REG - Literacy Capital PLC - Publication of Audited Annual Report and Accounts
14/03/2022 07:01
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RNS Number : 5834E Literacy Capital PLC 14 March 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The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any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.
14 March 2022
Literacy Capital plc ("Literacy" or the "Company")
Publication of Audited Annual Report and Accounts
Literacy Capital plc has released its Audited Annual Report and Accounts for
the twelve months ended 31 December 2021. An electronic copy can be viewed at:
www.literacycapital.com/investors/reports-and-results
A copy of the above document has been submitted to the National Storage
Mechanism.
-ENDS-
For further information, please contact:
Literacy Capital plc / Literacy Capital Asset Management LLP:
Tom Vernon
+44 (0) 20 3960 0280
Singer Capital Markets Securities Limited:
Robert Peel / Amanda Gray
+44 (0) 20 7496 3000
LEI: 2549006P3DFN5HLFGR54
A copy of this announcement will be available on the Company's website at
https://www.literacycapital.com/.
The information contained in this announcement regarding the Company's
investments has been provided by the relevant underlying portfolio company and
has been independently verified by the Company's auditors.
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.
Annual Report and Financial Statements for Literacy Capital plc
("Literacy Capital", the "Company" or "BOOK")
For the twelve months ended 31 December 2021
Focus on helping to build great businesses to generate superior returns
v NAV per ordinary share of 277.2p(1)
o Net assets of £166.3m(1), an increase of 94.1% in the twelve months to 31
December 2021
o The FTSE Investment Company Index and FTSE All-Share Index returned 12.8%
and 14.5% respectively over the same period
o The share price closed the year at 295p, a 6.4% premium to net assets, and
84.4% higher than the price on Admission to the London Stock Exchange on 25
June 2021
v Portfolio companies enjoying strong trading momentum, with active assistance
from the Literacy Capital team to accelerate growth
o Portfolio comprised of buyout, growth capital and fund investments, with
significant exposure to companies delivering strong growth since our
investment
o 93% revenue growth and 131% EBITDA growth on a weighted average, Last
Twelve Months (" LTM") basis across the eight buyout investments within
Literacy Capital's top 10 direct holdings. These eight companies represent
69.5% of NAV
v Significant activity and value creation initiatives across the portfolio
companies
o Completed three new platform investments in 2021, as well as seven bolt-on
acquisitions by 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 maturing investments improving the rate of NAV growth,
whilst retaining cash to complete new investments
o £5.2m of available cash plus access to a new £15m RCF arranged to fund
new investments and uncalled fund commitments. Refinancing of certain
portfolio companies planned in 2022 to generate further cash to redeploy or
increase Literacy Capital's equity stake further
o £11.8m of cash realised from the portfolio in 2021, an increase from
£6.8m in 2020
o Continue to maintain a strong pipeline of potential, high-quality
investments for the future
v Increasing charitable donations, helping disadvantaged children across the
UK get a fair chance
o £1,527k of charitable donation accrued in 2021, up from £772k in 2020,
in line with the strong growth in NAV
o Total donations of over £3.4m since inception of Literacy Capital
Performance to 31 December 2021
% total return 3 months 1 year 3 years Since Inception
BOOK Net asset value +13.0% +94.1% +186.2% +208.0%
BOOK Share Price +1.7% n/a n/a n/a
FTSE Investment Company Index +3.7% +12.8% +61.3% +56.7%
FTSE All-Share Index +3.7% +14.5% +14.5% 1.9%
(1) The NAV currently excludes certain deferred tax liabilities shown in the
Company's financial statements, on the basis that these amounts are not
expected to become payable in the future should the Company receive approval
of its investment trust status. In the event that the Company does not receive
such approval, the deferred tax liabilities will need to be taken into account
in calculating the net asset value per ordinary share going forward.
( )
( )
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.
Richard Pindar, CEO of the Investment Manager and Director of Literacy Capital
plc, commented:
"We are pleased with the way in which our largest portfolio companies and
investments have traded strongly in 2021 and their prospects remain very
positive. The growth and strong performance of certain investments has led
BOOK's portfolio to be more highly concentrated than many funds. This
concentration results from excellent trading performance and strong uplifts in
value of those companies, rather than allocating disproportionate amounts of
capital to these companies. We do not wish to risk large amounts of BOOK's
capital by committing disproportionate amounts of cash to new investments, but
we will look to run winners and avoid selling assets prematurely to enjoy the
substantial upside that this can generate.
We enjoy a high degree of insight and influence in BOOK's portfolio companies.
This involves the monthly, or even weekly, provision of management information
and frequent interaction with the management teams of these businesses. In
many cases, we have appointed several members of these management teams and
have the ability to make changes if we feel it is necessary to improve the
prospects of the business. Therefore, while some funds would be nervous with
higher levels of portfolio concentration, the nature of our investments in
these private companies means we are comfortable with the composition of our
portfolio. We view this concentration as a positive and as an opportunity. We
hope that their current momentum will enable BOOK to continue outperforming,
whilst our receipt of company data and information in a timely fashion gives
us good awareness should this momentum falter. If required, we have the
ability to influence outcomes across our portfolio companies or make any
necessary changes.
We are particularly grateful and thankful to all of the management teams and
employees of our portfolio companies for their hard work in 2021. It has been
a challenging year for many of them, with the continued impact of Covid-19 and
supply chain problems that have affected businesses globally. We thank them
for their efforts in 2021 and hope that many of these issues will ease in
2022.
We are satisfied that the amount of cash realised in 2021 was more than three
times higher than the figure achieved in 2020. We are confident that we will
be able to generate more cash from the portfolio to finance new investments,
as the companies continue to grow, trade strongly and generate cash. Alongside
the recently agreed £15m Revolving Credit Facility, we remain confident that
BOOK has the capital it needs to deploy into new investment opportunities that
are available to us. This facility will also enable us to manage cash drag,
which can reduce shareholder returns."
Comparison to prior financial year
12 months to/as at 31 Dec 2021 12 months to/as at 31 Dec 2020
Net asset value(1) £166.3m £85.6m
NAV per ordinary share(1/2) 277.2p 142.7p
Capital invested £13.2m £19.6m
Cash realised £11.8m £6.8m
Charitable donation provision £1,527k £772k
(1) The NAV currently excludes certain deferred tax liabilities shown in the
Company's financial statements, on the basis that these amounts are not
expected to become payable in the future should the Company receive approval
of its investment trust status. In the event that the Company does not receive
such approval, the deferred tax liabilities will need to be taken into account
in calculating the net asset value per ordinary share going forward.
( )
(2) For comparability, 31 December 2020 NAV per ordinary share is presented on
a fully diluted basis taking account of the 6,000,000 A growth shares then in
issue which have since converted to ordinary shares.
Strategic Report
Literacy Capital plc is an investment company run for private and
institutional investors. The Company's objectives are:
· To achieve long term capital growth through making investments in
accordance with the Investment Policy; and
· To provide a consistent donation to registered charities selected by
the Investment Manager with the approval of the Board (more detail is set out
under the Charitable Mission section).
During 2021, despite Covid-19, the trading and financial performance of most
underlying companies held up well with four standout performers amongst them.
Two portfolio companies continued to feel negative effects of Covid-19
throughout the year but these investments make up a very small proportion of
the total portfolio and we expect them both to return to pre-Covid-19 levels
of trading in 2022. All of the portfolio companies were securely positioned
going into 2022 and we expect them all to have the liquidity and ability to
trade successfully through this year and into 2023.
In the year under review, the net asset value (NAV) of assets under management
of the Company increased from £85.6m to £166.3m.
It is the intention of Literacy Capital plc to apply for investment trust
status in 2022. In order to do this, Literacy Capital plc intends to shorten
the initial accounting period in 2022 to three months, so that it runs from 1
January 2022 to 31 March 2022. The following accounting period is then
expected to be nine months long and end on 31 December 2022, in line with
previous accounting periods. This additional financial period and statutory
audit is being established because once all conditions to qualify for
investment trust status are met, this status only takes effect from the
beginning of the next financial period. As a result, it is the Board's view
that this course of action is in the best interest of shareholders.
Investment Objective
The Company's principal activity is to invest in and support small, growing
businesses, predominantly UK-businesses. The Company will also make other
investments, in private and public businesses, which may be denominated in
foreign currencies. Its investment policy is set out in full in the Additional
Information Section of this annual report.
The Company will invest and manage its assets with the objective of spreading
risk. No single investment will represent more than 20 per cent of Gross
Assets, calculated at the time of that investment. The Company will not be
required to dispose of any investment or rebalance its portfolio as a result
of a change in the respective value of any of its investments.
Performance Comparison
The Company uses the FTSE All-Share Closed End Investment Trust Index ("the
Index") as a comparator for the purpose of monitoring performance and risk but
the composition of the Index has no influence on investment decisions. The
Index represents the performance of Investment Trusts from the FTSE UK Index
Series. These Investment Trusts operate in a way and invest in similar types
of companies to Literacy Capital plc, and as such the Investment Manager has
deemed the Index to be the best comparator for the company.
Chairman's Statement
Literacy Capital plc was admitted to trading on the Specialist Fund Segment of
the London Stock Exchange's Main Market on 25 June 2021. I am very pleased to
present the Chairman's statement for 2021 which includes six months as a
listed investment company.
The Investment Manager's review following this introduction provides
considerable detail regarding our early investment performance, but, in
summary, our first period as a public company has gone well.
Our shares were admitted in June at a price of 160p. On 31 December 2021, our
mid-market closing price was 295p and our shares stood at 301p on 9 March
2022. Indeed, we were named as the best performing investment company in the
UK by Citywire Investment Trust Insider for the second half of 2021, with a
share price increase of 52.1%. This follows being ranked 1st out of 351
investment companies in Q3 2021.
We set up Literacy Capital with the mission to operate differently from
'traditional' private equity. We are a closed-end fund which means that we
have no pressure and (importantly) no incentive to sell high performing
investments prematurely. We can take a very long term view, which is highly
attractive to both company vendors (who want stability for their employees)
and the management teams with whom we partner.
We are an active and supportive partner. Investment opportunities do not need
to be perfectly formed to be interesting to us. We are happy to work closely
and collegiately with management to improve businesses, to strengthen teams,
to execute buy-and-build strategies and to provide experience, support, advice
and confidence. When we created Literacy Capital, one of our motivations was
to help UK smaller companies to thrive and succeed. Whilst we currently have
just 16 companies in our family, they are rewarding us handsomely with their
progress, with material growth in revenues, profits and employment.
We also want to open up private equity as an asset class to be accessed by the
many rather than the few. Our listing allows smaller investors to have an
interest in private equity. And we consciously do not charge carried interest,
which means our management fees are amongst the lowest in the sector.
We are highly aligned with shareholders as a whole. Very unusually, the
investment team that is responsible for investing shareholder's money, their
family members and the Board of Directors collectively own over 50% of
Literacy Capital itself. We are not looking to make money by gathering assets
or charging fees. We are simply seeking to build great companies which will
translate directly into creating value for all shareholders.
We believe we can make money for shareholders. But our work is also driven by
a hunger to positively impact as many young children as possible. The UK
suffers significant literacy problems with some 200,000 children leaving
primary school each year unable to read to the required standard. This has a
hugely detrimental impact on each child's future.
We want every child to read. And this is the reason why we have and will
continue to donate 0.9% of our net assets each year to literacy charities
across the UK. This work is being led particularly by Bookmark Reading, a
charity which is now supporting thousands of young children each year, with
core funding provided by Literacy Capital.
We have started well. But more importantly, we are now shareholders in some
first class businesses, led by highly talented teams. We are confident that
our portfolio of companies will drive significant value for shareholders over
both the short and long term.
Paul Pindar
Chairman, Literacy Capital plc
11 March 2022
Investment Manager's Report
BOOK Performance Highlights For The Year
277.2p £166.3m
NAV per ord. share(1/2) £m NAV(1)
(31 Dec 2020: 142.7p) (31 Dec 2020: £85.6m)
£13.2m £11.8m
Capital invested Cash realised
(2020: £19.6m) (2020: £6.8m)
+84.4% £1,527k
Shareholder total return 2021 charitable donation provision
(since listing on 25 June 2021) (2020: £772k)
(1)The NAV currently excludes deferred tax liabilities shown in the Company's
financial statements, on the basis that these amounts are not expected to
become payable in the future should the Company receive approval of its
investment trust status. In the event that the Company does not receive such
status, the deferred tax liabilities will need to be taken into account in
calculating the net asset value per ordinary share going forward.
(2 )For comparability, 31 December 2020 NAV per ordinary share is presented on
a fully diluted basis taking account of the 6,000,000 A growth shares then in
issue which converted to ordinary shares upon the listing. Both the NAV per
share figures for 2020 and 2021 are divisible by 60 million shares.
BOOK Performance Overview
We are very pleased with BOOK's performance and progress in 2021. On 31
December 2021, net asset value (NAV) was £166.3 million, or 277.2p per share,
an increase of 94.1% (after all costs and charitable donations) since 31
December 2020.
Growth in net assets in 2021 was driven by uplifts across a number of
portfolio companies. Of the 14 direct investments held at the end of 2020,
seven of them delivered a return to BOOK of at least 100% in 2021. Of these
seven investments, three generated a return in excess of 200% in the year.
These uplifts were driven by a combination of strong growth in profitability,
cash generation and a number of transactions involving BOOK investee
businesses with third-party investors at material premiums.
During this period, Literacy Capital plc was also introduced to the London
Stock Exchange ("LSE"). It was admitted on 25 June 2021 at a price of 160p per
share. Following BOOK's admission to the LSE, the share price closed on 31
December 2021 at 295p, an increase of more than 84% in a little over six
months.
BOOK's operating costs in the period amounted to £3.0m (2020: £1.1m). The
year-on-year increase was driven by a larger Investment Management fee
expense, owing to the uplift in NAV, as well as one off costs associated with
introducing Literacy Capital plc to the LSE.
Cash proceeds received by BOOK in 2021 were materially higher than those
received in 2020. This was as a result of an increasingly mature portfolio
with companies achieving greater levels of scale, profitability and cash
generation. This increase was deliberate in order to manage capital within
BOOK efficiently and to increase the amount of available cash to fund new
investment opportunities.
Breakdown of Net Asset Value at 31 December 2021
Companies / assets Date of Investment Carrying value % of NAV
Grayce Jul 18 £41.2m 24.8%
Recruits, trains and deploys graduates into large corporates
RCI Health Group Sep 18 £32.3m 19.4%
Provider of healthcare and specialist clinical services
Butternut Box Jan 18 £14.2m 8.5%
Healthy, subscription-based, direct-to-consumer pet food
Kernel Global Jun 18 £12.8m 7.7%
Recruitment for roles within financial services
Vanilla Electronics Jun 20 £7.6m 4.6%
Outsourced supply chain management of electronic components
Top 5 investments £108.1m 65.0%
Wifinity Dec 17 £6.7m 4.0%
Wi-fi provider to hard-to-reach campus locations
Antler Homes Jun 18 £6.5m 3.9%
Housebuilder in the Southeast of England
Hanmere Dec 17 £5.3m 3.2%
Manufacturer of polythene packaging products
Cross Rental Services Nov 21 £5.0m 3.0%
Provider of refrigeration & catering and climate control equipment
EPM Feb 20 £4.8m 2.9%
Software and consulting business to the transport sector
Top 10 investments £136.4m 82.0%
Private equity fund interests £11.0m 6.6%
Other direct investments £16.2m 9.8%
Cash (net of donation provision and other working capital items) £2.7m 1.6%
Net asset value £166.3m(1) 100%
Portfolio Company Overview
The trading performance and financial condition of the portfolio remained very
strong in 2021. The rate of growth in sales and EBITDA of BOOK's largest
investments accelerated as the year progressed.
