Interim Report and Accounts

RNS Number : 5243G
Literacy Capital PLC
16 November 2022
 

The information contained in this announcement is restricted and is not for publication, release or distribution in the United States of America, any member state of the European Economic Area, Canada, Australia, Japan or the Republic of South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

 

 

16 November 2022

 

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

 

Literacy Capital Interim Results

 

Focus on helping to build great businesses to generate superior returns

 

Literacy Capital, the closed-end investment company, is pleased to report its unaudited interim results for the six months ended 30 September 2022.

 

 

Performance highlights

 

· NAV per ordinary share of 384.9p

Net assets of £231.0m, an increase in net assets of 20.3%1 in the six months to 30 September 2022

 

· Portfolio companies enjoying strong trading momentum, with active assistance from the Literacy Capital team to accelerate growth

Portfolio contains significant exposure to profitable, cash flow positive businesses delivering strong growth, with 70% revenue growth and 49% EBITDA growth on a weighted average basis amongst the buyout investments within Literacy Capital's top 10 holdings

Since listing, BOOK has continued its focus and deployment of capital on these types of investments, with earlier stage, more risky growth capital investments declining to just 7.5% of gross assets on 30 September 2022 (from 15% a year earlier)

 

· Significant activity and value creation initiatives across the portfolio companies

Completed two new platform investments in the period, as well as several small bolt-on acquisitions on behalf of our portfolio companies

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

 

· Reduced cash drag and increasing maturity of investments improving the rate of NAV growth, whilst retaining flexibility to make further investments with RCP facility

More than 100% of net assets invested with the cohort of more recent investments also contributing positively and meaningfully, more quickly than the successful 2018 investments

Cash proceeds received by BOOK in the six months consisted of £472k from private equity fund distributions. More cash expected to be realised from several portfolio companies in the next few months to generate more capital for redeployment into new opportunities

 

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

£1,147k of charitable donation provided for in H1 2021, up 47% on the same period in FY21, in line with growth in NAV

Total donations now exceed £5.0m since inception of Literacy Capital

 

 

Performance to 30 September 2022

 

% total return

3 months

6 months

1 year

3 years

Since Inception

BOOK Net asset value

+11.3%

+20.3%

+56.9%

+273.8%

+327.7%

BOOK Share Price

(3.0)%

+30.6%

+33.8%

n/a

n/a

FTSE Investment Company Index

(1.2)%

(12.5)%

(17.0)%

+13.7%

+25.4%

FTSE All-Share Index

(4.5)%

(10.1)%

(7.3)%

(7.3)%

(8.8)%

 

 

Comparison to prior periods

 

 

At 30 September 2022

At 31 March 2022

Net asset value

£231.0m

£192.0m

NAV per ordinary share1

384.9p

320.0p

 

 

Six months to 30 September 2022

Six months to 30 September 2021

Capital invested

£12.8m

£5.7m

Cash realised

£0.5m

£2.7m

Charitable donation provision

£1,147k

£779k

 

1 The NAV at 31 March 2022 contained certain deferred tax liabilities that the Company does now not expect to pay following it receiving investment trust status on 1 April 2022. For comparability, these deferred tax liabilities have been removed from the NAV at 31 March 2022

 

 

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

 

"We are pleased to report that the BOOK portfolio has continued to trade strongly, resulting in an NAV uplift of more than 20% in the past six months.

 

"A significant aspect of our success has been the composition of the portfolio, where we continue to focus BOOK's capital on the buyout of profitable private businesses, rather than investments into earlier stage, growth capital or venture investments. We feel this significant exposure to strongly growing, profitable businesses positions BOOK's portfolio nicely for future periods.

 

"Whilst we remain very aware of wider macroeconomic, we are confident that the businesses in our portfolio will remain resilient to these challenges and are well managed and positioned robustly to navigate and prosper in these conditions."

 

 

Enquiries

For further information, please contact:

 

Literacy Capital plc / Literacy Capital Asset Management LLP:

Richard Pindar / Tom Vernon  +44 (0) 20 3960 0280

MHP Communications:

Reg Hoare / Ollie Hoare / Matthew Taylor               +44 (0) 20 3128 8276

Singer Capital Markets Securities Limited:

Robert Peel / Amanda Gray  +44 (0) 20 7496 3000

 

About Literacy Capital:

 

Literacy Capital (BOOK.L) is a closed-end investment company launched in 2017 by Paul and Richard Pindar and listed on the London Stock Exchange's main market in 2021. The Company focuses on opportunities to invest for the long-term in growing private businesses where a clear route to creating additional value. It also has a unique charitable objective to donate 0.9% of annual NAV to charities focused on improving UK literacy in children. More than £5 million has been donated or reserved for donation to charities since the trust's creation in 2017. For more information, please visit our website: www.literacycapital.com.

 

 

 

Website:

www.literacycapital.com

 

LEI: 2549006P3DFN5HLFGR54

 

A copy of this announcement will be available on the Company's website at www.literacycapital.com/investors/reports-and-results

 

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

 

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

 

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

 

 

Unaudited Interim Results for Literacy Capital plc

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

 

For the six months ended 30 September 2022

 

 

Performance Highlights

Focus on helping to build great businesses to generate superior returns

 

v NAV per ordinary share of 384.9p

Net assets of £231.0m, an increase in net assets of 20.3%1 in the six months to 30 September 2022

The FTSE Investment Company Index and FTSE All-Share, declined 12.5% and 10.1% respectively over the same period in share price terms, compared to a 30.6% increase in BOOK's share price

 

v Portfolio companies enjoying strong trading momentum, with active assistance from the Literacy Capital team to accelerate growth

Portfolio contains significant exposure to profitable, cash flow positive businesses delivering strong growth, with 70% revenue growth and 49% EBITDA growth on a weighted average basis amongst the buyout investments within Literacy Capital's top 10 holdings

Since listing, BOOK has continued its focus and deployment of capital on these types of investments, with earlier stage, more risky growth capital investments declining to just 7.5% of gross assets on 30 September 2022 (from 15% a year earlier)

 

v Significant activity and value creation initiatives across the portfolio companies

Completed two new platform investments in the period, as well as several small bolt-on acquisitions on behalf of our portfolio companies

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

 

v Reduced cash drag and increasing maturity of investments improving the rate of NAV growth, whilst retaining flexibility to make further investments with RCP facility

More than 100% of net assets invested with the cohort of more recent investments also contributing positively and meaningfully, more quickly than the successful 2018 investments

Cash proceeds received by BOOK in the six months consisted of £472k from private equity fund distributions. More cash expected to be realised from several portfolio companies in the next few months to generate more capital for redeployment into new opportunities

 

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

£1,147k of charitable donation provided for in H1 2021, up 47% on the same period in FY21, in line with growth in NAV

Total donations now exceed £5.0m since inception of Literacy Capital

 

Performance to 30 September 2022

 

% total return

3 months

6 months

1 year

3 years

Since Inception

BOOK Net asset value

+11.3%

+20.3%

+56.9%

+273.8%

+327.7%

BOOK Share Price

(3.0)%

+30.6%

+33.8%

n/a

n/a

FTSE Investment Company Index

(1.2)%

(12.5)%

(17.0)%

+13.7%

+25.4%

FTSE All-Share Index

(4.5)%

(10.1)%

(7.3)%

(7.3)%

(8.8)%

 

Comparison to prior periods

 

 

At 30 September 2022

At 31 March 2022

Net asset value

£231.0m

£192.0m

NAV per ordinary share1

384.9p

320.0p

 

 

Six months to 30 September 2022

Six months to 30 September 2021

Capital invested

£12.8m

£5.7m

Cash realised

£0.5m

£2.7m

Charitable donation provision

£1,147k

£779k

 

1 The NAV at 31 March 2022 contained certain deferred tax liabilities that the Company does now not expect to pay following it receiving investment trust status on 1 April 2022. For comparability, these deferred tax liabilities have been removed from the NAV at 31 March 2022

 

Helping to build great businesses

 

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

 

Comment from the Investment Manager

 

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

 

"We are pleased to report that the BOOK portfolio has continued to trade strongly, resulting in an NAV uplift of more than 20% in the past six months.

