REG - Literacy Capital PLC - Interim Report and Accounts
16/11/2022 07:00
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RNS Number : 5243G Literacy Capital PLC 16 November 2022
The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any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.
16 November 2022
Literacy Capital plc ("Literacy Capital" or the "Company")
Literacy Capital Interim Results
Focus on helping to build great businesses to generate superior returns
Literacy Capital, the closed-end investment company, is pleased to report its
unaudited interim results for the six months ended 30 September 2022.
Performance highlights
· NAV per ordinary share of 384.9p
o Net assets of £231.0m, an increase in net assets of 20.3%(1) in the six
months to 30 September 2022
· Portfolio companies enjoying strong trading momentum, with active
assistance from the Literacy Capital team to accelerate growth
o Portfolio contains significant exposure to profitable, cash flow positive
businesses delivering strong growth, with 70% revenue growth and 49% EBITDA
growth on a weighted average basis amongst the buyout investments within
Literacy Capital's top 10 holdings
o Since listing, BOOK has continued its focus and deployment of capital on
these types of investments, with earlier stage, more risky growth capital
investments declining to just 7.5% of gross assets on 30 September 2022 (from
15% a year earlier)
· Significant activity and value creation initiatives across the
portfolio companies
o Completed two new platform investments in the period, as well as several
small bolt-on acquisitions on behalf of our portfolio companies
o Have helped to build and strengthen the management teams of a number of
portfolio companies through several senior hires
· Reduced cash drag and increasing maturity of investments improving
the rate of NAV growth, whilst retaining flexibility to make further
investments with RCP facility
o More than 100% of net assets invested with the cohort of more recent
investments also contributing positively and meaningfully, more quickly than
the successful 2018 investments
o Cash proceeds received by BOOK in the six months consisted of £472k from
private equity fund distributions. More cash expected to be realised from
several portfolio companies in the next few months to generate more capital
for redeployment into new opportunities
· Increasing charitable donations, helping disadvantaged children
across the UK get a fair chance
o £1,147k of charitable donation provided for in H1 2021, up 47% on the
same period in FY21, in line with growth in NAV
o Total donations now exceed £5.0m since inception of Literacy Capital
Performance to 30 September 2022
% total return 3 months 6 months 1 year 3 years Since Inception
BOOK Net asset value +11.3% +20.3% +56.9% +273.8% +327.7%
BOOK Share Price (3.0)% +30.6% +33.8% n/a n/a
FTSE Investment Company Index (1.2)% (12.5)% (17.0)% +13.7% +25.4%
FTSE All-Share Index (4.5)% (10.1)% (7.3)% (7.3)% (8.8)%
Comparison to prior periods
At 30 September 2022 At 31 March 2022
Net asset value £231.0m £192.0m
NAV per ordinary share(1) 384.9p 320.0p
Six months to 30 September 2022 Six months to 30 September 2021
Capital invested £12.8m £5.7m
Cash realised £0.5m £2.7m
Charitable donation provision £1,147k £779k
(1) The NAV at 31 March 2022 contained certain deferred tax liabilities that
the Company does now not expect to pay following it receiving investment trust
status on 1 April 2022. For comparability, these deferred tax liabilities have
been removed from the NAV at 31 March 2022
Richard Pindar, CEO of the Investment Manager and Director of Literacy Capital
plc, commented:
"We are pleased to report that the BOOK portfolio has continued to trade
strongly, resulting in an NAV uplift of more than 20% in the past six months.
"A significant aspect of our success has been the composition of the
portfolio, where we continue to focus BOOK's capital on the buyout of
profitable private businesses, rather than investments into earlier stage,
growth capital or venture investments. We feel this significant exposure to
strongly growing, profitable businesses positions BOOK's portfolio nicely for
future periods.
"Whilst we remain very aware of wider macroeconomic, we are confident that the
businesses in our portfolio will remain resilient to these challenges and are
well managed and positioned robustly to navigate and prosper in these
conditions."
Enquiries
For further information, please contact:
Literacy Capital plc / Literacy Capital Asset Management LLP:
Richard Pindar / Tom
Vernon
+44 (0) 20 3960 0280
MHP Communications:
Reg Hoare / Ollie Hoare / Matthew Taylor +44 (0) 20 3128
8276
Singer Capital Markets Securities Limited:
Robert Peel / Amanda
Gray
+44 (0) 20 7496 3000
About Literacy Capital:
Literacy Capital (BOOK.L) is a closed-end investment company launched in 2017
by Paul and Richard Pindar and listed on the London Stock Exchange's main
market in 2021. The Company focuses on opportunities to invest for the
long-term in growing private businesses where a clear route to creating
additional value. It also has a unique charitable objective to donate 0.9% of
annual NAV to charities focused on improving UK literacy in children. More
than £5 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 (http://www.literacycapital.com) .
Website:
www.literacycapital.com
LEI: 2549006P3DFN5HLFGR54
A copy of this announcement will be available on the Company's website at
www.literacycapital.com/investors/reports-and-results
(http://www.literacycapital.com/investors/reports-and-results)
The information contained in this announcement regarding the Company's
investments has been provided by the relevant underlying portfolio company and
has not been independently verified by the Company.
This announcement is for information purposes only and is not an offer to
invest. All investments are subject to risk. Past performance is no guarantee
of future returns. Prospective investors are advised to seek expert legal,
financial, tax and other professional advice before making any investment
decision. The value of investments may fluctuate. Results achieved in the past
are no guarantee of future results. Neither the content of the Company's
website, nor the content on any website accessible from hyperlinks on its
website for any other website, is incorporated into, or forms part of, this
announcement nor, unless previously published by means of a recognised
information service, should any such content be relied upon in reaching a
decision as to whether or not to acquire, continue to hold, or dispose of,
securities in the Company.
This announcement may include "forward-looking statements". All statements
other than statements of historical facts included in this announcement,
including, without limitation, those regarding the Company's financial
position, business strategy, plans and objectives of management for future
operations (including development plans and objectives relating to the
Company's products and services) are forward-looking statements.
Forward-looking statements are subject to risks and uncertainties and
accordingly the Company's actual future financial results and operational
performance may differ materially from the results and performance expressed
in, or implied by, the statements. These factors include but are not limited
to those described in the formal Prospectus. These forward-looking statements
speak only as at the date of this announcement. The Company expressly
disclaims any obligation or undertaking to update or revise any
forward-looking statements contained herein to reflect actual results or any
change in the assumptions, conditions or circumstances on which any such
statements are based unless required to do so by the Financial Services and
Markets Act 2000, the Listing Rules or Prospectus Regulation Rules made under
Part VI of the Financial Services and Markets Act 2000 of the Financial
Conduct Authority or other applicable laws, regulations or rules.
Unaudited Interim Results for Literacy Capital plc
("Literacy Capital", the "Company" or "BOOK")
For the six months ended 30 September 2022
Performance Highlights
Focus on helping to build great businesses to generate superior returns
v NAV per ordinary share of 384.9p
o Net assets of £231.0m, an increase in net assets of 20.3%(1) in the six
months to 30 September 2022
o The FTSE Investment Company Index and FTSE All-Share, declined 12.5% and
10.1% respectively over the same period in share price terms, compared to a
30.6% increase in BOOK's share price
v Portfolio companies enjoying strong trading momentum, with active assistance
from the Literacy Capital team to accelerate growth
o Portfolio contains significant exposure to profitable, cash flow positive
businesses delivering strong growth, with 70% revenue growth and 49% EBITDA
growth on a weighted average basis amongst the buyout investments within
Literacy Capital's top 10 holdings
o Since listing, BOOK has continued its focus and deployment of capital on
these types of investments, with earlier stage, more risky growth capital
investments declining to just 7.5% of gross assets on 30 September 2022 (from
15% a year earlier)
v Significant activity and value creation initiatives across the portfolio
companies
o Completed two new platform investments in the period, as well as several
small bolt-on acquisitions on behalf of our portfolio companies
o Have helped to build and strengthen the management teams of a number of
portfolio companies through several senior hires
v Reduced cash drag and increasing maturity of investments improving the rate
of NAV growth, whilst retaining flexibility to make further investments with
RCP facility
o More than 100% of net assets invested with the cohort of more recent
investments also contributing positively and meaningfully, more quickly than
the successful 2018 investments
o Cash proceeds received by BOOK in the six months consisted of £472k from
private equity fund distributions. More cash expected to be realised from
several portfolio companies in the next few months to generate more capital
for redeployment into new opportunities
v Increasing charitable donations, helping disadvantaged children across the
UK get a fair chance
o £1,147k of charitable donation provided for in H1 2021, up 47% on the
same period in FY21, in line with growth in NAV
o Total donations now exceed £5.0m since inception of Literacy Capital
Performance to 30 September 2022
% total return 3 months 6 months 1 year 3 years Since Inception
BOOK Net asset value +11.3% +20.3% +56.9% +273.8% +327.7%
BOOK Share Price (3.0)% +30.6% +33.8% n/a n/a
FTSE Investment Company Index (1.2)% (12.5)% (17.0)% +13.7% +25.4%
FTSE All-Share Index (4.5)% (10.1)% (7.3)% (7.3)% (8.8)%
( )
Comparison to prior periods
At 30 September 2022 At 31 March 2022
Net asset value £231.0m £192.0m
NAV per ordinary share(1) 384.9p 320.0p
Six months to 30 September 2022 Six months to 30 September 2021
Capital invested £12.8m £5.7m
Cash realised £0.5m £2.7m
Charitable donation provision £1,147k £779k
( )
(1) The NAV at 31 March 2022 contained certain deferred tax liabilities that
the Company does now not expect to pay following it receiving investment trust
status on 1 April 2022. For comparability, these deferred tax liabilities have
been removed from the NAV at 31 March 2022
Helping to build great businesses
Our purpose is to invest in and support predominantly UK based companies and
to help their management teams achieve long-term success. Our closed-ended,
permanent capital structure means we can be a long-term, highly ambitious and
flexible partner. We are focused on smaller businesses, where our expertise
can greatly enhance the size and value of these companies, contributing to
superior returns for BOOK shareholders. We are also proud to have a charitable
mission helping disadvantaged children in the UK learn to read, giving them a
fair chance in life.