By the end of year, annual sales growth amongst the eight buyout investments
within Literacy's top ten investments reached 93% and EBITDA growth was even
stronger at 131%. Some of this growth was contributed by six bolt-on
acquisitions that these eight companies completed. However, excluding the
impact of any acquisitions, these figures were 53% and 83% respectively,
demonstrating their strong organic growth.
The smallest increase in EBITDA year-on-year across any of these eight
companies was 90%. In the top five investments, both Grayce and Kernel Global
grew EBITDA more than 100%, entirely organically, without any acquisitions in
the year. This is a material improvement compared to their growth rates at the
point that we invested.
Literacy Capital's portfolio companies also created hundreds of additional
jobs and opportunities during the year for people across the UK. The total
headcount at the end of 2021 for the ten companies that comprise BOOK's
largest investments stood at 3,029. This compared to 1,460 employees for the
same ten companies a year earlier, an increase of 107%.
Literacy's top five investments comprise 65.0% of NAV, meaning their
performance will have a significant impact on BOOK's overall performance. All
five of these businesses are trading well and making pleasing progress. We
expect these companies to continue contributing strong results in 2022.
Literacy Capital's majority holdings in Grayce and RCI Group are particularly
important to the portfolio, given their weighting. During 2021, both
experienced EBITDA growth in excess of 100% year-on-year. Their momentum and
financial position remain very resilient, and we believe that they can
continue to drive strong returns and outperformance for BOOK.
The private equity fund commitments will remain a small part of the portfolio.
BOOK has made four commitments to funds (one in 2017, two in 2018 and one in
the first half of 2021). We do not expect any further drawdowns from the three
2017 and 2018 vintage funds to which BOOK made commitments. In total, these
three funds completed 85 transactions, with just six of these currently valued
below cost and none at less than 0.9x cost, demonstrating the quality of the
managers selected.
Portfolio companies' use of leverage remains highly conservative (just under
1.3x EBITDA on a weighted average basis) and much lower than investments of
traditional private equity fund managers typically employ. This is to provide
flexibility to BOOK's portfolio companies and to allow them to invest without
needing to comply with onerous covenants. Low gearing, sales growth and
operational improvement is our priority, rather than excessive leverage or
financial engineering. This figure has fluctuated between 1x and 1.5x during
2021, as we have refinanced certain companies to manage and generate liquidity
within BOOK.
( )
(1)The NAV currently excludes deferred tax liabilities shown in the Company's
financial statements, on the basis that these amounts are not expected to
become payable in the future should the Company receive approval of its
investment trust status. In the event that the Company does not receive such
status, the deferred tax liabilities will need to be taken into account in
calculating the net asset value per ordinary share going forward.
Top Five Investments
BOOK's portfolio is relatively highly concentrated, with the top five direct
investments equating to 65.0% of the portfolio, while the ten largest direct
investments represent 82.0% of net assets.
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. 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
and ambitions of many of the companies BOOK invests in, it can be a year or
two before these improvements turn into meaningful uplifts in value. Once this
growth comes, it can translate into substantial uplifts in the value of BOOK's
stakes reasonably swiftly.
Company Date of Investment 31 Dec 2021 31 Dec 2021 Total cash realised Accumulated return ∆ in Accum. return since 31 Dec 2020
carrying value % of NAV
Grayce Jul 18 £41.2m 24.8% £1.9m £43.1m £29.8m
RCI Group Sep 18 £32.3m 19.4% £6.9m £39.2m £22.9m
Butternut Box Jan 18 £14.2m 8.5% - £14.2m £7.8m
Kernel Global Jun 18 £12.8m 7.7% £0.7m £13.5m £9.9m
Vanilla Electronics Jun 20 £7.6m 4.6% £0.0m £7.6m £4.7m
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, with a new COO also appointed in January 2022,
constructing a talented team that can scale and run a business of much greater
size.
On 31 March 2018, analyst headcount was 105 with total headcount of 120. By
the end of 2021, these figures had reached 548 and 618 respectively,
demonstrating the significant growth and investment that has been injected
into the business since BOOK's investment and success in creating
opportunities for talented, ambitious graduates.
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. Three acquisitions
were completed between December 2019 and March 2021.
Since BOOK's investment, revenue has increased from less than £15m in 2018 to
an expected £40m in 2022, following the acquisitions and increased service
offering. 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.
Butternut Box - www.butternutbox.com (http://www.butternutbox.com)
Butternut Box was founded in 2017 as a direct to consumer subscription dog
food business. It has recently expanded its operations outside of just the UK,
with sales in Ireland and the Netherlands too.
BOOK completed a growth investment into Butternut Box in January 2018, as part
of a £5 million investment round, to help the founders to expand operations
and scale the business more quickly. In March 2021, the company opened a new
manufacturing site in Doncaster to significantly increase capacity and improve
efficiency. Most recently, the company completed a £40 million funding round
in August 2021, led by L Catterton (www.lcatterton.com
(http://www.lcatterton.com) ).
BOOK is a small minority investor so has less control over this investment and
the timing of any exit. However, BOOK is co-invested alongside investors that
require and are focused on an exit in the medium term.
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 £7 million. By the end of 2021, group headcount and LTM net fee income
exceeded 220 and £30 million respectively.
Vanilla Electronics - www.vanillaelectronics.com
(http://www.vanillaelectronics.com)
Vanilla was a family business founded in 2002 by father-and-son. It provides
supply chain management solutions to customers, from design, procurement,
kitting and manufacture. By outsourcing this process to a UK business, it can
improve resilience and efficiency, whilst lowering costs, for Vanilla's end
customers.
Vince was looking to retire from Vanilla, while Dan wanted an investor that
could add experience and support in helping to develop his business. To
support the growth of the business following BOOK's investment in June 2020, a
new CFO joined, as well as a new COO and CCO in Q3 2021. In 2021, two
acquisitions were also completed, increasing the group's technical expertise
and broadening its product and service offering to customers.
Since BOOK's investment, sales have approximately doubled, with margins also
significantly improved following greater focus on delivering greater
efficiencies and higher value activities for customers.
Movement in valuation of BOOK's investments
£m 12 months to 31 Dec 2021 12 months to 31 Dec 2020
Opening Investments 76.7 45.8
Direct investments 10.5 18.1
Fund drawdowns 2.7 1.5
Total new investments 13.2 19.6
Proceeds from direct investments (10.8) (6.6)
Proceeds from fund investments (1.0) (0.2)
Cash proceeds received (11.8) (6.8)
Valuation Movement 85.5 18.2
Closing Investments 163.6 76.7
Valuation Movement % (of Opening Portfolio) 111.4% 39.9%
New Investments
We have continued to make new direct investments and grew our portfolio of
companies to 16 by the end of 2021 (up from 13 at the end of 2020). We have
also provided additional funding to existing portfolio companies, where this
has been necessary to fund bolt-on acquisitions or to fund organic growth
initiatives.
In 2021, BOOK invested a total of £13.2 million. £10.5 million of this
amount was invested into BOOK's direct investments, with £8.9 million
invested into three new portfolio companies and the balance of £1.6 million
into the existing portfolio. Within the total amount invested in the year,
£2.7 million was invested to fund drawdowns from third-party private equity
funds. Given we do not expect to receive any further drawdowns from three of
BOOK's four commitments, we expect the amounts drawn by private equity funds
to fall in 2022, despite the new fund commitment earlier in 2021. This fund is
a successor to one that BOOK had previously made a commitment. BOOK's
investment is denominated in Euros and free of all management fees and carried
interest.
In April, we completed one new investment, acquiring a minority stake in
TheVeganKind (TVK), an online retailer of vegan products. Based in Glasgow,
TVK's mission is "to make a vegan lifestyle accessible to all, providing world
class customer service and offering the widest range of products to show how
simple it is to live life vegan". We look forward to supporting the team and
helping them to expand TVK further.
In July, BOOK acquired a majority stake in Oxygen Freejumping, an operator of
trampoline parks, with four sites across the UK. Oxygen is based in Acton and
we have helped to strengthen the existing team, adding three new senior team
members since our investment. Our investment provides the business with fresh
capital to enhance and expand its offering, after a difficult period following
the sector's closure due to Covid-19.
In November, Literacy completed a co-investment acquiring a small minority
stake in Cross Rental Services, a provider of refrigeration & catering and
climate control rental equipment. Literacy is a co-investor alongside Elysian
Capital, a mid-market private equity firm, who led the buyout of the business
in August. Prior to BOOK's investment, Cross also completed the acquisition of
All Seasons Hire from HSS Hire Group plc in September.
BOOK's portfolio companies completed a total of seven bolt-on acquisitions in
2021, across RCI Group, Vanilla Electronics, Hanmere, EPM and Flight
Calibration. These acquisitions are expected to assist the businesses to scale
more quickly, benefiting their customers and adding value to Literacy
Capital's investment.
Realisation Activity
Cash received by Literacy Capital in 2021 increased to £11.8 million, a
material uplift to the £6.8 million received in 2020. This significant
increase was largely generated by the portfolio without selling assets. Fund
distributions rose materially demonstrating the growing maturity of the
2017/18 fund vintages. This is encouraging, as it signifies the portfolio
companies' growth and increasing maturity, plus by avoiding asset sales we
have not reduced BOOK's asset base, which could have reduced the portfolio's
ability to generate gains in the future.
Balance Sheet and Financing
BOOK maintained a cash balance of £5.2 million at the end of 2021 (down from
£9.7 million a year earlier). The cash needs of the Company were managed
carefully and comfortably through the period. Cash proceeds broadly matched
cash outflows for investment in the year, as Literacy Capital retains the
ability to generate cash from its portfolio companies. Whilst it is clearly
essential to retain sufficient liquidity to meet financial obligations and
have the ability to fund new investment opportunities, having a large cash
balance is also not ideal as this would create a drag on returns for
shareholders. Prior to year end the Company closed a £15m Revolving Credit
Facility ("RCF") which remained undrawn at 31.12.2021. The RCF provides BOOK
with additional capital to invest as new, high quality, opportunities arise.
At the end of 2021, the proportion of net assets invested reached 98%. This
has increased over time and compares to 93% on 30 June 2021 and 89% on 31
December 2020.
£m 31 Dec 2021 31 Dec 2020
Investments 163.6 76.7
Cash 5.2 9.7
Donation Provision (2.0) (0.7)
Other working capital (0.6) -
Net assets(1) 166.3 85.6
Undrawn Fund Commitments by Currency Exposure
The table below shows a total of £5.0 million of outstanding obligations to
fund commitments on 31 December 2021, however we do not expect further
drawdowns from three of the four funds to which BOOK has commitments. If we
discount these three funds, the total outstanding commitment would fall to
£3.4 million (all callable in Euros).
Regardless of whether the full £5.0 million is called or not, BOOK can
comfortably fund these drawdowns from existing cash reserves and headroom in
its Revolving Credit Facility.
£m 31 Dec 2021 31 Dec 2020
Sterling £0.3 £0.9
Euro(2) £3.6 £0.7
US Dollar(2) £1.1 £1.9
Total outstanding commitments £5.0 £3.5
(2) Foreign currencies were converted to GBP at the prevailing rates on 31
December 2021
Activity Since the Period End
BOOK received £5.7 million in cash from Grayce in January 2022, following a
refinancing and dividend from this company. Two days later, the Company
reinvested £3.5 million of this to acquire additional equity in RCI from
minority shareholders, to increase BOOK's stake in this business further. Also
in January, the Company made a further investment in TheVeganKind totalling
£1.0m. In February 2022, BOOK also made a further investment in Antler Homes,
amounting to £1.7m.
No new investments or other transactions completed in the period since the end
of 2021.
Outlook
We are very pleased with the progress made by the portfolio in 2021 and the
momentum that they continue to display. We believe that there continue to be
significant opportunities to further improve and add value to these
businesses.
We are most pleased with the strength of the teams within the portfolio
companies that we have been able to assemble. We are grateful for their hard
work, commitment and talent, which has helped to create opportunities and
growth in many of these businesses across the UK. There is always more work to
do but many of these teams are now extremely strong and well-balanced,
positioning these businesses for continued strong performance.
Through our extensive networks, we continue to see a large number of private
businesses that are looking for a partner who can support them in the way that
Literacy Capital can. We expect to complete more direct investments in 2022,
helping more businesses to expand, and their employees to thrive and maximise
their potential.
We are also proud that our charitable donations in 2021 increased so
significantly, expanding the range and size of charitable activities that we
can support. This donation is 0.9% of year-end NAV, so will continue to
increase in line with NAV. We hope that BOOK can make an even more substantial
positive impact on disadvantaged children as it continues to scale.
(1)The NAV currently excludes deferred tax liabilities shown in the Company's
financial statements, on the basis that these amounts are not expected to
become payable in the future should the Company receive approval of its
investment trust status. In the event that the Company does not receive such
status, the deferred tax liabilities will need to be taken into account in
calculating the net asset value per ordinary share going forward.
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 2021, the total provision recognised for donations to charities focussing
on improving literacy was £1,527k, up from £772k in 2020. We expect the
donations that accrued in 2021 will be paid across 2022 and 2023.
Since the creation of Literacy Capital in 2017, more than £3.4m 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
Total charitable donation provision £3,452k
A number of charities focused on supporting children have received donations.
The most significant beneficiary of Literacy Capital's charitable support to
date is Bookmark Reading Charity (www.bookmarkreading.org
(http://www.bookmarkreading.org) ). Bookmark delivers volunteer-led reading
support to primary school children aged 5-9 in communities across the country,
both online and in person. The charity uses technology to increase its social
impact, digitally matching volunteers with children that are at risk of
falling behind with their reading.
By combining their technology with commercial understanding, Bookmark aims to
tackle the UK literacy problem at scale in an efficient and cost-effective
manner. Having launched in 2018, the charity is in a period of significant
growth and Bookmark volunteers are now supporting children in 160 schools
across England. With their scalable model, Bookmark has ambitious plans to
support 25,000 children over the next three years and Literacy Capital is
proud to support their mission.
Another beneficiary is The Children's Book Project
(www.childrensbookproject.co.uk (http://www.childrensbookproject.co.uk) ),
which provides books to children to tackle 'book poverty' and to give children
the opportunity to learn.
Considerable economic and social barriers mean that book ownership is
unachievable for thousands of children across the country. By the age of 11,
children from 'book poor' homes have fallen an average of 12 months behind
their peers in terms of their literacy and languages skills.
The Children's Book Project seeks to address the disparity in book ownership
across the UK. The charity gifts books directly to children from deprived
communities with few or no books of their own and works closely with their
schools and community organisations to put on celebratory book gifting events
that support the widest engagement. These further children's aspirations,
develop literacy skills and help support mental well-being. The organisation
wants all children to see book reading as an activity that they can
participate in and in turn, work towards a future where their outcomes are
dictated by their potential, not their socio-economic background.