We are increasingly satisfied also with the composition of the portfolio. It has been our stated intention for some time to focus BOOK's capital on the buyout of profitable private businesses, rather than investments into earlier stage, growth capital or venture investments. Coincidentally, these types of investments have since found the trading and funding environment more difficult and valuations have declined. The companies within the buyout segment outperformed, contributed a 28.3% net return in the six months (excluding the impact of deploying capital into new or existing buyout investments) and now comprise over 87% of gross assets. This is in contrast to a net 14.7% loss on the investments in the growth capital segment, which represent less than 7.5% of gross assets on 30 September 2022. We feel this significant exposure to strongly growing, profitable businesses positions BOOK's portfolio nicely for future periods.

We remain very aware of wider macroeconomic, however we are confident that the businesses in our portfolio will remain resilient to these challenges and are well managed and positioned robustly to survive and prosper in these conditions. Whilst we remain cautious about deploying capital into new businesses, the current market conditions will unlock asymmetrically attractive opportunities for us to make investments and attractive returns. If we are able to agree more favourable terms on entry to an investment, this should bode well for BOOK's returns in the future.

We are also pleased to announce that Literacy Capital gained investment trust status on 1 April 2022, which will deliver benefits and cost savings for BOOK, ultimately delivering better returns for shareholders."

 

Enquiries

 

For further information, please contact:

Literacy Capital plc / Literacy Capital Asset Management LLP:

Richard Pindar / Tom Vernon  +44 (0) 20 3960 0280

MHP Communications:

Reg Hoare / Ollie Hoare / Matthew Taylor               +44 (0) 20 3128 8276

Singer Capital Markets Securities Limited:

Robert Peel / Amanda Gray  +44 (0) 20 7496 3000

Website:

www.literacycapital.com

LEI:

2549006P3DFN5HLFGR54

 

 

Chairman's Statement

I am delighted to present my first interim Chairman's foreword since Literacy Capital plc received investment trust status on 1 April 2022. This statement covers the six-month period to 30 September 2022. 

Our purpose is to invest in and build smaller, privately owned UK businesses and to help their management teams to achieve long term success. 

Through our work, we are aiming to achieve three outcomes:

1. To build very significant value for our shareholders;

2. To support our management teams to build highly successful, growing companies; and 

3. To use our financial success to facilitate our charitable mission to help disadvantaged children in the UK learn to read. 

I am pleased to report substantial progress with all three objectives.

Over the six months to 30 September 2022, our NAV per ordinary share has grown from 320.0p to 384.9p, an increase of 20.3%. This compares to a fall in the FTSE investment company index of 12.5%. Over a twelve-month period, our NAV has grown 56.9% compared to a 17% fall in the FTSE investment company index.

And indeed, since Literacy Capital's listing on 25 June 2021, its share price has increased from 160p to 388p on 30 September 2022, making BOOK the fifth best performing fund for performance out of more than 400 UK listed funds over this period (AIC Investment Companies listed as at 25 June 2021 and 30 September 2022).

Our portfolio companies are making strong progress. In many instances, we are seeing a step change in growth in revenues, profits and headcount under Literacy Capital's ownership. The majority of our companies are displaying strong trading momentum, which underpins our confidence for the future. We are shareholders in some outstanding companies, led by very talented and ambitious management teams and with whom we are delighted to partner.

A significant proportion of our charitable endeavours is delivered through our close relationship with Bookmark Reading. By the end of the 2021/22 academic year, Bookmark had delivered nearly 24,000 reading sessions; provided curated library packs to 197 schools and delivered over 107,000 copies of their Story Corner magazine. Their targets for 2022/23 are highly ambitious with the funding provided by Literacy Capital underpinning these plans.

In addition to Bookmark Reading's core activities, the charity also raised £1m in just five months to deliver 6,500 Bookmark Boxes to Ukrainian child refugees. These boxes were filled with literacy and language resources to help the children to settle into their new lives in the UK.

We are particularly proud that Bookmark has recently been nominated as a candidate for the 2023 Astrid Lindgren Memorial Award. This is a global award created in 2002 by the Swedish government and is awarded to a person or organisation for their contribution to children's and young adults literature. With a prize of 5 million Swedish kronor, it is the largest award of its kind.

Our Investment Manager's Report provides further detail on our portfolio. We recognise that the macro environment in the UK is more challenging today but our companies are performing strongly and we remain highly optimistic about the period ahead.

 

 

Paul Pindar

Chairman, Literacy Capital plc

 

15 November 2022

 

 

Investment Manager's Report

 

BOOK Performance Highlights For The Six Month Period

 

 

384.9p


£231.0m

NAV per ord. share [1]

(31 Mar 22: 320.0p)


£m NAV 1

(30 Mar 22: £192.0m)

£12.8m


£0.5m

Capital invested

(6 months to 30 Sep 21: £5.7m)


Cash realised

(6 months to 30 Sep 21: £2.7m)

+30.6%


£1,147k

Shareholder total return

(since 31 Mar 22)


Charitable donation provision

(6 months to 30 Sep 21 : £779k)

[1] The NAV at 31 March 2022 contained certain deferred tax liabilities that the Company does now not expect to pay following it receiving investment trust status on 1 April 2022. For comparability, these deferred tax liabilities have been removed from the NAV at 31 March 2022

 

BOOK Performance Overview

 

We are pleased with the performance of BOOK over the six months to 30 September 2022. Net asset value (NAV) ended the period on £231.0 million, or 384.9p per share, an increase of 20.3% in the six months since 31 March 2022.

NAV uplifts were driven by strong growth from several portfolio companies. Grayce (contributed an £8.6 million uplift) and RCI Group (£8.0 million uplift) continued to enjoy strong demand from customers for their services, whilst also continuing to invest heavily to support future growth. This is a return in six months equivalent to more than 3x the amount of capital originally invested in these businesses, demonstrating the strong returns on capital BOOK can generate from investments that scale and mature.

However, Techpoint was the biggest contributor, adding £18.9 million to NAV in six months. This level of performance and return is very pleasing so soon after BOOK invested £2.2 million to take a majority stake in the business in June 2020. Ordinarily, we would not expect such strong returns to be generated until the third or fourth year post-investment, given the J-curve that would often be experienced, as we build out the management teams and invest in growth. We remain optimistic about Techpoint's future prospects.

In the six months to 30 September 2022, BOOK's NAV return (+20.3%) outpaced the FTSE closed end investment index, which declined 12.5% in share price terms. BOOK's share price ended the period at 388.0p, an increase of 30.6% in the six months.

Aside from its investment performance, BOOK has also made positive strides in maturing and growing to become a more established investment company. In January 2022, Literacy Capital plc became a member of the Association of Investment Companies ("AIC") and on 1 April 2022 it gained investment trust status.

 

Breakdown of Net Asset Value at 30 September 2022

 

Companies / assets

Date of Investment

Carrying value

% of NAV

Grayce

Recruits, trains and deploys graduates into large corporates

Jul 18

£52.2m

22.6%

 

RCI Health Group

Provider of healthcare and specialist clinical services

Sep 18

 

£49.4m

 

21.4%

 

Techpoint (formerly Vanilla Electronics)

Outsourced supply chain management of electronic components

Jun 20

£32.4m

14.0%

 

Kernel Global

Recruitment for roles within financial services

Jun 18

£19.2m

8.3%

Antler Homes

Housebuilder in the Southeast of England

Jun 18

£14.6m

6.3%

Top 5 investments


£167.8m

72.7%

Butternut Box

Healthy, subscription-based, direct-to-consumer pet food

Jan 18

£14.2m

6.1%

Oxygen Freejumping

Operator of trampoline and adventure parks

Jun 21

£7.6m

3.3%

Wifinity

Wi-fi provider to hard-to-reach campus locations

Dec 17

£7.5m

3.2%

Tyrefix

Emergency plant tyre repair and replacement services

Nov 20

£6.4m

2.8%

Halsbury Travel

School travel operator

Jun 22

£6.4m

2.8%

Top 10 investments

 

£209.9m

90.9%

Other direct investments

 

£23 .0m

10.0%

Private equity fund interests

£12.5m

5.4%

Borrowings (inclusive of donation provision and other working capital items)

(£14.5)m

(6.3)%

Net asset value

£231.0m

100%

 

 

Portfolio Company Overview

 

The trading performance, momentum and financial position of the companies within the portfolio remains robust.

