Interim Report and Accounts

RNS Number : 6730I

Literacy Capital PLC

16 August 2021

 

The information contained in this announcement is restricted and is not for publication, release or distribution in the United States of America, any member state of the European Economic Area, Canada, Australia, Japan or the Republic of South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

16 August 2021

Literacy Capital plc ("Literacy" or the "Company")

Publication of Interim Report and Accounts

Literacy Capital plc has released its unaudited Interim Report and Accounts for the six months ended 30 June 2021. An electronic copy can be viewed at:

www.literacycapital.com/investors/reports-and-results

A copy of the above document has been submitted to the National Storage Mechanism.

-ENDS-

For further information, please contact:

Literacy Capital plc / Literacy Capital Asset Management LLP:

Tom Vernon

[phone]

Singer Capital Markets Securities Limited:

Robert Peel / Amanda Gray

[phone]

LEI: 2549006P3DFN5HLFGR54

A copy of this announcement will be available on the Company's website at https://www.literacycapital.com/.

The information contained in this announcement regarding the Company's investments has been provided by the relevant underlying portfolio company and has not been independently verified by the Company. The information contained herein is unaudited.

This announcement is for information purposes only and is not an offer to invest. All investments are subject to risk.  Past performance is no guarantee of future returns.  Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision.  The value of investments may fluctuate.  Results achieved in the past are no guarantee of future results. Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website for any other website, is incorporated into, or forms part of, this announcement nor, unless previously published by means of a recognised information service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.

Unaudited Interim Results for Literacy Capital plc

("Literacy Capital", the "Company" or "BOOK")

For the six months ended 30 June 2021

Focus on helping to build great businesses to generate superior returns

v NAV per ordinary share of 183.1p¹

o  Net assets of £109.8m¹, an increase in net assets of 28.2% in the six months to 30 June 2021

o  The FTSE Investment Company Index and FTSE All-Share, returned 6.9% and 9.3% respectively over the same period

o  Estimated NAV per ordinary share and net assets of 196.1p and £117.6m respectively as at 10 August 2021, following the uplift in valuation of Butternut Box subsequent to its latest funding round

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  45% revenue growth and 68% EBITDA growth on a weighted average, LTM basis across the eight buyout investments within Literacy Capital's top 10 direct holdings. These eight companies represent 67.6% of NAV

v Significant activity and value creation initiatives across the portfolio companies

o  Completed one new platform investments in H1, as well as four bolt-on acquisitions by our portfolio companies

o  Have helped to build and strengthen the management teams of a number of portfolio companies through several senior hires

v Reduced cash drag and maturing investments improving the rate of NAV growth, whilst retaining cash to complete new investments

o  £8.0m of available cash to fund new investments and uncalled fund commitments. Refinancing of certain portfolio companies planned in H2 2021 anticipated to generate further cash to redeploy

o  Continue to maintain a strong pipeline of potential, high-quality investments for the future

v Increasing charitable donations, helping disadvantaged children across the UK get a fair chance

o  £495k of charitable donation provided for in H1 2021, up 51% on the same period in 2020, in line with growth in NAV

o  Total donations of over £2.4m since inception of Literacy Capital

Performance to 30 June 2021

% Total return	3 months	6 months	1 year	3 years	Since Inception
BOOK Net asset value	+14.0%	+28.2%	+51.0%	+103.4%	+103.4%
BOOK Share Price	+18.9%	n/a	n/a	n/a	n/a
FTSE Investment Company Index	+6.4%	+6.9%	+30.5%	+43.5%	+48.5%
FTSE All-Share Index	+4.8%	+9.3%	+17.7%	(4.5)%	(2.7)%

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 UK companies and to help their management teams achieve long-term success. Our closed-ended, permanent capital structure means we can be a long-term, highly ambitious and flexible partner. We are focused on smaller businesses, where our expertise can greatly enhance the size and value of these companies, contributing to superior returns for BOOK shareholders. We are also proud to have a charitable mission helping disadvantaged children in the UK learn to read, giving them a fair chance in life.

Richard Pindar, CEO of the Investment Manager and Director of Literacy Capital plc, commented:

"We are pleased with the way in which our portfolio has continued to trade in the first half of 2021 and the consequent uplift in NAV. The resilience of both our businesses and their management teams has been impressive and encouraging in equal measure.

Despite the challenges posed by Covid-19, with travel restrictions and lockdowns across the UK and other parts of the globe, as well as heightened and volatile demand in certain areas of the economy, our management teams have performed well. Consequently, several of our businesses are exceeding our expectations. In particular, many of our larger assets are enjoying buoyant demand and strong momentum, which we expect to fuel further NAV uplifts in H2 2021.