The ambition is to create communities of engaged, enthusiastic and ambitious,
young book owners with an equal chance of fulfilling their academic potential
to their peers, married with considerable energy and commitment of staff in
each of the 400+ organisations that CBP supports. With their help and that of
the volunteer base, CBP's ambition is to gift 1.5 million books by 2025.
Other charities to benefit include the following:
· Teach First (www.teachfirst.org.uk (http://www.teachfirst.org.uk) )
which works to improve the chances of children from a disadvantaged background
achieving good grades and maximising their potential;
· The Magic Breakfast (www.magicbreakfast.com
(http://www.magicbreakfast.com) ) which aims to end hunger as a barrier to
education in UK schools through providing healthy breakfasts to children
living with food insecurity.
Why Literacy?
There are currently 7.1 million adults (or 16.4% of the total adult
population) in England that struggle to read and face challenges daily as a
result of this. Every year, it is estimated that 200,000 children leave
primary school not meeting the expected standard in reading(1). Following
school closures as a result of Covid-19, this problem has worsened and
disadvantaged children are the worst affected. It is now being reported that
the pandemic has reversed the past decade's progress to narrow the attainment
gap(2).
The longer-term consequences of this are hugely damaging, for both the child
and for society more widely. For instance:
· one in six children who do not read well by age 7 will drop out of
school, a rate six times higher than proficient readers(3)
· annually, it costs an average of £40,000 to incarcerate one
individual, and approximately 46% of the UK prison population has literacy
skills no higher than those expected from an 11-year-old(4)
· in addition to the financial and social costs of crime and time in
prison, the economic cost of low literacy has been estimated at £36 billion
per year to the UK economy(5)
· poor literacy can lead to limited job prospects, poor health, low
self-esteem, and even reduced life expectancy; and
· adults with poor literacy skills are more likely to be unemployed
and, as a parent, are less likely to be able to support their child's learning
It is well-acknowledged that literacy is fundamental to ensuring inclusive and
equitable education, and promoting lifelong learning. When helping someone to
develop their literacy skills, it can empower them to access better
opportunities and break the cycle of disadvantage.
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.
(1)Department for Education
(2)Education Endowment Foundation
(3)Centre for Education and Youth
(4)National Literacy Trust
(5)World Literacy Foundation
Business model and strategy for achieving objectives
Literacy Capital plc is run by its Board of Directors comprising four
independent non-executive Directors and two non-independent non-executive
Directors. Five of the Directors are male and one is female. The Board is
responsible for the overall stewardship of the Company, including investment
strategy and corporate governance. Biographies and roles of the Directors can
be found under Board of Directors section.
The Directors have a duty to promote success of the Company and to act in the
best interests of shareholders. The Directors believe that the best way to
achieve this is to maintain a strong, open and transparent relationship with
Investment Manager, Literacy Capital Asset Management LLP ("LCAM"). LCAM is a
Full Scope UK AIFM and was appointed the Company's Investment Manager on 1
April 2020. The scope of LCAM's work was agreed with the Company's Directors
prior to its appointment.
LCAM will look to identify compelling opportunities for investments in
under-served parts of the market. It has and will continue to seek to invest
in UK-based businesses, with a core focus on those generating £1m to £5m
EBITDA, representing an area of the market which LCAM's management team have
significant, relevant expertise and where the team feel the greatest returns
for shareholders can be generated. In turn, these gains will help to deliver
meaningful and increasing annual donations to charities.
Principal business risks and uncertainties
The principal risks and uncertainties with the business are as described
below:
Brexit: The impact of Brexit has not had and is not expected to have a
material impact on our investment activity nor the trading activity of the
underlying portfolio companies. The portfolio companies are predominantly
focused on offering their services and products to the UK market. Mitigation:
Where companies have had any short-term uncertainty, they have focused on
managing cash effectively in order to maintain a strong position in their
respective markets over the long-term.
Covid-19 Coronavirus: Since the start of the pandemic, Covid-19 has adversely
impacted global commercial activities. While Literacy Capital plc was
fortunate not to have been adversely affected financially, it clearly had an
impact on operations and working arrangements. Our portfolio companies, given
their diverse operations, have also been impacted in different ways. Having
navigated 2020 well, and being securely positioned going into 2021, the
portfolio as a whole performed well throughout the year. Mitigation: The
Directors continue to monitor developments relating to Covid-19 but do not
believe there is any financial impact to the Financial Statements as at 31
December 2021 as a result of this event.
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 risk: 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 £15m
committed revolving credit facility, which was undrawn at year end.
Economic risk: 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 invest 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 risk: It is expected that Literacy Capital plc will be approved as a UK
resident investment trust in 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. At the end of 2021, it is estimated that
approximately 78% of the portfolio's investments by value would be exempt from
tax regardless of maintaining investment trust status.
Climate Change: We have assessed climate-related risks but have determined
that climate change is a low risk in the short term. We are aware that the
Government may take action to reduce carbon emissions through the introduction
of further taxes, but the Company is sufficiently solvent to meet these if
introduced. Changes in weather conditions are unlikely to affect the Company.
The Investment Manager and the majority of the portfolio companies have
demonstrated that they can operate despite severe disruption and in
alternative locations, as demonstrated by Covid-19 and the associated
lockdowns. As an externally managed investment company with no employees, the
Company does not have any greenhouse emissions to report from its operations
and therefore is expected to have little climate-related impact on the
environment.
Key performance indicators
Literacy Capital plc takes a long-term view on its investments and the Board
assesses its performance against the following Key Performance Indicators:
· Share price and net asset value per share against the FTSE Investment
Company Index and FTSE All-Share Index, details of which are shown under
Performance Highlights.
· The portfolio return of the period, details of which are shown under
Performance Highlights.
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 continuing Covid-19 pandemic.
On 31 December 2021 Literacy Capital plc had cash reserves of £5.2 million
(2020: £9.7 million), as well as access to a £15 million revolving credit
facility ("RCF"), committed by Investec Bank plc until the end of 2024. The
total cash available to the Company is far in excess of its operating costs
for the foreseeable future (including both its charitable donations and any
Investment Management fees), plus any commitments to the portfolio or fund
commitments. The provision relating to outstanding donations to be paid is
£2.0 million.
The only material obligations that BOOK has relate to undrawn amounts to its
four fund commitments, amounting to £5.0m. However, £1.6 million of this
amount, relates to three funds whose investment periods have expired or where
their managers have since raised successor funds. As a result, BOOK has just
one fund commitment where further drawdowns are expected. This fund is highly
unlikely to draw 100% of BOOK's committed amount and is expected to draw
capital once per year in December, giving BOOK good visibility over the timing
and quantum of future capital calls. Several of BOOK's portfolio companies are
highly profitable and cash generative, so it has the ability to generate
further cash from the portfolio to build its cash reserves in due course if
this is required by the Company.
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 that 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.
Viability Statement
In accordance with the Companies Act 2006, the Board has considered the
viability of Literacy Capital plc over a greater period than the 12 months
required by the 'going concern' basis of accounting.
The Board considers the Company, as a permanent capital vehicle, to be a long
term investment company but, for the purposes of this viability statement, has
decided that a period of five years is an appropriate period over which to
report. The Board considers this a period where it can reasonably assess the
Company's prospects, without the additional uncertainties of looking out
further into the future.
The Board has carried out a thorough assessment of the Principal Business
Risks and Uncertainties facing the Company, noted above in the Strategic
Report, including those that would threaten its business model and future
performance.
Based on the results of the assessment, the Directors expect that the company
will be able to continue its operations and meet its financial liabilities
over a five year period from the date of signing of these accounts.
Environmental, Human Rights, Employee, Social and Community Issues
The Board recognises its requirement under the Companies Act 2006 to detail
information surrounding environmental, human rights, employee, social and
community matters, including the Company's policies and their effectiveness.
However, as Literacy Capital plc has no employees and all of its functions are
delegated to third-party services providers, these requirements do not apply
to the Company and so the Company has not reported further in respect of this
requirement, or in regards to the Modern Slavery Act 2015.
Section 172 and stakeholder reporting
Under section 172 of the Companies Act 2006 (the "CA 2006"), the Directors
have a duty to promote the success of the company for the benefit of
Shareholders as a whole. In doing so, the Directors have regard to matters set
out in section 172(1) of the CA 2006 as follows:
How the Board of Directors and Investment Manager have engaged with the
Stakeholder
Stakeholder Benefits of Engagement with Stakeholders
Investors Communicating regularly and clearly on the Company's performance can help to The Board places a high degree of importance on engagement with existing and
keep the share price premium or discount narrow, which is a benefit to potential shareholders and treating all individuals fairly. The Company
shareholders. produces a quarterly factsheet swiftly to provide relevant information on a
timely basis. The emphasis is on publishing net asset value performance and
portfolio updates. Information is made public simultaneously for all readers
via the company's website and RNS announcements. The Investment Manager has a
share dealing policy in place to prevent insiders trading on information.
The Company has provisions to assess fairness of director salaries to avoid
the directors favouring themselves at the expense of external shareholders.
Following a review of the impact on investors, it is the intention of the
Company to apply for Investment Trust status in 2022. One benefit of gaining
the status is that it allows the Company to obtain an exemption from paying
tax on its capital profits, therefore reducing the Company's expenses, which
is an advantage for investors.
Service Providers The Company has engaged with several service providers to fulfil operational The Investment Manager is in regular correspondence with the Company's third
or financial reporting matters. The Investment Manager ensures that work is party service providers and will periodically discuss business development
completed in line with agreements to ensure that the Company's ongoing updates or working efficiencies.
obligations are met.
The Company's Management Engagement Committee reviews the work, actions and
judgements of the Investment Manager at least annually. The Board considers
the Investment Manager to be the Company's most important service provider.
Portfolio Companies By gaining a better understanding of the performance of the portfolio The Investment Manager engages regularly with the portfolio companies and,
companies and the factors that may increase performance, areas where the typically on a monthly basis, receives detailed management accounts and board
Investment Manager can assist are easily identified, as well as helping to packs, which the Company's Board reviews once per quarter. There have been
identify and mitigate potential risks to the businesses. several instances where the Investment Manager has identified skills gaps
within senior management teams of portfolio companies and has assisted in
finding suitable individuals fill the roles.
Literacy Charities The Company is committed to donating 0.9% of its net assets at year end to Applications for funding can be made through the Company's website, which are
literacy charities in the UK (see Charitable Mission section). By supporting then reviewed by the Investment Manager. Prior to any donations being made,
the charities and working alongside them, the Company can ensure that the KPIs are typically agreed with the charity, which are then reviewed by the
donations are being used as efficiently as possible. Investment Manager on an ongoing basis.
The Strategic Report has been approved by the Board and signed on its behalf
by
Paul Pindar
Chairman
On behalf of the Board of Directors
11 March 2022
Board of Directors
Paul Pindar
Non-executive Chairman of Literacy Capital plc and Chairman of Literacy
Capital Asset Management LLP
Paul formerly served as CEO of Capita, which he co-founded in 1987 and grew
from 33 people to 62,000 by his retirement in February 2014. Then, it had an
enterprise value of £8.5 billion and was the 52(nd) most valuable listed UK
company. He is also a founder investor and non-executive Chairman of
Purplebricks, the UK's largest online estate agency. Within three years, the
business started trading, expanded internationally and completed an IPO on
AIM. Paul has served as Chairman of four other VC and PE-backed businesses
since 2014.
Paul is a member of the Company's Audit Committee. As Chairman of the
Investment Manager, Literacy Capital Asset Management LLP, Paul's role is
focused on the Company and assisting its portfolio companies maximise their
potential, whilst also assessing new investment opportunities. Paul is not
deemed to be an independent director.
Richard Pindar
Non-executive Director of Literacy Capital plc and CEO of Literacy Capital
Asset Management LLP
Richard is ACA qualified with the ICAEW and has a background in investing,
private equity and acting as a consultant to private equity owned businesses.
He previously worked at Lonsdale Capital Partners, a lower midmarket private
equity firm, and started his career in Transaction Services and M&A
Corporate Finance at KPMG.
Richard is a member of the Company's Audit Committee. As CEO of the Investment
Manager, Literacy Capital Asset Management LLP, Richard's role is focused on
the Company and assisting its portfolio companies maximise their potential,
whilst also assessing new investment opportunities. Richard is not deemed to
be an independent director.
Simon Downing
Independent Non-Executive Director of Literacy Capital plc
Simon is the founder and Executive Chairman of Civica, which he created in
2000 with backing from Alchemy Partners. Since then, the business has grown to
over 5,000 employees and operates in ten countries. It is one of the largest
specialist software companies in Europe and is valued at more than £1 billion
following its most recent private equity transaction led by Partners Group. He
has been Chairman of four other private IT services businesses in the past six
years and is current Chairman of Audiotonix Limited and Senior Non-Executive
Director at Purplebricks Group plc. He was previously a Senior Adviser to
OMERS Private Equity, which has more than $12 billion of private equity assets
under management.
Simon is the Chair of the Company's Management Engagement Committee and is a
member of the Audit Committee.
Kevin Dady
Independent Non-Executive Director of Literacy Capital plc
Kevin was formerly CEO and is currently Executive Chairman of IRIS, a large
software business majority owned by HgCapital, since December 2015. IRIS has
grown significantly during his tenure and he recently took it through a £1.3
billion private equity buyout. He was formerly Managing Director of the
Professional Services division of Capita where, in nine years, he grew EBITDA
from £50 million to £150 million.
Kevin is a member of the Company's Management Engagement Committee and the
Audit Committee.
Christopher Sellers
Independent Non-Executive Director of Literacy Capital plc
Chris is currently Group CEO of RCI Health Group and Chairman of Grayce which
are both Literacy Capital plc portfolio companies. He formerly spent 12 years
at Capita plc before leaving in January 2018 which included being a member of
the Group Board as Head of Business Development as well as six years as
Executive Sales Director. Prior to joining Capita he spent 14 years as a
consultant, Business Development Director and Managing Director, having
originally trained as an engineer with Shell.
Chris is a member of the Company's Management Engagement Committee and Audit
Committee.
Rachel Murphy
Independent Non-Executive Director of Literacy Capital plc
Rachel is the founding Director of RJM Consulting, which works with public and
private companies, providing consultancy services, corporate finance advice
and coaching to board level executives. Previously, she was a member of the
investment team at the private equity firm Alchemy Partners for six years. She
has also been a non-executive of several private equity owned businesses and
held finance roles at Diageo and Shell.
Rachel is the Chair of the Company's Audit Committee and is a member of the
Management Engagement Committee.
Corporate Governance
Introduction from the Chairman
I am pleased to introduce this year's Corporate Governance Statement. In this
statement the Company reports on its compliance with the AIC's Code of
Corporate Governance (the "AIC Code") and sets out how the Board has operated
during the past year. The Board of Directors is accountable to shareholders
for the governance of Literacy Capital plc and is committed to maintaining the
highest standard of corporate governance for the long-term success of the
Company.
Compliance with the AIC's Code of Corporate Governance
The Board has considered the Principles and Provisions of the AIC's Code of
Corporate Governance. The AIC Code adapts the Principles set out in the UK
Corporate Governance Code issued by the Financial Reporting Council (the ''UK
Code'') to make them more relevant for investment companies, as well as
setting out additional principles and recommendations which are better
tailored to investment companies.