Across BOOK's top ten investments (excluding the growth capital investment, Butternut Box) revenue increased 70% year-on-year on a weighted average basis. EBITDA grew 49% year-on-year, however it is worth noting that this calculation also excludes Oxygen Freejumping and Halsbury Travel. These two relatively recent investments were excluded because they had been loss-making due to Covid on an LTM basis twelve months ago. Literacy's investment allowed these businesses to continue trading, saving hundreds of jobs, and both are now trading very strongly.  

The growth of these companies has accelerated in every case since our investment in them. Each company in the top ten is now reporting annual revenue growth in excess of 15%, with the figure for many of the companies many times greater than this figure.

Combined headcount on 30 September 2022, for all ten companies that comprise BOOK's largest investments, was 3,101. On 31 March 2022, these same companies employed 2,656, highlighting the investment these businesses continue to make to support their growth ambitions. It can be difficult and less meaningful to reconcile the headline total headcount figures reported in each quarterly factsheet given changes in the constituent companies. However, particularly given the common and often fair criticism of private equity in the UK, it is important for us to highlight the support provided to the companies and increasing opportunities available for people in Literacy Capital-backed businesses.

BOOK's majority stakes in Grayce and RCI Group remain important to the portfolio, given their weighting. Techpoint has also made significant strides and outperformed in the last six months, increasing from 7.4% of net assets to 14.0%. Collectively, investments in these three companies now comprise the majority of net assets and the five largest equate to 72.7% of net assets. We remain very comfortable with this for the reasons provided in the segment below.

Portfolio companies' use of leverage remains highly conservative (1.0x EBITDA on a weight average basis) and far lower than traditional private equity fund managers would typically employ. This is to provide flexibility and freedom to BOOK's portfolio companies, to allow them to invest for growth rather than being restricted by onerous covenants or repaying lenders. Sales growth and business improvement is our priority, rather than financial engineering through the use of third-party debt. This means our portfolio companies are relatively insensitive to higher interest rates or debt costs. 1.0x net debt to EBITDA is the lowest figure reported since BOOK's listing last year but will likely increase slightly as businesses are refinanced to return cash to BOOK in the coming months.

 

Top Five Investments

 

BOOK's portfolio is relatively highly concentrated, with the top five direct investments equating to 72.7% of net assets (up from 68.2% on 31 March 2022 and 65.0% on 31 December 2021), while the ten largest direct investments represent 90.9% of net assets (up from 84.7% and 82.0% respectively).

The Investment Manager is happy with this concentration given the high degree of knowledge and control it has over the assets. This involves receiving management information from the companies on a weekly or monthly basis, providing significant comfort and insight regarding current trading and future performance. It also involves being able to influence and select the key members of management in these companies. This degree of intimate knowledge and involvement is far greater than investors can hope to achieve investing in public businesses.

Many of the larger direct investments are a high proportion of total net assets due to their strong performance and significant uplifts in their valuation, rather than making disproportionately large investments. We are pleased to have significant exposure to strongly performing assets and are happy to run winners, rather than sell assets prematurely.

Given the level of investment and hires required to raise the rates of growth of many of the companies BOOK invests in, often these improvements do not equate to meaningful profit growth or contributions to NAV uplifts until the second or third year following BOOK's investment. This is evidenced by BOOK's largest holdings being dominated by investments completed in its first twelve months. Techpoint is the obvious exception to this, where the rate of growth and performance of the business has exceeded expectations. We are confident that the older investments will continue to contribute strongly, whilst other, newer investments are well-placed to follow a similar trajectory.

 

Company

Date of Investment

30 Sep 2022

carrying value

30 Sep 2022

% of NAV

Total cash realised

Total return (incl. cash)

in total return since 31 Mar 2022

Grayce

Jul 18

 

£52.2m

22.6 %

 

£7.6m

£59.8m

£8.6m

RCI Group

Sep 18

£49.4m

21.4%

£3.4m

£52.8m

£8.0m

Techpoint

Jun 20

£32.4m

14.0 %

£0.0m

£32.4m

£18.9m

Kernel Global

Jun 18

£19.2m

8.3 %

£0.7m

£19.9m

£1.1m

Antler Homes

Jun 18

£14.6m

6.3 %

-

£14.6m

£1.0m

 

Grayce - www.grayce.co.uk

 

Grayce recruits, trains and employs graduates from top universities for deployment into large corporates, providing the graduates that they hire with high-quality training, employment and experience.

The original transaction in July 2018 was to facilitate the exit for one of the founders who was stepping down. To assist with this transition a new senior management team was brought into the business in stages. Between BOOK's initial investment and the end of 2020, a new Chairman, CEO, CFO and Sales Director were appointed.  A new COO was also appointed in January 2022, constructing a talented team that can scale and run a business of much greater size.

In the last six months, Grayce has continued to invest heavily to set the business up for continued growth and success. An additional 17 head office employees joined in the last six months, to support Grayce's rapidly growing client base and to help expand this even further in 2023.

 

RCI Group

 

RCI is primarily a provider of healthcare services and data analytics. The group provides its specialist services to the police, NHS, custodial settings and the courts.

BOOK's original investment in September 2018 helped two of the four founders achieve their retirement plans. To ease this transition and ensure the business had strong leadership, a new CEO and CFO joined the business at completion of the transaction. Within nine months, they were joined by a new Business Development Director and Operations Director, to create a strong team and platform for growth. This platform was then used to acquire complementary businesses and broaden the service offering to customers. Four acquisitions were completed between December 2019 and April 2022.

Since BOOK's investment, revenue has increased from £15m in 2018 to more than £40m four years later, following the acquisitions and organic growth. EBITDA margins have also been improved materially following investment into greater usage of data analytics and an expansion of the group's technology offering, improving the quality of customer's insights.

 

Techpoint - www.techpoint.co.uk

 

Techpoint Group is a group of companies, which provides o utsourced supply chain management of electronic components for manufacturing businesses.

 

Literacy Capital's initial investment was into Vanilla Electronics in June 2020. Vanilla was founded in 2002 by a father-and-son team. The father was looking to exit and sell his stake in the business, while the son, Dan, wanted to partially de-risk, and have a partner with the ability to assist him in developing the business organically and, for the first time, through acquisition. Since BOOK's original investment, the group has rebranded as Techpoint and completed three acquisitions. The most recent acquisition was in May 2022, the purchase of Golledge, a leading global supplier of frequency components based in Somerset. Earlier this year, Dan moved into the role of Executive Chairman, with Gary Mitchell becoming Group CEO, having joined the business in September 2021. A new Group COO also joined the business in 2021 and a new CFO in 2020.

Vanilla and the businesses subsequently acquired are all trading strongly, with synergies, cross-selling and operational improvements contributing strongly to the eightfold increase in profitability. The reshoring of manufacturing supply chains, given recent issues in companies' supply chains and with logistics, is also benefitting the Techpoint businesses.

 

Kernel Global - www.kernel-global.com

 

Kernel Global is the holding company for two recruitment businesses that trade under the names Dartmouth Partners, which focuses on private equity, corporate finance, wealth management, finance and legal, and Pure Search, which has a primary focus on tax, as well as other finance roles.

BOOK's original investment was in June 2018 to support the founder of Dartmouth. He founded the business in 2012 and needed support to scale the business and strengthen its management team. A new Chairman and CFO joined in the early part of 2020, plus a new Head of International in May 2021. The business also acquired Pure in September 2019 and opened an office in Paris, which gives the group a broad footprint in several financial centres, including New York, Hong Kong, London and Frankfurt.

At the point that BOOK invested, Dartmouth had 54 staff and net fee income of around £7m. By 30 September 2022, group headcount and LTM net fee income exceeded 285 and £42m respectively.

 

Antler Homes - www.antlerhomes.co.uk

 

Antler Homes is a housebuilder with a longstanding reputation for building high quality homes in the London commuter belt. The business was set up 50 years ago by its founder, who in 2018 when Literacy Capital invested in the business, was in his 70s, lived overseas and no longer wished to run or own the business.

In order to allow the business to continue trading, it needed fresh leadership and more capital, which Literacy was able to bring. A new Managing Director and non-executive Director, both with a significant amount of relevant experience, joined the business at completion of the investment.

