REG - Literacy Capital PLC - Publication of Audited Report and Accounts
07/06/2022 07:00
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RNS Number : 8807N Literacy Capital PLC 07 June 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The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any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.
7 June 2022
Literacy Capital plc ("Literacy" or the "Company")
Publication of Audited Report and Accounts for Period Ending 31 March 2022
and
Publication of Notices of Annual General Meeting
Literacy Capital plc has today released:
· its audited report and accounts for the three months ended 31 March
2022;
· a circular and notice of annual general meeting which contains:
o notice of its annual general meeting relating to the 12 month period
ending 31 December 2021, to be held at 12 noon on 30 June 2022 at 3rd Floor,
Charles House, 5-11 Regent Street, St James's, London, SW1Y 4LR; and
o notice of its annual general meeting relating to the three month period
ending 31 March 2022, to be held at 12.30 p.m. on 30 June 2022 at 3rd Floor,
Charles House, 5-11 Regent Street, St James's, London, SW1Y 4LR.
An electronic copy of both the audited report and accounts and the circular
can be viewed at:
www.literacycapital.com/investors/reports-and-results
A copy of each of the above documents will shortly be submitted to the
National Storage Mechanism.
-ENDS-
For further information, please contact:
Literacy Capital plc / Literacy Capital Asset Management LLP:
Richard Pindar / 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/. 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.
Report and Financial Statements for Literacy Capital plc
("Literacy Capital", the "Company" or "BOOK")
For the three months ended 31 March 2022
Focus on helping to build great businesses to generate superior returns
v NAV per ordinary share of 320.0p(1)
o Net assets of £192.0m(1), an increase of 15.4% in the three month period
to 31 March 2022 and 99.2% over the last twelve months
o The FTSE Investment Company Index and FTSE All-Share Index returned 2.7%
and 9.3% respectively over the last twelve months
o The share price closed the period at 297p, delivering a 0.7% return in the
three month period, and 85.6% 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 86% revenue growth and 130% EBITDA growth on a weighted average, Last
Twelve Months (" LTM") basis across the seven buyout investments within
Literacy Capital's top 10 direct holdings. These seven companies represent
67.2% of NAV
v Continued focus on managing cash across the portfolio and generating high
returns on invested capital
o £5.8m received in the three month period, partly funding £6.5m of
reinvestment into high performing portfolio companies
o Strong pipeline of new investment opportunities. Literacy Capital has
access to a £15m revolving credit facility, providing the fund with
additional flexibility and capital, whilst enabling the fund to remain heavily
invested. This was unutilised throughout the period
v Increasing charitable donations, helping disadvantaged children across the
UK get a fair chance
o £434k of charitable donations in the three month period to 31 March 2022,
taking total donations in the last twelve months to £1,744k
o Total donations of almost £3.9m since inception of Literacy Capital
Performance to 31 March 2022
% total return 3 months 1 year 3 years Since Inception
BOOK Net asset value +15.4% +99.2% +220.4% +255.5%
BOOK Share Price +0.7% n/a n/a n/a
FTSE Investment Company Index (8.5)% +2.7% +36.3% +43.3%
FTSE All-Share Index (0.5)% +9.3% +5.3% +1.5%
(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:
"Pleasingly, our largest portfolio companies continue to trade strongly in the
early months of 2022. Despite macroeconomic challenges and the tragic events
in Ukraine, the companies are performing well and demonstrating positive
momentum, which we believe will fuel further increases in NAV during the rest
of 2022. The recent NAV growth that has been achieved has largely been driven
by higher earnings across several companies, rather than reliance on a single
asset or multiple inflation. Moreover, we are helping to build increasingly
valuable businesses that are becoming more attractive to possible acquirors.
Often meaningful uplifts and value creation from individual companies may not
be realised until year two or three following BOOK's investment, with the
J-curve thereafter continuing to steepen. It is no coincidence or surprise
that all of BOOK's five most valuable investments were completed in 2018.
Pleasingly, many of the more recent investments, which sit outside of the top
five holdings, are also trading ahead of plan. We are very confident that
these companies can become strong contributors to performance in the remainder
of 2022 and future periods.
The priorities with our portfolio and prospective investment activities remain
consistent with our overall approach in recent years. We continue to have
conversations with owners of businesses that are looking to benefit from the
support that we can provide and the growth that we can help to encourage. We
have an increasing number of relevant and positive case studies in the
Literacy Capital portfolio, which provide positive references regarding our
way of working and value that we have helped to create. Our focus remains on
investing in businesses that can be expanded ambitiously, whilst preserving
their respective cultures that have been built over many years. Success at the
level of the portfolio companies provides greater opportunities for the
existing employees and many of the local communities where the businesses are
based, whilst translating into strong returns for BOOK's shareholders, as well
as increasing charitable donations each year to help disadvantaged children."
Comparison to prior financial period
3 months to/as at 31 Mar 2022 12 months to/as at 31 Dec 2021
Net asset value(1) £192.0m £166.3m
NAV per ordinary share(1) 320.0p 277.2p
Capital invested £6.5m £13.2m
Cash realised £5.8m £11.8m
Charitable donation provision £434k £1,527k
(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.
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 the three month period, the trading and financial performance of the
majority of the underlying companies was strong, with three standout
performers amongst them. Two portfolio companies which had continued to feel
the negative effects of Covid-19 throughout 2021 have both shown signs of
recovering in the three months to 31 March 2022, and we fully expect them to
both return to pre-Covid-19 levels of trading in 2022. All the portfolio
companies were securely positioned going into April 2022 and we expect them
all to have the liquidity and ability to trade successfully through this year
and into 2023.
In the three month period under review, the net asset value (NAV) of assets
under management of the Company increased from £166.3m to £192.0m 1
(#_ftn1) .
It is the intention of Literacy Capital plc to obtain investment trust status
in 2022. In order to do this, Literacy Capital plc shortened the initial
accounting period in 2022 to three months, so that it ran 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 three-month 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 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 has performed strongly in the 3 months to 31 March 2022.
The Investment Manager's review following this introduction provides
considerable detail regarding our investment performance. But, in summary, our
fund is making excellent progress.
Our shares were admitted to the Specialist Fund Segment of the London Stock
Exchange's Main Market on 25 June at a price of 160p. On 31st March 2022, our
mid-market closing price was 297p and our shares stood at 380p on 30 May 2022.