Looking ahead, due to the growth, strong trading and cash generation of several of our portfolio companies, we believe we can unlock opportunities to generate cash from the portfolio to finance future new portfolio company investments for Literacy Capital. This ensures we can avoid falling into the trap of selling high performing investments prematurely. It is pleasing that more than 90% of BOOK's assets are now invested, rather than remaining in cash earning no return. We continue to appraise a number of new investment opportunities, as well as possible bolt-on acquisitions and other initiatives to build value within our existing portfolio."

Enquiries

For further information, please contact:

Literacy Capital plc / Literacy Capital Asset Management LLP:

Richard Pindar / Tom Vernon  [phone]

Singer Capital Markets Securities Limited:

Robert Peel / Amanda Gray  [phone]

Website:

www.literacycapital.com

Comparison to prior financial year

	Six months to/as at 30 June 2021	12 months to/as at 31 December 2021
Net asset value	£109.8m	£85.6m
NAV per ordinary share2	183.1p	142.7p
Capital invested	£4.7m	£16.6m
Cash realised	£5.6m	£3.8m
Charitable donation provision	£495k	£772k

² For comparability, 31 December 2020 NAV per ordinary share is presented on a fully diluted basis taking account of the 6,000,000 A growth shares then in issue which have since converted to ordinary shares.

Disclaimer

A copy of this announcement will be available on the Company's website at www.literacycapital.com.

The information contained in this announcement regarding the Company's investments has been provided by the relevant underlying portfolio company and has not been independently verified by the Company.

This announcement is for information purposes only and is not an offer to invest. All investments are subject to risk.  Past performance is no guarantee of future returns.  Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision.  The value of investments may fluctuate.  Results achieved in the past are no guarantee of future results. Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website for any other website, is incorporated into, or forms part of, this announcement nor, unless previously published by means of a recognised information service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.

This announcement may include "forward-looking statements". All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Company's products and services) are forward-looking statements. Forward-looking statements are subject to risks and uncertainties and accordingly the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These factors include but are not limited to those described in the formal Prospectus. These forward-looking statements speak only as at the date of this announcement. The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect actual results or any change in the assumptions, conditions or circumstances on which any such statements are based unless required to do so by the Financial Services and Markets Act 2000, the Listing Rules or Prospectus Regulation Rules made under Part VI of the Financial Services and Markets Act 2000 of the Financial Conduct Authority or other applicable laws, regulations or rules.

Chairman's Foreword

I am delighted to write my first Chairman's foreword since Literacy Capital Plc was admitted to trading on the Specialist Fund Segment of the London Stock Exchange's Main Market on 25 June 2021.

I will start by setting out both what we are seeking to achieve and what makes us so different from 'traditional' private equity funds.

Our mission is to help to build smaller, privately owned UK businesses into truly great companies. Our capital structure allows us to take a long-term view and to make long term decisions. We are happy to hold our investments forever; but we are always respectful of the wishes and ambitions of our management teams, who we view as genuine partners alongside ourselves. Most importantly, we do not view our companies as chattels to be simply bought and sold. We view each company as having the potential to be carefully nurtured for the benefit of all of its stakeholders.

We are actively involved in helping our businesses. This may be through sourcing great people; through helping with M&A; through offering advice and experience. And sometimes, it is simply by giving our management teams the confidence to try something new or different without fear of failure.

Unusually, the investment team that is responsible for investing shareholder's money, their family members and the Board of Directors together own over 50% of Literacy Capital itself. This creates genuine alignment with shareholders as a whole. We are not incentivised to accumulate assets nor to sell great companies prematurely. But we are strongly incentivised to build value for the benefit of all our shareholders.

Whilst we believe we can generate superior returns for our shareholders, we are also proud to have a charitable mission to benefit disadvantaged children across the UK. Quite simply, we want every child to read. Bookmark Reading Charity, an organisation we have supported continuously since its creation, is doing a remarkable job teaching thousands of young children, with significant funding provided by Literacy Capital.

Our Investment Manager's Report shows that Literacy Capital has made a strong start as a public company. We are shareholders in some excellent businesses, led by highly capable and ambitious management teams. Our journey has begun and we believe we will create significant value over the coming years. We view the future with great optimism.

Paul Pindar

Chairman, Literacy Capital plc

16 August 2021

Investment Manager's Report

Performance Overview

We are pleased with the performance of BOOK over the first six months of the year. On 30 June 2021, net asset value (NAV) was £109.8 million, or 183.1p per share, an increase of 28.2% since 31 December 2020. This growth is despite the additional one-off costs associated with the introduction of BOOK to the London Stock Exchange on 25 June 2021, equating to approximately £731k (or 1.2p per share).

Growth was driven by good progress from several portfolio companies, but especially from RCI Health Group and Grayce, which continue to enjoy strong demand for their services.

In the six months to 30 June 2021, BOOK's NAV return outpaced the FTSE closed end investment index, which generated a positive return of 6.9% in share price terms.

Following BOOK's admission to the London Stock Exchange on 25 June 2021 at £1.60 per share, the share priced closed on 30 June 2021 at £1.90 per share, an increase of 18.8%.