Since BOOK's original investment in June 2018, Antler's team has been refreshed and built up to support its increased output over the recent and future years. Headcount has increased from eight to 35 by the end of September 2022. Literacy has also supported the business complete three follow-on rounds of funding, including one in March 2022, as it acquires and develops more land.

 

Movement in the Portfolio

 

£m

6 months to 30 September 2022

6 months to 30 September 2021

Opening Investments

191.2

84.7

  Direct investments

12.2

5.5

  Fund drawdowns

0.6

0.2

Total new investments

12.8

5.7

  Proceeds from direct investments

-

(2.0)

  Proceeds from fund investments

(0.5)

(0.7)

Cash proceeds received

(0.5)

(2.7)

Valuation Movement

41.9

53.5

Closing Investments

245.4

141.3

Valuation Movement % (of Opening Investments)

21.9%

63.2%

 

New Investments

 

£12.8 million was invested in the six month period. £5.7 million of this related to two new investments, while the balance was deployed into existing businesses, either to acquire more equity or support them with different growth initiatives.

In June 2022, BOOK completed the buyout of Halsbury Travel, a travel agency that focuses on organising trips for UK schoolchildren. Literacy now owns a significant majority stake in the business, which is headquartered in Nottingham and was founded in 1986 by two former teachers. A new Chairman joined at completion and a new CEO joined the business in September, bolstering the strength and experience of the senior leadership team.

In August 2022, Literacy Capital invested in Ashleigh & Burwood ("A&B") and took a majority stake. A&B is a home fragrance business making candles, room sprays and diffusers, mostly for the home. The business is based in Surrey, having been set up and owned by family members over two generations. Here, the Board has also been strengthened via the hire of a new Chairman and COO to improve and expand A&B further.

Techpoint completed the bolt-on acquisition of Golledge in the period, whilst Oxygen Freejumping also acquired its second new site since Literacy invested in the business in July 2021. Literacy has invested further capital in both businesses but expects to receive the majority of this back before the year end via a refinancing of Techpoint.

£554k was invested in a third party private equity fund, which made a drawdown in the period. The other three funds to which BOOK has made commitments all made distributions. We expect cash inflows from these funds to continue, given their 2017 and 2018 vintages.

 

Realisation Activity

 

Cash inflows in the six months to 30 September 2022 totalled £0.5m, which all relates to small distributions from private equity funds. The priority in the period for BOOK's portfolio companies has been retaining the ability and flexibility to invest in growth, rather than returning cash to BOOK or other shareholders. Further refinancing activity within the portfolio is planned in the next six months and we would expect cash proceeds received by BOOK to be substantially higher than the six months to 30 September 2022.

The portfolio companies' strong performance and low leverage means there is significant scope to return cash proceeds to BOOK, ensuring the pipeline of new investment opportunities can be funded.

Balance Sheet and Financing

 

BOOK's total drawings under its Revolving Credit Facility ("RCF") with Investec Bank plc stood at £13.5 million on 30 September 2022, which equates to 5.8% of net assets. The available facility was increased in size in the period by £10 million, taking the limit to £25 million, which gives Literacy greater flexibility to fund new investments and support its existing portfolio companies. This facility also allows BOOK to remain more fully invested, reducing cash drag and improving returns for shareholders.

As mentioned in the final segment of Realisation Activity, cash proceeds received by BOOK are expected to increase in the coming quarters, allowing BOOK to fund further investments or reducing the amounts drawn under its RCF. It has been very helpful and valuable to have had the flexibility to be able to draw on the RCF to fund the recent investments without having to first realise cash from the portfolio.

 

£m

30 September 2022

31 March 2022

Investments

£245.4m

£191.2m

Cash

£0.8m

£3.0m

Donation Provision

£(1.9)m

£(2.1)m

Other working capital

£0.0m

£(0.1)m

Borrowings

£(13.5)m

-

Net assets

£231.0m

£192.0m1

 

1 The NAV at 31 March 2022 contained certain deferred tax liabilities that the Company does now not expect to pay following it receiving investment trust status on 1 April 2022. For comparability, these deferred tax liabilities have been removed from the NAV at 31 March 2022

 

Undrawn Fund Commitments by Currency Exposure

 

The table below shows outstanding obligations to BOOK's four fund commitments has been gradually reducing in recent periods. The figure on 30 September 2022 amounted to £4.6 million, however we expect little more than half of this to be called, given the age and pattern of drawing by these funds.

Regardless of whether the full £4.6 million is called or not, BOOK can comfortably fund these drawdowns from existing reserves and headroom in its RCF.

 

£m

30 September 2022

31 March 2022

Sterling

£0.3m

£0.3m

Euro2

£3.2m

£3.7m

US Dollar2

£1.1m

£0.9m

Total

£4.6m

£4.9m

 

2 Foreign currencies were converted to GBP at the prevailing rates on the reporting date

 

Activity Since the Period End

 

BOOK has not made any new platform investments since the period end and there are no updates or events with a material impact on NAV to report. Two of its portfolio companies, Oxygen Freejumping and Tyrefix, have completed bolt-on acquisitions, helping them to achieve their longer term objectives.

The first of these involved Oxygen completing its third acquisition in late October. This acquisition of RedKangaroo, a trampoline operator with three sites (Reading, Nottingham and Coventry), takes Oxygen to nine locations, up from four when Literacy first invested in July 2021. In early November, Tyrefix acquired Fix'n'Fit, a regional business providing similar plant tyre services in the north west of England. Literacy provided additional funding to Oxygen to help it fund its purchase of RedKangaroo, whilst Tyrefix was able to fund its acquisition without further funding from shareholders.

 

Outlook

 

We are confident that the companies in BOOK's portfolio are well-placed to continue performing strongly, which should drive further strong NAV performance and uplifts for the Trust.

We are cautious in the current macroeconomic environment. However, we remain optimistic given the robust financial position, strong growth and leadership that an increasing number of BOOK's portfolio companies possess. A growing number of more recent investments are entering a more mature phase, which should result in these companies generating greater NAV uplifts for BOOK in future periods. We also expect cash inflows from the portfolio to increase substantially in the upcoming quarters, compared to recent months. The current environment should also generate a greater number of attractive opportunities to make new investments.

Despite the optimism and confidence, we are not complacent and retain very close engagement with the management teams of BOOK's portfolio companies, to ensure the companies are managed and performing as strongly as possible. The Investment Manager has a high degree of knowledge and influence, enabling it to make additions or changes to the portfolio company management teams, if this is in the best interest of shareholders.

We are also proud of the unique impact that BOOK has been able to have as an investment company in supporting different charities. In the six months to 30 September 2022, thousands of children in the UK have benefited and experienced improved educational support due to BOOK's charitable donations, including over 1,500 Ukrainian child refugees. Annual charitable donations in 2022 will be greater than previous years and we are delighted that as the Trust continues to grow, it will be able to support an increasing number of disadvantaged children.

 

Charitable Mission

 

In addition to Literacy Capital plc's investment objectives and strategy, it also has a charitable mission.

Literacy Capital plc makes an annual donation equivalent to 0.9% of the Company's net asset value at each year end, thereby providing consistent, long-term and growing charitable donations as the Company increases in size. In the first nine months of 2022, the total provision for donations to charities focused on improving literacy amounted to £1.58 million, more than the amount recognised in all of 2021.

Since the creation of Literacy Capital in 2017, more than £5 million in total has either been paid or set aside for donation. The aim is to advance the education of children in the United Kingdom, in particular by promoting or supporting the development of reading.

 

Annual charitable donation provision (£k)

2018

£532k

2019

£621k

2020

£772k

2021

£1,527k

2022 (first 9 months)

£1,581k

Total charitable donation provision

£5,033k

 

A number of charities focused on supporting children have received donations. The largest beneficiary of Literacy Capital's charitable support to date is Bookmark Reading Charity ( www.bookmarkreading.org ). At its core, Bookmark facilitates extra one-to-one reading support for state school children aged five to nine, who have been identified by their teachers as at risk of not meeting the expected standard of reading. Using an innovative digital platform, trained and vetted volunteers are given the opportunity to support children from their desk using a flexible and accessible volunteering model.