We set up Literacy Capital with the mission to operate differently from
'traditional' private equity. We are a closed-end fund which means we have no
pressure and 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 the stability we offer for their employees) and the
management teams with whom we partner.
We have 3 clear objectives in building Literacy Capital. I will cover all
three.
First, we want to create material value for our shareholders. We have made a
good start with shareholders enjoying a gain of 138% since our listing in June
2021. It is worth noting that we are highly aligned with shareholders as a
whole, as the 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. Furthermore, no performance fees nor carried
interest is charged by Literacy Capital plc's investment manager. These fee
structures are typically a significant burden on shareholder returns.
Secondly, we want to help to build great companies. We do not view businesses
as chattels to be bought and sold for a swift profit. Instead, we want to work
collegiately with our management to improve businesses, to strengthen teams,
to execute buy-and-build strategies and to provide experience, support, advice
and confidence. We are highly motivated to help UK smaller companies to thrive
and succeed. And the 16 companies we now have in our portfolio are repaying us
handsomely with their progress and with the value they are creating.
Thirdly, we are proud to have a charitable mission at the heart of our
activities. Since the formation of Literacy Capital, we have already
demonstrated that making money whilst helping others are highly compatible
activities. Our mission is to help disadvantaged children in the UK learn to
read. Each year, we donate 0.9% of NAV to literacy charities in the UK. Total
donations since the set up of Literacy Capital in 2017 now exceed £3.8m. Our
work in this area is being led particularly by Bookmark Reading, a charity
which is now supporting thousands of young children each year.
We are very pleased with the progress of Literacy Capital to date. We are
shareholders in some fine businesses, led by some outstanding managers and
where the future prospects are strong. We are confident that shareholders will
enjoy continued value creation over both the short and long term.
Paul Pindar
Chairman
1 June 2022
Investment Manager's Report
BOOK Performance Highlights For The Three Month Period To 31 March 2022
320.0p £192.0m
NAV per ord. share 2 (#_ftn2) £m NAV1
(31 Dec 2021: 277.2p) (31 Dec 2021: £166.3m)
£6.5m £5.8m
Capital invested in the 3 months to 31 March Cash realised in the 3 months to 31 March
(2021: £13.2m) (2021: £11.8m)
+85.6% £434k
Shareholder total return to Charitable donation provision in the 3 months to 31 March
31 March (2021: £1,527k)
(since listing on 25 June 2021)
BOOK Performance Overview
We are very pleased with BOOK's continued strong performance in the first
three months of 2022. On 31 March 2022, net asset value (NAV) was £192.0m, or
320.0p per share, an increase of 15.4% (after all costs and charitable
donations) since 31 December 2021.
This continued growth in net assets was driven by uplifts across a number of
portfolio companies. Four companies in the three month period contributed more
than £5m of uplift each, with all trading and growing strongly. These four
companies were all in the top five investments on 31 March 2022 (with
Butternut Box's valuation remaining unchanged). We are pleased to have several
companies delivering strong performance and helping to drive NAV upwards.
Below these top five investments, four of the five companies ranked six to ten
by value, are trading ahead of their own forecasts. We are confident that this
momentum and performance in the portfolio will continue to support NAV. £5.8m
of cash was received by BOOK in the first three months of 2022, which
supported reinvestment into the portfolio to support further growth in these
companies.
In the three months to 31 March 2022, BOOK's share price increased from 295p
to 297p. This was positive compared to the negative performance of the FTSE
all-share and investment company indexes over the same period. Shareholders
since BOOK's listing at 160p per share, have made a return of 85.6% in a
little over nine months.
BOOK's total costs in the quarter (excluding the charitable provision)
amounted to £809k. This included the AIFM fee for the three month period,
some operating costs, plus costs associated with the revolving credit
facility. On top of these costs, £434k was recognised in the three months
relating to charitable donations.
Breakdown of Net Asset Value at 31 March 2022
Companies / assets Date of Investment Carrying value 3 (#_ftn3) % of NAV
Grayce Jul 18 £43.6m 22.7%
Recruits, trains and deploys graduates into large corporates
RCI Group Sep 18 £41.4m 21.6%
Provider of healthcare, specialist clinical and support services
Kernel Global Jun 18 £18.1m 9.4%
Recruitment for roles within financial services
Butternut Box Jan 18 £14.2m 7.4%
Healthy, subscription-based, direct-to-consumer pet food
Antler Homes Jun 18 £13.7m 7.1%
Housebuilder in the Southeast of England
Top 5 investments £130.9m 68.2%
Vanilla Electronics Jun 20 £9.8m 5.1%
Outsourced supply chain management of electronic components
Wifinity Dec 17 £6.9m 3.6%
Wi-fi provider to hard-to-reach campus locations
Oxygen Freejumping Jul 21 £5.8m 3.0%
Operator of trampoline and adventure parks
Cross Rental Services Nov 21 £5.1m 2.7%
Provider of refrigeration & catering and climate control equipment
EPM Feb 20 £4.1m 2.1%
Software and consulting business to the transport sector
Top 10 investments £162.5m 84.7%
Private equity fund interests £12.3m 6.4%
Other direct investments £16.4m 8.5%
Cash (net of donation provision and other working capital items) £0.8m 0.4%
Net asset value £192.0m 4 (#_ftn4) 100%
Portfolio Company Overview
Following strong performance from the portfolio in 2021, this continued in the
first three months of 2022, with the companies positioned positively for
further growth.
The trading performance and financial condition of the portfolio remained very
strong during this shortened three-month reporting period. Sales and EBITDA
growth year-on-year remained broadly consistent compared to the end of the
prior quarter, with growth of 86% and 130% respectively (on a weighted average
basis) across the buyout investments in BOOK's top ten investments.
Pleasingly, the majority of this growth was driven organically rather than
acquisitions.
Literacy's top five investments comprise 68.2% of NAV on 31 March 2022.
Compared to three months earlier, this was a slight increase, up from 65.0%.
As stated previously, all five of these businesses continue to trade well and
contribute positively to NAV uplifts. We expect these companies to continue
contributing strong results in 2022 and we are pleased to have a high degree
of exposure to businesses that are in such healthy condition. We enjoy a high
degree of both insight and influence in these businesses, and in many cases,
we have appointed several members of the management teams. Therefore, this
concentration is something we are comfortable with and can contribute to BOOK
continuing to perform strongly.