Cash received in the six month period was higher than all of 2020, driven by the refinancing of portfolio companies and distributions from fund investments, rather than any disposals of portfolio companies. No equity in any portfolio company was sold in H1 2021.

Movement in the Portfolio

£m	6 months to 30 June 2021	12 months to 31 Dec 2020
Opening portfolio	76.7	45.8
Direct investments	3.9	15.1
Fund drawdowns	0.8	1.5
Total new investments	4.7	16.6
Cash realised	(5.6)	(3.8)
Valuation Movement	26.0	18.2
Closing Portfolio	101.8	76.7
Valuation Movement % (of Opening Portfolio)	34.0%	39.9%

Portfolio Overview

The trading performance, momentum and financial position of the companies within the portfolio is strong.

Across BOOK's top ten investments (excluding the two growth capital investments, Butternut Box and Antler Homes, present within the top ten), revenue increased +45% year-on-year on a weighted average basis. EBITDA grew even more quickly (+68%), as margins improved due to the businesses focusing on higher margin work, and gaining greater scale and maturity, following earlier investment in the businesses' management teams and operational infrastructure.

The growth of these companies has accelerated since our investment in them. Seven of the eight companies are now reporting annual revenue growth in excess of 10%, whereas this was the case for just half of them at the point we invested. Using the same weighting and same eight companies as above, their average revenue and EBITDA growth at the point we invested were +16% and +14% respectively.

Combined headcount on 30 June 2021, for all ten companies that comprise Literacy Capital's ten largest investments, was 2,574 (1,478 on 31 December 2020 for the same ten companies). This growth in headcount is split evenly between growth in staff numbers due to acquisitions and hiring organically.

Literacy Capital's majority holdings in RCI Health Group and Grayce are particularly important to the portfolio, given their weighting. At the end of June 2021, both were experiencing higher LTM sales growth than the +45% average referred to above for the top ten investments. Their momentum and financial position remain very resilient, and we believe that they can continue to drive NAV uplifts and outperformance.

Portfolio companies' use of leverage remains highly conservative (1.4x EBITDA on a weighted average basis) and much lower than investments of traditional private equity fund managers typically employ. This is to provide flexibility to BOOK's portfolio companies and to allow them to invest without needing to comply with onerous covenants. Low gearing, sales growth and operational improvement is our priority, rather than excessive leverage or financial engineering.

New Investments

We have continued to make investments into standalone businesses as well as supporting bolt-on acquisitions for our existing portfolio. A total of £4.7m was invested in the six months to 30 June 2021, which included fund drawdowns.

In April 2021, we completed one new investment, acquiring 24.6% of the TheVeganKind (TVK), an online retailer of vegan products. Based in Glasgow, TVK's mission is "to make a vegan lifestyle accessible to all, providing world class customer service and offering the widest range of products to show how simple it is to live life vegan". We look forward to supporting the team and helping them to expand TVK even further.

A total of four bolt-on acquisitions have been made so far this year, across RCI Health Group, Vanilla Electronics, Hanmere and EPM. The acquisitions are expected to help the businesses scale more quickly and broaden the range of products and services available to their customers.

We also made one new primary fund commitment, denominated in Euros, and free of all management fees and carried interest, to a global fund managed by a leading private equity manager.

Realisation Activity

Cash inflows in the six months to 30 June 2021 totalled £5.6m, compared to £3.8m in the 12 months to 31 December 2020. The £5.6m was largely driven by the refinancing of two portfolio companies, as well as distributions from third-party fund interests, where these funds are approaching maturity.

Further refinancing activity within the portfolio is planned in the second half of the year, as we continue to ensure BOOK has sufficient cash to complete new investments in our pipeline.

Balance Sheet and Financing

BOOK's cash position improved slightly, as a result of the inflows from portfolio companies outweighing new investment and fund expenses. The cash balance increased to £10.0m at 30 June 2021 (31 December 2020: £9.7m). At the end of H1 2021, 93% of net assets were invested in private companies (rather than cash), compared to 89% at 31 December 2020.

£m	30 June 2021	31 Dec 2020
Portfolio	101.8	76.6
Cash	10.0	9.7
Donation Provision	(1.2)	(0.7)
Other working capital	(0.8)	-
Net assets	109.8	85.6

Activity Since the Period End

Literacy Capital made one new portfolio company investment in July 2021, acquiring a majority stake in Oxygen Freejumping, an operator of trampoline parks in the UK. The investment will provide Oxygen Freejumping with fresh capital, enabling the business to enhance its offering across its existing sites, improve the customer experience and engagement, and expand its estate across the UK.

One of our existing portfolio companies also completed a further funding round since 30 June 2021. Butternut Box completed a fundraising round on 10 August 2021, which valued Literacy Capital's stake at a 122% premium to its carrying value at 30 June 2021.