As part of the Bookmark's holistic approach to improving children's literacy, the charity expanded its support offering by supplying free reading resources to children with few or no books in the home, as well as providing new reading spaces to schools who have limited means to fund their own. Their goal is to bring reading confidence, ability and motivation to young children so that the one in four pupils who currently leave primary school unable to read well, can grasp every opportunity that they deserve in life, no matter their socio-economic background.

Since the outbreak of the war in Ukraine, thousands of children have arrived in the UK having left their homes, loved ones, education and belongings behind. Bookmark launched its Bookmark Box for Ukraine appeal in April 2022, which saw the charity set out to raise £1m to deliver a staggering 6,500 boxes to Ukrainian children and their families who had fled to Britain.

With support from Literacy Capital, Bookmark were able to reach their £1m target by the end of August and successfully deliver all the boxes to support thousands of Ukrainian child refugees.

Each box contained items that were carefully selected with the help of literacy experts to support children's wellbeing through therapeutic play and storytelling. This included high-quality bilingual books, a starting school stationary set, a tablet loaded with e-Books, language and literacy apps and a SIM card for families to contact loved ones displaced across the world.

The impact of Bookmark's work is best understood through the words of its beneficiaries, such as those from a parent of a child who was supported by the campaign:

"We missed books in our native language so much, because at home we had a whole library of children's books. Yesterday, my son and I enjoyed reading about steam locomotives before going to sleep and then I found another book on the internet and read it on a tablet, very convenient!"

 

Why Literacy?

 

This year's SATs results show that the attainment gap has widened to its largest level in 10 years2. Before the pandemic, more than one in four children would leave primary school unable to read well, and a study conducted by the University of Leeds suggested that if children do not catch up, one in four will become two in three3

Reading is not just about books. It is about reading a road sign, a safety manual, a birthday card. It is understanding a job application or the health information that could save your life. Children who do not read well by age seven, are six times more likely to drop out of school4. These children are also more likely to go on to be unemployed, live in poverty, and even to have a shorter life expectancy.

At an estimated cost of around £80bn to the UK economy per year5, the impact of poor literacy is far-reaching. The longer-term consequences of illiteracy in the UK are hugely damaging, for both the child and for society more widely. For instance:

· Almost one in five children aged five to eight in the UK currently do not own a single book of their own, a 10% increase since the start of the pandemic6, and the figure is likely to grow through the cost-of-living crisis.

· A quarter of disadvantaged primary schools in England do not have a library. There is no government requirement for schools to have a library. 40% of primary schools reported having no dedicated school library budget in recent survey7.

· Between 70% and 80% of pupils that drop out of education are poor readers8.

· Although some 'educational recovery' had been achieved by the end of the 2020/21 academic year, attainment levels in core subjects remain below the expected pre-pandemic standard from 2018/19 due to learning loss9.

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.

 

2TES (formerly Times Educational Supplement)

3University of Leeds

4Centre for Education and Youth

5World Literacy Foundation

6National Literacy Trust

7National Literacy Trust

8 (Codding, 2001; Dugdale and Clark, 2008a)

9 (Tracey, et al. 2022) Educational Endowment Foundation: University of York, Education Policy Institute, NIESR

 

 

Risks and Uncertainty

 

The Board of Directors and Investment Manger continue to monitor any risks which could adversely affect the performance of BOOK. The principal risks and uncertainties facing the Company are set out below.

Investment and liquidity: The Company's investments are in small, unquoted companies, which by their nature entail a higher level of risk and lower liquidity than investments in large, quoted companies. Mitigation: Risk is limited by closely monitoring individual holdings. The board reviews the performance of the portfolio on a quarterly basis

Financial: Most of the company's investments involve a medium to long term commitment and many are relatively illiquid. There is a risk that the company could run out of available cash reserves. Mitigation: The Company seeks to ensure the availability of cash reserves to match the forecast cashflow of the Company. The Company is also able to draw on its £25m committed revolving credit facility, which had £11.5m of undrawn availability at 30.09.2022.

Economic: Events, such as economic recession, may affect the performance and valuation of portfolio companies and their ability to access adequate financial resources, as well as affecting the company's net asset value. A further way that the portfolio company could be affected is any material change in the amount of private capital looking to invest in private businesses. Any change is unlikely to have a significant impact on the company, as additional capital could lead to more competition when sourcing new investments but would also likely increase the value of the existing portfolio. The same would apply vice versa. Mitigation: The Company invests in a diversified portfolio of investments spanning various sectors as well as ensuring that the portfolio companies maintain sufficient cash reserves to be able to support their short to medium term obligations.

Tax: Literacy Capital plc acquired UK resident investment trust status on 1 April 2022 enabling the Company to obtain an exemption from paying tax on its capital profits, amongst other benefits. It is the Company's intention to maintain this status indefinitely. However, whilst not expected to occur, if investment trust status were to be lost or not obtained, the vast majority of BOOK's capital profits would remain exempt from tax, due to the Substantial Shareholding Exemption that could automatically be sought on the sale of many of its assets. On 30 September 2022, it is estimated that approximately 85% of the portfolio's gross assets by value would be exempt from tax regardless of maintaining investment trust status.

Operational: BOOK uses third-party suppliers and is therefore exposed to operational risk. Disruption to the Investment Manager's, administrator's or any other third-party service provider's systems could result in the inability to produce timely and accurate reports on Literacy Capital, or the underlying portfolio companies. Mitigation: The Investment Manager and administrator each have business continuity plans and separately, the depositary reports periodically on custody matters.

Discount volatility: There is a risk that the level at which BOOK's shares may trade below the NAV per share, reducing returns for existing shareholders. Mitigation: The Board of Directors and Investment Manager monitors the level of discount and possesses the ability to buyback shares to counter any discount that persists. The Directors and Investment Manager are also aware that shares in BOOK are already relatively tightly held and liquidity in the Company's shares is required to attract institutional investors.

 

Related Party Transactions

 

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

 

Going Concern

 

The Board has assessed the financial position and prospects of the Company over the next 12 months, whilst considering the additional risks and uncertainties caused by the war in Ukraine, which have created harsher market conditions and increased inflationary pressure. The Company has demonstrated good performance and resilience amongst a difficult market back drop.

The Directors do not believe there are any significant risks and uncertainties likely to impact the ability of the Company to continue in business and believe it has adequate resources to operate for at least twelve months from the date of approval of the financial statements, and so for this reason, the Company continues to adopt the going concern basis in preparing the accounts.

 

Directors' Responsibility Statement

 

The Directors are responsible for preparing the Interim Report, in accordance with the applicable laws and regulations. The Directors confirm that, to the best of their knowledge;

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

· The chair's foreword and interim management report includes a fair review of the information required by DTR 4.2.7 R and 4.2.8 R of the FCA's Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year; and

· The interim financial statements include a fair review of the information required by DTR 4.28R of the Disclosure Guidance and Transparency Rules, being relating party transactions that have taken place in the first six months of the year.

 

This interim report was approved by the Board and the above Director's Responsibility Statement was signed on its behalf by the Chair.