The use of leverage across the portfolio companies remains very conservative
(closing this period again at 1.3x EBITDA on a weighted average basis) and
much lower than traditional private equity managers are used to using. This is
done deliberately to give the management teams of BOOK's portfolio companies
the flexibility and freedom to prioritise growth, rather than being
preoccupied by managing covenants. Low gearing, sales and profit growth are
our priority, rather than financial engineering. We would expect this figure
to fluctuate between 1x and 1.5x, as companies are periodically refinanced.
Top Five Investments
BOOK's portfolio is relatively highly concentrated, with the top five direct
investments equating to 68.2% (up from 65.0% on 31 December 2021) of the
portfolio, while the ten largest direct investments represent 84.7% of net
assets (up from 82.0% three months earlier).
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
of many of the companies BOOK invests in, it can be a year or two before these
improvements turn into meaningful uplifts in value. This is evidenced by all
of BOOK's five largest investments by value having been completed in Literacy
Capital plc's first twelve months. Once the expected growth is delivered, it
can translate into substantial and swift uplifts in the value of BOOK's
stakes.
Company Date of Investment 31 Mar 2022 31 Mar 2022 Total cash realised Accumulated return ∆ in Accum. return since 31 Dec 2021
carrying value % of NAV
Grayce Jul 18 £43.6m 22.7% £7.6m £51.2m £8.0m
RCI Group Sep 18 £41.4m 21.6% £3.4m £44.8m £5.6m
Kernel Global Jun 18 £18.1m 9.4% £0.7m £18.8m £5.3m
Butternut Box Jan 18 £14.2m 7.4% - £14.2m -
Antler Homes Jun 18 £13.7m 7.1% - £13.7m £5.5m
Grayce - www.grayce.co.uk (http://www.grayce.co.uk)
Grayce recruits, trains and employs graduates from top universities for
deployment into large corporates, providing the graduates that they hire with
high-quality training, employment and experience.
The original transaction in July 2018 was to facilitate the exit for one of
the founders who was stepping down. To assist with this transition a new
senior management team was brought into the business in stages. Between BOOK's
initial investment and the end of 2020, a new Chairman, CEO, CFO and Sales
Director were appointed. A new COO was also appointed in January 2022,
constructing a talented team that can scale and run a business of much greater
size.
On 31 March 2018, analyst headcount was 105 with total headcount of 120. By
the end of March 2022, these figures had reached 552 and 637, 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. In the last three months alone, the number of HQ staff
increased from 70 to 85, to support and accelerate the ramp up in growth
expected in the rest of 2022 and 2023.
RCI Group
RCI is primarily a provider of healthcare services and data analytics. The
group provides its specialist services to the police, NHS, custodial settings
and the courts.
BOOK's original investment in September 2018 helped two of the four founders
achieve their retirement plans. To ease this transition and ensure the
business had strong leadership, a new CEO and CFO joined the business at
completion of the transaction. Within nine months, they were joined by a new
Business Development Director and Operations Director, to create a strong team
and platform for growth. This platform was then used to acquire complementary
businesses and broaden the service offering to customers. Three acquisitions
were completed between December 2019 and March 2021, with one further
acquisition being made post 31 March 2022 but prior to the publication of
these accounts.
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.
Kernel Global - www.kernel-global.com (http://www.kernel-global.com)
Kernel Global is the holding company for two recruitment businesses that trade
under the names Dartmouth Partners, which focuses on private equity, corporate
finance, wealth management, finance and legal, and Pure Search, which has a
primary focus on tax, as well as other finance roles.
BOOK's original investment was in June 2018 to support the founder of
Dartmouth. He founded the business in 2012 and needed support to scale the
business and strengthen its management team. A new Chairman and CFO joined in
the early part of 2020, plus a new Head of International in May 2021. The
business also acquired Pure in September 2019 and opened an office in Paris,
which gives the group a broad footprint in several financial centres,
including New York, Hong Kong, London and Frankfurt.
At the point that BOOK invested Dartmouth had 54 staff and net fee income of
around £7m. By the end of March 2022, group headcount and LTM net fee income
exceeded 230 and £37m respectively.
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 £5m 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 £40m 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.
Antler Homes - www.antlerhomes.co.uk (http://www.antlerhomes.co.uk)
Antler Homes is a housebuilder with a longstanding reputation for building
high quality homes in the London commuter belt. The business was set up 50
years ago by its founder, who in 2018 when Literacy Capital invested in the
business, was in his 70s, lived overseas and no longer wished to run or own
the business.
In order to allow the business to continue trading, it needed fresh leadership
and more capital, which Literacy was able to bring. A new Managing Director
and non-executive Director, both with a significant amount of relevant
experience, joined the business at completion of the investment.
Since BOOK's investment, a number of other key hires have been made and
headcount in the business has more than doubled to 31. Literacy has also
supported the business complete three follow-on rounds of funding, including
one in March 2022, as it acquires and develops more land. In the year to 31
June 2022 (FY22), it expects to complete and sell more than 50 private homes
(many to first time buyers) and a further ten to housing associations. The
number of completed homes is expected to more than double in FY23.
Movement in valuation of BOOK's investments
£m 3 months to 31 Mar 2022 12 months to 31 Dec 2021
Opening Investments 163.6 76.7
Direct investments 6.3 10.5
Fund drawdowns 0.2 2.7
Total new investments 6.5 13.2
Proceeds from direct investments (5.7) (10.8)
Proceeds from fund investments (0.1) (1.0)
Cash proceeds received (5.8) (11.8)
Valuation Movement 26.9 85.5
Closing Investments 191.2 163.6
Valuation Movement % (of Opening Portfolio) 16.4% 111.4%
New Investments
No investments in new portfolio companies were completed in the three month
period to 31 March 2022, meaning the number of companies in the portfolio
remained 16. Further cash (amounting to £6.3m) was invested in three existing
BOOK portfolio companies in the period, plus £0.2m was also invested in a
private equity fund, from which we received a drawdown notice in March. BOOK
has commitments to four third-party private equity funds. We do not expect any
more drawdowns or to invest more capital into three of these (the three 2017
and 2018 vintage funds).
Six BOOK portfolio companies completed seven bolt-on acquisitions in 2021 and
so far in 2022, a further two bolt-on acquisitions have been made. We expect
to complete several further bolt-on investments in the remainder of 2022. The
same applies to new platform investments. None were completed in the first
three months of 2022, however we continue to seek high quality opportunities
and expect to make further platform investments in 2022.