The estimated uplift from this transaction relative to BOOK's net asset value at 30 June 2021 is approximately 7.1%, or 13 pence per share. Had Butternut Box been valued at this valuation at 30 June 2021, BOOK estimates that net asset value per share would have been 196.1p (up from 183.1p reported in the Q2 factsheet).

Charitable Cause

Literacy Capital has a unique charitable mission to improve literacy amongst UK primary school children. Literacy Capital makes an annual donation equating to 0.9% of the Company's net assets, thereby providing consistent, long-term and growing charitable donations as Literacy Capital increases in size.

In H1, the total provision recognised for donations to charitable causes amounted to £495k, up from £328k in the corresponding period last year, driven by the strong growth in NAV. We expect the donations that accrue in 2021 will be paid in 2022, following the completion of Literacy Capital's audit.

We expect the total donation relating to 2021 to exceed £1m for the first time. The total charitable donations since inception of Literacy Capital, including the outstanding provisions, which we expect to be paid before the end of the next calendar year, amount to over £2.4 million.

Outlook

We are pleased with how the portfolio traded during H1 2021 and are encouraged by the momentum shown by many of our companies and the opportunities to further improve these businesses.

The companies within the portfolio are well positioned to continue their growth and we believe that they will carry their current momentum into H2 2021 and beyond. We have companies operating across a number of sectors, led by strong and experienced management teams who are well qualified to continue scaling their companies with our support. We are grateful for all of the hard work and commitment that they have shown. We enjoy working with them and look forward to continuing these relationships.

Through our extensive network, we continue to see and appraise a large number of private businesses as possible investment opportunities, to assess how Literacy Capital can help to maximise their potential.

We are also proud of the positive impact that the charities we support have on the education and life chances of the children that they help. As we focus on continuing to grow the value of BOOK, we are delighted that a by-product of our success and growth, is increased donations year-on-year for worthy causes.

Breakdown of Net Asset Value at 30 June 2021

Companies / assets	Date of Investment	Carrying value	% of NAV
RCI Health Group Provider of healthcare and specialist clinical services	Sep 18	£22.4m	20.4%
Grayce Recruits, trains and deploys graduates into large corporates	Jul 18	£21.4m	19.5%
Butternut Box Healthy, subscription-based, direct-to-consumer pet food	Jan 18	£6.4m	5.8%
Hanmere Manufacturer of polythene packaging products	Dec 18	£6.3m	5.8%
Antler Homes Housebuilder in the Southeast of England	Jun 18	£6.3m	5.8%
Top 5 investments		£62.9m	57.2%
Vanilla Electronics Outsourced supply chain management of electronic components	Jun 20	£6.1m	5.6%
Dartmouth Partners Recruitment for roles within financial services	Jun 18	£5.6m	5.1%
EPM Software and consulting business to the transport sector	Feb 20	£5.1m	4.7%
Tyrefix Emergency plant tyre repair and replacement services	Nov 20	£4.0m	3.6%
Wifinity Wi-fi provider to hard-to-reach campus locations	Dec 17	£3.2m	3.0%
Top 10 investments		£87.0m	79.2%
Fund interests		£7.4m	6.7%
Other direct investments		£7.5m	6.8%
Cash (net of donation provision)		£8.0m	7.3%
Net asset value		£109.8m	100%

Undrawn Fund Commitments by Currency Exposure

£m	30 June 2021	31 Dec 2020
Sterling	£0.3	£0.9
Euro1	£5.0	£0.7
US Dollar1	£1.7	£1.9
Total	£7.0	£3.5

¹ Foreign currencies were converted to GBP at the prevailing rates on 30 June 2021

Risks and Uncertainty

The principal risks and uncertainties facing BOOK remain substantially the same as those set out within the strategic report in the audited accounts for the year ended 31 December 2020. In summary these are;

Brexit: Brexit has not had and is not expected to have a material impact on our investment activity nor the trading activity of the underlying portfolio companies. The portfolio companies are largely focused on offering their services and products to the UK market.

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. Throughout 2020, time was spent improving liquidity and managing cash where necessary. As a result, following initial uncertainty in April 2020, the trading and financial performance of most underlying companies held up well throughout the year and they were securely positioned coming into 2021. The directors of the underlying companies continue to monitor developments relating to Covid-19.

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. 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 low on available cash reserves. However, BOOK seeks to ensure the availability of cash reserves to match its cashflow forecast.

Economic risk: Events such as economic recession may affect the valuation of portfolio companies and their ability to access adequate financial resources, as well as affecting the Company's net asset value. 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.

Currency risk: the Company is exposed to currency risk as a result of having a proportion of its investments in Euros and United States Dollars. The sterling value of these investments can be influenced by movements in foreign currency exchange rates. Currency risk is monitored on an ongoing basis by the Investment Manager and on a quarterly basis by the Board.

Related Party Transactions

Details in respect of the Company's related party transactions during the period are included at note 15 to the interim financial statements.