The Board of Directors considers that reporting against the AIC Code provides
more suitable information to shareholders than if it had adopted the UK Code.
A copy of the AIC Code can be obtained from the AIC's website
(www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the
principles and provisions set out in the UK Code to make them relevant for
investment companies. It is also worth noting that as the Company is listed on
the Specialist Fund Segment it does not have the same corporate governance
requirements as companies with a premium listing.
The Company complied throughout the year, and continues to comply with the
Principles and Provisions of the AIC Code, except as set out below;
· Provisions 11 and 12: The Board does not consider it necessary for
the Chair to be independent. The Chair has significant relevant experience to
carry out the role, and as the largest shareholder of the Company, is aligned
with the Board and shareholders as a whole to act in the best interests of the
Company. The Management Engagement Committee, comprised of the four
independent Directors, has been established to review the performance of the
Company's Investment Manager and will continue to take into account the
Chair's non-independence.
· Provision 14: Due to the size of the Company and its Board, it is not
considered necessary for a senior independent Director to be appointed, as it
operates in union. If a shareholder expresses dissatisfaction with the Chair's
behaviour or performance, the independent non-executive Directors will meet
without the Chair present.
· Provision 22 and 28: The Board has not established a separate
Nomination Committee due to the size of the Company. All Directors are
involved in the appointment of new members save for when the appointment of a
new Chair is discussed, where the existing Chair would not be involved.
· Provision 24: The Board has chosen not to adopt a policy on tenure of
the Chair. The Board recognises the value of refreshing its membership
regularly but prefers to retain flexibility to assess the balance of skill and
experience of the Board as a whole. Given that the Chair was one of the
founders of the Company, his significant shareholding and his contribution to
adding value to its portfolio, it is not considered appropriate by the Board
to limit his tenure. The Directors believe that this policy is in line with
their responsibility to act in the interests of protecting and creating
long-term shareholder value, as well as corporate governance guidelines
applicable to companies listed on the Specialist Fund Segment.
· Provision 26 and 27: Given the experience of the Directors as a
collective, combined with the minimal complexity of the Company's business,
size and recent listing, a regular internal and external evaluation of the
Board's performance is not considered necessary at this time. There has been
no internal or external evaluation of the Board to date.
· Provision 29: The Audit Committee is not fully independent as the two
Non-Independent Directors also sit on the Committee, which the Company
considers appropriate given the size and nature of the business, as well as
their knowledge of the Company.
The Board
The Board's principal task is to maintain effective stewardship of the
Company's affairs and be collectively responsible for the long-term success of
the Company, generating continued value for shareholders.
The Company has four scheduled Board meetings a year with additional meetings
arranged as necessary. For each meeting, the Directors follow a formal agenda
circulated by the Company Secretary in advance. In addition, the Investment
Manager provides financial information and other relevant information, and the
Company's depositary, INDOS Financial, provides its quarterly report.
At each of the four scheduled Board meetings, members of the Investment
Manager are in attendance to present the financial information and other
reports relating to both the Company and the portfolio, to the Directors, as
well as to address any queries.
The Board and the Investment Manager operate in a supportive and open
environment, and ad hoc communication between the two parties is maintained
between meetings.
The following table sets out how many of the four scheduled 2021 board
meetings the Directors attended;
Director Scheduled meetings attended
Paul Pindar 4
Richard Pindar(1) 4
Simon Downing 4
Kevin Dady 4
Christopher Sellers 4
Rachel Murphy(1) 3
( )
(1) Richard Pindar and Rachel Murphy were appointed Directors in March and
April 2021 respectively, after the first scheduled board meeting had taken
place. Richard attended the first board meeting in 2021 in his capacity as CEO
of the Investment Manager, prior to being re-appointed as a Director. Richard
was previously a Director from September 2017 to March 2020.
Internal control and risk management
The Company's internal control systems ensure that accurate and reliable
financial reporting is produced and maintained. Key controls include clearly
defined lines of accountability and delegation of authority, as well as
policies and procedures that cover financial reporting.
A risk matrix has been produced containing the risks identified and the
controls in place to monitor them. The risks are assessed on the likelihood of
them happening, the impact on the business if they were to occur and the
effectiveness of controls in place. The principal risks that have been
identified are set out on the Principal business risks and uncertainties
section.
The Board reviews financial information produced by the Investment Manager on
at least a quarterly basis. Some functions are delegated to third parties, but
the Investment Manager and Directors receive assurances from the suppliers
regarding their internal controls and systems.
Board Committees
Audit Committee: Please see below this for the Report of the Audit Committee.
Management Engagement Committee: Comprised of the four independent Directors
and chaired by Simon Downing, the Committee meets at least one a year for the
purpose of reviewing the actions and judgements of the Investment Manager, as
well as monitoring and reviewing the performance of the Company's other
services providers. The Committee will also consider annually if any changes
are needed to the Investment Management Agreement.
Remuneration Committee: As all Directors are non-executive, and owing to the
relatively small size of Literacy Capital plc, the Company does not have a
Remuneration Committee. Please see the Directors' Remuneration Report.
Nominations Committee: Due to the size of the Company, the Directors deemed it
not necessary to form a separate Nominations Committee. All Directors are
involved in the appointment new members to the Board. When making an
appointment, the Board considers the existing composition of the Board to
determine areas which require strengthening.
Conflicts of Interest
It is the responsibility of each individual Director to avoid a conflict of
interest situation arising. Any conflicts arising must be reported to the
Board and are then considered by the other Directors, and if necessary,
approved or not approved. A conflicted Director is not allowed to take part in
any relevant discussions or decisions and is not counted when determining
whether a meeting is quorate.
Paul Pindar and Richard Pindar are both Directors of Literacy Capital plc, as
well as being Designated Members of the Investment Manager, which can lead to
conflicts of interest. However, given their significant shareholdings in the
Company, it is not expected that any material or real conflict of interest
shall arise, as their priority and financial incentivise shall remain to
preserve and create value for the Company's shareholders. If any changes are
required to the Investment Management Agreement with the Investment Manager,
these will be voted on by the Independent Directors of the Company only.
Company Secretary
Literacy Capital Asset Management LLP, as Company Secretary, is responsible
for ensuring that Board and Committee procedures are followed, that applicable
regulations are complied with and any relevant filings are made.
Report of the Audit Committee
Audit Committee
The Audit Committee is comprised of all Directors, with Rachel Murphy acting
as Chair. The experience and biographies of the Directors is set out under the
Board of Directors section. The Committee operates within written terms of
reference which clearly set out its authority and duty.
The principal roles and responsibilities of the Audit Committee are as
follows;
· to monitor in discussion with the auditors the integrity of the
financial statements of the company, and any formal announcements relating to
the company's financial performance, reviewing significant financial reporting
judgements contained in them;
· to review the company's internal financial controls and, unless
expressly addressed by a separate board risk committee composed of independent
Directors, or by the board itself, to review the company's internal control
and risk management systems;
· to consider annually whether there is a need for an internal audit
function and make a recommendation to the board;
· to make recommendations to the board, for it to put to the
shareholders for their approval in general meeting, in relation to the
appointment, re-appointment and removal of the external auditor and to approve
the remuneration and terms of engagement of the external auditor;
· to review and monitor the external auditor's independence and
objectivity and the effectiveness of the audit process, taking into
consideration relevant UK professional and regulatory requirements;
· to develop and implement policy on the engagement of the external
auditor to supply non-audit services, taking into account relevant ethical
guidance regarding the provision of non-audit services by the external audit
firm; and to report to the board, identifying any matters in respect of which
it considers that action or improvement is needed and making recommendations
as to the steps to be taken;
· to review arrangements by which Directors of the company or its key
service providers may, in confidence, raise concerns about possible
improprieties in matters of financial reporting or other matters and ensure
that arrangements are in place for the proportionate and independent
investigation to such matters with appropriate follow-up action.
The Committee meets at least twice each year, to review drafts of the Annual
and Interim Reports and Financial Statements. Only members of the Committee
have the right to attend Committee meetings. However, representatives from the
Independent Auditor, Investment Manager and Administrator may be invited to
attend all or any part of any meeting as and when appropriate and necessary.
In addition, the Chair meets with the Independent Auditor twice a year, during
the planning stage of the audit as well as during the completion phase.
Audit
The Audit Committee is responsible for overseeing the relationship with the
external Auditor, including approval of their terms of engagement, assessing
their independence and objectivity and overall effectiveness of the audit
process.
Mazars LLP has been the Company's Auditor since 2019. The Audit Committee
reviews their performance annually by considering a range of factors,
including quality of work and independence. The Audit Engagement Partner
rotates every five years in accordance with ethical guidelines and 2021 is the
third year for the current partner. The Board has responsibility for agreeing
the audit fees with the Auditor.
No significant issues were reported by the Audit Committee in the year.
Risk Management and Internal Controls
The Board is responsible for the Company's risk management and internal
controls. The Audit Committee has considered the need for an internal audit
function, but due to the size and complexity of the Company, does not deem
this necessary at present.
The Company engages a wide range of third-party service providers. The
Management Engagement Committee monitors the performance of all key service
providers, including giving consideration to their internal controls. No
significant control issues have been identified by the Company.
Voting Rights
All ordinary shares have the same voting rights, preferences and no
restrictions on the distribution of dividends and the repayment of capital.
Further information is set out in the Share Capital section within the
Directors' Report.
Directors' Remuneration Report
As the majority of Directors are non-executive, the Company does not have a
Remuneration Committee. The determination of the Directors' fees is dealt with
by the whole Board.
Directors' Remuneration and Interests
The four Independent Directors all receive fixed salaries. As Paul Pindar and
Richard Pindar are both non-independent Directors of the Company and Members
of the Investment Manager, it has been agreed that neither will receive any
remuneration from the Company.
The remuneration paid to the Directors during the year to 31 December 2021,
along with each of their shareholdings in the Company at 31 December 2021, is
set out in the table below:
Gross Salary Gross Salary Company Pension Contributions Ordinary Shares held in the Company at 31 December 2021 Ordinary Shares held in the Company at 10 March 2022
(1 January - (1 July -
Director 30 June 2021) 31 December 2021)
Paul Pindar & spouse - - - 17,000,000 17,000,000
Richard Pindar - - - 6,425,000 6,425,000
Simon Downing £5,000 £12,000 - 3,250,000 3,250,000
Kevin Dady £5,000 £12,000 - 688,679 688,679
Christopher Sellers £5,000 £12,000 - 235,000 310,000
Rachel Murphy £6,000 £12,000 £267 62,500 62,500
The remuneration paid to the Directors during the prior year to 31 December
2020, along with each of their shareholdings in the Company at 31 December
2020, is set out in the table below:
Director Gross Salary (1 January - 31 December 2020) Company Pension Contributions Ordinary Shares held in the Company
Paul Pindar & spouse - - 14,437,500
Richard Pindar £31,250(1) - 3,587,500
Simon Downing £10,000 - 3,000,000
Kevin Dady £10,000 - 438,679
Christopher Sellers £10,000 - 100,000
(1)This salary represents Richard's Pindar remuneration as an employee of the
Company from 1 January 2020 to 31 March 2020. On 1 April 2020 the management
of the Company was assigned to Literacy Capital Asset Management LLP, at which
point Richard ceased to be an employee of the Company.
Simon Downing, Kevin Dady and Christopher Sellers were all appointed as
Directors prior to 1 January 2021. Richard Pindar and Rachel Murphy were
appointed on 19 March 2021 and 1 April 2021 respectively.
The salaries of the non-executive Directors increased from 1 July 2021,
following the listing of Literacy Capital plc, from £10,000 to £24,000 per
annum. Rachel Murphy was appointed on 1 April but her salary was £24,000 from
her date of appointment, meaning the four non-executive Directors were paid
different amounts in Q1 2021, prior to the successful introduction of Literacy
Capital plc to the Specialist Fund Segment.
From 1 July 2021, Simon Downing, Kevin Dady, Christopher Sellers and Rachel
Murphy's remuneration was the same as one another and their remuneration will
be unchanged in 2022.
Directors' Remuneration Policy
The Board's policy (which will be put to shareholders for approval at the
Company's annual general meeting) is that fees should be sufficient to attract
and retain Directors capable of managing the Company and enhancing shareholder
value. Remuneration is benchmarked in line with market practice and takes into
account the experience of the Directors as well as the time required to
undertake the role. It is not the Company's policy to include an element of
performance related pay; all fees are paid in cash rather than any other
instrument. The Board has reviewed the policy for the year ahead and has
concluded that key features of the policy remain appropriate.
Non-Executive Directors may accept appointments as Directors of other
companies and retain any fees paid to them, although the Directors are
required to notify the Company where any conflicts arise.
Independent Non-Executive Directors do not have service contracts but on being
appointed are provided with a letter of appointment containing a notice period
of three months which the Board considers appropriate based on the size and
nature of the Company.
There were no Non-Executive Directors who left the Company during the year
ended 31.12.2021 and therefore no payments in respect of compensation for the
loss of office were paid or payable to any Director (2020: Nil). Any loss of
office payment will be approved by the Board. Any payment will be made on a
discretionary and case-by-case basis. Any payments made beyond contractual and
statutory obligations would be exceptional in nature due to additional
obligations taken on by the departing Non-Executive Director and always
benchmarked against market practice.
Annual Report on Remuneration
Following a review of the level of Director's fees for the forthcoming year
the Board concluded that the amount should remain unchanged at £24,000 for
each of the Non-Executive Directors. The Directors' remuneration will be
reviewed by the Board on an annual basis.
Company Performance
The graph below compares the Company's share price return since Admission to
the London Stock Exchange on 25 June 2021, compared to the total shareholder
return on a notional investment in the FTSE All-Share Closed End Investment
Index. This index represents a comparable broad equity market index and is the
Company's comparator, as explained within the 'Performance Comparison'
section. An explanation of the performance of the Company for the year ended
31 December 2021 is given in the Chairman's Statement and Investment Manager's
Report.
Investor Relations
The Company's Annual Report and Financial Statements as well as the Interim
Report and Financial Statements contain a detailed review of Literacy Capital
plc's performance and changes to the portfolio.
The quarterly factsheets, published typically on the final Thursday of
January, April, July and October, contain updated information in a more
summarised form, are available on the Company's website
(www.literacycapital.com (http://www.literacycapital.com) ).
The Company's Directors are available to speak with shareholders. They can be
contacted via the registered office of the Company (see Corporate Information
section).
Directors' Report
Status of the company
Literacy Capital plc is an investment company as defined by section 833 of the
Companies Act 2006 and is registered and domiciled in England (number
10976145).
Reporting Period
This Annual Report has been prepared for the year to 31 December 2021.
Results and Dividends
Profit for the year, after taxation, amounted to £78.9m (2020: £16.7m). No
dividend is recommended to be paid in respect of the year ended 31 December
2021. During the year, the total donation expenses incurred for charitable
causes amounted to £1,526,943 (2020: £771,740). Additional funds have been
set aside in the year for donation, as described below within the 'Charitable
causes' section.
Dividend Policy
The Directors intend to manage the Company's affairs to achieve Shareholder
returns through capital growth rather than income. Therefore, it should not be
expected that the Company will pay dividends to Shareholders in the ordinary
course, although the Company retains the right to pay dividends at the
discretion of Directors.