Realisation Activity
Cash receipts in the three months to 31 March 2022 remained strong, with
£5.8m received in the period. Nearly all of these proceeds related to a
dividend received from Grayce in January, following a refinancing of the
company. The balance of £0.1m related to a small distribution from a 2017
vintage private equity fund.
We would expect this figure in 2022 to exceed the £11.8m of cash received in
2021, as a result of the increasing maturity of BOOK's portfolio companies and
private equity interests.
Balance Sheet and Financing
BOOK maintained a cash balance of £3.0m at 31 March 2022 (down from £5.2m at
31 December 2021). The cash balance within the Company was carefully and
comfortably managed through the period. Literacy Capital retains the ability
to generate further cash from its portfolio companies. In the period, cash
received from the portfolio was 90% of the amount invested (£5.8m received
compared to £6.5m invested).
Whilst it is clearly essential to retain sufficient liquidity to meet expenses
and have the ability to fund new investment opportunities, maintaining a
significant cash balance would create a cash drag and reduce returns for
shareholders, given the low interest rate environment. In December 2021, the
Company agreed a £15m revolving credit facility ("RCF") which remained
undrawn throughout the period. The RCF provides the Company with additional
flexibility and capital to fund any expenses or new investment opportunities.
On 31 March 2022, the proportion of net assets invested was in excess of 99%.
This has increased over time and compares to 89% on 31 December 2020 and 98%
on 31 December 2021.
£m 31 Mar 2022 31 Dec 2021
Investments 191.2 163.6
Cash 3.0 5.2
Donation Provision (2.1) (2.0)
Other working capital (0.1) (0.6)
Net assets 5 (#_ftn5) 192.0 166.3
Undrawn Fund Commitments by Currency Exposure
The table below shows a total of £4.9m of outstanding obligations to fund
commitments on 31 March 2022, 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 £3.4m (all
callable in Euros).
Regardless of whether the full £4.9m is called or not, BOOK can comfortably
fund these drawdowns from existing cash reserves and headroom in its Revolving
Credit Facility.
£m 31 Mar 2022 31 Dec 2021
Sterling £0.3 £0.3
Euro(2) £3.7 £3.6
US Dollar(2) £0.9 £1.1
Total outstanding commitments £4.9 £5.0
(2) Foreign currencies were converted to GBP at the prevailing rates on 31 Mar
2022
Activity Since the Period End
In April, BOOK made a further investment in Hometree of £250k to support an
acquisition that the business made and later in the same month, also made a
further investment into Alufold amounting to £275k. In May, the Company made
a further investment into Hanmere totalling £892k.
In May, BOOK made its first drawing under the RCF of £1m.
No new investments or other transactions completed in the period since 31
March 2022.
Outlook
We are very pleased with the positive start to 2022 that many companies in
BOOK's portfolio have made 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 of the work performed by the charities that we support and
that our charitable donations have continued to increase in line with BOOK's
rising NAV. This donation is 0.9% of year-end NAV, so will continue to
increase in line with the portfolio companies' success. We hope that BOOK can
make an even more substantial positive impact on disadvantaged children as it
continues to scale.
Charitable Mission
In addition to Literacy Capital plc's investment objectives and strategy, it
also has a charitable mission.
Literacy Capital plc makes an annual donation equivalent to 0.9% of the
Company's net asset value at each year end, thereby providing consistent,
long-term and growing charitable donations as the Company increases in size.
In the three months to 31 March 2022, the total provision recognised for
donations to charities focussing on improving literacy was £434k. We expect
the donations that accrued in 2021 and 2022 will be paid across 2022 and 2023.
Since the creation of Literacy Capital in 2017, more than £3.8m 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
3 months to 31 March 2022 £434k
Total charitable donation provision £3,886k
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 6 (#_ftn6) .
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 7 (#_ftn7) .
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 8 (#_ftn8)
· 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 9 (#_ftn9)
· 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 10 (#_ftn10)
· 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.
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 below.
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:
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 period as well as in the
three month period to 31 March 2022. 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 March 2022 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 period 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 82% 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 in the
beginning of this report.
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 March 2022 Literacy Capital plc had cash reserves of £3.0m (2021:
£5.2m), as well as access to a £15m 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 £2.1m.
The only material obligations that BOOK has relate to undrawn amounts to its
four fund commitments, amounting to £4.9m. However, £1.5m 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 UK Corporate Governance Code, 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 obtain 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. By supporting the charities and working then reviewed by the Investment Manager. Prior to any donations being made,
alongside them, the Company can ensure that the donations are being used as KPIs are typically agreed with the charity, which are then reviewed by the
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
1 June 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 £50m to £150m.
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 period'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 period, 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 a collaborative and collective manor. 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.
In the three month period to 31 March 2022, there was one scheduled board
meeting. The following table sets out whether it was attended by each of the
directors;
Director Scheduled meetings attended
Paul Pindar 1/1
Richard Pindar 1/1
Simon Downing 1/1
Kevin Dady 1/1
Christopher Sellers 1/1
Rachel Murphy 1/1
( )
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 in the beginning of the report.
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 later in this report 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 below later in this report for 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 incentives 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 to review drafts of the Annual, three month shortened
period and Interim Reports and Financial Statements as well as convening at
other times when necessary. 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. 31 December
2021 was the third year for the current partner and this shortened period to
31 March 2022 is the fourth year or period 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 all remunerated 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 three-month period to 31
March 2022, along with each of their shareholdings in the Company at 31 March
2022, is set out in the table below:
Gross Salary Company Pension Contributions Ordinary Shares held in the Company at 31 March 2022 Ordinary Shares held in the Company at 31 May 2022
(Three-months to 31 March 2022)(1)
Director
Paul Pindar & spouse - - 17,000,000 17,000,000
Richard Pindar - - 6,425,000 6,425,000
Simon Downing £6,000 - 3,250,000 3,250,000
Kevin Dady £6,000 - 688,679 688,679
Christopher Sellers £6,000 - 350,000 350,000
Rachel Murphy £6,000 £89 62,500 62,500
The remuneration paid to the Directors during the prior 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 (1 January - 31 December 2021)(2) Company Pension Contributions Ordinary Shares held in the Company
Director
Paul Pindar & spouse - - 17,000,000
Richard Pindar - - 6,425,000
Simon Downing £17,000 - 3,250,000
Kevin Dady £17,000 - 688,679
Christopher Sellers £17,000 - 235,000
Rachel Murphy £18,000 £267 62,500
(1) 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.