Directors' Responsibility Statement

The Directors confirm to the best of their knowledge that:

· the condensed set of financial statements contained in these interim results have been prepared in accordance with IAS 34 as contained in UK-adopted IFRS; and

· the interim management report includes a fair review of the information required by DTR 4.2.7 R and 4.2.8 R of the FCA's Disclosure Guidance and Transparency Rules.

On behalf of the Board of Directors.

Unaudited Financial Statements

Statement of comprehensive income

For the six-month period ended 30 June 2021

			Unaudited 6 months ended 30 June 2021		Unaudited 6 months ended  30 June 2020
Notes			Total		Total
			£		£
	Gains on investments
10	Gain on fair value on equity investments		25,907,034		4,360,548
10	Realised gain on disposal of investment		214,127		1,353
	Gains for the period on investments		26,121,161		4,361,901
	Investment Income		-		120,059
	Operating Income		-		111,874
	Total		-		231,933
	Total income		26,121,161		4,593,834
	Expenses
6	Operating expenses		(1,419,132)		(479,945)
	Total operating expenses		(1,419,132)		(479,945)
	Charitable donations		(494,904)		(327,785)
	Net foreign exchange loss		(13,013)		32,873
	Profit for the period before taxation		24,194,112		3,818,977
8	Tax credit		106,278		42,905
	Profit for the period		24,300,390		3,861,882
	Other comprehensive income
	Gain on fair value on debt investments		-		-
	Total comprehensive income		24,300,390		3,861,882
12	Basic earnings per ordinary share (pence)		40.50		6.44
12	Diluted earnings per ordinary share (pence)		40.33		6.44

The accompanying notes form an integral part of these financial statements.

Statement of financial position

As at 30 June 2021

Company number: 10976145

			Unaudited 30 June 2021		Audited 31 December 2020
Note			£		£
	Non-current assets
	Tangible asset		1,910		2,589
10	Investments		101,833,489		76,736,366
	Deferred tax assets		106,278		-
			101,941,677		76,738,955
	Current assets
	Trade and other receivables		49,385		61,222
	Cash and cash equivalents		10,000,788		9,725,688
	Unpaid share capital debtors		49,951		49,950
			10,100,124		9,836,860
	Current Liabilities
	Trade and other payables		856,053		181,763
	Corporation Tax Payable		29,889		29,888
	Accrual for charitable donation		1,185,447		694,142
			2,071,389		905,793
	Net current assets		8,028,735		8,931,067
	Non-current liabilities
	Deferred tax liabilities		618,861		618,861
	Total non-current liabilities		618,861		618,861
	Net assets		109,351,551		85,051,161
	Capital and reserves
11	Share capital		109,950		109,950
	Share premium		53,946,000		53,946,000
	Retained earnings		55,295,601		30,995,211
	Accumulated other comprehensive income		-		-
	Total share capital & reserves		109,351,551		85,051,161
13	Net Asset Value per share (pence)		182.25		141.75

The total share capital of £109.4m above, does not reconcile to the reported Net Asset Value, due to net deferred tax liabilities of £0.5m that are not expected to become payable in the future should the Company qualify for Investment Trust status from 1 January 2022.

The interim financial statements were approved and authorised for issue by the board of directors on 13 August 2021 and were signed on its behalf by Paul Pindar.

Director

Paul Pindar

Date: 13.08.2021

Statement of changes in equity  

For the six-month period ended 30 June 2021
		Share capital	Share premium	Retained earnings	Accumulated Other Comprehensive Income	Total
		£	£	£	£	£
Balance at 31 December 2020 (audited)		109,950	53,946,000	30,995,211	-	85,051,161
Profit for the period		-	-	24,300,390	-	24,300,390
Other comprehensive income for the period		-	-	-	-	-
Total comprehensive income for the period		-	-	24,300,390	-	24,300,390
Total transactions with owners		-	-	-	-	-
Balance at 30 June 2021 (unaudited)		109,950	53,946,000	55,295,601	-	109,351,551
For the six-month period ended 30 June 2020
		Share capital	Share premium	Retained earnings	Accumulated Other Comprehensive Income	Total
		£	£	£	£	£
Balance at 31 December 2019 (audited)		109,950	53,946,000	14,340,469	-	68,396,419
Profit for the period		-	-	3,861,882	-	3,861,882
Other comprehensive income for the period		-	-	-	-	-
Total comprehensive income for the period		-	-	3,861,882	-	3,861,882
Total transactions with owners		-	-	-	-	-
Balance at 30 June 2020 (unaudited)		109,950	53,946,000	18,202,351	-	72,258,301