If the Company obtains Investment Trust status as planned in 2022, it will be
required to distribute 85% of its net income annually, which may lead to
dividends being paid in future periods.
Corporate Governance
The Corporate Governance Report, forms part of the Director's Report.
Stakeholder Engagement
Under Section 172 of the Companies Act 2006, Directors are required to act in
good faith and in a way most likely to promote the success of the Company. The
Company's key stakeholder groups, and how the Company engages with them is set
out within the Strategic report.
Streamlined Energy and Carbon Reporting
As an externally managed investment company with no employees, which seeks to
invest in UK-based businesses the Company does not have any greenhouse
emissions to report from its operations nor does it have the responsibility
for any other emission producing sources under the Companies Act 2006
(Strategic Report and Directors' Report) Regulations 2013, including those
within the Company's underlying investment portfolio. As the Company did not
consumer more than 40,000 kWh of energy during the past year, it qualifies as
a low energy user and is exempt from reporting under the Streamlined Energy
and Carbon Reporting regulations.
Diversity and Inclusion
The Company recognises the benefits that diversity can bring to the Board, and
places great importance on ensuring that Board membership reflects this. The
Board believes that a range of experience, age, background and skills helps to
create an environment of effective and successful decision making.
The Company does not employ any staff and so has therefore deemed that a
diversity policy is not necessary.
Investment Manager
Literacy Capital Asset Management LLP ("LCAM" or the "Investment Manager") is
the manager of the Company. LCAM is authorised as an Alternative Investment
Fund Manager and is regulated by the Financial Conduct Authority. The
Investment Manager provides Investment management, company secretarial and
general administrative services to the Company under a management agreement.
The management fee charged for the year was 0.9% of the Company's net assets
at year end. Further information around cost disclosures can be found in the
Company's Key Information Document on the 'Reports and Results' section of the
Company's website.
The Management Engagement Committee meets to review the activities and
performance of the Investment Manager on at least an annual basis. The Board
reviews the Company's investment record over the short and long-term periods,
taking into account factors including the Net Asset Value per share and the
share price. The Board also considers the performance of the manager in
carrying out its company secretarial and general administrative functions.
Based on this review of the Manager's performance and noting also the distinct
and differentiated investment approach of the Manager, the Management
Engagement Committee has concluded that the continuing appointment of the
investment manager on the terms agreed is in the interests of its shareholders
as a whole.
Charitable Causes
Literacy Capital plc has a unique charitable mission. More than one in four
children in England leave primary school unable to read well, which results in
adverse, long-term consequences for the child and society. The Company aims to
assist in the education of children in the UK, in particular by promoting and
supporting the development of literacy.
The Company makes and will continue to make an annual donation equating to 0.9
per cent of the Company's Net Asset Value at year end to charities, thereby
providing consistent, long-term charitable donations. The amount reserved for
donation for the year ending 31.12.2021 is £1.53m. The Company has donated or
reserved for donation more than £3.4m as at the end of 2021.
The Directors believe that the commercial knowledge and experience the
Investment Manager has in backing small companies and supporting their growth,
enables the Company and the charities it supports to make a significant social
impact in an efficient and cost-effective way.
Share Capital
At 31 December 2021, 60,000,000 ordinary shares of £0.001 each were in issue
and fully paid. All ordinary shares have the same voting rights, preferences
and no restrictions on the distribution of dividends and the repayment of
capital.
49,950,000 deferred shares amounting to £49,950 were outstanding at 31
December 2021. All deferred shares have no voting rights, and are not entitled
to the distribution of dividends and the repayment of capital.
The rights attached to the shares are set out in the Articles of the Company.
There are no restrictions on the transfer of ordinary shares or special
controls rights in relation to the Company's shares. The Company is not aware
of any agreements between holders of securities that may result in
restrictions on the transfer of securities or on voting rights.
In accordance with the Market Abuse Regulation, Directors and Members of the
Investment Manager are required to seek approval before dealing in the
Company's shares.
Warrants to subscribe for ordinary shares in Literacy Capital plc have been
issued to certain Members of the Investment Manager. Paul Pindar and Richard
Pindar, the only individuals to be both Directors of the Company and Members
of the Investment Manager, have not been and will not be allocated any
Warrants.
The Warrants are designed to provide long-term incentivisation for Members of
the Investment Manager. The terms of the Warrants state that they give right
to be exercised into Ordinary Shares in a time period between the third and
tenth anniversaries of their respective issue date.
As at 31.12.2021, 302,500 warrants were in issue, which will all vest at
certain points in 2024. 250,000 were issued with an exercise price of 160p,
with the remaining 52,500 issued with an exercise price of 286p.
Subsequent Events
BOOK received £5.7 million in cash from Grayce in January 2022, following a
refinancing and dividend from this company. Two days later, the Company
reinvested £3.5 million of this to acquire additional equity in RCI from
minority shareholders, to increase BOOK's stake in this business further. Also
in January, the Company made a further investment in TheVeganKind totalling
£1.0m. In February 2022, BOOK also made a further investment in Antler Homes,
amounting to £1.7m.
No new investments or other transactions completed in the period since the end
of 2021.
Composition of the Board
The Board currently comprises four independent non-executive Directors, and
two non-independent, non-executive Directors. Paul Pindar is Chair of the
Board, Rachel Murphy is Chair of the Audit Committee and Simon Downing is
Chair of the Management Engagement Committee. Five of the Directors are male
and one is female. The Company holds a Directors and Officers indemnity
insurance policy for the benefit of all Directors.
Disclosure of Information to Auditors
Each of the persons who are Directors at the time when this Directors' report
is approved has confirmed that: so far as the Director is aware, there is no
relevant audit information of which the Company's auditors are unaware, and
the Directors have taken all the steps that ought to have been taken as a
Director in order to be aware of any relevant audit information and to
establish that the company's auditors are aware of that information.
Information Disclosed in the Strategic Report
In accordance with section 414C(11) the Company has chosen to set out in the
Company's strategic report information required to be contained in the
Directors' report in relation to risk management and future developments of
the Company. This information is set out within the Strategic Report.
Related Party Transactions
Details in respect of the Company's related party transactions during the
period are included in note 22 to the financial statements.
This report was approved by the Board and signed on its behalf by:
Paul Pindar
Chairman
On behalf of the Board of Directors
11 March 2022
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the financial
statements in accordance with UK-adopted international accounting standards.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the company for that
period. In preparing the financial statements, the Directors are required to:
· Select suitable accounting policies and then apply them consistently;
· Make judgements and estimates that are reasonable and prudent;
· State whether they have been prepared in accordance with
International Accounting Standards in conformity with the requirements of the
Companies Act 2006, subject to any material departures disclosed and explained
in the financial statements;
· Assess the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
· Use the going concern basis of accounting unless they either intend
to liquidate the company or to cease operations or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the company's transactions and disclose with
reasonable accuracy at any time the financial position of the company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Paul Pindar
Chairman
On behalf of the Board of Directors
11 March 2022
Independent Auditors Report to the Members of Literacy Capital plc
Opinion
We have audited the financial statements of Literacy Capital plc (the
'company') for the year ended 31 December 2021 which comprise the Statement of
comprehensive income, the Statement of financial position, the Statement of
changes in equity, the Statement of cash flows, and notes to the financial
statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation
is applicable law and UK-adopted international accounting standards and as
applied in accordance with the provisions of the Companies Act 2006.
In our opinion, the financial statements:
· give a true and fair view of the state of the company's affairs as at
31 December 2021 and of the company's profit for the year then ended;
· have been properly prepared in accordance with UK-adopted international
accounting standards; and
· have been prepared in accordance with the requirements of the Companies
Act 2006.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the "Auditor's responsibilities for the
audit of the financial statements" section of our report. We are independent
of the company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the FRC's
Ethical Standard as applied to listed entities and public interest entities
and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions Relating to Going Concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our audit procedures to evaluate the directors' assessment of the company's
ability to continue to adopt the going concern basis of accounting included
but were not limited to:
· Undertaking an initial assessment at the planning stage of the audit to
identify events or conditions that may cast significant doubt on the company's
ability to continue as a going concern;
· Making enquiries of the directors to understand the period of
assessment considered by them, the assumptions they considered and the
implication of those when assessing the company's future financial
performance;
· Challenging the appropriateness of the directors' key assumptions in
their cash flow forecasts, as described, by reviewing supporting and
contradictory evidence in relation to these key assumptions;
· Evaluating the appropriateness of the directors' disclosures in the
financial statements on going concern.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
We summarise below the key audit matter in forming our opinion above, together
with an overview of the principal audit procedures performed to address this
matter and our key observations arising from those procedures.
This matter, together with our findings, were communicated to those charged
with governance through our Audit Completion Report.
Key Audit Matter How our scope addressed this matter
Valuation of the investments portfolio Our audit procedures included, but were not limited to:
Please refer to note 5.1 "Critical judgements in applying the Company's · Understanding and evaluating management's process and controls around
accounting policies" and note 12 "Financial instruments" in the financial investment recording and valuation ;
statements for details of critical judgements and estimates in valuation of
the investments. Also refer to the accounting policy for the valuation of · We engaged our internal valuation experts to perform below
investments described in note 3.4 ("Measurement"). procedures:
The company has a significant portfolio of investments totalling £163.6m as o considering whether the techniques and methodologies applied for valuing
of 31 December 2021. These are measured at fair value, which is determined in investments were in accordance with published guidance, principally the
accordance with IFRS 13, Fair Value Measurement and the International Private requirements of IFRS 13, Fair Value Measurement and the International Private
Equity and Venture Capital Valuation Guidelines by using measurements of value Equity and Venture Capital Valuation Guidelines. This included reviewing and
such as price of recent transactions subsequently calibrated, earnings challenging the principles and assumptions used in the valuation of
multiples and net assets. Therefore, the valuation methodologies incorporate a investments under each methodology;
significant level of judgement to ascertain fair value under each method.
o For investments valued on an earnings multiples basis performing a review
There is therefore a risk that inappropriate judgements made under each of the EBITDA multiples used and assess whether the multiples applied by
methodology may lead to a material misstatement of the investment values. management are within a reasonable range of fair value in comparison to market
transactions;
We therefore identified valuation of investments as a key audit matter as it
had a significant effect on our overall audit strategy and allocation of o For investments valued using the recent transaction method, obtaining an
resources. understanding of the circumstances surrounding the transaction and whether it
was considered to be carried out on an arms-length basis and therefore
suitable as an input to the valuation; and
o For fund investments valued by third party fund managers considering the
appropriateness of the methodology used and confirmed net asset value to third
party confirmations.
· For all investments we obtained direct confirmations from investee
companies and third party fund managers, as appropriate, and verified the
accuracy and completeness of source data used in management's valuation
calculations and reviewed the valuation model for mathematical accuracy.
· We reviewed subsequent events for any information that could impact
the valuations as at the year-end
· We have reviewed the reasonableness of disclosures of investments in
accordance with relevant accounting standards, including considerations of the
potential effect of changing one or more inputs to reasonably possible
alternative valuation assumptions, including within the sensitivity
disclosures prepared by the entity.
Our observations
Based on the work performed and evidence obtained, we found that the valuation
of investments portfolio as at 31 December 2021 to be reasonable and performed
in accordance with the guidelines stated above.
Our Application of Materiality and an Overview of the Scope of the Audit
The scope of our audit was influenced by our application of materiality. We
set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Overall materiality £1,658,384
How we determined it Approximately 1% net assets
Rationale for benchmark applied Net assets have been identified as the principal benchmark within the
financial statements as it is considered to be the focus of the shareholders.
1% of net assets has been chosen to reflect the level of understanding of the
stakeholders of the company in relation to the inherent uncertainties around
accounting estimates and judgments, principally in relation to investment
valuation.
Performance materiality Performance materiality is set to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements in
the financial statements exceeds materiality for the financial statements as a
whole.
On the basis of our risk assessments, together with our assessment of the
overall control environment, our judgment was that we set performance
materiality at £1,160,869.
Reporting threshold We agreed with the directors that we would report to them misstatements
identified during our audit above £49,752 as well as misstatements below that
amount that, in our view, warranted reporting for qualitative reasons.
As part of designing our audit, we assessed the risk of material misstatement
in the financial statements, whether due to fraud or error, and then designed
and performed audit procedures responsive to those risks. In particular, we
looked at where the directors made subjective judgements, such as assumptions
on significant accounting estimates, principally in relation to valuation of
investments.
We tailored the scope of our audit to ensure that we performed sufficient work
to be able to give an opinion on the financial statements as a whole. We used
the outputs of our risk assessment, our understanding of the company, their
environment, controls, and critical business processes, to consider
qualitative factors to ensure that we obtained sufficient coverage across all
financial statement line items.
Other Information
The other information comprises the information included in the annual report
and financial statements other than the financial statements and our
auditor's report thereon. The directors are responsible for the other
information. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of audit or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Opinions on Other Matters Prescribed by the Companies Act 2006
In our opinion, the part of the Directors' remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the Strategic Report and the Directors'
Report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the Strategic Report and the Directors' Report have been prepared in
accordance with applicable legal requirements.
Matters on which we are Required to Report by Exception
In light of the knowledge and understanding of the company and its environment
obtained in the course of the audit, we have not identified material
misstatements in the Strategic Report or the Directors' Report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
· the Company financial statements and the part of the Directors'
remuneration report to be audited are not in agreement with the accounting
records and returns; or
· certain disclosures of Directors' remuneration specified by law are
not made; or
· we have not received all the information and explanations we require
for our audit.
Responsibilities of Directors
As explained more fully in the directors' responsibilities statement set out
under Director's Responsibility Statement, the directors are responsible for
the preparation of the financial statements and for being satisfied that they
give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or
to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud.
Based on our understanding of the company and their industry, we considered
that non-compliance with the following laws and regulations might have a
material effect on the financial statements: anti-money laundering regulation,
general data protection regulation and the Listing Rules.
To help us identify instances of non-compliance with these laws and
regulations, and in identifying and assessing the risks of material
misstatement in respect to non-compliance, our procedures included, but were
not limited to:
· Gaining an understanding of the legal and regulatory framework
applicable to the company, the industry in which they operate, and considering
the risk of acts by the company which were contrary to the applicable laws and
regulations, including fraud;
· Inquiring of the directors, management and, where appropriate, those
charged with governance, as to whether the company is in compliance with laws
and regulations, and discussing their policies and procedures regarding
compliance with laws and regulations;
· Reviewing minutes of directors' meetings in the year; and
· Discussing amongst the engagement team the laws and regulations listed
above, and remaining alert to any indications of non-compliance.
We also considered those laws and regulations that have a direct effect on the
preparation of the financial statements, such as tax legislation and the
Companies Act 2006.
In addition, we evaluated the directors' and management's incentives and
opportunities for fraudulent manipulation of the financial statements,
including the risk of management override of controls, and determined that the
principal risks related to posting manual journal entries to manipulate
financial performance, management bias through judgements and assumptions in
significant accounting estimates, in particular in relation to valuation of
investments, and significant one-off or unusual transactions.