Comment from the Investment Manager
Richard Pindar, CEO of the Investment Manager and Director of Literacy Capital
plc:
"We are pleased to report that the BOOK portfolio has continued to trade
strongly, resulting in an NAV uplift of more than 20% in the past six months.
We are increasingly satisfied also with the composition of the portfolio. It
has been our stated intention for some time to focus BOOK's capital on the
buyout of profitable private businesses, rather than investments into earlier
stage, growth capital or venture investments. Coincidentally, these types of
investments have since found the trading and funding environment more
difficult and valuations have declined. The companies within the buyout
segment outperformed, contributed a 28.3% net return in the six months
(excluding the impact of deploying capital into new or existing buyout
investments) and now comprise over 87% of gross assets. This is in contrast to
a net 14.7% loss on the investments in the growth capital segment, which
represent less than 7.5% of gross assets on 30 September 2022. We feel this
significant exposure to strongly growing, profitable businesses positions
BOOK's portfolio nicely for future periods.
We remain very aware of wider macroeconomic, however we are confident that the
businesses in our portfolio will remain resilient to these challenges and are
well managed and positioned robustly to survive and prosper in these
conditions. Whilst we remain cautious about deploying capital into new
businesses, the current market conditions will unlock asymmetrically
attractive opportunities for us to make investments and attractive returns. If
we are able to agree more favourable terms on entry to an investment, this
should bode well for BOOK's returns in the future.
We are also pleased to announce that Literacy Capital gained investment trust
status on 1 April 2022, which will deliver benefits and cost savings for BOOK,
ultimately delivering better returns for shareholders."
Enquiries
For further information, please contact:
Literacy Capital plc / Literacy Capital Asset Management LLP:
Richard Pindar / Tom
Vernon
+44 (0) 20 3960 0280
MHP Communications:
Reg Hoare / Ollie Hoare / Matthew Taylor +44 (0) 20 3128
8276
Singer Capital Markets Securities Limited:
Robert Peel / Amanda
Gray
+44 (0) 20 7496 3000
Website:
www.literacycapital.com (http://www.literacycapital.com)
LEI:
2549006P3DFN5HLFGR54
Chairman's Statement
I am delighted to present my first interim Chairman's foreword since Literacy
Capital plc received investment trust status on 1 April 2022. This statement
covers the six-month period to 30 September 2022.
Our purpose is to invest in and build smaller, privately owned UK businesses
and to help their management teams to achieve long term success.
Through our work, we are aiming to achieve three outcomes:
1. To build very significant value for our shareholders;
2. To support our management teams to build highly successful, growing
companies; and
3. To use our financial success to facilitate our charitable mission to help
disadvantaged children in the UK learn to read.
I am pleased to report substantial progress with all three objectives.
Over the six months to 30 September 2022, our NAV per ordinary share has grown
from 320.0p to 384.9p, an increase of 20.3%. This compares to a fall in the
FTSE investment company index of 12.5%. Over a twelve-month period, our NAV
has grown 56.9% compared to a 17% fall in the FTSE investment company index.
And indeed, since Literacy Capital's listing on 25 June 2021, its share price
has increased from 160p to 388p on 30 September 2022, making BOOK the fifth
best performing fund for performance out of more than 400 UK listed funds over
this period (AIC Investment Companies listed as at 25 June 2021 and 30
September 2022).
Our portfolio companies are making strong progress. In many instances, we are
seeing a step change in growth in revenues, profits and headcount under
Literacy Capital's ownership. The majority of our companies are displaying
strong trading momentum, which underpins our confidence for the future. We are
shareholders in some outstanding companies, led by very talented and ambitious
management teams and with whom we are delighted to partner.
A significant proportion of our charitable endeavours is delivered through our
close relationship with Bookmark Reading. By the end of the 2021/22 academic
year, Bookmark had delivered nearly 24,000 reading sessions; provided curated
library packs to 197 schools and delivered over 107,000 copies of their Story
Corner magazine. Their targets for 2022/23 are highly ambitious with the
funding provided by Literacy Capital underpinning these plans.
In addition to Bookmark Reading's core activities, the charity also raised
£1m in just five months to deliver 6,500 Bookmark Boxes to Ukrainian child
refugees. These boxes were filled with literacy and language resources to help
the children to settle into their new lives in the UK.
We are particularly proud that Bookmark has recently been nominated as a
candidate for the 2023 Astrid Lindgren Memorial Award. This is a global award
created in 2002 by the Swedish government and is awarded to a person or
organisation for their contribution to children's and young adults literature.
With a prize of 5 million Swedish kronor, it is the largest award of its kind.
Our Investment Manager's Report provides further detail on our portfolio. We
recognise that the macro environment in the UK is more challenging today but
our companies are performing strongly and we remain highly optimistic about
the period ahead.
Paul Pindar
Chairman, Literacy Capital plc
15 November 2022
Investment Manager's Report
BOOK Performance Highlights For The Six Month Period
384.9p £231.0m
NAV per ord. share 1 (#_ftn1) £m NAV1
(31 Mar 22: 320.0p) (30 Mar 22: £192.0m)
£12.8m £0.5m
Capital invested Cash realised
(6 months to 30 Sep 21: £5.7m) (6 months to 30 Sep 21: £2.7m)
+30.6% £1,147k
Shareholder total return Charitable donation provision
(since 31 Mar 22) (6 months to 30 Sep 21 : £779k)
1 The NAV at 31 March 2022 contained certain deferred tax liabilities that
the Company does now not expect to pay following it receiving investment trust
status on 1 April 2022. For comparability, these deferred tax liabilities have
been removed from the NAV at 31 March 2022
BOOK Performance Overview
We are pleased with the performance of BOOK over the six months to 30
September 2022. Net asset value (NAV) ended the period on £231.0 million, or
384.9p per share, an increase of 20.3% in the six months since 31 March 2022.
NAV uplifts were driven by strong growth from several portfolio companies.
Grayce (contributed an £8.6 million uplift) and RCI Group (£8.0 million
uplift) continued to enjoy strong demand from customers for their services,
whilst also continuing to invest heavily to support future growth. This is a
return in six months equivalent to more than 3x the amount of capital
originally invested in these businesses, demonstrating the strong returns on
capital BOOK can generate from investments that scale and mature.
However, Techpoint was the biggest contributor, adding £18.9 million to NAV
in six months. This level of performance and return is very pleasing so soon
after BOOK invested £2.2 million to take a majority stake in the business in
June 2020. Ordinarily, we would not expect such strong returns to be generated
until the third or fourth year post-investment, given the J-curve that would
often be experienced, as we build out the management teams and invest in
growth. We remain optimistic about Techpoint's future prospects.
In the six months to 30 September 2022, BOOK's NAV return (+20.3%) outpaced
the FTSE closed end investment index, which declined 12.5% in share price
terms. BOOK's share price ended the period at 388.0p, an increase of 30.6% in
the six months.
Aside from its investment performance, BOOK has also made positive strides in
maturing and growing to become a more established investment company. In
January 2022, Literacy Capital plc became a member of the Association of
Investment Companies ("AIC") and on 1 April 2022 it gained investment trust
status.