Statement of cash flows

For the six-month period ended 30 June 2021

Notes				Unaudited 30 June 2021		Unaudited 30 June 2020
				£		£
	Cash flows from operating activities
	Cash outflow from operating activity
	Loan notes interest received			60,485		120,313
	Management fee received			-		74,817
	Rechargeable expenses			-		2,009
	Bank interest received			-		51,588
	Management fee paid			(614,272)		-
	Payroll expenses			(20,836)		(120,846)
	Other operating expenditures			(97,594)		(350,090)
	Charitable donations paid			(3,597)		(11,223)
	Net cash used in operating activities			(675,814)		(233,431)
	Cash flows from investing activities
	Cash inflow/(outflow) from investing activities
	Proceeds/rebates from investee companies			-		15,802
10	Purchase of investments			(4,668,474)		(11,227,178)
10	Disposal of investments			5,619,683		101,353
	Net cash generated from/(used) in investing activities			951,210		(11,110,022)
	Cash flows financing activities
	Net cash from financing activities			-		-
	Net increase/(decrease) in cash and cash equivalents			275,396		(11,343,454)
	Cash and cash equivalents - opening balance			9,725,687		23,652,370
	Effect of exchange rate fluctuations on cash and cash equivalents			(295)		20,497
	Cash and cash equivalents - closing balance			10,000,788		12,329,413

The accompanying notes form an integral part of these financial statements.

Notes to the Financial Statements

1.  The Company

Literacy Capital plc (the 'Company') is a public limited company, limited by shares, incorporated in United Kingdom. The Company's Ordinary Shares trade on the Specialist Fund Segment of the London Stock Exchange's Main Market. The Company's registered office is 3rd Floor, Charles House, 5-11 Regent Street St James's, London, SW1Y 4LR. The Company is a closed-end investment company focused on investing and supporting small, growing UK businesses and helping their management teams to achieve long-term success. The financial statements of the Company as at and for the year ended 31 December 2020 are available upon request from the Company's registered office at 3rd Floor, Charles House, 5-11 Regent Street St James's, London, United Kingdom, SW1Y 4LR, or at www.literacycapital.com.

2.  Statement of Compliance

These interim financial statements for the six months ended 30 June 2021 have been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the Company's last annual financial statements as at and for the year ended 31 December 2020. They do not include all of the information required for a complete set of financial statements prepared in accordance with IFRS Standards. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company's financial position and performance since the last annual financial statements. These interim financial statements are unaudited.

These interim financial statements were authorised for issue by the Company's Board of Directors on 13 August 2021.

3.  Accounting policies

The accounting policies applied by the Company in these interim financial statements are the same as those applied in its annual financial statements as at and for the year ended 31 December 2020.

4.  Functional and presentation currency

These financial statements are presented in pound sterling, which is the Company's functional currency. All amounts have been rounded to the nearest pound, unless otherwise indicated.

5.  Accounting estimates and judgments

The preparation of financial statements in conformity with International Accounting Standards requires directors to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The significant judgements made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those applied to the annual financial statements as at and for the year ended 31 December 2020.

6.  Operating Expenses

	Unaudited 6 month ended 30 June 2021		Unaudited 6 month ended 30 June 2020
		£	£
Director remunerations		21,126	51,160
Staff salaries		-	61,250
Staff social security costs		-	7,559
Staff pension		-	985
Auditor remuneration		20,105	10,393
Investment management fee (inc. irrecoverable VAT)		593,544	196,474
Other operating expenses		53,401	152,124
Expenses relating to admission to London Stock Exchange:		730,956	-
Total		1,419,132	479,945

7.  Employees

The number of employees, including directors, on 30 June 2021 is 6 (31 December 2020: 4).

8.  Tax Expenses

The actual tax charge for the current and previous year differs from the standard rate for the reasons set out in the following reconciliation:

		Unaudited 6 month ended	Unaudited 6 month ended
		30 June 21	30 June 20
		£	£
Current taxation
United Kingdom corporation tax at 19% (2020: 19%)		-	-
		-	-
		Unaudited 6 month ended	Unaudited 6 month ended
		30 June 21	30 June 20
		£	£
Deferred taxation
Origination and reversal of temporary differences		(106,278)	-
Utilisation of a deferred tax asset		-	(42,905)
		(106,278)	(42,905)

 The actual tax charge for the current and previous year differs from the standard rate for the reasons set out in the following reconciliation:

		Unaudited 6 month ended 30 June 21	Unaudited 6 month ended 30 June 2020
		£	£
Profit on ordinary activities before taxation		24,194,112	3,818,977
Tax on profit on ordinary activities at standard rate of 19% (for 6 months ended 30 June 2020: 19%)		4,596,881	725,606
Factors affecting tax charge for the year:
Income not taxable in determining taxable profit		(4,798,981)	(828,504)
Expenses not deductible for tax purposes and other adjustments		95,822	59,993
Total tax on profit on ordinary activities		(106,278)	(42,905)

The tax has been calculated using a 19% corporation tax rate being the substantively enacted rate for the year starting 1 April 2020.