(2) 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 Q2 2021, prior to the successful introduction of Literacy
Capital plc to the Specialist Fund Segment.
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 period
ended 31.03.2022 and therefore no payments in respect of compensation for the
loss of office were paid or payable to any Director (2021: 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.
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 three-month
period to 31 March 2022 is given in the Chairman's Statement and Investment
Manager's Report.
Investor Relations
The Company's 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 Wednesday of
January, April, July and October, contain updated information in a more
summarised form, are available on the Company's website
(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 Report and Accounts has been prepared for the three-month period to 31
March 2022.
Results and Dividends
Profit for the three-month period to 31 March 2022, after taxation, amounted
to £26.1m (2021: £78.9m). No dividend is recommended to be paid in respect
of the period ended 31 March 2022. During the three-month period, the total
donation expenses incurred for charitable causes amounted to £434,101 (2021:
£1,526,943). 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, which forms part of the Director's Report, is
set out above earlier in this 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
consume 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 three-month period to 31 March 2022 is £434k. The Company
has donated or reserved for donation more than £3.8m since inception in 2017
to 31 March 2022.
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 March 2022, 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 March
2022. 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 issued 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 31.03.2022, 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
In April, BOOK made a further investment in Hometree of £250k to support an
acquisition that the business made and later in the same month, also made a
further investment into Alufold amounting to £275k. In May, the Company made
a further investment into Hanmere totalling £892k.
In May, BOOK made its first drawing under the RCF of £1m.
No new investments or other transactions completed in the period since 31
March 2022.
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
1 June 2022
Directors' Responsibility Statement
The Directors are responsible for preparing the Report for the three month
period 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
1 June 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 period ended 31 March 2022 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 March 2022 and of the company's profit for the period 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:
o considering whether the techniques and methodologies applied for valuing
investments were in accordance with published guidance, principally the
The company has a significant portfolio of investments totalling £191.2m as requirements of IFRS 13, Fair Value Measurement and the International Private
of 31 March 2022. These are measured at fair value, which is determined in Equity and Venture Capital Valuation Guidelines. This included reviewing and
accordance with IFRS 13, Fair Value Measurement and the International Private challenging the principles and assumptions used in the valuation of
Equity and Venture Capital Valuation Guidelines by using measurements of value investments under each methodology;
such as price of recent transactions subsequently calibrated, earnings
multiples and net assets. Therefore, the valuation methodologies incorporate a o For investments valued on an earnings multiples basis performing a review
significant level of judgement to ascertain fair value under each method. of the Total Gross Asset Value (TGAV) and Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA) multiples used and assess whether the
multiples applied by management are within a reasonable range of fair value in
comparison to market transactions;
There is therefore a risk that inappropriate judgements made under each
methodology may lead to a material misstatement of the investment values. o For investments valued using the recent transaction method, obtaining an
understanding of the circumstances surrounding the transaction and whether it
We therefore identified valuation of investments as a key audit matter as it was considered to be carried out on an arms-length basis and therefore
had a significant effect on our overall audit strategy and allocation of suitable as an input to the valuation; and
resources.
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 period-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 March 2022 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 £1,896,617
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 £1,327,632.
Reporting threshold We agreed with the directors that we would report to them misstatements
identified during our audit above £56,899 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 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 period 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 their
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, 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 period; 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 year and 3 months, covering the years
ended 31 December 2019 to 31 December 2021, and a 3 month period ended
engagement to 31 March 2022.
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: 1 June 2022
Financial Statements
Statement of comprehensive income
For the three months ended 31 March 2022
For the three For the year ended
months ended 31 December 2021
31 March 2022
Total Total
Note £ £
Gains on investments
12 Gain on fair value on investments 21,104,394 81,475,045
12 Realised gain on disposal of investments 28,677 4,094,913
Gains for the period on investments 21,133,071 85,569,958
6 Investment income 5,724,647 3,527
7 Operating income 183 45
Total 5,724,830 3,572
Total income 26,857,901 85,573,530
Expenses
8 Operating expenses (809,290) (2,997,377)
Total operating expenses (809,290) (2,997,377)
10 Charitable donations (434,101) (1,526,943)
Net foreign exchange loss 62,606 (3,039)
Profit for the period before taxation 25,677,116 81,046,171
11 Tax credit / (expense) 456,802 (2,112,742)
Profit for the period 26,133,918 78,933,429
Other comprehensive income - -
Total comprehensive income 26,133,918 78,933,429
Earnings per share for profit attributable to the ordinary shareholders of the
company:
18 Basic earnings per share 43.56 pence 131.56 pence
18 Diluted earnings per share 43.34 pence 130.90 pence
The accompanying notes form an integral part of these financial statements.
Statement of financial position
As at 31 March 2022
Company number: 10976145
31 March 2022 31 December 2021
Note £ £
Non-current assets
12 Investments 191,213,506 163,643,809
191,213,506 163,643,809
Current assets
13 Trade and other receivables 528,608 556,281
16 Cash and cash equivalents 2,982,399 5,202,210
Unpaid share capital debtors 49,950 49,950
3,560,957 5,808,441
Current Liabilities
14 Trade and other payables 604,847 1,137,310
10 Accrual for charitable donation 1,706,935 1,344,476
2,311,782 2,481,786
Net current assets 1,249,175 3,326,655
Non-current liabilities
10 Accrual for charitable donation 434,101 619,000
15 Deferred tax liabilities 1,910,072 2,366,874
Total non-current liabilities 2,344,173 2,985,874
Net assets 190,118,508 163,984,590
Capital and reserves
17 Share capital 109,950 109,950
Share premium 53,946,000 53,946,000
Retained earnings 136,062,558 109,928,640
Total share capital & reserves 190,118,508 163,984,590
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 1 June 2022 and were signed on its behalf by:
Paul Pindar
Director
1 June 2022
Statement of changes in equity
For the three months ended 31 March 2022
For the three months ended 31 March 2022 Share capital Share premium Retained earnings Total
£ £ £ £
Balance at 31 December 2021 109,950 53,946,000 109,928,640 163,984,590
Profit for the period - - 26,133,918 26,133,918
Other comprehensive income for the period - - - -
Total comprehensive income for the period - - 26,133,918 26,133,918
Contributions by and distributions to owners
Issue of ordinary shares - - - -
Total transactions with owners - - - -
109,950 53,946,000 136,062,558 190,118,508
Balance as at 31 March 2022
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 period - - -
-
Total comprehensive income for the period - - 78,933,429 78,933,429
Contributions by and distributions to owners
Issue of new shares - - - -
Total transactions with owners - - - -
109,950 53,946,000 109,928,640 163,984,590
Balance at 31 December 2021
Statement of Cash flows
For the three months ended 31 March 2022
Note For the three months ended For the year
31 March 2022 ended
31 December 2021
Cash flows from operating activities £ £
Cash inflow/(outflow) from operating activity
Loan notes interest received - 60,486
Management fee paid (458,083) (1,317,163)
Payroll expenses (26,284) (67,306)
Other operating expenditures (829,694) (1,545,074)
Charitable donations paid (256,538) (257,609)
Net cash used in operating activities (1,570,599) (3,126,666)
Cash flows from investing activities
Cash inflow/(outflow) from investing activities
Purchase of Investments (6,482,722) (13,203,261)
Cash realised from investments 5,833,283 11,805,193
Net cash used in investing activities (649,439) (1,397,348)
Net decrease in cash and cash equivalents (2,220,038) (4,524,014)
16 Cash and cash equivalents - opening balance 5,202,210 9,725,688
Effect of exchange rate fluctuations on cash and cash equivalents 227 536
Cash and cash equivalents - closing balance 2,982,399 5,202,210
The accompanying notes form an integral part of these financial statements.