 

 

Paul Pindar

Chairman, Literacy Capital plc

 

15 November 2022

 

 

Unaudited Financial Statements

 

Statement of comprehensive income

For the six-month period ended 30 September 2022

 




  Unaudited

6 months ended

30 September 2022

 

Unaudited

6 months ended

 30 September 2021

 


Total

 

Total

 



£

 

£

Gains on investments

 




Gain on fair value on investments


41,500,301


53,124,848

10

Realised gain on disposal of investment


-


212,604

 

Gains for the period on investments

 

41,500,301

 

53,337,452

Investment Income


4,190


175,639

 

Operating Income


408


45

 

Total

 

4,598

 

175,684

 






 

Total income

 

41,504,899

 

53,513,136






Expenses

 




6

Operating expenses


(1,801,756)


(1,912,650)

 

Total operating expenses

 

(1,801,756)

 

(1,912,650)






Charitable donations


(1,146,808)


(778,889)

Net foreign exchange profit / (loss)


425,159


33,672

 

Profit for the period before taxation

 

38,981,494

 

50,855,269

8

Tax credit / (expense)


1,910,072


83,061

 

Profit for the period

 

40,891,566

 

50,938,330






Other comprehensive income

 





Gain on fair value on debt investments


-


-


Total comprehensive income

 

40,891,566

 

50,938,330


 

 

 

 

 


Earnings per share for profit attributable to the ordinary shareholders of the company:

 

 

 

 

12

Basic earnings per ordinary share (pence)

 

68.15

 

84.90

12

Diluted earnings per ordinary share (pence)

 

67.70

 

84.54

 

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

 

Statement of financial position

As at 30 September 2022

 




  Unaudited

30 September 2022

 

Audited

31 March 2022

Note



£

 

£

 

Non-current assets

 




10

Investments


245,435,207


191,213,506


 

 

245,435,207

 

191,213,506

 







Current assets

 




 

Trade and other receivables


595,874


528,608

 

Cash and cash equivalents


836,820


2,982,399


Unpaid share capital debtors


-


49,950


 

 

1,432,694

 

3,560,957

 

Current Liabilities

 




 

Trade and other payables


556,805


604,847

 

Accrual for charitable donation


270,063


1,706,935

 



826,868


2,311,782








Net current assets

 

605,826

 

1,249,175

 



 

 

 

 

Non-current liabilities

 




 

Accrual for charitable donation


1,580,909


434,101

 

Revolving credit facility


13,500,000


-

 

Deferred tax liabilities


-


1,910,072


Total non-current liabilities

 

15,080,909

 

2,344,173


 

 

 

 

 

 

Net assets

 

230,960,124

 

190,118,508

 







Capital and reserves

 




11

Share capital


60,000


109,950


Share premium


53,946,000


53,946,000


Retained earnings


176,954,124


136,062,558


Total share capital & reserves

 

230,960,124

 

190,118,508

13

Net Asset Value per share (pence)

 

384.93

 

316.86

 

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

 

The interim financial statements were approved and authorised for issue by the board of directors on 15 November 2022 and were signed on its behalf by:

 

 

 

Paul Pindar

Director

Date: 15 November 2022

 

 

Statement of changes in equity

For the six-month period ended 30 September 2022

 



Share capital

Share premium

Retained earnings

Total



£

£

£

£

Balance at 31 March 2022 (audited)


109,950

53,946,000

136,062,558

190,118,508







Profit for the period


-

-

40,891,566

40,891,566

Other comprehensive income for the period


-

-

-

-

Total comprehensive income for the period

 

-

-

40,891,566

40,891,566







Contributions by and distributions to shareholders





-

Cancellation of deferred shares


(49,950)

-

-

(49,950)

Total transactions with shareholders


(49,950)

-

-

(49,950)







Balance at 30 September 2022 (unaudited)

 

60,000

53,946,000

176,954,124

230,960,124







For the six months ended 30 September 2021






Share capital

Share premium

Retained earnings

Total



£

£

£

£

Balance at 31 March 2021 (audited)


109,950

53,946,000

41,719,891

95,775,841

 

Profit for the period


-

-

50,938,330

50,938,330

Other comprehensive income for the period


-

-

-

-

Total comprehensive income for the period

 

-

-

50,938,330

50,938,330







Contributions by and distributions to shareholders






Issue of ordinary shares


-

-

-

-

Total transactions with shareholders


-

-

-

-







Balance at 30 September 2021 (unaudited)

 

109,950

53,946,000

92,658,221

146,714,171

 

 

Statement of cash flows

For the six-month period ended 30 September 2022

 

Notes




Unaudited

30 September 2022

 

Unaudited

30 September

2021




£

 

£


Cash flows from operating activities






Cash outflow from operating activity






Management fee paid


(905,292)


(678,922)


Payroll expenses


(57,974)


(35,418)


Other operating expenditures


(580,618)


(801,121)


Charitable donations paid


(1,436,872)


-


Net cash used in operating activities

 

(2,980,756)

 

(1,515,461)


 

 

 

 

 

 


Cash flows from investing activities





10

Purchase of investments


(12,767,211)


(5,719,315)

 

Cash realised from investments


475,106


2,808,833


Net cash used in investing activities

 

(12,292,105)

 

(2,910,482)









Cash flows financing activities






Cash inflow from financing activities






Cash receipt from revolving credit facility


13,125,000


-


Net cash generated from financing activities


13,125,000


-









Net decrease in cash and cash equivalents

 

(2,147,861)

 

(4,425,943)









Cash and cash equivalents - opening balance


2,982,399


12,599,710


Effect of exchange rate fluctuations on cash and cash equivalents


2,282


1,951

 

Cash and cash equivalents - closing balance

 

  836,820

 

8,175,718

 

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

 

 

 

Notes to the Unaudited Financial Statements

 

For the six-month period ended 30 September 2022

1. Reporting to entity

 

Literacy Capital plc (the "Company") is a public limited company, limited by shares, incorporated in United Kingdom. The Company's registered office is 3rd Floor, Charles House, 5-11 Regent Street St James's, London, SW1Y 4LR. Literacy Capital plc is a closed-end investment company focused on investing in and supporting small, growing UK businesses and helping their management teams to achieve long-term success.

 

2. Statement of Compliance

 

These interim financial statements for the six months ended 30 September 2022 have been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the Company's last annual financial statements as at and for the three months ended 31 March 2022. They do not include all of the information required for a complete set of financial statements prepared in accordance with IFRS Standards. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company's financial position and performance since the last annual financial statements. These interim financial statements are unaudited.

These interim financial statements were authorised for issue by the Company's Board of Directors on 15 November 2022.

 

3. Accounting policies

 

The accounting policies applied by the Company in these interim financial statements are the same as those applied in its annual financial statements as at and for the year ended 31 March 2022.

Deferred tax is provided on all timings timing differences which have originated but not reversed at the balance sheet date, calculated using the tax rates relevant to the benefit or liability. Deferred tax assets are recognised only to the extent that it is more likely than not that there will be taxable profits from which underlying timing differences can be deducted. Deferred tax liabilities are recognised only to the extent that it is more likely than not that there will be a future tax charge. Whilst the Company continues to hold investment trust status, it has an exemption from paying tax on its capital profits.

 

4. Functional and presentation currency

 

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

A foreign currency transaction is recorded initially at the rate of exchange at the date of the transaction. Assets and liabilities are translated from foreign currency to the functional currency at the closing rate at the end of the reporting period. The resulting gains or losses are included in the statement of comprehensive income.

 

5. Accounting estimates and judgments

 

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

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The significant judgements made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those applied to the annual financial statements as at and for the three months ended 31 March 2022.

 

6. Operating Expenses

 


Unaudited 6 months ended

30 September 2022

Unaudited 6 months ended

30 September 2021

 


 

£

£

Non-Executive Director remuneration


52,486

38,330

Auditor remuneration


30,575

35,105

Other operating expenses


1,718,695

1,819,698

Total

 

1,801,756

1,912,650

 









7. Employees

 

The Company has no employees, however, the average number of Directors during the period was 6 (for the three months ended 31 March 2022: 6).

 

8. Tax Expenses

 

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

 



Unaudited 6 month ended 30 September 2022

 

Unaudited 6 month ended 30 September 2021

 



£

£

Current taxation


 

 

United Kingdom corporation tax at 19%

(2021: 19%)


-

23,217



-

23,217



 

 



Unaudited 6 month ended

30 September 2022

Unaudited 6 month ended

30 September 2021



£

£

Deferred taxation


 

 

Origination and reversal of timing differences


(1,908,265)

(106,278)

Adjustments in respect of prior periods


(1,807)

-

Total deferred tax charge / (credit)


(1,910,072)

(106,278)



 

 

Tax on profit on ordinary activities


(1,910,072)

(83,061)

 

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



Unaudited 6 month ended

30 September 2022

Unaudited 6 month ended

30 September 2021



£

£

Profit on ordinary activities before taxation

 

38,981,494

50,855,269





Tax on profit on ordinary activities at standard rate of 19% (for 6 months ended 30  September 2021: 19%)


7,406,484

9,662,501

Factors affecting tax charge for the period:

 



Expenses not deductible for tax purposes and other adjustments


99,950

364,318

Income not taxable in determining taxable profit


(8,040,201)

(10,612,711)

Other permanent differences


-

(26)

Adjustments to tax charge in respect of previous periods


-

228,862

Adjustments to tax charge in respect of previous periods - deferred tax


(1,807)

(82,448)

Remeasurement of deferred tax for changes in tax rates


-

356,443

Movement in deferred tax not recognised


535,574

-

Impact of becoming an investment trust


(1,910,072)

-

Total tax on profit on ordinary activities

 

(1,910,072)

(83,061)





Literacy Capital plc qualified for investment trust status with effect from the financial year commencing 1 April 2022, and as such, its capital gains are now not taxable. A tax credit of £1.9m has been recognised in the period due to the reversal of the opening deferred tax liability.