Breakdown of Net Asset Value at 30 September 2022
Companies / assets Date of Investment Carrying value % of NAV
Grayce Jul 18 £52.2m 22.6%
Recruits, trains and deploys graduates into large corporates
RCI Health Group Sep 18 £49.4m 21.4%
Provider of healthcare and specialist clinical services
Techpoint (formerly Vanilla Electronics) Jun 20 £32.4m 14.0%
Outsourced supply chain management of electronic components
Kernel Global Jun 18 £19.2m 8.3%
Recruitment for roles within financial services
Antler Homes Jun 18 £14.6m 6.3%
Housebuilder in the Southeast of England
Top 5 investments £167.8m 72.7%
Butternut Box Jan 18 £14.2m 6.1%
Healthy, subscription-based, direct-to-consumer pet food
Oxygen Freejumping Jun 21 £7.6m 3.3%
Operator of trampoline and adventure parks
Wifinity Dec 17 £7.5m 3.2%
Wi-fi provider to hard-to-reach campus locations
Tyrefix Nov 20 £6.4m 2.8%
Emergency plant tyre repair and replacement services
Halsbury Travel Jun 22 £6.4m 2.8%
School travel operator
Top 10 investments £209.9m 90.9%
Other direct investments £23.0m 10.0%
Private equity fund interests £12.5m 5.4%
Borrowings (inclusive of donation provision and other working capital items) (£14.5)m (6.3)%
Net asset value £231.0m 100%
Portfolio Company Overview
The trading performance, momentum and financial position of the companies
within the portfolio remains robust.
Across BOOK's top ten investments (excluding the growth capital investment,
Butternut Box) revenue increased 70% year-on-year on a weighted average basis.
EBITDA grew 49% year-on-year, however it is worth noting that this calculation
also excludes Oxygen Freejumping and Halsbury Travel. These two relatively
recent investments were excluded because they had been loss-making due to
Covid on an LTM basis twelve months ago. Literacy's investment allowed these
businesses to continue trading, saving hundreds of jobs, and both are now
trading very strongly.
The growth of these companies has accelerated in every case since our
investment in them. Each company in the top ten is now reporting annual
revenue growth in excess of 15%, with the figure for many of the companies
many times greater than this figure.
Combined headcount on 30 September 2022, for all ten companies that comprise
BOOK's largest investments, was 3,101. On 31 March 2022, these same companies
employed 2,656, highlighting the investment these businesses continue to make
to support their growth ambitions. It can be difficult and less meaningful to
reconcile the headline total headcount figures reported in each quarterly
factsheet given changes in the constituent companies. However, particularly
given the common and often fair criticism of private equity in the UK, it is
important for us to highlight the support provided to the companies and
increasing opportunities available for people in Literacy Capital-backed
businesses.
BOOK's majority stakes in Grayce and RCI Group remain important to the
portfolio, given their weighting. Techpoint has also made significant strides
and outperformed in the last six months, increasing from 7.4% of net assets to
14.0%. Collectively, investments in these three companies now comprise the
majority of net assets and the five largest equate to 72.7% of net assets. We
remain very comfortable with this for the reasons provided in the segment
below.
Portfolio companies' use of leverage remains highly conservative (1.0x EBITDA
on a weight average basis) and far lower than traditional private equity fund
managers would typically employ. This is to provide flexibility and freedom to
BOOK's portfolio companies, to allow them to invest for growth rather than
being restricted by onerous covenants or repaying lenders. Sales growth and
business improvement is our priority, rather than financial engineering
through the use of third-party debt. This means our portfolio companies are
relatively insensitive to higher interest rates or debt costs. 1.0x net debt
to EBITDA is the lowest figure reported since BOOK's listing last year but
will likely increase slightly as businesses are refinanced to return cash to
BOOK in the coming months.
Top Five Investments
BOOK's portfolio is relatively highly concentrated, with the top five direct
investments equating to 72.7% of net assets (up from 68.2% on 31 March 2022
and 65.0% on 31 December 2021), while the ten largest direct investments
represent 90.9% of net assets (up from 84.7% and 82.0% respectively).
The Investment Manager is happy with this concentration given the high degree
of knowledge and control it has over the assets. This involves receiving
management information from the companies on a weekly or monthly basis,
providing significant comfort and insight regarding current trading and future
performance. It also involves being able to influence and select the key
members of management in these companies. This degree of intimate knowledge
and involvement is far greater than investors can hope to achieve investing in
public businesses.
Many of the larger direct investments are a high proportion of total net
assets due to their strong performance and significant uplifts in their
valuation, rather than making disproportionately large investments. We are
pleased to have significant exposure to strongly performing assets and are
happy to run winners, rather than sell assets prematurely.
Given the level of investment and hires required to raise the rates of growth
of many of the companies BOOK invests in, often these improvements do not
equate to meaningful profit growth or contributions to NAV uplifts until the
second or third year following BOOK's investment. This is evidenced by BOOK's
largest holdings being dominated by investments completed in its first twelve
months. Techpoint is the obvious exception to this, where the rate of growth
and performance of the business has exceeded expectations. We are confident
that the older investments will continue to contribute strongly, whilst other,
newer investments are well-placed to follow a similar trajectory.
Company Date of Investment 30 Sep 2022 30 Sep 2022 Total cash realised Total return (incl. cash) ∆ in total return since 31 Mar 2022
carrying value % of NAV
Grayce Jul 18 £52.2m 22.6% £7.6m £59.8m £8.6m
RCI Group Sep 18 £49.4m 21.4% £3.4m £52.8m £8.0m
Techpoint Jun 20 £32.4m 14.0% £0.0m £32.4m £18.9m
Kernel Global Jun 18 £19.2m 8.3% £0.7m £19.9m £1.1m
Antler Homes Jun 18 £14.6m 6.3% - £14.6m £1.0m
Grayce - www.grayce.co.uk (http://www.grayce.co.uk)
Grayce recruits, trains and employs graduates from top universities for
deployment into large corporates, providing the graduates that they hire with
high-quality training, employment and experience.
The original transaction in July 2018 was to facilitate the exit for one of
the founders who was stepping down. To assist with this transition a new
senior management team was brought into the business in stages. Between BOOK's
initial investment and the end of 2020, a new Chairman, CEO, CFO and Sales
Director were appointed. A new COO was also appointed in January 2022,
constructing a talented team that can scale and run a business of much greater
size.
In the last six months, Grayce has continued to invest heavily to set the
business up for continued growth and success. An additional 17 head office
employees joined in the last six months, to support Grayce's rapidly growing
client base and to help expand this even further in 2023.
RCI Group
RCI is primarily a provider of healthcare services and data analytics. The
group provides its specialist services to the police, NHS, custodial settings
and the courts.
BOOK's original investment in September 2018 helped two of the four founders
achieve their retirement plans. To ease this transition and ensure the
business had strong leadership, a new CEO and CFO joined the business at
completion of the transaction. Within nine months, they were joined by a new
Business Development Director and Operations Director, to create a strong team
and platform for growth. This platform was then used to acquire complementary
businesses and broaden the service offering to customers. Four acquisitions
were completed between December 2019 and April 2022.
Since BOOK's investment, revenue has increased from £15m in 2018 to more than
£40m four years later, following the acquisitions and organic growth. EBITDA
margins have also been improved materially following investment into greater
usage of data analytics and an expansion of the group's technology offering,
improving the quality of customer's insights.
Techpoint - www.techpoint.co.uk (http://www.techpoint.co.uk)
Techpoint Group is a group of companies, which provides outsourced supply
chain management of electronic components for manufacturing businesses.
Literacy Capital's initial investment was into Vanilla Electronics in June
2020. Vanilla was founded in 2002 by a father-and-son team. The father was
looking to exit and sell his stake in the business, while the son, Dan, wanted
to partially de-risk, and have a partner with the ability to assist him in
developing the business organically and, for the first time, through
acquisition. Since BOOK's original investment, the group has rebranded as
Techpoint and completed three acquisitions. The most recent acquisition was in
May 2022, the purchase of Golledge, a leading global supplier of frequency
components based in Somerset. Earlier this year, Dan moved into the role of
Executive Chairman, with Gary Mitchell becoming Group CEO, having joined the
business in September 2021. A new Group COO also joined the business in 2021
and a new CFO in 2020.
Vanilla and the businesses subsequently acquired are all trading strongly,
with synergies, cross-selling and operational improvements contributing
strongly to the eightfold increase in profitability. The reshoring of
manufacturing supply chains, given recent issues in companies' supply chains
and with logistics, is also benefitting the Techpoint businesses.
Kernel Global - www.kernel-global.com (http://www.kernel-global.com)
Kernel Global is the holding company for two recruitment businesses that trade
under the names Dartmouth Partners, which focuses on private equity, corporate
finance, wealth management, finance and legal, and Pure Search, which has a
primary focus on tax, as well as other finance roles.
BOOK's original investment was in June 2018 to support the founder of
Dartmouth. He founded the business in 2012 and needed support to scale the
business and strengthen its management team. A new Chairman and CFO joined in
the early part of 2020, plus a new Head of International in May 2021. The
business also acquired Pure in September 2019 and opened an office in Paris,
which gives the group a broad footprint in several financial centres,
including New York, Hong Kong, London and Frankfurt.
At the point that BOOK invested, Dartmouth had 54 staff and net fee income of
around £7m. By 30 September 2022, group headcount and LTM net fee income
exceeded 285 and £42m respectively.
Antler Homes - www.antlerhomes.co.uk (http://www.antlerhomes.co.uk)
Antler Homes is a housebuilder with a longstanding reputation for building
high quality homes in the London commuter belt. The business was set up 50
years ago by its founder, who in 2018 when Literacy Capital invested in the
business, was in his 70s, lived overseas and no longer wished to run or own
the business.