Gain on fair value of investments where the Company has a substantial shareholding, which it intends to benefit from the substantial shareholding exemption, is excluded in calculating the tax charge for the year.

The net taxation credit through the profit and loss account is £106,278 (for 6 months period ended 30 June 2020: tax credit of £42,905).

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%.

Literacy Capital plc plans to qualify for Investment Trust status with effect from the financial year commencing 1 January 2022.

9.  Charitable Donation

The Company has recognised charitable donation expenses of £494,904 (for 6 months period ended 30 June 2020: £327,785) calculated by applying 0.9% to a pro forma Net Asset Value adjusted for fair value uplifts of £109.9 million (2020: £86.4 million). During the period, donations paid were £3,597 (for 6 months period ended 30 June 2020: £11,223). The outstanding donation provision as at 30 June 2021 is £1,185,447 (31 December 2020: £694,142).

10.  Financial Instruments

		Unaudited 30 June 2021	Audited  31 December 2020
		£	£
Assets
Financial assets at fair value through profit and loss		-	-
Equity instruments at fair value through Profit and loss		77,244,223	46,893,594
Debt instruments at fair value through profit and loss		24,589,266	29,842,772
Financial assets at amortised cost		-	-
Trade and other receivables		41,546	41,622
Total Financial assets		101,875,035	76,777,988
Liabilities
Financial liabilities measured at amortised cost		-	-
Trade and other payables		885,942	211,651
Total Financial liabilities		885,942	211,651

The investment reconciliation schedule for the Company as of 30 June 2021 is as follows

	Equity instruments at fair value through Profit and Loss	Debt instruments at fair value through profit and loss	Total
	£	£	£
Investments at 31 December 2020 (Audited)	46,893,595	29,842,772	76,736,367
Additions	4,668,474	-	4,668,474
Disposal of investments at cost	(730,647)	(4,889,036)	(5,619,683)
Realised gain on disposal of investments	-	214,127	214,127
Fair value movement through profit and loss	26,425,142	(518,108)	25,907,034
Accrued interest	-	(60,489)	(60,489)
Unrealised FX loss	(12,341)	-	(12,341)
Investments at 30 June 2021 (Unaudited)	77,244,223	24,589,266	101,833,489

Fair values of financial instruments

The Company determines fair values using other valuation techniques, based on the IPEV guidelines.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments;

Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using; quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data;

Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments but for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Various valuation techniques may be applied in determining the fair value of investments held as Level 3 in the fair value hierarchy. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.

Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value. Management judgement and estimation are usually required for the selection of the appropriate valuation model to be used.

The Investment Manager has selected to use EBITDA/EBIT multiple models, milestone valuations and recent fundraises for growth investments and reported net asset value for fund investments in arriving at the fair value of investments held as Level 3 in the fair value hierarchy. The effect on the fair value measurements of Level 3 assets, as a consequence of changing one or more of the assumptions used to reasonably possible alternative assumptions can be seen below.

Fair value hierarchy - Financial assets at fair value through profit and loss

Financial assets and liabilities
30 June 2021		Level 1	Level 2	Level 3	Total
		£	£	£	£
Equity instruments at fair value through profit and loss		-	-	77,244,223	77,244,223
Debt instruments at fair value through profit and loss		-	-	24,589,266	24,589,266
Total investments (Unaudited)		-	-	101,833,489	101,833,489

Financial assets and liabilities
31 December 2020		Level 1	Level 2	Level 3	Total
		£	£	£	£
Equity instruments at fair value through profit and loss		-	-	46,893,594	46,893,594
Debt instruments at fair value through profit and loss		-	-	29,842,772	29,842,772
Total investments (Audited)		-	-	76,736,366	76,736,366

Significant unobservable inputs used in measuring fair value

The table below sets out information about significant unobservable inputs used at 30 June 2021 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.

Description Inputs		Unaudited Fair value at 30 June 2021		-	Significant unobservable
		£		Inputs
Unquoted private equity investments (including debt)			80,885,635	EBITDA multiple
Unquoted growth capital investments			13,574,754	Recent fundraise
Unquoted fund investments			7,373,100	Reported net asset value
		101,833,489		-

Significant unobservable inputs are developed as follows:

·     Trading comparable multiple: valuation multiples used by other market participants when pricing comparable assets. Where relevant and comparable private companies have recently been sold, which are deemed to be proximate to the Company's investments (based on similarity of sector, size, geography or other relevant factors), these multiples are captured for valuation purposes. Where relevant, or where insufficient private transactions have been identified, valuation data for public companies may also be used.

·   Recent fundraises: for assets which have recently completed fundraising rounds, the Company uses these valuations when determining its own holding valuations.

·   Reported net asset value: for assets managed and valued by a third party, the 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. Adjustments are made to third party valuations where considered necessary to arrive at the Directors' estimate of fair value.