There is no UK current tax charge at 30 September 2022 as the Company has unrelieved expenses which are available to be carried forward.

At 30 September 2022 the Company had a potential deferred tax asset of £2m on taxable losses which are available to be carried forward and offset against future taxable profits. A deferred tax asset has not been provided on these losses as it is not considered sufficiently certain that the Company will make taxable revenue profits in the future and it is not liable to pay tax on its capital gains. The potential deferred tax asset has been calculated using a corporation tax rate of 25%.

 

Factors that may affect future tax charges

The Finance Act 2021 enacted legislation to maintain the current rate of corporation tax at 19% up until at least the financial year ended 31 March 2023 and increase the rate to 25% from 1 April 2023. On 14 October 2022 the UK government announced that in April 2023 the Corporation Tax rate increase will not be reversed.

 

9. Charitable Donation

 

The Company has recognised charitable donation expenses of £1,146,808 (for the six months ended 30 September 2021: £778,889) calculated by applying 0.9% to a pro forma Net Asset Value adjusted for fair value uplifts of £234.2 million (for the three months ended 31 March 2022: £192.9 million). During the period, donations paid were £1,436,872 (for the six months ended 30 September 2021: nil). The accrual for charitable donations at the period end amounts to £1,850,972 (for the three months ended 31 March 2022: £2,141,036).

 

10. Financial Instruments

 



Unaudited

30 September 2022

Audited

 31 March 2022



£

£

Assets



Financial assets at fair value through profit or loss




Equity instruments at fair value through profit and loss


199,505,545

152,352,376

Debt instruments at fair value through profit and loss


45,929,662

38,861,130

Financial assets at amortised cost




Cash and cash equivalents


836,820

2,982,399

Trade and other receivables (excluding prepayments)


542

542

Total Financial assets


246,272,569

194,196,447

Liabilities




Financial liabilities measured at amortised cost




Trade and other payables


556,805

604,847

Total Financial liabilities


556,805

604,847

 

The investment reconciliation schedule for the Company as of 30 September 2022 is as follows:

 


Equity instruments at fair value
through Profit and Loss

Debt instruments at fair value through profit and loss


Total


£

£

£

Investments at 31 March 2022 (Audited)

152,352,376

38,861,130

191,213,506

Additions

  5,053,702

7,713,509

  12,767,211

Disposal of investments

  (470,916)

-

(470,916)

Fair value movement through profit and loss

  42,145,276

  (644,975)

41,500,301

Unrealised FX gain/ (loss)

425,105

-

  425,105

Investments at 30 September 2022 (Unaudited)

 

  199,505,543

 

45,929,664

  245,435,207

 

The investment reconciliation schedule for the Company as at 31 March 2022 is as follows:

 

 

Equity instruments at fair value through profit or loss

Debt instruments at fair value through profit or loss

31 March 2022

Total

 

£

£

£

Investments at 31 December 2021

 125,308,419

38,335,390

163,643,809

Additions

 4,797,117

 1,685,605

 6,482,722

Disposal of investments

(108,635)

-

 (108,635)

Realised gain on disposal of investments

28,677

-

 

28,677

Fair value movement through profit or loss

  22,264,259

  (1,159,865)

  21,104,394

Unrealised FX gain / (loss)

62,539

-

62,539

Investments at 31 March 2022

152,352,376

  38,861,130

 191,213,506

 

 

Fair values of financial instruments

 

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

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

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

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

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

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

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

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

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

For assets managed and valued by a third party, the fund manager provides the Company with periodic valuations of the Company's investment. The Company reviews the valuation methodology of the third-party manager. If deemed appropriate and consistent with the Company's reporting standards, the Board will adopt the valuation prepared by the third-party manager. The Company adjusts the third-party valuations for any capital calls paid and distributions received between the underlying managers reporting date and 30 September 2022 to arrive at the Directors' best estimate of fair value. The estimated valuations therefore do not take into consideration the unrealised market movements between the underlying managers reporting date and 30 September 2022. The valuations that the underlying managers ultimately provide as at 30 September 2022 may therefore materially differ to the latest valuation report available at the time of preparing these financial statements.

 

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

 

Financial assets and liabilities






30 September 2022


Level 1

Level 2

Level 3

Total



£

£

£

£

Equity instruments at fair value through profit and loss


-

12,509,857

186,995,686

199,505,543

Debt instruments at fair value through profit and loss


-

-

45,929,664

45,929,664

Total investments (Unaudited)

 

-

12,509,857

232,925,350

245,435,207

 

 

Financial assets and liabilities






31 March 2022


Level 1

Level 2

Level 3

Total



£

£

£

£

Equity instruments at fair value through profit and loss


-

12,269,604

140,082,772

152,352,376

Debt instruments at fair value through profit and loss


-

-

38,861,130

38,861,130

Total investments (Audited)


-

12,269,604

178,943,902

191,213,506

 

The following tables shows a reconciliation of the opening balances to the closing balances for fair value measurements in level 3 of the fair value hierarchy for the underlying investments held by the Company.




30 September 2022

31 March 2022

Unquoted investments (including debt)

£

£

Balance as at 1 April / 1 January



178,943,902

152,597,441 

Additional investments



12,216,822

6,255,355

Disposals of investments



-

(711)

Change in fair value through profit & loss



41,764,626

20,091,817

Balance as at 30 September / 31 March

 

 

232,925,350

178,943,902

 

Significant unobservable inputs used in measuring fair value

 

The table below sets out information about significant unobservable inputs used at 30 September 2022 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.

 

Description Inputs

 

Fair value at

30 September 2022

Fair value at

31 March 2022

-

Significant unobservable inputs


  £

  £

 

Unquoted private equity investments (including debt)

200,024,712

144,574,447

EBITDA multiple

Unquoted growth capital investments

 18,275,335

20,701,585

Milestone

Unquoted private equity investments (including debt)

14,625,303

13,667,870

TGAV Multiple

 

232,925,350

178,943,902

 

 

Significant unobservable inputs are developed as follows:

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

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

Although the Company believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements of Level 3 assets, changing one or more of the assumptions used to reasonably possible alternative assumptions would have the following effects on the Level 3 investment valuations:

· For the Company's investment in Level 3 assets which are valued using an EBITDA multiple, the valuations used in the preparation of the financial statements imply an average EBITDA to Enterprise Value multiple of 8.3x (weighted by each asset's total valuation). The key unobservable inputs into the preparation of the valuation of mature Level 3 assets was the EBITDA to Enterprise Value multiple applied to the asset's financial performance. If these inputs had been taken to be 10 per cent. higher, the value of the Level 3 assets and profit for the period would have been £26.8m higher. If these inputs had been taken to be 10 per cent. lower, the value of the Level 3 assets and profit for the period would have been £26.9m lower.

· The Company's one investment in a Level 3 asset which is valued using a TGAV multiple, was valued at 1.2x in the preparation of the financial statements. The key unobservable inputs into the preparation of the valuation of mature Level 3 assets was the TGAV to Enterprise Value multiple applied to the businesses' assets. If this had been taken to be 10 per cent. higher, the value of the Level 3 asset and profit for the period would have been £2.7m higher. If these inputs had been taken to be 10 per cent lower, the value of the Level 3 asset and profit for the period would have been £2.7m lower.

· For the Company's investment in Level 3 assets which are valued using Milestone, the use of different methodologies or assumptions could lead to different measurements of fair value. The key unobservable inputs into the preparation of the valuation was the Revenue to Enterprise Value multiple used. If the output had been taken to be 10% higher, the value of the Level 3 assets would have been £1.8m higher. If the output had been taken to be 10% lower, the value of the Level 3 assets would have been £1.8m lower.