In order to allow the business to continue trading, it needed fresh leadership
and more capital, which Literacy was able to bring. A new Managing Director
and non-executive Director, both with a significant amount of relevant
experience, joined the business at completion of the investment.
Since BOOK's original investment in June 2018, Antler's team has been
refreshed and built up to support its increased output over the recent and
future years. Headcount has increased from eight to 35 by the end of September
2022. Literacy has also supported the business complete three follow-on rounds
of funding, including one in March 2022, as it acquires and develops more
land.
Movement in the Portfolio
£m 6 months to 30 September 2022 6 months to 30 September 2021
Opening Investments 191.2 84.7
Direct investments 12.2 5.5
Fund drawdowns 0.6 0.2
Total new investments 12.8 5.7
Proceeds from direct investments - (2.0)
Proceeds from fund investments (0.5) (0.7)
Cash proceeds received (0.5) (2.7)
Valuation Movement 41.9 53.5
Closing Investments 245.4 141.3
Valuation Movement % (of Opening Investments) 21.9% 63.2%
New Investments
£12.8 million was invested in the six month period. £5.7 million of this
related to two new investments, while the balance was deployed into existing
businesses, either to acquire more equity or support them with different
growth initiatives.
In June 2022, BOOK completed the buyout of Halsbury Travel, a travel agency
that focuses on organising trips for UK schoolchildren. Literacy now owns a
significant majority stake in the business, which is headquartered in
Nottingham and was founded in 1986 by two former teachers. A new Chairman
joined at completion and a new CEO joined the business in September,
bolstering the strength and experience of the senior leadership team.
In August 2022, Literacy Capital invested in Ashleigh & Burwood
("A&B") and took a majority stake. A&B is a home fragrance business
making candles, room sprays and diffusers, mostly for the home. The business
is based in Surrey, having been set up and owned by family members over two
generations. Here, the Board has also been strengthened via the hire of a new
Chairman and COO to improve and expand A&B further.
Techpoint completed the bolt-on acquisition of Golledge in the period, whilst
Oxygen Freejumping also acquired its second new site since Literacy invested
in the business in July 2021. Literacy has invested further capital in both
businesses but expects to receive the majority of this back before the year
end via a refinancing of Techpoint.
£554k was invested in a third party private equity fund, which made a
drawdown in the period. The other three funds to which BOOK has made
commitments all made distributions. We expect cash inflows from these funds to
continue, given their 2017 and 2018 vintages.
Realisation Activity
Cash inflows in the six months to 30 September 2022 totalled £0.5m, which all
relates to small distributions from private equity funds. The priority in the
period for BOOK's portfolio companies has been retaining the ability and
flexibility to invest in growth, rather than returning cash to BOOK or other
shareholders. Further refinancing activity within the portfolio is planned in
the next six months and we would expect cash proceeds received by BOOK to be
substantially higher than the six months to 30 September 2022.
The portfolio companies' strong performance and low leverage means there is
significant scope to return cash proceeds to BOOK, ensuring the pipeline of
new investment opportunities can be funded.
Balance Sheet and Financing
BOOK's total drawings under its Revolving Credit Facility ("RCF") with
Investec Bank plc stood at £13.5 million on 30 September 2022, which equates
to 5.8% of net assets. The available facility was increased in size in the
period by £10 million, taking the limit to £25 million, which gives Literacy
greater flexibility to fund new investments and support its existing portfolio
companies. This facility also allows BOOK to remain more fully invested,
reducing cash drag and improving returns for shareholders.
As mentioned in the final segment of Realisation Activity, cash proceeds
received by BOOK are expected to increase in the coming quarters, allowing
BOOK to fund further investments or reducing the amounts drawn under its RCF.
It has been very helpful and valuable to have had the flexibility to be able
to draw on the RCF to fund the recent investments without having to first
realise cash from the portfolio.
£m 30 September 2022 31 March 2022
Investments £245.4m £191.2m
Cash £0.8m £3.0m
Donation Provision £(1.9)m £(2.1)m
Other working capital £0.0m £(0.1)m
Borrowings £(13.5)m -
Net assets £231.0m £192.0m(1)
( )
(1) The NAV at 31 March 2022 contained certain deferred tax liabilities that
the Company does now not expect to pay following it receiving investment trust
status on 1 April 2022. For comparability, these deferred tax liabilities have
been removed from the NAV at 31 March 2022
Undrawn Fund Commitments by Currency Exposure
The table below shows outstanding obligations to BOOK's four fund commitments
has been gradually reducing in recent periods. The figure on 30 September 2022
amounted to £4.6 million, however we expect little more than half of this to
be called, given the age and pattern of drawing by these funds.
Regardless of whether the full £4.6 million is called or not, BOOK can
comfortably fund these drawdowns from existing reserves and headroom in its
RCF.
£m 30 September 2022 31 March 2022
Sterling £0.3m £0.3m
Euro(2) £3.2m £3.7m
US Dollar(2) £1.1m £0.9m
Total £4.6m £4.9m
( )
(2) Foreign currencies were converted to GBP at the prevailing rates on the
reporting date
Activity Since the Period End
BOOK has not made any new platform investments since the period end and there
are no updates or events with a material impact on NAV to report. Two of its
portfolio companies, Oxygen Freejumping and Tyrefix, have completed bolt-on
acquisitions, helping them to achieve their longer term objectives.
The first of these involved Oxygen completing its third acquisition in late
October. This acquisition of RedKangaroo, a trampoline operator with three
sites (Reading, Nottingham and Coventry), takes Oxygen to nine locations, up
from four when Literacy first invested in July 2021. In early November,
Tyrefix acquired Fix'n'Fit, a regional business providing similar plant tyre
services in the north west of England. Literacy provided additional funding to
Oxygen to help it fund its purchase of RedKangaroo, whilst Tyrefix was able to
fund its acquisition without further funding from shareholders.
Outlook
We are confident that the companies in BOOK's portfolio are well-placed to
continue performing strongly, which should drive further strong NAV
performance and uplifts for the Trust.
We are cautious in the current macroeconomic environment. However, we remain
optimistic given the robust financial position, strong growth and leadership
that an increasing number of BOOK's portfolio companies possess. A growing
number of more recent investments are entering a more mature phase, which
should result in these companies generating greater NAV uplifts for BOOK in
future periods. We also expect cash inflows from the portfolio to increase
substantially in the upcoming quarters, compared to recent months. The current
environment should also generate a greater number of attractive opportunities
to make new investments.
Despite the optimism and confidence, we are not complacent and retain very
close engagement with the management teams of BOOK's portfolio companies, to
ensure the companies are managed and performing as strongly as possible. The
Investment Manager has a high degree of knowledge and influence, enabling it
to make additions or changes to the portfolio company management teams, if
this is in the best interest of shareholders.
We are also proud of the unique impact that BOOK has been able to have as an
investment company in supporting different charities. In the six months to 30
September 2022, thousands of children in the UK have benefited and experienced
improved educational support due to BOOK's charitable donations, including
over 1,500 Ukrainian child refugees. Annual charitable donations in 2022 will
be greater than previous years and we are delighted that as the Trust
continues to grow, it will be able to support an increasing number of
disadvantaged children.
Charitable Mission
In addition to Literacy Capital plc's investment objectives and strategy, it
also has a charitable mission.
Literacy Capital plc makes an annual donation equivalent to 0.9% of the
Company's net asset value at each year end, thereby providing consistent,
long-term and growing charitable donations as the Company increases in size.
In the first nine months of 2022, the total provision for donations to
charities focused on improving literacy amounted to £1.58 million, more than
the amount recognised in all of 2021.
Since the creation of Literacy Capital in 2017, more than £5 million in total
has either been paid or set aside for donation. The aim is to advance the
education of children in the United Kingdom, in particular by promoting or
supporting the development of reading.
Annual charitable donation provision (£k)
2018 £532k
2019 £621k
2020 £772k
2021 £1,527k
2022 (first 9 months) £1,581k
Total charitable donation provision £5,033k
A number of charities focused on supporting children have received donations.
The largest beneficiary of Literacy Capital's charitable support to date is
Bookmark Reading Charity (www.bookmarkreading.org
(https://literacycapital.sharepoint.com/Shared%20Documents/LCP%20reporting/PLC%20reporting/2022/Q3/Interim%20results/Accounts/www.bookmarkreading.org)
). At its core, Bookmark facilitates extra one-to-one reading support for
state school children aged five to nine, who have been identified by their
teachers as at risk of not meeting the expected standard of reading. Using an
innovative digital platform, trained and vetted volunteers are given the
opportunity to support children from their desk using a flexible and
accessible volunteering model.
As part of the Bookmark's holistic approach to improving children's literacy,
the charity expanded its support offering by supplying free reading resources
to children with few or no books in the home, as well as providing new reading
spaces to schools who have limited means to fund their own. Their goal is to
bring reading confidence, ability and motivation to young children so that the
one in four pupils who currently leave primary school unable to read well, can
grasp every opportunity that they deserve in life, no matter their
socio-economic background.