Our procedures in relation to fraud included but were not limited to:
· Making enquiries of the directors and management on whether they had
knowledge of any actual, suspected or alleged fraud;
· Gaining an understanding of the internal controls established to
mitigate risks related to fraud;
· Discussing amongst the engagement team the risks of fraud; and
· Addressing the risks of fraud through management override of controls
by performing journal entry testing.
The primary responsibility for the prevention and detection of irregularities,
including fraud, rests with both those charged with governance and management.
As with any audit, there remained a risk of non-detection of irregularities,
as these may involve collusion, forgery, intentional omissions,
misrepresentations or the override of internal controls.
The risks of material misstatement that had the greatest effect on our audit
are discussed in the "Key audit matters" section of this report.
A further description of our responsibilities is available on the Financial
Reporting Council's website at www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
Other Matters which we are Required to Address
Following the recommendation of the audit committee, we were appointed by the
Board of Directors on 23 January 2020 to audit the financial statements for
the year ended 31 December 2019 and subsequent financial periods. The period
of total uninterrupted engagement is 3 years, covering the years ended 31
December 2019 to 31 December 2021.
The non-audit services prohibited by the FRC's Ethical Standard were not
provided to the company and we remain independent of the company in conducting
our audit.
Our audit opinion is consistent with our additional report to the audit
committee.
Use of the Audit Report
This report is made solely to the company's members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body for our audit work, for this report, or for the opinions we have formed.
Stephen Brown (Senior Statutory Auditor)
for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
The Pinnacle
160 Midsummer Boulevard
Milton Keynes
MK9 1FF
Date: 11 March 2022
Financial Statements
Statement of comprehensive income
For the year ended 31 December 2021
For the year ended For the year ended
31 December 2021 31 December 2020
Total Total
Note £ £
Gains on investments
12 Gain on fair value on investments 81,475,045 15,844,203
12 Realised gain on disposal of investments 4,094,913 2,353,809
Gains for the period on investments 85,569,958 18,198,012
6 Investment income 3,527 241,030
7 Operating income 45 129,421
Total 3,572 370,451
Total income 85,573,530 18,568,463
Expenses
8 Operating expenses (2,997,377) (1,067,101)
Total operating expenses (2,997,377) (1,067,101)
10 Charitable donations (1,526,943) (771,740)
Net foreign exchange loss (3,039) (3,672)
Profit for the period before taxation 81,046,171 16,725,950
11 Tax expense (2,112,742) (71,208)
Profit for the period 78,933,429 16,654,742
Other comprehensive income - -
Total comprehensive income 78,933,429 16,654,742
Earnings per share for profit attributable to the ordinary shareholders of the
company:
18 Basic earnings per share 131.56 30.84
18 Diluted earnings per share 130.90 30.84
The accompanying notes form an integral part of these financial statements.
Statement of financial position
As at 31 December 2021
Company number: 10976145
31 December 2021 31 December 2020
Note £ £
Non-current assets
Tangible asset - 2,589
12 Investments 163,643,809 76,736,366
163,643,809 76,738,955
Current assets
13 Trade and other receivables 556,281 61,222
16 Cash and cash equivalents 5,202,210 9,725,688
Unpaid share capital debtors 49,950 49,950
5,808,441 9,836,860
Current Liabilities
14 Trade and other payables 1,137,310 181,763
14 Corporation tax payable - 29,888
10 Accrual for charitable donation 1,344,476 694,142
2,481,786 905,793
Net current assets 3,326,655 8,931,067
Non-current liabilities
10 Accrual for charitable donation 619,000 -
15 Deferred tax liabilities 2,366,874 618,861
Total non-current liabilities 2,985,874 618,861
Net assets 163,984,590 85,051,161
Capital and reserves
17 Share capital 109,950 109,950
Share premium 53,946,000 53,946,000
Retained earnings 109,928,640 30,995,211
Total share capital & reserves 163,984,590 85,051,161
The accompanying notes form an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board
of Directors on 11-03-2022 and were signed on its behalf by:
Director
Paul Pindar
11-03-2022
Statement of changes in equity
For the year ended 31 December 2021
Share capital Share premium Retained earnings Total
£ £ £ £
Balance at 31 December 2020 109,950 53,946,000 30,995,211 85,051,161
Profit for the period - - 78,933,429 78,933,429
Other comprehensive income for the year - - - -
Total comprehensive income for the period - - 78,933,429 78,933,429
Contributions by and distributions to owners
Issue of ordinary shares - - - -
Total transactions with owners - - - -
109,950 53,946,000 109,928,640 163,984,590
Balance as at 31 December 2021
Share capital Share premium Retained earnings Total
£ £ £ £
Balance at 31 December 2019 109,950 53,946,000 14,340,469 68,396,419
Profit for the period - - 16,654,742 16,654,742
Other comprehensive income for the period - - -
-
Total comprehensive income for the period - -
16,654,742 16,654,742
Contributions by and distributions to owners
Issue of new shares - - - -
Total transactions with owners - - - -
109,950 53,946,000 30,995,211 85,051,161
Balance at 31 December 2020
Statement of Cash flows
For the year ended 31 December 2021
Note For the year For the year
ended ended
31 December 2021 31 December 2020
Cash flows from operating activities £ £
Cash inflow/(outflow) from operating activity
Loan notes interest received 60,486 240,627
Management fee received - 74,818
Rechargeable expenses - 2,309
Bank interest received - 69,135
Management fee paid (1,317,163) (586,700)
Payroll expenses (67,306) (135,280)
Other operating expenditures (1,545,074) (197,899)
Charitable donations paid (257,609) (674,539)
Net cash used in operating activities (3,126,666) (1,207,529)
Cash flows from investing activities
Cash inflow/(outflow) from investing activities
Purchase of Investments (13,203,261) (19,559,145)
Cash realised from investments 11,805,193 6,823,836
Net cash used in investing activities (1,397,348) (12,735,309)
Net decrease in cash and cash equivalents (4,524,014) (13,942,838)
16 Cash and cash equivalents - opening balance 9,725,688 23,652,370
Effect of exchange rate fluctuations on cash and cash equivalents 536 16,156
Cash and cash equivalents - closing balance 5,202,210 9,725,688
The accompanying notes form an integral part of these financial statements.
Notes to Financial Statements
For the year ended 31 December 2021
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. Basis of preparation
These financial statements have been prepared in accordance with UK-Adopted
international accounting standards and as applied in accordance with the
provisions of the Companies Act 2006.
Details of the Company's accounting policies, including changes during the
period, are included in Note 3.
In preparing these financial statements, management has made judgements,
estimates and assumptions that affect the application of the Company
accounting policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to estimates are recognised prospectively.
The areas where judgements and estimates have been made in preparing the
financial statements and their effect are disclosed in Note 5.
The purpose of the Company is to invest into predominantly UK businesses, and
then to grow them to generate a positive return for its investors. In the most
parts, this return will be generated through capital appreciation, but may
also be through the generation of investment income. Once an investment has
been made, it is actively managed on an ongoing basis. In addition, the
performance of the Company's investments is evaluated using the most recently
available financial information from each of the investee companies. The
investments are always valued on a fair value basis. On this basis, the
Directors assessed that the Company meets the definition of an investment
entity per IFRS 10 and therefore shall measure the investment in subsidiaries
at fair value through profit or loss in accordance with IFRS 9.
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 continuing Covid-19 pandemic.
On 31 December 2021 Literacy Capital plc had cash reserves of £5.2 million
(2020: £9.7 million), as well as access to a £15 million revolving credit
facility ("RCF"), committed by Investec Bank plc until the end of 2024. The
total cash available to the Company is far in excess of its operating costs
for the foreseeable future (including both its charitable donations and any
Investment Management fees), plus any commitments to the portfolio or fund
commitments. The provision relating to outstanding donations to be paid is
£2.0 million.
The only material obligations that BOOK has relate to undrawn amounts to its
four fund commitments, amounting to £5.0m. However, £1.6 million of this
amount, relates to three funds whose investment periods have expired or where
their managers have since raised successor funds. As a result, BOOK has just
one fund commitment where further drawdowns are expected. This fund is highly
unlikely to draw 100% of BOOK's committed amount and is expected to draw
capital once per year in December, giving BOOK good visibility over the timing
and quantum of future capital calls. Several of BOOK's portfolio companies are
highly profitable and cash generative, so it has the ability to generate
further cash from the portfolio to build its cash reserves in due course if
this is required by the Company.
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 that 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.
2.1 Basis of measurement
The financial statements have been prepared on the historical cost basis
except for financial instruments at fair value through profit or loss for
equity and debt investments, which are measured at fair value.
2.2 New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards and interpretations
which have been issued by the IASB that are effective in future accounting
periods. The following are amendments that the Company has decided not to
adopt early:
· Amendments to IAS 1, Presentation of financial statements in
classification of liabilities as current or noncurrent (effective 1 January
2023)
· Amendments to IAS 1, Disclosure of Accounting Policies (effective 1
January 2023); and
· Amendments to IAS 8, Definition of Accounting Estimates (effective 1
January 2023).
The Directors do not expect that adoption will have any material effect on the
financial statements.
3. Accounting Policies
3.1 Revenue
Revenue is measured as the fair value of the consideration received or
receivable and predominantly includes income from investments.
Interest income is recognised as a gain on fair value of investments in the
Statement of Comprehensive Income. This is done in accordance with the
measurement of debt investments (on which the aforementioned interest income
is earned) being held at fair value through profit and loss. This is based on
the fact that the interest income on these debt investments is incidental to
the business model's objective, which is to hold these investments for trading
that would typically result in active buying and selling. This has been
further explained below in 'Accounting Policies for Financial Instruments'
(Note 3.4).
Dividends receivable on equity and non-equity shares, which carry significant
equity rights, are recognised as revenue when the shareholders' right to
receive payment has been established, normally the ex-dividend date. When no
ex-dividend date is available, dividends receivable on or before the year end
are treated as revenue for the year. Provision is made for any non-equity
dividends not expected to be received.
As stated in IFRS 15 the Company recognises revenue from rendering services to
the customer in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those services.
3.2 Provisions
Provisions are recognised when the Company has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Company
will be required to settle the obligation, and a reliable estimate can be made
of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration
required to settle the present obligation at the end of the reporting period,
taking into account the risks and uncertainties surrounding the obligation.
When a provision is measured using the cash flows estimated to settle the
present obligation, its carrying amount is the present value of those cash
flows (when the effect of the time value of money is material).
3.3 Alternative investment fund manager fee
The Company accrues for an annual management fee by Literacy Capital Asset
Management LLP (an Alternative Investment Fund Manager, "AIFM"), which is
calculated as 0.9% of the closing 2021 adjusted Net Asset Value, as set out in
the Investment Management Agreement.
The Company is party to an agreement dated 18 June 2021 between the Company
and the Investment Manager whereby the Investment Manager is appointed to act
as investment manager of the Company. The Investment Manager has agreed to
provide customary services of a discretionary investment manager that is also
appointed as a UK AIFM to the Company. The Investment Manager also provides
certain company secretarial services to the Company pursuant to the Investment
Management Agreement.
Under the terms of the Investment Management Agreement, the Investment Manager
is entitled to a the management fee referred to above together with
reimbursement of all reasonable costs and expenses incurred by it in the
performance of its duties.
The Investment Management Agreement may be immediately terminated by either
party in certain circumstances such as a material breach which is not
remedied. The Company has also agreed to indemnify the Investment Manager for
losses that the Investment Manager may incur in the performance of its duties
pursuant to the Investment Management Agreement or otherwise in connection
with the Company's activities that are not attributable to, inter alia, a
material breach of requirements applicable to the Investment Manager, or the
negligence, fraud, wilful default or bad faith of, the Investment Manager.
The Company is also party to a side letter agreement dated 18 June 2021
between the Company and the Investment Manager pursuant to which the Company
has agreed to issue Warrants to members and employees of the Investment
Manager both prior to Admission and at intervals thereafter upon request of
the Investment Manager, provided that the maximum number of Warrants to be
issued will be equal to 5 per cent of the total issued share capital at the
time of Admission.
3.4 Financial instruments
Recognition
The Company recognises financial assets and financial liabilities on the date
it becomes a party to the contractual provisions of the instrument.
Measurement
When the Company first recognises a financial asset, it classifies the asset
based on the business model for managing the asset and the asset's contractual
cash flow characteristics, as follows:
· Amortised cost-a financial asset is measured at amortised cost if
both of the following conditions are met:
o the asset is held within a business model whose objective is to hold
assets in order to collect contractual cash flows; and
o the contractual terms of the financial asset give rise on specified dates
to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
The amortised cost of a financial asset or financial liability is the amount
at which the financial asset or financial liability is measured at initial
recognition, minus principal repayments, plus or minus the cumulative
amortisation using the effective interest method of any difference between the
initial amount recognised and the maturity amount, minus any reduction for
impairment.
· Fair value through other comprehensive income-financial assets are
classified and measured at fair value through other comprehensive income if
they are held in a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets.
· Fair value through profit or loss-any financial assets that are not
held in one of the two business models mentioned are measured at fair value
through profit or loss.
The debt investments are held at fair value through profit or loss even though
the Company collects contractual cash flows through its holding in such
investments. The Company does not consider collection of contractual cash
flows to be integral, rather it is incidental to the business model's
objective which is to hold these investments for trading that would typically
result in active buying and selling. On this basis, it was concluded debt
investments held at fair value through profit or loss would give a more
reliable representation at the relevant balance sheet date. As a result, the
interest accrued on these investments is recognised as a gain on fair value of
investments in the Statement of Comprehensive Income. The gain on the disposal
of any such investments is recognised as realised gain on disposal of
investments in the Statement of Comprehensive Income.
When, and only when, the Company changes its business model for managing
financial assets it must reclassify all affected financial assets.
The manager determines asset values using the valuation principles of IFRS 13.
'Fair value' is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date in the principal or, in its absence, the most
advantageous market to which the Company has access at that date. When
available, the Company measures the fair value of an instrument using the
quoted price in an active market for that instrument. A market is regarded as
'active' if transactions for the asset or liability take place with sufficient
frequency and volume to provide pricing information on an ongoing basis. If
there is no quoted price in an active market, then the Company uses valuation
techniques that maximise the use of relevant observable inputs and minimise
the use of unobservable inputs. The chosen valuation technique incorporates
all of the factors that market participants would take into account in pricing
a transaction. The Company recognises transfers between levels of the fair
value hierarchy as at the end of the reporting period during which the change
has occurred.
Impairment
12-month expected credit losses
12-month expected credit losses are calculated by multiplying the probability
of a default occurring in the next 12 months with the total (lifetime)
expected credit losses that would result from that default, regardless of when
those losses occur. Therefore, 12-month expected credit losses represent a
financial asset's lifetime expected credit losses that are expected to arise
from default events that are possible within the 12-month period following
origination of an asset, or from each reporting date for those assets in
initial recognition stage.
Lifetime expected credit losses
Lifetime expected credit losses are the present value of expected credit
losses that arise if a borrower defaults on its obligation at any point
throughout the term of a lender's financial asset (that is, all possible
default events during the term of the financial asset are included in the
analysis). Lifetime expected credit losses are calculated based on a weighted
average of expected credit losses, with the weightings being based on the
respective probabilities of default.