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 7.5x (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 had been taken to be 10 per cent. higher, the value of the Level 3 assets and profit for the year would have been £11.2m (18.6 pence per share) higher. If these inputs had been taken to be 10 per cent. lower, the value of the Level 3 assets and profit for the year would have been £11.6m (19.3 pence per share) lower.

11.  Share Capital

		Unaudited 30 June 2021	Unaudited 30 June 2021	Audited 31 December 2020	Audited 31 December 2020
		Number	£	Number	£
Ordinary shares of £0.001 each		60,000,000	60,000	54,000,000	54,000
Deferred shares of £0.001 each		49,950,000	49,950	49,950,000	49,950
A growth shares of £0.001 each*		-	-	6,000,000	6,000
		109,950,000	109,950	109,950,000	109,950

*During the period ended 30 June 2021, the Company converted 6,000,000 A growth shares into 6,000,000 ordinary shares.

The deferred shares have only nominal economic value.

On 25 June 2021, 250,000 warrants to subscribe for ordinary shares in Literacy Capital plc were issued to Members of the Investment Manager, with a right to subscribe for one ordinary share per warrant at a price of 160p per ordinary share. Literacy Capital plc can issue up to a total of 3,000,000 warrants.

When calculating the NAV per ordinary share, the figure of 60,000,000 ordinary shares should be used. When calculating the fully diluted NAV per share, the 250,000 warrants in issue referenced above should also be included.

12.  Basic and diluted profit per share (pence)

Basic profit per share is calculated by dividing the profit of the Company for the period attributable to the ordinary shareholders of £24,300,390 (for the interim period ended 30 June 2020: profit of £3,861,882) divided by the number of shares outstanding atthe end of the period of 60,000,000 (for the interim period ended 30 June 2020: 60,000,000).

Diluted profit per share is calculated by dividing the profit of the Company for the period attributable to ordinary shareholders of £24,300,390 (for the interim period ended 30 June 2020: profit of £3,861,882) divided by the number of ordinary shares outstanding at the end of the period, as adjusted for the effects of all dilutive potential ordinary shares, of 60,250,000 (for the interim period ended 30 June 2020: 60,000,000 ).

13.  NAV per share (pence)

The Company's undiluted NAV per share of 182.3 pence (for the year ended 31 December 2020: 141.8 pence) is based on the net assets of the Company at the period end of £109,351,551 (for the year ended 31 December 2020: £85,051,161) divided by the shares in issue at the end of the period of 60,000,000 (for the year ended 31 December 2020: 60,000,000).

The Company's diluted NAV per share of 182.2 pence (for the year ended 31 December 2020: 141.8 pence) is based on the net assets of the Company at the period end, and assuming receipt of £400,000 for full exercise of the warrants, of £109,751,551 (for the year ended 31 December 2020: £85,051,161) divided by the shares in issue at the end of the period, as adjusted for the effects of dilutive potential ordinary shares, of 60,250,000 (for the year ended 31 December 2020: 60,000,000).

14.  Reserves

The following are the reserves within the entity as at 30 June 2021:

· Share Capital: Capital issued and paid to the extent of £60,000. £49,950 worth of share capital was outstanding.

· Share Premium. Premium above par value issued and fully paid.

· Retained Earnings. Accumulated profits and losses less any dividends paid.

· Accumulated other comprehensive income: Accumulated fair value gains and losses in the financial assets held through other comprehensive income. There were no financial assets held at fair value through other comprehensive income during the period ended 30 June 2021 (2020: £nil).

15.  Related party transactions

Two Directors (Paul Pindar and Richard Pindar) of the Company are designated members of Literacy Capital Asset Management LLP ("LLP").

Total expenses through the statement of comprehensive income with the LLP during the year was £494,620 (for 6 months period ended 30 June 2020: £163,729). The total expense related to the rendering of fund management services during the year. At the end of the 6-month period, the balance due to be paid to the LLP for these services was £40,502 (2020: £40,712).

The Company recognises Bookmark Reading Trading Limited as a related party for the reason that a close family member of a key management personnel of the Company is a Director in Bookmark Reading Trading Limited. There were no payments made during the period (2020: £10,000). There is no receivable or payable balance as at the end of the year (2020: nil).

The Company also recognises Bookmark Reading Charity as a related party for the same reason as mentioned above for Bookmark Reading Trading Limited. The total payments made during the period were £3,597 (2020: £650,519). Literacy Capital has a provision for charity and other donation payments amounting to £1,185,447 (2020: £694,142). Out of this provision, certain donations will be made to Bookmark Reading Trading Limited and Bookmark Reading Charity.

16.  Capital Commitment

Further capital commitments in respect of investments in third party funds of €5,783,053 (2020: €783,053), £317,656 (2020: £938,358) and $2,400,000 (2020: $2,600,000) remain outstanding and are yet to be drawn down.

17.  Ultimate controlling party

Literacy Capital plc does not have an ultimate controlling party.

 

END

 

 

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