Notes to Financial Statements
For the three months ended 31 March 2022
1. Reporting to entity
Literacy Capital plc (the "Company") is a public limited company, limited by
shares, incorporated in United Kingdom. The Company's registered office is 3rd
Floor, Charles House, 5-11 Regent Street St James's, London, SW1Y 4LR.
Literacy Capital plc is a closed-end investment company focused on investing
in and supporting small, growing UK businesses and helping their management
teams to achieve long-term success.
2. Basis of preparation
These financial statements for the three month period to 31 March 2022 have
been prepared in accordance with UK-Adopted international accounting standards
and as applied in accordance with the provisions of the Companies Act 2006.
The comparatives are for a longer period covering the twelve months to 31
December 2021.
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 March 2022 Literacy Capital plc had cash reserves of £3.0 million
(2021: £5.2 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
£2.1 million.
The only material obligations that BOOK has relate to undrawn amounts to its
four fund commitments, amounting to £4.9m. However, £1.5m 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 March 2022 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 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.
The expected credit losses estimated for the financial statements are
immaterial, therefore this has not been included in the debtors.
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 period 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 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 Group 1(st) Floor, Hilton House, Hilton Street, Manchester, England, M1 2EH
Alufold Direct Unit 13, Philips Road, Whitebirk Industrial Estate, Blackburn, BB1 5AQ
RCI Group First Floor, Station Place, Argyle Way, Stevenage, England, SG1 2AD
Antler Homes Knightway 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.
3.9 Operating Segments
The Board consider that the Company has one operating segment, being the
activity of investing in unquoted companies primarily for capital appreciation
in accordance with the Company's published investment objective as disclosed
in the Strategic Report. The Company operates within the United Kingdom. The
Board therefore concludes that further disclosures under IFRS 8 Operating
Segments are not required.
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.
A foreign currency transaction is recorded initially at the rate of exchange
at the date of the transaction. Assets and liabilities are translated from
foreign currency to the functional currency at the closing rate at the end of
the reporting period. The resulting gains or losses are included in the
statement of comprehensive income.
5. Accounting estimates and judgments
The preparation of 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 three months ended 31 March 2022 For the year ended
31 December 2021
£ £
Distribution of income from investments 5,724,647 3,527
Total 5,724,647 3,527
7. Operating Income
The following is an analysis of the Company's revenue for the period from
continuing operations.
Analysis of revenue by country of destination:
For the three months ended 31 March 2022 For the year ended
31 December 2021
£ £
United Kingdom 183 45
183 45
8. Operating Expenses
For the three months ended 31 March 2022 For the year ended
31 December 2021
£ £
Non-Executive Director remuneration 26,180 70,218
Auditor remuneration 57,500 52,500
Other operating expenses 725,610 2,874,659
809,290 2,997,377
9. Employees
The Company has no employees, however, the average number of Directors, during
the period was 6 (2021: 6).
10. Charitable donations
The Company has recognised charitable donation expenses of £434,101 (2021:
£1,526,943) calculated by applying 0.9% to a pro forma Net Asset Value
adjusted for fair value uplifts of £192.9 million (2021: £169.7 million).
During the period, donations paid were £256,538 (2021: £257,609). The
accrual for charitable donations at the period end amounts to £2,141,036
(2021: £1,963,476). See Note 21 liquidity risk disclosure for maturity
analysis of the accrual for charitable donations.
11. Taxation
For the three months ended 31 March 2022 For the year ended 31 December 2021
£ £
Current taxation
United Kingdom corporation tax at 19% (2021: 19%) - -
Adjustments in respect of prior periods - 364,729
- 364,729
For the three months ended 31 March 2022 For the year ended 31 December 2021
£ £
Deferred taxation
Origination and reversal of temporary differences (643,197) 1,725,470
Utilisation of a deferred tax asset - -
Adjustments in respect of prior periods 186,395 (131,394)
Effect of tax rate change on opening balance - 153,937
(456,802) 1,748,013
(456,802) 2,112,742
The actual tax charge for the current and previous periods differs from the
standard rate for the reasons set out in the following reconciliation:
For the three months ended 31 March 2022 For the year ended 31 December 2021
£ £
Profit on ordinary activities before taxation 25,677,116 81,046,171
Tax on profit on ordinary activities at standard rate of 19% (2021: 19%) 4,878,652 15,398,772
Factors affecting tax charge for the period:
Income not taxable in determining taxable profit (4,262,250) (16,520,630)
Expenses not deductible for tax purposes and other adjustments 21,201 580,600
Deferred tax on fair value gain on investments (Note 16) - -
Other permanent differences - (41)
Exempt ABGH distributions (1,116,724) (9,998)
Chargeable gains/(losses) (9,709) 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 186,395 (131,394)
Remeasurement of deferred tax for changes in tax rates (154,367) 568,050
Total tax on profit on ordinary activities (456,802) 2,112,742
The tax has been calculated using a 19% corporation tax rate being the
substantively enacted rate for the year starting 1 April 2021. The deferred
tax, however, has been calculated using a 25% corporation tax rate, being the
substantively enacted rate for the year starting 1 April 2023.