Derecognition
The Company derecognises a financial asset when the contractual rights to the
cash flows from the financial asset expire or it transfers the financial asset
and the transfer qualifies for derecognition in accordance with IFRS 9. The
Company uses the weighted average method to determine realised gains and
losses on derecognition. A financial liability is derecognised when the
obligation specified in the contract is discharged, cancelled or expired.
On derecognition of a financial asset measured at amortised cost, the
difference between the asset's carrying amount and the sum of the
consideration received and receivable is recognised in profit and loss.
3.5 Charitable donations
The Company recognises an accrual for charitable donations which is calculated
by applying 0.9% to a pro forma Net Asset Value adjusted for fair value
uplifts. The donations are paid subsequent to the year end and the accrual is
reversed to the extent of the amount paid as donations.
3.6 Current and deferred taxation
The tax expense for the year comprises current and deferred tax. Tax is
recognised in the Profit or Loss, except that a charge attributable to an item
of income and expense recognised as other comprehensive income or to an item
recognised directly in equity is also recognised in other comprehensive income
or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws
that have been enacted or substantively enacted by the Statement of Financial
Position date.
Deferred tax balances are recognised in respect of all taxable temporary
differences that have originated but not reversed by the Statement of
Financial Position date, except that:
· The recognition of deferred tax assets is limited to the extent that
it is probable that they will be recovered against the reversal of deferred
tax liabilities or other future taxable profits; and
· Any deferred tax balances are reversed if and when all conditions for
retaining associated tax allowances have been met.
3.7 Cash and cash equivalents
Cash is represented by cash in hand and deposits with financial institutions
repayable without penalty on notice of not more than 24 hours. Cash
equivalents are highly liquid investments that mature in no more than three
months from the date of acquisition and that are readily convertible to known
amounts of cash with insignificant risk of change in value.
3.8 Tangible Assets
Tangible fixed assets under the cost model are stated at historical cost less
accumulated depreciation and any accumulated impairment losses. Historical
cost includes expenditure that is directly attributable to bringing the asset
to the location and condition necessary for it to be capable of operating in
the manner intended by management. These have been fully written off for the
year ended 31 December 2021.
Depreciation is charged so as to allocate the cost of assets less their
residual value over their estimated useful lives, using the straight‑line
method.
Office
equipment 33% per annum
The assets' residual values, useful lives and depreciation methods are
reviewed, and adjusted prospectively if appropriate, or if there is an
indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised in the Statement of Comprehensive
Income.
3.9 Basis of treatment of subsidiaries
Subsidiaries are those enterprises which are controlled by the Company.
Control exists when the Company is exposed or has rights to variable returns
from its involvement with the investee and has the ability to effect those
returns through its power over the investee. The following investee companies
meet the definition of being controlled by the Company on the basis of
ownership (>50% ownership of shares):
Name of company Registered address
Tyrefix UK Unit 3, Hill Lane Close, Markfield, Leicester, Leicestershire, LE67 9PY
EPM 20, Harris Business Park, Hanbury Road, Bromsgrove, United Kingdom, B60 4DJ
Flight Calibration Services Calibration House, 17-19 Cecil Pashley Way, Shoreham Airport, Shoreham BN43
5FF
Grayce Grove Chambers, 36 Green Lane, Wilmslow, England, SK9 1LD
Alufold Direct Unit 13, Philips Road, Whitebirk Industrial Estate, Blackburn, BB1 5AQ
RCI Health Group First Floor, Station Place, Argyle Way, Stevenage, England, SG1 2AD
Antler Homes Portland House, Park Street, Bagshot, Surrey, England, GU19 5AQ
Oxygen Freejumping 15 Vision Industrial Park, Kendal Avenue, London, England, W3 0AF
Under IFRS 10 'Consolidated Financial Statements', qualifying entities that
meet the definition of an investment entity are not required to prepare
consolidated financial statements and instead account for subsidiaries at fair
value through profit or loss. The Directors deem the Company to be an
investment entity and therefore the Company does not consolidate its
subsidiaries but instead carries it at fair value through profit or loss.
Please refer Note 2.
4. Functional and presentation currency
These 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.
5. Accounting estimates and judgments
The preparation of 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.
5.1. Critical judgements in applying the Company's accounting policies
The following are the critical judgements that the Directors have made in the
process of applying the Company's accounting policies and that have the most
significant effect on the amounts recognised in the financial statements.
Valuation of Investments Judgements made by Directors in the application of
International Accounting Standards that have a significant effect on the
financial statements and estimates with a significant risk of material
adjustments in the next year relate to the valuations of unquoted equity and
debt investments, as disclosed in Note 12.
6. Investment Income
The following table sets out the income derived from investments:
Particulars For the year ended 2021 For the year ended 2020
£ £
Interest income from debt investments - 240,627
Distribution of income from investments 3,527 403
Total 3,527 241,030
7. Operating Income
The following is an analysis of the Company's revenue for the period from
continuing operations. The revenue in 2020 related to services that the
Company provided before the Investment Management of Literacy Capital plc was
delegated to Literacy Capital Asset Management LLP on 1 April 2020 at which
point this revenue ceased.
Analysis of revenue by country of destination:
For the year ended 2021 For the year ended 2020
£ £
United Kingdom 45 129,421
45 129,421
8. Operating Expenses
For the year ended 2021 For the year ended 2020
£ £
Non-Executive Director remuneration 70,218 66,730
Staff salaries - 61,250
Staff social security costs - 7,559
Staff pension costs - 986
Auditor remuneration 52,500 22,000
Other operating expenses 2,874,659 908,576
2,997,377 1,067,101
9. Employees
The Company has no employees, however, the average number of Directors, during
the year was 6 (2020: 4).
10. Charitable donations
The Company has recognised charitable donation expenses of £1,526,943 (2020:
£771,740) calculated by applying 0.9% to a pro forma Net Asset Value adjusted
for fair value uplifts of £169.7 million (2020: £87.0 million). During the
year, donations paid were £257,609 (2020: £674,539). The accrual for
charitable donations at year end amounts to £1,963,476 (2020: £694,142). See
Note 21 liquidity risk disclosure for maturity analysis of the accrual for
charitable donations.
11. Taxation
31-Dec-21 31-Dec-20
£ £
Current taxation
United Kingdom corporation tax at 19% (2020: 19%) - 29,888
Adjustments in respect of prior periods 364,729 -
364,729 29,888
31-Dec-21 31-Dec-20
£ £
Deferred taxation
Origination and reversal of temporary differences 1,725,470 (139,367)
Utilisation of a deferred tax asset - 180,687
Adjustments in respect of prior periods (131,394) -
Effect of tax rate change on opening balance 153,937 -
1,748,013 41,320
2,112,742 71,208
The actual tax charge for the current and previous year differs from the
standard rate for the reasons set out in the following reconciliation:
31-Dec-21 31-Dec-20
£ £
Profit on ordinary activities before taxation 81,046,171 16,725,950
Tax on profit on ordinary activities at standard rate of 19% (2020: 19%) 15,398,772 3,177,930
Factors affecting tax charge for the year:
Income not taxable in determining taxable profit (16,520,630) (2,974,769)
Expenses not deductible for tax purposes and other adjustments 580,600 7,414
Deferred tax on fair value gain on investments (Note 16) - (139,367)
Other permanent differences (41) -
Exempt ABGH distributions (9,998) -
Chargeable gains/(losses) 1,862,654 -
Adjustments to tax charge in respect of previous periods 364,729 -
Adjustments to tax charge in respect of previous periods - deferred tax (131,394) -
Remeasurement of deferred tax for changes in tax rates 568,050 -
Total tax on profit on ordinary activities 2,112,742 71,208
The tax has been calculated using a 19% corporation tax rate being the
substantively enacted rate for the year starting 1 April 2021.
Gain on fair value of investments where the Company has a substantial
shareholding, which it intends to benefit from the substantial shareholding
exemption, is excluded in calculating the tax charge for the year.
The net taxation expense through the profit and loss account is £2,112,742
(2020: £71,208).
Factors that may affect future tax charges
The Finance Act 2020 enacted legislation to maintain the current rate of
corporation tax at 19% up until at least the tax year ended 30 April 2022. On
3 March 2021, the UK Budget announcement stated that in April 2023, the
Corporation Tax rate will be increased from 19% to 25%.
12. Financial instruments
31 December 2021 31 December 2020
£ £
Assets
Financial assets at fair value through profit or loss
Equity instruments at fair value through profit or loss 125,308,419 46,893,594
Debt instruments at fair value through profit or loss 38,335,390 29,842,772
Financial assets at amortised cost
Trade and other receivables (excluding prepayments) 542 41,622
Total financial assets 163,644,351 76,777,988
Liabilities
Financial liabilities measured at amortised cost
Trade and other payables 1,137,310 211,651
Total financial liabilities 1,137,310 211,651
The investment reconciliation schedule for the Company as at 31 December 2021
is as follows:
Equity instruments at fair value through profit or loss Debt instruments at fair value through profit or loss 31 December 2021
Total
£ £ £
Investments at 31 December 2020 46,893,594 29,842,772 76,736,366
Additions 5,997,501 7,205,760 13,203,261
Disposal of investments (4,415,760) (7,385,664) (11,801,424)
Realised gain on disposal of investments 3,572,704 522,209 4,094,913
Fair value movement through profit or loss 73,264,247 8,210,799 81,475,045
Loan interest - (60,486) (60,486)
Unrealised FX gain/(loss) (3,867) - (3,867)
Investments at 31 December 2021 125,308,419 38,335,390 163,643,809
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 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 Note 12.
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 31
December 2021 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 31
December 2021. The valuations that the underlying managers ultimately provide
as at 31 December 2021 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
31 December 2021 Level 1 Level 2 Level 3 Total
£ £ £ £
Equity instruments at fair value through profit or loss - 11,046,368 114,262,051 125,308,419
Debt instruments at fair value through profit or loss - - 38,335,390 38,335,390
Total investments - 11,046,368 152,597,441 163,643,809
Financial assets and liabilities
31 December 2020 Level 1 Level 2 Level 3 Total
£ £ £ £
Equity instruments at fair value through profit or loss - 6,133,372 40,760,222 46,893,594
Debt instruments at fair value through profit or loss - - 29,842,772 29,842,772
Total investments - 6,133,372 70,602,994 76,736,366
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.
31 December 2021 31 December 2020
Unquoted investments (including debt) £ £
Balance as at 1 January 70,602,994 42,026,487
Additional investments 10,519,503 18,079,486
Disposals of investments (10,802,233) (6,643,569)
Realised gain / (loss) 3,938,778 2,395,159
Transfers out of Level 3 investments - -
Change in fair value through profit & loss 78,338,399 14,745,431
Balance as at 31 December 152,597,441 70,602,994
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant unobservable inputs
used at 31 December 2021 in measuring financial instruments categorised as
Level 3 in the fair value hierarchy.
Description Inputs Fair value at Significant unobservable
31 December 2021 Inputs
£
Unquoted private equity investments (including debt) 125,457,753 EBITDA multiple
27,139,690 Milestone
Unquoted growth capital investments
152,597,441
Significant unobservable inputs are developed as follows:
· Trading comparable 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.
· Recent fundraises: 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 year would have been £18.1m higher. If these
inputs had been taken to be 10 per cent. lower, the value of the Level 3
assets and profit for the year would have been £18.5m lower.
· For the Company's investment in Level 3 assets which are valued using
recent fundraises, 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 £2.1m higher. If the output had been taken to be 10%
lower, the value of the Level 3 assets would have been £2.1m lower.
13. Trade and other receivables
31 December 2021 31 December 2020
£ £
Prepayments 555,739 19,600
Intercompany receivables - 40,712
Other receivables 542 910
556,281 61,222
14. Trade and other payables
31 December 2021 31 December 2020
£ £
Trade payables 31,734 31,019
Accrued expenses 1,101,171 149,250
Other creditors 4,405 1,494
Corporation tax payable - 29,888
1,137,310 211,651
15. Deferred Tax
The following are the deferred tax assets and liabilities recognised by the
Company and the movements during the current and previous reporting years:
Fair value gain on investments Tax losses Short term timing differences Total
£ £ £ £
At 1 January 2020 (758,228) 180,687 - (577,541)
(Charge)/credit to income 139,367 (180,687) - (41,320)
At 1 January 2021 (618,861) - - (618,861)
(Charge)/credit to income (2,607,257) 368,349 490,895 (1,748,013)
At 31 December 2021 (3,226,118) 368,349 490,895 (2,366,874)
The following is the analysis of the deferred tax balances for financial
reporting purposes:
31-Dec-21 31-Dec-20
£ £
Deferred tax liability (2,366,874) (618,861)
Deferred tax asset - -
(2,366,874) (618,861)
Gain on fair value of investments where the Company has a substantial
shareholding, which it intends to benefit from the substantial shareholding
exemption, is excluded in calculating the deferred tax liability.
At the balance sheet date, the Company had no unused tax trading losses (2020:
£nil) available for offset against future profits.
16. Cash and cash equivalents
31 December 2021 31 December 2020
£ £
Cash at bank and hand 5,202,210 9,725,688
5,202,210 9,725,688
17. Share Capital
2021 2021 2020 2020
Number £ Number £
Ordinary shares of £0.001 each 60,000,000 60,000 54,000,000 54,000
Deferred shares of £0.001 each 49,950,000 49,950 49,950,000 49,950
Growth shares of £0.001 each - - 6,000,000 6,000
109,950,000 109,950 109,950,000 109,950
· The number of shares issued and allotted have been paid to the extent
of 60,000,000 shares amounting £60,000 as at 31 December 2021 (2020:
60,000,000 shares amounting £60,000).
· 49,950,000 shares amounting £49,950 were outstanding as at 31
December 2021 (2020: 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.
· All growth shares have no voting rights and are not entitled to the
distribution of dividends and the repayment of capital.
18. 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 £78,933,429 (for the
year ended 31 December 2020: profit of £16,654,742) divided by the weighted
average number of shares outstanding during the period of 60,000,000 (for the
year ended 31 December 2020: 54,000,000).
Diluted profit per share is calculated by dividing the profit of the Company
for the period attributable to the ordinary shareholders of £78,933,429 (for
the year ended 31 December 2020: profit of £16,654,742) 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
60,302,500 (for the year ended 31 December 2020: 54,000,000).
19. NAV per share (pence)
The Company's NAV per share of 273.31 pence (for the year ended 31 December
2020: 157.50 pence) is based on the net assets of the Company at the period
end of £163,984,590 (for the year ended 31 December 2020: £85,051,161)
divided by the shares in issue at the end of the period of 60,000,000 (for the
year ended 31 December 2020: 54,000,000).
The NAV per share of 277.2 pence reported within 'Performance Highlights' and
'Strategic Report' excludes certain deferred tax liabilities shown in the
Company's financial statements, on the basis that these amounts are not
expected to become payable in the future should the Company receive approval
of its investment trust status.
The Company's diluted NAV per share of 272.85 pence (for the year ended 31
December 2020: 157.50 pence) is based on the net assets of the Company at the
period end of £163,984,590 (for the year ended 31 December 2020:
£85,051,161), plus £550,150 which will 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 60,302,500 (for the year ended 31 December 2020: 54,000,000).
The Company's diluted NAV per, share excluding certain deferred tax
liabilities shown in the Company's financial statements, on the basis that
these amounts are not expected to become payable in the future should the
Company receive approval of its investment trust status, is 276.69 pence.