Since the outbreak of the war in Ukraine, thousands of children have arrived
in the UK having left their homes, loved ones, education and belongings
behind. Bookmark launched its Bookmark Box for Ukraine appeal in April 2022,
which saw the charity set out to raise £1m to deliver a staggering 6,500
boxes to Ukrainian children and their families who had fled to Britain.
With support from Literacy Capital, Bookmark were able to reach their £1m
target by the end of August and successfully deliver all the boxes to support
thousands of Ukrainian child refugees.
Each box contained items that were carefully selected with the help of
literacy experts to support children's wellbeing through therapeutic play and
storytelling. This included high-quality bilingual books, a starting school
stationary set, a tablet loaded with e-Books, language and literacy apps and a
SIM card for families to contact loved ones displaced across the world.
The impact of Bookmark's work is best understood through the words of its
beneficiaries, such as those from a parent of a child who was supported by the
campaign:
"We missed books in our native language so much, because at home we had a
whole library of children's books. Yesterday, my son and I enjoyed reading
about steam locomotives before going to sleep and then I found another book on
the internet and read it on a tablet, very convenient!"
Why Literacy?
This year's SATs results show that the attainment gap has widened to its
largest level in 10 years(2). Before the pandemic, more than one in four
children would leave primary school unable to read well, and a study conducted
by the University of Leeds suggested that if children do not catch up, one in
four will become two in three(3).
Reading is not just about books. It is about reading a road sign, a safety
manual, a birthday card. It is understanding a job application or the health
information that could save your life. Children who do not read well by age
seven, are six times more likely to drop out of school(4). These children are
also more likely to go on to be unemployed, live in poverty, and even to have
a shorter life expectancy.
At an estimated cost of around £80bn to the UK economy per year(5), the
impact of poor literacy is far-reaching. The longer-term consequences of
illiteracy in the UK are hugely damaging, for both the child and for society
more widely. For instance:
· Almost one in five children aged five to eight in the UK currently do
not own a single book of their own, a 10% increase since the start of the
pandemic(6), and the figure is likely to grow through the cost-of-living
crisis.
· A quarter of disadvantaged primary schools in England do not have a
library. There is no government requirement for schools to have a library. 40%
of primary schools reported having no dedicated school library budget in
recent survey(7).
· Between 70% and 80% of pupils that drop out of education are poor
readers(8).
· Although some 'educational recovery' had been achieved by the end of
the 2020/21 academic year, attainment levels in core subjects remain below the
expected pre-pandemic standard from 2018/19 due to learning loss(9).
Helping children to develop the reading skills they need for a fair chance in
life can be done relatively quickly and inexpensively. It is one of the most
cost-effective ways to reduce young offending and raise their potential,
delivering a very high return on this investment in themselves and society.
(2)TES (formerly Times Educational Supplement)
(3)University of Leeds
(4)Centre for Education and Youth
(5)World Literacy Foundation
(6)National Literacy Trust
(7)National Literacy Trust
(8) (Codding, 2001; Dugdale and Clark, 2008a)
(9) (Tracey, et al. 2022) Educational Endowment Foundation: University of
York, Education Policy Institute, NIESR
Risks and Uncertainty
The Board of Directors and Investment Manger continue to monitor any risks
which could adversely affect the performance of BOOK. The principal risks and
uncertainties facing the Company are set out below.
Investment and liquidity: The Company's investments are in small, unquoted
companies, which by their nature entail a higher level of risk and lower
liquidity than investments in large, quoted companies. Mitigation: Risk is
limited by closely monitoring individual holdings. The board reviews the
performance of the portfolio on a quarterly basis
Financial: Most of the company's investments involve a medium to long term
commitment and many are relatively illiquid. There is a risk that the company
could run out of available cash reserves. Mitigation: The Company seeks to
ensure the availability of cash reserves to match the forecast cashflow of the
Company. The Company is also able to draw on its £25m committed revolving
credit facility, which had £11.5m of undrawn availability at 30.09.2022.
Economic: Events, such as economic recession, may affect the performance and
valuation of portfolio companies and their ability to access adequate
financial resources, as well as affecting the company's net asset value. A
further way that the portfolio company could be affected is any material
change in the amount of private capital looking to invest in private
businesses. Any change is unlikely to have a significant impact on the
company, as additional capital could lead to more competition when sourcing
new investments but would also likely increase the value of the existing
portfolio. The same would apply vice versa. Mitigation: The Company invests in
a diversified portfolio of investments spanning various sectors as well as
ensuring that the portfolio companies maintain sufficient cash reserves to be
able to support their short to medium term obligations.
Tax: Literacy Capital plc acquired UK resident investment trust status on 1
April 2022 enabling the Company to obtain an exemption from paying tax on its
capital profits, amongst other benefits. It is the Company's intention to
maintain this status indefinitely. However, whilst not expected to occur, if
investment trust status were to be lost or not obtained, the vast majority of
BOOK's capital profits would remain exempt from tax, due to the Substantial
Shareholding Exemption that could automatically be sought on the sale of many
of its assets. On 30 September 2022, it is estimated that approximately 85% of
the portfolio's gross assets by value would be exempt from tax regardless of
maintaining investment trust status.
Operational: BOOK uses third-party suppliers and is therefore exposed to
operational risk. Disruption to the Investment Manager's, administrator's or
any other third-party service provider's systems could result in the inability
to produce timely and accurate reports on Literacy Capital, or the underlying
portfolio companies. Mitigation: The Investment Manager and administrator each
have business continuity plans and separately, the depositary reports
periodically on custody matters.
Discount volatility: There is a risk that the level at which BOOK's shares may
trade below the NAV per share, reducing returns for existing shareholders.
Mitigation: The Board of Directors and Investment Manager monitors the level
of discount and possesses the ability to buyback shares to counter any
discount that persists. The Directors and Investment Manager are also aware
that shares in BOOK are already relatively tightly held and liquidity in the
Company's shares is required to attract institutional investors.
Related Party Transactions
Details in respect of the Company's related party transactions during the
period are included at note 15 to the interim financial statements.
Going Concern
The Board has assessed the financial position and prospects of the Company
over the next 12 months, whilst considering the additional risks and
uncertainties caused by the war in Ukraine, which have created harsher market
conditions and increased inflationary pressure. The Company has demonstrated
good performance and resilience amongst a difficult market back drop.
The Directors do not believe there are any significant risks and uncertainties
likely to impact the ability of the Company to continue in business and
believe it has adequate resources to operate for at least twelve months from
the date of approval of the financial statements, and so for this reason, the
Company continues to adopt the going concern basis in preparing the accounts.
Directors' Responsibility Statement
The Directors are responsible for preparing the Interim Report, in accordance
with the applicable laws and regulations. The Directors confirm that, to the
best of their knowledge;
· The condensed set of financial statements contained in these interim
results have been prepared in accordance with IAS 34 as contained in
UK-adopted IFRS; and
· The chair's foreword and interim management report includes a fair
review of the information required by DTR 4.2.7 R and 4.2.8 R of the FCA's
Disclosure Guidance and Transparency Rules, being an indication of important
events that have occurred during the first six months of the financial year;
and
· The interim financial statements include a fair review of the
information required by DTR 4.28R of the Disclosure Guidance and Transparency
Rules, being relating party transactions that have taken place in the first
six months of the year.
This interim report was approved by the Board and the above Director's
Responsibility Statement was signed on its behalf by the Chair.
Paul Pindar
Chairman, Literacy Capital plc
15 November 2022
Unaudited Financial Statements
Statement of comprehensive income
For the six-month period ended 30 September 2022
Unaudited Unaudited
6 months ended 6 months ended
30 September 2022 30 September 2021
Notes Total Total
£ £
Gains on investments
10 Gain on fair value on investments 41,500,301 53,124,848
10 Realised gain on disposal of investment - 212,604
Gains for the period on investments 41,500,301 53,337,452
Investment Income 4,190 175,639
Operating Income 408 45
Total 4,598 175,684
Total income 41,504,899 53,513,136
Expenses
6 Operating expenses (1,801,756) (1,912,650)
Total operating expenses (1,801,756) (1,912,650)
Charitable donations (1,146,808) (778,889)
Net foreign exchange profit / (loss) 425,159 33,672
Profit for the period before taxation 38,981,494 50,855,269
8 Tax credit / (expense) 1,910,072 83,061
Profit for the period 40,891,566 50,938,330
Other comprehensive income
Gain on fair value on debt investments - -
Total comprehensive income 40,891,566 50,938,330
Earnings per share for profit attributable to the ordinary shareholders of the
company:
12 Basic earnings per ordinary share (pence) 68.15 84.90
12 Diluted earnings per ordinary share (pence) 67.70 84.54
The accompanying notes form an integral part of these interim financial
statements.