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 period. The net
taxation credit through the profit and loss account is £456,802 (2021:
expense of £2,112,742).
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 March 2022 31 December 2021
£ £
Assets
Financial assets at fair value through profit or loss
Equity instruments at fair value through profit or loss 152,352,376 125,308,419
Debt instruments at fair value through profit or loss 38,861,130 38,335,390
Financial assets at amortised cost
Cash and cash equivalents 2,982,399 5,202,210
Trade and other receivables (excluding prepayments) 542 542
Total financial assets 194,196,447 168,846,561
Liabilities
Financial liabilities measured at amortised cost
Trade and other payables 604,847 1,137,310
Total financial liabilities 604,847 1,137,310
The investment reconciliation schedule for the Company as at 31 March 2022 is
as follows:
Equity instruments at fair value through profit or loss Debt instruments at fair value through profit or loss 31 March 2022
Total
£ £ £
Investments at 31 December 2021 125,308,419 38,335,390 163,643,809
Additions 4,797,117 1,685,605 6,482,722
Disposal of investments (108,635) - (108,635)
Realised gain on disposal of investments 28,677 - 28,677
Fair value movement through profit or loss 22,264,259 (1,159,865) 21,104,394
Unrealised FX gain / (loss) 62,539 - 62,539
Investments at 31 March 2022 152,352,376 191,213,506
38,861,130
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 and TGAV 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 on below later in this report.
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
March 2022 to arrive at the Directors' best estimate of fair value. The
estimated valuations therefore do not take into consideration the unrealised
market movements between the underlying managers reporting date and 31 March
2022. The valuations that the underlying managers ultimately provide as at 31
March 2022 may therefore materially differ to the latest valuation report
available at the time of preparing these financial statements.
Fair value hierarchy - Financial assets at fair value through profit and loss
Financial assets and liabilities
31 March 2022 Level 1 Level 2 Level 3 Total
£ £ £ £
Equity instruments at fair value through profit or loss - 12,269,604 140,082,772 152,352,376
Debt instruments at fair value through profit or loss - - 38,861,130 38,861,130
Total investments - 12,269,604 178,943,902 191,213,506
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
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 March 2022 31 December 2021
Unquoted investments (including debt) £ £
Balance as at 1 January 152,597,441 70,602,994
Additional investments 6,255,355 10,519,503
Disposals of investments (711) (10,802,233)
Realised gain / (loss) - 3,938,778
Change in fair value through profit & loss 20,091,817 78,338,399
Balance as at 31 March / 31 December 178,943,902 152,597,441
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant unobservable inputs
used at 31 March 2022 in measuring financial instruments categorised as Level
3 in the fair value hierarchy.
Description Inputs Fair value at Fair value at Significant unobservable
31 March 2022 31 December 2021 Inputs
£ £
Unquoted private equity investments (including debt) 144,574,447 125,457,753 EBITDA multiple
20,701,585 27,139,690 Milestone
Unquoted growth capital investments
13,667,870 TGAV Multiple
Unquoted private equity investments (including debt) -
178,943,902 152,597,441
Significant unobservable inputs used in measuring fair value are developed as
follows:
· EBITDA and TGAV multiples: valuation multiples used by other market
participants when pricing comparable assets. Where relevant and comparable
private companies have recently been sold, which are deemed to be proximate to
the Company's investments (based on similarity of sector, size, geography or
other relevant factors), these multiples are captured for valuation purposes.
Where relevant, or where insufficient private transactions have been
identified, valuation data for public companies may also be used.
· Milestone: for assets which have recently completed fundraising
rounds, the Company uses these valuations when determining its own holding
valuations.
Although the Company believes that its estimates of fair value are
appropriate, the use of different methodologies or assumptions could lead to
different measurements of fair value. For fair value measurements of Level 3
assets, changing one or more of the assumptions used to reasonably possible
alternative assumptions would have the following effects on the Level 3
investment valuations:
· For the Company's investment in Level 3 assets which are valued using
an EBITDA multiple, the valuations used in the preparation of the financial
statements imply an average EBITDA to Enterprise Value multiple of 8.2x
(weighted by each asset's total valuation). The key unobservable inputs into
the preparation of the valuation of mature Level 3 assets was the EBITDA to
Enterprise Value multiple applied to the asset's financial performance. If
these inputs had been taken to be 10 per cent. higher, the value of the Level
3 assets and profit for the period would have been £20.5m higher. If these
inputs had been taken to be 10 per cent. lower, the value of the Level 3
assets and profit for the period would have been £20.8m lower
· The Company's one investment in a Level 3 asset which is valued using
a TGAV multiple, was valued at 1.2x in the preparation of the financial
statements. The key unobservable inputs into the preparation of the valuation
of mature Level 3 assets was the TGAV to Enterprise Value multiple applied to
the businesses' assets. If this had been taken to be 10 per cent. higher, the
value of the Level 3 asset and profit for the period would have been £2.4m
higher. If these inputs had been taken to be 10 per cent lower, the value of
the Level 3 asset and profit for the period would have been £2.4m lower.
· For the Company's investment in Level 3 assets which are valued using
Milestone, the use of different methodologies or assumptions could lead to
different measurements of fair value. The key unobservable inputs into the
preparation of the valuation was the Revenue to Enterprise Value multiple
used. If the output had been taken to be 10% higher, the value of the Level 3
assets would have been £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 March 2022 31 December 2021
£ £
Prepayments 528,066 555,739
Other receivables 542 542
528,608 556,281
14. Trade and other payables
31 March 2022 31 December 2021
£ £
Trade payables 96,907 31,734
Accrued expenses 503,637 1,101,171
Other creditors 4,303 4,405
604,847 1,137,310
15. Deferred Tax
The following are the deferred tax assets and liabilities recognised by the
Company and the movements during the three months ended 31 March 2022:
Fair value gain on investments Tax losses Short term timing differences Total
£ £ £ £
At 1 January 2022 (3,226,118) 368,349 490,895 (2,366,874)
(Charge)/credit to income 19,944 392,493 44,365 456,802
At 31 March 2022 (3,206,174) 760,482 535,260 (1,910,072)
The following are the deferred tax assets and liabilities recognised by the
Company and the movements during the year ended 31 December 2021:
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-Mar-22 31-Dec-21
£ £
Deferred tax liability (1,910,072) (2,366,874)
(1,910,072) (2,366,874)
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 (2021:
£nil) available for offset against future profits.