The below table provides a reconciliation of the weighted average number of
ordinary shares used as the denominator including the individual effect of
each class of instruments have been met.
31 December 2021 31 December 2020
Number Number
Weighted average number of ordinary shares used as the denominator in 60,000,000 54,000,000
calculation of basic earnings share
Adjustments for calculation of diluted earnings per share :
Issue of Warrants 302,500 -
Weighted average number of ordinary shares and potential ordinary shares 60,302,500 54,000,000
used as the denominator in calculating diluted earnings per share
20. Reserves
The following are the reserves with the entity as on 31 December 2021:
· Share Capital: Capital issued and paid to the extent of £60,000.
£49,950 worth of share capital was outstanding.
· Share Premium: Premium above par value issued and fully paid.
· Retained Earnings: Accumulated profits and losses less any dividends
paid.
21. Financial risk management
The Company's financial instruments comprise:
· Investments in unlisted companies, comprising equity and loans,
· Cash and cash equivalents,
· Accrued interest, trade and other receivables, accrued expenses and
sundry creditors.
Financial risk management objectives and policies
The main risks arising from the Company's financial instruments are liquidity
risk, credit risk, currency risk and interest rate risk. None of those risks
are hedged. These risks arise through directly held financial instruments and
through the indirect exposures created by the underlying financial instruments
in the investments. These risks are managed by the Directors in conjunction
with the Investment Manager.
Capital Management
The Company's capital is represented by ordinary shares of £0.001 each, which
carry one vote per share and are entitled to dividends, and deferred shares of
£0.001 each, which do not carry any voting rights and are not entitled to
dividends. The only additional restriction the Company has in relation to its
share capital is that, pursuant to shareholder approval on 15 June 2021, the
maximum number of shares the Company can repurchase is 14.99% of the Ordinary
Shares in issue. The movements in capital are shown in the consolidated
statement of changes in equity.
The Company's objectives are to achieve positive, long-term returns for
shareholders. In meeting this objective, the Company may issue shares or
return capital to shareholders by paying dividends or repurchasing shares.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in
meeting the obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. The Company's liquid
assets comprise cash and cash equivalents and trade and other receivables,
which are readily realisable. The Company's liabilities consisted of trade and
other payables which are to be settled within one year. The liabilities
further consisted of accruals, a major part of which will be settled within
one year, while the balance will be settled within the next 5 years.
31 December 2021 Less than 1 Year 1 - 5 Years Over 5 years No stated maturity £
£
£
£
Financial liabilities
Trade and other payables 36,139 - - -
Accruals 1,101,171 - -
Accrual for charitable donation 1,344,476 619,000 - -
Total 2,481,786 619,000 - -
31 December 2020 Less than 1 Year 1 - 5 Years Over 5 years No stated maturity £
£
£
£
Financial liabilities
Trade and other payables 62,401 - - -
Accruals 149,250 - - -
Total 211,651 - - -
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company. The
Company's financial assets are held at fair value through profit or loss
except trade and other receivables which is held at amortised cost. The
Company monitors the credit risk on this asset based on the historical credit
loss experience and past due status of the debtors in absence of an external
credit rating and takes into consideration forward-looking and macroeconomic
information to consider the risks of a default event occurring. The carrying
amount of the financial assets at fair value through profit or loss as
disclosed in Note 12 best represents their respective maximum exposure to
credit risk. The Company holds no collateral over any of these balances.
31 December 2021 31 December 2020
£ £
Trade and other receivables (excluding prepayments) 542 41,622
Less lifetime expected credit loss - -
542 41,622
The maximum exposure to credit risk before any credit enhancements as at 31
December is the carrying amount of the financial asset held at amortised cost
as set out in Note 12.
Expected Credit Loss (ECL) is the probability-weighted estimate of credit
losses over the expected life of a Financial Instrument. For trade and other
receivables, the Company has applied the simplified approach in IFRS 9 to
measure the allowance at lifetime expected credit losses. The Company has
evaluated the credit risk based on the historical credit loss experience and
based on past due status of the debtors, taking into consideration
forward-looking and macroeconomic information to consider the risks of a
default event occurring. Following the assessment of the risk by management
there was no evidence of default events occurring and it was concluded that
the asset does not have a significant increase in credit risk since initial
recognition and has low credit risk at the reporting date. The Company has
therefore not recognised a loss allowance in the year ended 31 December 2021
(2020: £nil).
Currency risk
The Company's operations are conducted in Sterling. Investments are typically
made in GBP, though the Company has made investments in Euro and USD
denominated funds. At year end BOOK had outstanding commitments to three fund
investments denominated in EUR and USD totalling £4.7m. There is therefore a
risk from fluctuations in the GBP: Euro and USD: GBP rates. The Investment
Manager takes this factor into account when making any investment decisions.
The below tables show a sensitivity analysis on the impact of foreign exchange
rate movements on the net asset value (NAV) of the Company:
% change in foreign currency rates % change in NAV Value of Net Assets
No change - 163,984,590
10% favourable change 0.41% 164,657,419
10% unfavourable change (0.41)% 163,311,761
Interest rate risk
At year end the Company had no borrowings but had access to an undrawn £15m
RCF where interest expense on any drawn amount is linked to SONIA. The
Directors and Investment Manager monitor the SONIA rate and will consider
interest rate change implications before any drawdown is made.
Interest rates earned on the cash balances of the Company are already low, so
this is not considered a risk.
22. 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 year was £1,526,943 (2020: £624,410). The total expense related to the
rendering of AIFM services during the year. At the year end the balance due to
be paid to the LLP for these services was £633,073 (2020: £98,253).
Separately, during the year ended 31 December 2021, the Company received
payments totalling £40,712 from LCAM relating to the prior year, where the
Company had paid suppliers on behalf of LCAM. At the year end the balance due
to be received from LCAM was nil (2020: £40,712).
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 total payments made during the year was £30,000 (2020: £10,000). There
is no receivable or payable balance as at the end of the year (2020: nil).
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 year was £219,109 (2020: £650,519). The
Company has a provision for charity and other donation payments amounting to
£1,963,476 (2020: £694,142). Out of this provision, certain donations will
be made to Bookmark Reading Trading Limited and Bookmark Reading Charity.
23. Capital Commitments
Further capital commitments of €4,323,240 (2020: €783,053), £294,530
(2020: £938,358) and $1,500,000 (2020: $2,600,000) remain outstanding and are
yet to be drawn down.
24. Subsequent events
BOOK received £5.7 million in cash from Grayce in January 2022, following a
refinancing and dividend from this company. Two days later, the Company
reinvested £3.5 million of this to acquire additional equity in RCI from
minority shareholders, to increase BOOK's stake in this business further. Also
in January, the Company made a further investment in TheVeganKind totalling
£1.0m. In February 2022, BOOK also made a further investment in Antler Homes,
amounting to £1.7m.
No new investments or other transactions completed in the period since the end
of 2021.
25. Ultimate controlling party
Literacy Capital plc does not have an ultimate controlling party.
Additional Information
Investment Policy
The Company's investment policy is to invest in a diversified portfolio
consisting primarily of equity and equity related securities issued by
unquoted companies.
Investments will be primarily in equity and equity-related instruments (which
shall include, without limitation, preference shares, convertible debt
instruments, equity-related and equity-linked notes and warrants) issued by
portfolio companies. The Company will also be permitted to invest in
partnerships, limited liability partnerships and other legal forms of entity
where the investment has equity like return characteristics.
For the purposes of this investment policy, unquoted companies shall include
companies with a technical listing on a stock exchange but where there is no
liquid trading market in the relevant securities on that market (for example,
companies with listings on The International Stock Exchange and the Cayman
Stock Exchange). Further, the Company shall be permitted to invest in unquoted
subsidiaries of companies whose parent or group entities have listed equity or
debt securities.
The Company may hold debt instruments issued by a portfolio company where the
Company also has equity or equity-related interests in that portfolio company.
The Company may participate in the IPO of an existing unquoted company
investment, subject to the investment restrictions below. In particular,
unquoted portfolio companies may seek IPOs from time to time following an
investment by the Company, in which case the Company may continue to hold its
investment without restriction.
The Company will invest and manage its assets with the objective of spreading
risk. No single investment (including related investments in group entities)
will represent more than 20 per cent of Gross Assets, calculated as at the
time of that investment. The Company will not be required to dispose of any
investment or rebalance its portfolio as a result of a change in the
respective value of any of its investments.
While the Company does not intend to focus its investments on a particular
sector, there is no limit on the Company's ability to make investments in
portfolio companies within the same sector if it chooses to do so.
The Company will seek to ensure that it has suitable and appropriate investor
protection rights through its investment in portfolio companies.
The Company may acquire investments directly or by way of holdings in SPVs,
intermediate holding vehicles or other fund or similar structures.
The Company may also make charitable donations equal to 0.9 per cent of net
assets in each financial year, as determined by the Board from time to time.
Borrowing Policy
The Company may incur indebtedness of up to a maximum of 20 per cent of its
Net Asset Value, calculated at the time of drawdown, for investment and for
working capital purposes.
Where the Company invests in portfolio companies indirectly (whether through
SPVs as holding entities, funds or otherwise), notwithstanding the previous
paragraph, indebtedness in such holding entity will not be included in the
calculation of indebtedness of the Company provided that the provider of such
debt only has recourse to the assets of the holding entity and does not have
recourse to the other assets of the Company or other investments made by the
Company.
Investment restrictions
The Company will voluntarily comply with the investment restrictions set out
below and will continue to do so for so long as they remain requirements of
the FCA for closed ended funds subject to the Listing Rules:
· neither the Company nor any of its subsidiaries will conduct any
trading activity which is significant in the context of the group as a whole;
· the Company must, at all times, invest and manage its assets in a way
which is consistent with its objective of spreading investment risk and in
accordance with the published investment policy; and
· not more than 10 per cent of the Gross Assets at the time an
investment is made will be invested in other closed-ended investment funds
which are listed on the Official List, except that this restriction shall not
apply to investments in listed closed-ended investment funds which themselves
have stated investment policies to invest no more than 15 per cent of their
gross assets in other listed closed-ended investment funds.
Any material change to the investment policy of the Company will be made only
with the approval of Shareholders.
In the event of any breach of the investment restrictions applicable to the
Company, Shareholders will be informed of the remedial actions to be taken by
the Company through an RNS Announcement.
AIFM Statement (unaudited)
Periodic Disclosures
Literacy Capital Asset management ("LCAM") has served as the Alternative
Investment Fund Manager since 1 April 2020. LCAM and the Company are required
to make certain period disclosures in accordance with the Alternative
Investment Fund Managers Directive ("AIFMD"). For the purposes of AIFMD:
· None of the Company's assets are subject to special arrangements
arising from their illiquid nature.
· The Strategic Report and note 21 to the financial statements set out
the risk profile and risk management systems in place. There have been no
changes to the risk management systems in place in the period under review.
· There are no new arrangements for managing the liquidity of the
Company or any material changes to the liquidity management systems and
procedures employed by LCAM.
Leverage
For the purposes of the AIFMD, leverage is any method which increases the
Company's exposure, including the borrowing of cash and the use of
derivatives. It is expressed as a percentage of the Company's exposure to its
net asset value and can be calculated on a Gross and a Commitment method.
Under the Gross method, exposure represents the sum of the Company's positions
after the deduction of sterling cash balances, without taking into account any
hedging and netting arrangements. Under the Commitment method, exposure is
calculated without deduction of cash balances and after certain hedging and
netting positions are offset against each other.
The table below sets out the current and maximum permitted limit and actual
level of leverages for the Company at 31.12.2021:
Gross Method Commitment Method
Maximum level of leverage 120% 120%
Actual level at 31 December 2021 Nil Nil
Material Changes to Information
Article 23 of the AIFM Directive requires certain information to be made
available to investors before they invest and requires material changes to
this information to be disclosed in the annual report. There have been no
material changes to the Article 23 Disclosures published to the Company's
website on 23 June 2021.
Statement of the Alternative Investment Fund Manager's Remuneration Code
The Company is classified as an Alternative Investment Fund (AIF) in
accordance with the Alternative Investment Fund Managers Directive (AIFMD).
Literacy Capital Asset Management LLP is authorised as an Alternative
Investment Fund Manager (AIFM) for the purpose of managing the Company.
As an authorised AIFM, Literacy Capital Asset Management LLP must adhere to
the AIFM Remuneration Code. The AIFM Remuneration Code contains a set of
principles, which are designed to ensure that AIFMs reward their personnel in
a way which promotes sound and effective risk management, which does not
encourage risk-taking, which supports the objectives and strategy of any AIFs
it manages, and which supports the alignment of interest between the AIFM, its
personnel and any AIFs it manages (where this alignment extends to the AIF's
investors).
Remuneration at Literacy Capital Asset Management LLP is straightforward. The
Members are paid a fixed competitive priority profit share by Literacy Capital
Asset Management LLP. At the end of each year, the performance of the Company
and Members is reviewed by the Designated Members, in order to determine
whether or not a discretionary bonus should be paid. All bonus decisions are
agreed unanimously by the Designated Members.
Members have also been issued with warrants to subscribe for Ordinary Shares
in the Company, as set out within the 'Share Capital' section.
The Designated Members are each also paid a fixed proportion of Literacy
Capital Asset Management LLP's net profits. They consider that this is the
best way to ensure that the Designated Members' interests are aligned with the
interests of the Company's investors and fairly remunerated for their
contribution. This alignment of interest is reinforced by the fact that
Literacy Capital Asset Management LLP's Designated Members, Members and
closely associated family members own more than 50% of the Company's ordinary
share capital. They have a clear and direct interest in the long term success
of the Company. Designated Members have not and will not be issued with
warrants to subscribe for Ordinary Shares in the Company.
Corporate Information
Directors
Paul Pindar
Richard Pindar (resigned on 27 March 2020; reappointed on 19 March 2021)
Kevin Dady
Simon Downing
Christopher Sellers
Rachel Murphy (appointed on 1 April 2021)
Registered Number
10976145
Registered Office
3(rd) Floor, Charles House
5-11 Regent Street St James's
London
SW1Y 4LR
Service Providers
Investment Manager
Literacy Capital Asset Management LLP
Company Secretary
Literacy Capital Asset Management LLP
Corporate Broker
Singer Capital Markets Securities Limited
One Bartholomew Lane
London
EC2N 2AX
Administrator
EPE Administration Limited
Audrey House
16-20 Ely Place
London
EC1N 6SN
English Legal Advisor to the Company
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
Independent Auditor
Mazars LLP
The Pinnacle
160 Midsummer Boulevard
Milton Keynes
MK9 1FF
Bankers
Santander UK plc
2 Triton Square
Regent's Place
London
NW1 3AN
Registrar
Link Market Services Limited
Central Square
10(th) Floor
29 Wellington Street
Leeds
LS1 4DL
Depositary
Indos Financial Limited
The Scalpel
18(th) Floor
52 Lime Street
London
EC3M 7AF
Shareholder Information
Key Dates
March: Annual report and financial statements published and shortened
financial period (1 January 2022 to 31 March 2022) ends
June: Annual report and financial statements for shortened financial period
published and annual general meeting held
September: Company's half-year end
November: Half-yearly results announced
December: Company's usual year end resumes
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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