTRkY2I5ODAzOTMxYjcxZGVlNDgzNzdmOTo2OjYzNDc6YzNjYTRmNDljOTZjOWZiYzdlMGJjZjEyNTgzNzZiODhhMDcwNGNhOWZjM2YyYWU1NzQ0MDUwN2JkZjQ3ZTUwNjpwOkY6Tg)
.

 

A copy of this announcement will be available on the Company's website at
www.literacycapital.com
(https://protect.checkpoint.com/v2/___http:/www.literacycapital.com___.bXQtcHJvZC1jcC1ldXcyLTE6bmV4dDE1OmM6bzpkYTNjNDFmNTRkY2I5ODAzOTMxYjcxZGVlNDgzNzdmOTo2OjYzNDc6YzNjYTRmNDljOTZjOWZiYzdlMGJjZjEyNTgzNzZiODhhMDcwNGNhOWZjM2YyYWU1NzQ0MDUwN2JkZjQ3ZTUwNjpwOkY6Tg)
.

 

LEI: 2549006P3DFN5HLFGR54

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incorporated into, or forms part of, this announcement nor, unless previously
published by means of a recognised information service, should any such
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