16. Cash and cash equivalents
31 March 2022 31 December 2021
£ £
Cash at bank and hand 2,982,399 5,202,210
2,982,399 5,202,210
17. Share Capital
2022 2022 2021 2021
Number £ Number £
Ordinary shares of £0.001 each 60,000,000 60,000 60,000,000 60,000
Deferred shares of £0.001 each 49,950,000 49,950 49,950,000 49,950
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 March 2022 (2020: 60,000,000
shares amounting £60,000).
· 49,950,000 shares amounting £49,950 were outstanding as at 31 March
2022 (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.
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 £26,133,918 (for the
year ended 31 December 2021: profit of £78,933,429) divided by the weighted
average number of shares outstanding during the period of 60,000,000 (for the
year ended 31 December 2021: 60,000,000).
Diluted profit per share is calculated by dividing the profit of the Company
for the period attributable to the ordinary shareholders of £26,133,918 (for
the year ended 31 December 2021: profit of £78,933,429) 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 2021: 60,302,500).
19. NAV per share (pence)
The Company's NAV per share of 316.86 pence (for the year ended 31 December
2021: 273.31 pence) is based on the net assets of the Company at the period
end of £190,118,508 (for the year ended 31 December 2021: £163,984,590)
divided by the shares in issue at the end of the period of 60,000,000 (for the
year ended 31 December 2021: 60,000,000).
The NAV per share of 320.0 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 316.19 pence (for the year ended 31
December 2021: 272.85 pence) is based on the net assets of the Company at the
period end of £190,118,508 (for the year ended 31 December 2021:
£163,984,590), plus £550,110 which the Company will receive as proceeds from
the exercise of warrants, divided by the shares in issue at the end of the
period, as adjusted for the effects of dilutive potential ordinary shares of
60,302,500 (for the year ended 31 December 2021: 60,302,500).
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 319.27 pence (for
the year ended 31 December 2021: 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 March 2022 31 December 2021
Number Number
Weighted average number of ordinary shares used as the denominator in 60,000,000 60,000,000
calculation of basic earnings share
Adjustments for calculation of diluted earnings per share :
Issue of Warrants 302,500 302,500
Weighted average number of ordinary shares and potential ordinary shares 60,302,500 60,302,500
used as the denominator in calculating diluted earnings per share
20. Reserves
The following are the reserves with the entity as on 31 March 2022:
· 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 March 2022 Less than 1 Year 1 - 5 Years Over 5 years No stated maturity £
£
£
£
Financial liabilities
Trade and other payables 101,210 - - -
Accruals 503,637 - - -
Accrual for charitable donation 1,706,935 434,101 - -
Total 2,311,782 434,101 - -
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 - -
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 March 2022 31 December 2021
£ £
Trade and other receivables (excluding prepayments) 542 542
Cash and cash equivalents 2,982,399 5,202,210
2,982,941 5,202,752
The maximum exposure to credit risk before any credit enhancements as at 31
March 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 period ended 31 March 2022
(2021: £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 period end BOOK had outstanding commitments to three
fund investments denominated in EUR and USD totalling £4.9m. 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:
31 March 2022 31 December 2021
% change in foreign currency rates % change in NAV Value of Net Assets % change in NAV Value of Net Assets
No change - 190,118,508 - 163,984,590
10% favourable change 0.45% 190,977,855 0.39% 164,260,595
10% unfavourable change (0.37)% 189,415,406 (0.44)% 163,261,345
The below tables show a sensitivity analysis on the impact of foreign exchange
rate movements on the profit and loss of the Company:
31 March 2022 31 December 2021
% change in foreign currency rates % change in profit or loss Value of Profit or Loss % change in profit or loss Value of Profit or Loss
No change - 26,133,918 - 78,933,429
10% favourable change 3.29% 26,993,265 0.81% 79,569,434
10% unfavourable change (2.69)% 25,430,816 (0.92)% 78,210,184
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 period was £434,101 (2021: £1,526,943). The total expense related to the
rendering of AIFM services during the period. At the period end the balance
due to be paid to the LLP for these services was £62,838 (2021: £633,073).
The Company recognises Bookmark Reading Trading Limited as a related party
because Sharon Pindar, wife of Paul Pindar, is a Director in Bookmark Reading
Trading Limited.
The Company also recognises Bookmark Reading Charity as a related party for
the same reason as mentioned above for Bookmark Reading Trading Limited.
The total payments made during the period was £231,538 (2021: £219,109). The
Company has a provision or charity and other donation payments amounting to
£2,141,036 (2021: £1,963,476). 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 (2021: €4,323,240), £294,530
(2021: £294,530) and $1,200,000 (2021: $1,500,000) remain outstanding and are
yet to be drawn down.
24. Subsequent events
In April, BOOK made a further investment in Hometree of £250k to support an
acquisition that the business made and later in the same month, also made a
further investment into Alufold amounting to £275k. In May, the Company made
a further investment into Hanmere totalling £892k.
In May, BOOK made its first drawing under the RCF of £1m.
No new investments or other transactions completed in the period since 31
March 2022.
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 31.03.2022:
Gross Method Commitment Method
Maximum level of leverage 120% 120%
Actual level at 31 March 2022 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 Report and Accounts for the three
month period to 31 March 2022. 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
English Legal Adviser to the Company
Literacy Capital Asset Management
LLP
Travers Smith LLP
10 Snow Hill
Company
Secretary
London
Literacy Capital Asset Management
LLP
EC1A 2AL
Corporate
Broker
Independent Auditor
Singer Capital Markets Securities
Limited
Mazars LLP
One Bartholomew
Lane
The Pinnacle
London
160 Midsummer Boulevard
EC2N
2AX
Milton Keynes
MK9 1FF
Administrator
EPE Administration
Limited
Bankers
Audrey
House
Santander UK plc
16-20 Ely
Place
2 Triton Square
London
Regent's Place
EC1N
6SN
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
June 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
March Annual report and financial
statements published
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).
1 (#_ftnref1) 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 (#_ftnref2) 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.
3 (#_ftnref3) All the figures are rounded to one decimal place and so whilst
the totals are correct, they do not cast due to the rounding.
4 (#_ftnref4) 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.
5 (#_ftnref5) 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.
6 (#_ftnref6) Department for Education
7 (#_ftnref7) Education Endowment Foundation
8 (#_ftnref8) Centre for Education and Youth
9 (#_ftnref9) National Literacy Trust
10 (#_ftnref10) World Literacy Foundation
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