Statement of financial position
As at 30 September 2022
Unaudited Audited
30 September 2022 31 March 2022
Note £ £
Non-current assets
10 Investments 245,435,207 191,213,506
245,435,207 191,213,506
Current assets
Trade and other receivables 595,874 528,608
Cash and cash equivalents 836,820 2,982,399
Unpaid share capital debtors - 49,950
1,432,694 3,560,957
Current Liabilities
Trade and other payables 556,805 604,847
Accrual for charitable donation 270,063 1,706,935
826,868 2,311,782
Net current assets 605,826 1,249,175
Non-current liabilities
Accrual for charitable donation 1,580,909 434,101
Revolving credit facility 13,500,000 -
Deferred tax liabilities - 1,910,072
Total non-current liabilities 15,080,909 2,344,173
Net assets 230,960,124 190,118,508
Capital and reserves
11 Share capital 60,000 109,950
Share premium 53,946,000 53,946,000
Retained earnings 176,954,124 136,062,558
Total share capital & reserves 230,960,124 190,118,508
13 Net Asset Value per share (pence) 384.93 316.86
The accompanying notes form an integral part of these interim financial
statements.
The interim financial statements were approved and authorised for issue by the
board of directors on 15 November 2022 and were signed on its behalf by:
Paul Pindar
Director
Date: 15 November 2022
Statement of changes in equity
For the six-month period ended 30 September 2022
Share capital Share premium Retained earnings Total
£ £ £ £
Balance at 31 March 2022 (audited) 109,950 53,946,000 136,062,558 190,118,508
Profit for the period - - 40,891,566 40,891,566
Other comprehensive income for the period - - - -
Total comprehensive income for the period - - 40,891,566 40,891,566
Contributions by and distributions to shareholders -
Cancellation of deferred shares (49,950) - - (49,950)
Total transactions with shareholders (49,950) - - (49,950)
Balance at 30 September 2022 (unaudited) 60,000 53,946,000 176,954,124 230,960,124
For the six months ended 30 September 2021
Share capital Share premium Retained earnings Total
£ £ £ £
Balance at 31 March 2021 (audited) 109,950 53,946,000 41,719,891 95,775,841
- - 50,938,330 50,938,330
Profit for the period
Other comprehensive income for the period - - - -
Total comprehensive income for the period - - 50,938,330 50,938,330
Contributions by and distributions to shareholders
Issue of ordinary shares - - - -
Total transactions with shareholders - - - -
Balance at 30 September 2021 (unaudited) 109,950 53,946,000 92,658,221 146,714,171
Statement of cash flows
For the six-month period ended 30 September 2022
Notes Unaudited Unaudited
30 September 2022 30 September
2021
£ £
Cash flows from operating activities
Cash outflow from operating activity
Management fee paid (905,292) (678,922)
Payroll expenses (57,974) (35,418)
Other operating expenditures (580,618) (801,121)
Charitable donations paid (1,436,872) -
Net cash used in operating activities (2,980,756) (1,515,461)
Cash flows from investing activities
10 Purchase of investments (12,767,211) (5,719,315)
Cash realised from investments 475,106 2,808,833
Net cash used in investing activities (12,292,105) (2,910,482)
Cash flows financing activities
Cash inflow from financing activities
Cash receipt from revolving credit facility 13,125,000 -
Net cash generated from financing activities 13,125,000 -
Net decrease in cash and cash equivalents (2,147,861) (4,425,943)
Cash and cash equivalents - opening balance 2,982,399 12,599,710
Effect of exchange rate fluctuations on cash and cash equivalents 2,282 1,951
Cash and cash equivalents - closing balance 836,820 8,175,718
The accompanying notes form an integral part of these interim financial
statements.
Notes to the Unaudited Financial Statements
For the six-month period ended 30 September 2022
1. Reporting to entity
Literacy Capital plc (the "Company") is a public limited company, limited by
shares, incorporated in United Kingdom. The Company's registered office is 3rd
Floor, Charles House, 5-11 Regent Street St James's, London, SW1Y 4LR.
Literacy Capital plc is a closed-end investment company focused on investing
in and supporting small, growing UK businesses and helping their management
teams to achieve long-term success.
2. Statement of Compliance
These interim financial statements for the six months ended 30 September 2022
have been prepared in accordance with IAS 34 Interim Financial Reporting and
should be read in conjunction with the Company's last annual financial
statements as at and for the three months ended 31 March 2022. They do not
include all of the information required for a complete set of financial
statements prepared in accordance with IFRS Standards. However, selected
explanatory notes are included to explain events and transactions that are
significant to an understanding of the changes in the Company's financial
position and performance since the last annual financial statements. These
interim financial statements are unaudited.
These interim financial statements were authorised for issue by the Company's
Board of Directors on 15 November 2022.
3. Accounting policies
The accounting policies applied by the Company in these interim financial
statements are the same as those applied in its annual financial statements as
at and for the year ended 31 March 2022.
Deferred tax is provided on all timings timing differences which have
originated but not reversed at the balance sheet date, calculated using the
tax rates relevant to the benefit or liability. Deferred tax assets are
recognised only to the extent that it is more likely than not that there will
be taxable profits from which underlying timing differences can be deducted.
Deferred tax liabilities are recognised only to the extent that it is more
likely than not that there will be a future tax charge. Whilst the Company
continues to hold investment trust status, it has an exemption from paying tax
on its capital profits.
4. Functional and presentation currency
These interim financial statements are presented in pound sterling, which is
the Company's functional currency. All amounts have been rounded to the
nearest pound, unless otherwise indicated.
A foreign currency transaction is recorded initially at the rate of exchange
at the date of the transaction. Assets and liabilities are translated from
foreign currency to the functional currency at the closing rate at the end of
the reporting period. The resulting gains or losses are included in the
statement of comprehensive income.
5. Accounting estimates and judgments
The preparation of interim financial statements in conformity with
International Accounting Standards requires Directors to make judgements,
estimates and assumptions that affect the application of policies and the
reported amounts of assets and liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, the
results of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
The significant judgements made by management in applying the Company's
accounting policies and the key sources of estimation uncertainty were the
same as those applied to the annual financial statements as at and for the
three months ended 31 March 2022.
6. Operating Expenses
Unaudited 6 months ended Unaudited 6 months ended
30 September 2022 30 September 2021
£ £
Non-Executive Director remuneration 52,486 38,330
Auditor remuneration 30,575 35,105
Other operating expenses 1,718,695 1,819,698
Total 1,801,756 1,912,650
7. Employees
The Company has no employees, however, the average number of Directors during
the period was 6 (for the three months ended 31 March 2022: 6).
8. Tax Expenses
The actual tax charge for the current and previous period differs from the
standard rate for the reasons set out in the following reconciliation:
Unaudited 6 month ended 30 September 2022 Unaudited 6 month ended 30 September 2021
£ £
Current taxation
United Kingdom corporation tax at 19% - 23,217
(2021: 19%)
- 23,217
Unaudited 6 month ended Unaudited 6 month ended
30 September 2022 30 September 2021
£ £
Deferred taxation
Origination and reversal of timing differences (1,908,265) (106,278)
Adjustments in respect of prior periods (1,807) -
Total deferred tax charge / (credit) (1,910,072) (106,278)
Tax on profit on ordinary activities (1,910,072) (83,061)
The actual tax charge for the current and previous period differs from the
standard rate for the reasons set out in the following reconciliation:
Unaudited 6 month ended Unaudited 6 month ended
30 September 2022 30 September 2021
£ £
Profit on ordinary activities before taxation 38,981,494 50,855,269
Tax on profit on ordinary activities at standard rate of 19% (for 6 months 7,406,484 9,662,501
ended 30 September 2021: 19%)
Factors affecting tax charge for the period:
Expenses not deductible for tax purposes and other adjustments 99,950 364,318
Income not taxable in determining taxable profit (8,040,201) (10,612,711)
Other permanent differences - (26)
Adjustments to tax charge in respect of previous periods - 228,862
Adjustments to tax charge in respect of previous periods - deferred tax (1,807) (82,448)
Remeasurement of deferred tax for changes in tax rates - 356,443
Movement in deferred tax not recognised 535,574 -
Impact of becoming an investment trust (1,910,072) -
Total tax on profit on ordinary activities (1,910,072) (83,061)
Literacy Capital plc qualified for investment trust status with effect from
the financial year commencing 1 April 2022, and as such, its capital gains are
now not taxable. A tax credit of £1.9m has been recognised in the period due
to the reversal of the opening deferred tax liability.
There is no UK current tax charge at 30 September 2022 as the Company has
unrelieved expenses which are available to be carried forward.
At 30 September 2022 the Company had a potential deferred tax asset of £2m on
taxable losses which are available to be carried forward and offset against
future taxable profits. A deferred tax asset has not been provided on these
losses as it is not considered sufficiently certain that the Company will make
taxable revenue profits in the future and it is not liable to pay tax on its
capital gains. The potential deferred tax asset has been calculated using a
corporation tax rate of 25%.
Factors that may affect future tax charges
The Finance Act 2021 enacted legislation to maintain the current rate of
corporation tax at 19% up until at least the financial year ended 31 March
2023 and increase the rate to 25% from 1 April 2023. On 14 October 2022 the UK
government announced that in April 2023 the Corporation Tax rate increase will
not be reversed.
9. Charitable Donation
The Company has recognised charitable donation expenses of £1,146,808 (for
the six months ended 30 September 2021: £778,889) calculated by applying 0.9%
to a pro forma Net Asset Value adjusted for fair value uplifts of £234.2
million (for the three months ended 31 March 2022: £192.9 million). During
the period, donations paid were £1,436,872 (for the six months ended 30
September 2021: nil). The accrual for charitable donations at the period end
amounts to £1,850,972 (for the three months ended 31 March 2022:
£2,141,036).
10. Financial Instruments
Unaudited Audited
30 September 2022 31 March 2022
£ £
Assets
Financial assets at fair value through profit or loss
Equity instruments at fair value through profit and loss 199,505,545 152,352,376
Debt instruments at fair value through profit and loss 45,929,662 38,861,130
Financial assets at amortised cost
Cash and cash equivalents 836,820 2,982,399
Trade and other receivables (excluding prepayments) 542 542
Total Financial assets 246,272,569 194,196,447
Liabilities
Financial liabilities measured at amortised cost
Trade and other payables 556,805 604,847
Total Financial liabilities 556,805 604,847
The investment reconciliation schedule for the Company as of 30 September 2022
is as follows:
Equity instruments at fair value Debt instruments at fair value through profit and loss Total
through Profit and Loss
£ £ £
Investments at 31 March 2022 (Audited) 152,352,376 38,861,130 191,213,506
Additions 5,053,702 7,713,509 12,767,211
Disposal of investments (470,916) - (470,916)
Fair value movement through profit and loss 42,145,276 (644,975) 41,500,301
Unrealised FX gain/ (loss) 425,105 - 425,105
Investments at 30 September 2022 (Unaudited) 245,435,207
199,505,543 45,929,664
The investment reconciliation schedule for the Company as at 31 March 2022 is
as follows:
Equity instruments at fair value through profit or loss Debt instruments at fair value through profit or loss 31 March 2022
Total
£ £ £
Investments at 31 December 2021 125,308,419 38,335,390 163,643,809
Additions 4,797,117 1,685,605 6,482,722
Disposal of investments (108,635) - (108,635)
Realised gain on disposal of investments 28,677 -
28,677
Fair value movement through profit or loss 22,264,259 (1,159,865) 21,104,394
Unrealised FX gain / (loss) 62,539 - 62,539
Investments at 31 March 2022 152,352,376 38,861,130 191,213,506
Fair values of financial instruments
The Company determines fair values using other valuation techniques, based on
the IPEV guidelines.
For financial instruments that trade infrequently and have little price
transparency, fair value is less objective, and requires varying degrees of
judgement depending on liquidity, uncertainty of market factors, pricing
assumptions and other risks affecting the specific instrument.
Company measures fair values using the following fair value hierarchy that
reflects the significance of the inputs used in making the measurements:
· Level 1: Inputs that are quoted market prices (unadjusted) in active
markets for identical instruments;
· Level 2: Inputs other than quoted prices included within Level 1 that
are observable either directly (i.e. as prices) or indirectly (i.e. derived
from prices). This category includes instruments valued using; quoted market
prices in active markets for similar instruments; quoted prices for identical
or similar instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are directly or
indirectly observable from market data;
· Level 3: Inputs that are unobservable. This category includes all
instruments for which the valuation technique includes inputs not based on
observable data and the unobservable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are valued
based on quoted prices for similar instruments but for which significant
unobservable adjustments or assumptions are required to reflect differences
between the instruments.
Various valuation techniques may be applied in determining the fair value of
investments held as Level 3 in the fair value hierarchy. The objective of
valuation techniques is to arrive at a fair value measurement that reflects
the price that would be received to sell the asset or paid to transfer the
liability in an orderly transaction between market participants at the
measurement date.
Valuation models that employ significant unobservable inputs require a higher
degree of management judgement and estimation in the determination of fair
value. Management judgement and estimation are usually required for the
selection of the appropriate valuation model to be used.
The Investment Manager has selected to use EBITDA/EBIT multiple models,
milestone valuations and recent fundraises for growth investments and reported
net asset value for fund investments in arriving at the fair value of
investments held as Level 3 in the fair value hierarchy. The effect on the
fair value measurements of Level 3 assets, as a consequence of changing one or
more of the assumptions used to reasonably possible alternative assumptions
can be seen under significant unobservable inputs used in measuring fair
value.
For assets managed and valued by a third party, the fund manager provides the
Company with periodic valuations of the Company's investment. The Company
reviews the valuation methodology of the third-party manager. If deemed
appropriate and consistent with the Company's reporting standards, the Board
will adopt the valuation prepared by the third-party manager. The Company
adjusts the third-party valuations for any capital calls paid and
distributions received between the underlying managers reporting date and 30
September 2022 to arrive at the Directors' best estimate of fair value. The
estimated valuations therefore do not take into consideration the unrealised
market movements between the underlying managers reporting date and 30
September 2022. The valuations that the underlying managers ultimately provide
as at 30 September 2022 may therefore materially differ to the latest
valuation report available at the time of preparing these financial
statements.
Fair value hierarchy - Financial assets at fair value through profit and loss
Financial assets and liabilities
30 September 2022 Level 1 Level 2 Level 3 Total
£ £ £ £
Equity instruments at fair value through profit and loss - 12,509,857 186,995,686 199,505,543
Debt instruments at fair value through profit and loss - - 45,929,664 45,929,664
Total investments (Unaudited) - 12,509,857 232,925,350 245,435,207
Financial assets and liabilities
31 March 2022 Level 1 Level 2 Level 3 Total
£ £ £ £
Equity instruments at fair value through profit and loss - 12,269,604 140,082,772 152,352,376
Debt instruments at fair value through profit and loss - - 38,861,130 38,861,130
Total investments (Audited) - 12,269,604 178,943,902 191,213,506
The following tables shows a reconciliation of the opening balances to the
closing balances for fair value measurements in level 3 of the fair value
hierarchy for the underlying investments held by the Company.
30 September 2022 31 March 2022
Unquoted investments (including debt) £ £
Balance as at 1 April / 1 January 178,943,902 152,597,441
Additional investments 12,216,822 6,255,355
Disposals of investments - (711)
Change in fair value through profit & loss 41,764,626 20,091,817
Balance as at 30 September / 31 March 232,925,350 178,943,902
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant unobservable inputs
used at 30 September 2022 in measuring financial instruments categorised as
Level 3 in the fair value hierarchy.
Description Inputs Fair value at Fair value at - Significant unobservable inputs
30 September 2022 31 March 2022
£ £
Unquoted private equity investments (including debt) 200,024,712 144,574,447 EBITDA multiple
Unquoted growth capital investments 18,275,335 20,701,585 Milestone
Unquoted private equity investments (including debt) 14,625,303 13,667,870 TGAV Multiple
232,925,350 178,943,902
Significant unobservable inputs are developed as follows:
· EBITDA and TGAV multiple: valuation multiples used by other market
participants when pricing comparable assets. Where relevant and comparable
private companies have recently been sold, which are deemed to be proximate to
the Company's investments (based on similarity of sector, size, geography or
other relevant factors), these multiples are captured for valuation purposes.
Where relevant, or where insufficient private transactions have been
identified, valuation data for public companies may also be used.
· Milestone: for assets which have recently completed fundraising
rounds, the Company uses these valuations when determining its own holding
valuations.
Although the Company believes that its estimates of fair value are
appropriate, the use of different methodologies or assumptions could lead to
different measurements of fair value. For fair value measurements of Level 3
assets, changing one or more of the assumptions used to reasonably possible
alternative assumptions would have the following effects on the Level 3
investment valuations:
· For the Company's investment in Level 3 assets which are valued using
an EBITDA multiple, the valuations used in the preparation of the financial
statements imply an average EBITDA to Enterprise Value multiple of 8.3x
(weighted by each asset's total valuation). The key unobservable inputs into
the preparation of the valuation of mature Level 3 assets was the EBITDA to
Enterprise Value multiple applied to the asset's financial performance. If
these inputs had been taken to be 10 per cent. higher, the value of the Level
3 assets and profit for the period would have been £26.8m higher. If these
inputs had been taken to be 10 per cent. lower, the value of the Level 3
assets and profit for the period would have been £26.9m lower.
· The Company's one investment in a Level 3 asset which is valued using
a TGAV multiple, was valued at 1.2x in the preparation of the financial
statements. The key unobservable inputs into the preparation of the valuation
of mature Level 3 assets was the TGAV to Enterprise Value multiple applied to
the businesses' assets. If this had been taken to be 10 per cent. higher, the
value of the Level 3 asset and profit for the period would have been £2.7m
higher. If these inputs had been taken to be 10 per cent lower, the value of
the Level 3 asset and profit for the period would have been £2.7m lower.
· For the Company's investment in Level 3 assets which are valued using
Milestone, the use of different methodologies or assumptions could lead to
different measurements of fair value. The key unobservable inputs into the
preparation of the valuation was the Revenue to Enterprise Value multiple
used. If the output had been taken to be 10% higher, the value of the Level 3
assets would have been £1.8m higher. If the output had been taken to be 10%
lower, the value of the Level 3 assets would have been £1.8m lower.
11. Share Capital
Unaudited 30 September 2022 Unaudited 30 September 2022 Audited 31 March 2022 Audited 31 March 2022
Number £ Number £
Ordinary shares of £0.001 each 60,000,000 60,000 60,000,000 60,000
Deferred shares of £0.001 each - - 49,950,000 49,950
60,000,000 60,000 109,950,000 109,950
· The number of shares issued and allotted have been paid to the extent
of 60,000,000 shares amounting £60,000 as at 30 September 2022 (for the three
months ended 31 March 2022: 60,000,000 shares amounting £60,000).
· All deferred shares were repurchased by the company and cancelled on
7 July 2022 (for the three months ended 31 March 2022: 49,950,000 shares
amounting £49,950).
· All ordinary shares have the same voting rights, preferences, and no
restrictions on the distribution of dividends and the repayment of capital.
· All deferred shares have no voting rights and are not entitled to the
distribution of dividends and the repayment of capital.
12. Basic and diluted profit per share (pence)
Basic profit per share is calculated by dividing the profit of the Company for
the period attributable to the ordinary shareholders of £40,891,556 (for the
six months ended 30 September 2021: profit of £50,938,330) divided by the
weighted average number of shares outstanding during the period of 60,000,000
(for the six months ended 30 September 2021: 60,000,000).
Diluted profit per share is calculated by dividing the profit of the Company
for the period attributable to the ordinary shareholders £40,891,556 (for the
six months ended 30 September 2021: profit of £50,938,330) divided by the
weighted average number of ordinary shares outstanding during the period, as
adjusted for the effects of all dilutive potential ordinary shares, of
60,402,500 (for the six months ended 30 September 2021: 60,250,000).
13. NAV per share (pence)
The Company's undiluted NAV per share of 384.93 pence (for the three months
ended 31 March 2022: 316.86 pence) is based on the net assets of the Company
at the period end of £230,960,124 (for the three months ended 31 March 2022:
£190,118,508) divided by the shares in issue at the end of the period of
60,000,000 (for the three months ended 31 March 2022: 60,000,000).
The Company's diluted NAV per share of 383.87 pence (for the three months
ended 31 March 2022: 316.19 pence) is based on the net assets of the Company
at the period end of £230,960,124 (for the three months ended 31 March 2022:
£190,118,508), plus £908,950 which the Company will receive as proceeds from
the exercise of warrants, divided by the shares in issue at the end of the
period, as adjusted for the effects of dilutive potential ordinary shares of
60,402,500 (for the three months ended 31 March 2022: 60,302,500).
14. Reserves
The following are the reserves with the entity as on 30 September 2022:
· Share Capital: Capital issued and paid to the extent of £60,000.
· Share Premium: Premium above par value issued and fully paid.
· Retained Earnings: Accumulated profits and losses less any dividends
paid.
15. Related party transactions
Two Directors of the Company are designated members of the Investment Manager,
Literacy Capital Asset Management LLP ("LCAM").
Total expenses through the statement of comprehensive income with LCAM during
the period was £1,146,808 (for the six months ended 30 September 2021:
£778,831). The total expense related to the rendering of AIFM services during
the period. At the period end the balance due to be paid to the LLP for these
services was £293,882 (for the three months ended 31 March 2022: £62,838).
The Company recognises Bookmark Reading Trading Limited as a related party
because Sharon Pindar, wife of Paul Pindar, is a Director in Bookmark Reading
Trading Limited.
The Company also recognises Bookmark Reading Charity as a related party for
the same reason as mentioned above for Bookmark Reading Trading Limited.
The total payments made during the period was £1,351,872 (for the six months
ended 30 September 2021: nil). The Company has a provision or charity and
other donation payments amounting to £1,850,972 (for the three months ended
31 March 2022: £2,141,036). Out of this provision, certain donations will be
made to Bookmark Reading Trading Limited and Bookmark Reading Charity.
16. Capital Commitments
Further capital commitments of €3,685,721 (for the three months ended 31
March 2022: €4,323,240), £294,530 (for the three months ended 31 March
2022: £294,530) and $1,200,000 (for the three months ended 31 March 2022:
$1,200,000) remain outstanding and are yet to be drawn down.
17. Subsequent events
BOOK invested further capital in Oxygen Freejumping in early November 2022 to
support its acquisition of RedKangaroo. This investment was funded by a
drawdown being made under BOOK's existing RCF.
18. Ultimate controlling party
Literacy Capital plc does not have an ultimate controlling party.
Alternative Performance Measures
As well as financial performance, the Board of Directors and Investment
Manager monitor Alternative Performance Measures. An APM is a numerical
measure of the Company's historical or current performance. The following APMs
are typically used within the investment trust sector to provide additional
information to shareholders and other readers to help assess performance.
Total Return
Share price and NAV total returns show how the share price and NAV have
performed over the six month period to 30 September 2022.
Share price mid-point NAV per Share
Opening at 1 April 2022 297.0p 320.0p
Closing at 30 September 2022 388.0p 384.9p
Change in six months to 30 September 2022 30.6% 20.3%
Dividends declared or paid - -
Total return in six months to 30 September 2022 30.6% 20.3%
Share Price Premium or Discount
The table below shows the amount by which the share price mid-point is either
higher (premium) or lower (discount) than the NAV per share, expressed as a
percentage of the NAV per share.
30 Sep 2022
Share price mid-point 388.0p
NAV per share 384.9p
Share price premium 0.8%
Ongoing Charges
The ongoing charges are calculated in line with guidance issued by the
Association of Investment Companies ('AIC') and capture management fees and
expenses, which are operational and recurring by nature but excluding finance
costs, incurred by the Company. The calculation does not include the expenses
or management fees incurred by any underlying funds or portfolio companies. As
a result of BOOK now having investment trust status, irrecoverable VAT on the
investment management fee in 2021 has been removed for comparability, as this
is no longer recurring.
The calculation is based on the ongoing charges expressed as a percentage of
the average quarterly NAV figures published during the six month period to 30
September 2022.
BOOK's ongoing charges, excluding the 0.9% annual charitable donation
provision, were calculated as 1.29%
(30 September 2021: 1.59%).
BOOK's ongoing charges, including the 0.9% annual charitable donation
provision, were calculated as 2.33%
(30 September 2021: 2.81%).
BOOK's investment management fees and charitable donation are calculated as
0.9% of net assets at the end of the financial period, which allows these
costs to be calculated based on audited net asset figures, rather than
unaudited quarterly figures. This translates into slightly higher ongoing
charges and donations, compared to the AIC's suggested calculation which uses
average net assets in the period, if net assets grow in the period.
Corporate Information
Directors
Paul Pindar
Richard Pindar
Kevin Dady
Simon Downing
Christopher Sellers
Rachel Murphy
Registered Number
10976145
Registered Office
3(rd) Floor, Charles House
5-11 Regent Street St James's
London
SW1Y 4LR
Service Providers
Investment Manager English Legal Adviser to the Company
Literacy Capital Asset Management LLP Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Company Secretary Independent Auditor
Literacy Capital Asset Management LLP Mazars LLP
The Pinnacle
160 Midsummer Boulevard
Milton Keynes
MK9 1FF
Corporate Broker Bankers
Singer Capital Markets Securities Limited Santander UK plc
One Bartholomew Lane 2 Triton Square
London Regent's Place
EC2N 2AX London
NW1 3AN
Administrator Depositary
EPIC Administration Limited Indos Financial Limited
Audrey House The Scalpel
16-20 Ely Place 18(th) Floor
London 52 Lime Street
EC1N 6SN London
EC3M 7AF
Registrar
Link Market Services Limited
Central Square
10(th) Floor
29 Wellington Street
Leeds
LS1 4DL
Shareholder Information
Key Dates
November 2022 Half-yearly results announced,
following the 31 March 2022 year-end
December 2022 Company's usual year-end resumes
March 2023 Annual report and financial
statements published
June 2023 Company's half year-end
Frequency of NAV Publication
The Company's unaudited NAV is released to the London Stock Exchange on a
quarterly basis, in January, April, July and October, typically within four
weeks of the quarter end.
Annual and half-yearly report
Copies of the Company's Annual and Half-yearly Reports, stock exchange
announcements and further information on the Company can be obtained from the
Company's website www.literacycapital.com (http://www.literacycapital.com) .
Identification codes
Admission to trading: Specialist Fund Segment (SFS)
Ticker: BOOK
ISIN: GB00BMF1L080
Contacting the Company
Shareholder queries are welcomed by the Company. While any queries regarding
your shareholding should be directed to the Registrar, shareholders who wish
to raise any other matters with the Company may do so via the registered
office of the company (see Corporate Information section).
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