 

11. Share Capital

 



Unaudited 30 September 2022

Unaudited 30 September 2022

Audited 31 March 2022

Audited 31 March 2022



Number

£

Number

£

Ordinary shares of £0.001 each


60,000,000

60,000

60,000,000

60,000

Deferred shares of £0.001 each


-

-

49,950,000

49,950

 


60,000,000

60,000

109,950,000

109,950

 

· The number of shares issued and allotted have been paid to the extent of 60,000,000 shares amounting £60,000 as at 30 September 2022 (for the three months ended 31 March 2022: 60,000,000 shares amounting £60,000).

· All deferred shares were repurchased by the company and cancelled on 7 July 2022 (for the three months ended 31 March 2022: 49,950,000 shares amounting £49,950).

· All ordinary shares have the same voting rights, preferences, and no restrictions on the distribution of dividends and the repayment of capital.

· All deferred shares have no voting rights and are not entitled to the distribution of dividends and the repayment of capital.

 

12. Basic and diluted profit per share (pence)

 

Basic profit per share is calculated by dividing the profit of the Company for the period attributable to the ordinary shareholders of £40,891,556 (for the six months ended 30 September 2021: profit of £50,938,330) divided by the weighted average number of shares outstanding during the period of 60,000,000 (for the six months ended 30 September 2021: 60,000,000).

Diluted profit per share is calculated by dividing the profit of the Company for the period attributable to the ordinary shareholders £40,891,556 (for the six months ended 30 September 2021: profit of £50,938,330) divided by the weighted average number of ordinary shares outstanding during the period, as adjusted for the effects of all dilutive potential ordinary shares, of 60,402,500 (for the six months ended 30 September 2021: 60,250,000).

 

13. NAV per share (pence)

 

The Company's undiluted NAV per share of 384.93 pence (for the three months ended 31 March 2022: 316.86 pence) is based on the net assets of the Company at the period end of £230,960,124 (for the three months ended 31 March 2022: £190,118,508) divided by the shares in issue at the end of the period of 60,000,000 (for the three months ended 31 March 2022: 60,000,000).

The Company's diluted NAV per share of 383.87 pence (for the three months ended 31 March 2022: 316.19 pence) is based on the net assets of the Company at the period end of £230,960,124 (for the three months ended 31 March 2022: £ 190,118,508 ), plus £908,950 which the Company will receive as proceeds from the exercise of warrants, divided by the shares in issue at the end of the period, as adjusted for the effects of dilutive potential ordinary shares of 60,402,500 (for the three months ended 31 March 2022: 60,302,500).

 

14. Reserves

 

The following are the reserves with the entity as on 30 September 2022:

· Share Capital: Capital issued and paid to the extent of £60,000.

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

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

 

15. Related party transactions

 

Two Directors of the Company are designated members of the Investment Manager, Literacy Capital Asset Management LLP ("LCAM").

Total expenses through the statement of comprehensive income with LCAM during the period was £1,146,808 (for the six months ended 30 September 2021: £778,831). The total expense related to the rendering of AIFM services during the period. At the period end the balance due to be paid to the LLP for these services was £293,882 (for the three months ended 31 March 2022: £62,838).

The Company recognises Bookmark Reading Trading Limited as a related party because Sharon Pindar, wife of Paul Pindar, is a Director in Bookmark Reading Trading Limited.

The Company also recognises Bookmark Reading Charity as a related party for the same reason as mentioned above for Bookmark Reading Trading Limited.

The total payments made during the period was £1,351,872 (for the six months ended 30 September 2021: nil). The Company has a provision or charity and other donation payments amounting to £1,850,972 (for the three months ended 31 March 2022: £2,141,036). Out of this provision, certain donations will be made to Bookmark Reading Trading Limited and Bookmark Reading Charity.

 

16. Capital Commitments

 

Further capital commitments of €3,685,721 (for the three months ended 31 March 2022: €4,323,240), £294,530 (for the three months ended 31 March 2022: £294,530) and $1,200,000 (for the three months ended 31 March 2022: $1,200,000) remain outstanding and are yet to be drawn down.

 

17. Subsequent events

 

BOOK invested further capital in Oxygen Freejumping in early November 2022 to support its acquisition of RedKangaroo. This investment was funded by a drawdown being made under BOOK's existing RCF.

 

18. Ultimate controlling party

 

Literacy Capital plc does not have an ultimate controlling party.

 

 

Alternative Performance Measures

 

As well as financial performance, the Board of Directors and Investment Manager monitor Alternative Performance Measures. An APM is a numerical measure of the Company's historical or current performance. The following APMs are typically used within the investment trust sector to provide additional information to shareholders and other readers to help assess performance.

 

Total Return

 

Share price and NAV total returns show how the share price and NAV have performed over the six month period to 30 September 2022.

 

Share price mid-point

NAV per Share

Opening at 1 April 2022

297.0p

320.0p

Closing at 30 September 2022

388.0p

384.9p

Change in six months to 30 September 2022

30.6%

20.3%

Dividends declared or paid

-

-

Total return in six months to 30 September 2022

30.6%

20.3%

 

Share Price Premium or Discount

 

The table below shows the amount by which the share price mid-point is either higher (premium) or lower (discount) than the NAV per share, expressed as a percentage of the NAV per share.


30 Sep 2022

Share price mid-point

388.0p

NAV per share

384.9p

Share price premium

0.8%

 

Ongoing Charges

 

The ongoing charges are calculated in line with guidance issued by the Association of Investment Companies ('AIC') and capture management fees and expenses, which are operational and recurring by nature but excluding finance costs, incurred by the Company. The calculation does not include the expenses or management fees incurred by any underlying funds or portfolio companies. As a result of BOOK now having investment trust status, irrecoverable VAT on the investment management fee in 2021 has been removed for comparability, as this is no longer recurring.

The calculation is based on the ongoing charges expressed as a percentage of the average quarterly NAV figures published during the six month period to 30 September 2022.

BOOK's ongoing charges, excluding the 0.9% annual charitable donation provision, were calculated as 1.29%

(30 September 2021: 1.59%).

BOOK's ongoing charges, including the 0.9% annual charitable donation provision, were calculated as 2.33%

(30 September 2021: 2.81%).

BOOK's investment management fees and charitable donation are calculated as 0.9% of net assets at the end of the financial period, which allows these costs to be calculated based on audited net asset figures, rather than unaudited quarterly figures. This translates into slightly higher ongoing charges and donations, compared to the AIC's suggested calculation which uses average net assets in the period, if net assets grow in the period.

 

 

Corporate Information

 

Directors

Paul Pindar

Richard Pindar

Kevin Dady

Simon Downing

Christopher Sellers

Rachel Murphy

 

Registered Number

10976145

 

Registered Office

3rd Floor, Charles House

5-11 Regent Street St James's

London

SW1Y 4LR

 

Service Providers

 

Investment Manager

Literacy Capital Asset Management LLP

English Legal Adviser to the Company

Travers Smith LLP

10 Snow Hill

London

EC1A 2AL

 

 

Company Secretary

Literacy Capital Asset Management LLP

Independent Auditor

Mazars LLP

The Pinnacle

160 Midsummer Boulevard

Milton Keynes

MK9 1FF

 

 

Corporate Broker

Singer Capital Markets Securities Limited

One Bartholomew Lane

London

EC2N 2AX

Bankers

Santander UK plc

2 Triton Square

Regent's Place

London

NW1 3AN

 

 

Administrator

EPIC Administration Limited

Audrey House

16-20 Ely Place

London

EC1N 6SN

Depositary

Indos Financial Limited

The Scalpel

18th Floor

52 Lime Street

London

EC3M 7AF

 

 

Registrar

Link Market Services Limited

Central Square

10th Floor

29 Wellington Street

Leeds

LS1 4DL 

 

 

 

Shareholder Information

 

Key Dates

 

November 2022  Half-yearly results announced, following the 31 March 2022 year-end

December 2022                 Company's usual year-end resumes 

March 2023                        Annual report and financial statements published

June 2023                           Company's half year-end

 

Frequency of NAV Publication

 

The Company's unaudited NAV is released to the London Stock Exchange on a quarterly basis, in January, April, July and October, typically within four weeks of the quarter end.

 

Annual and half-yearly report

 

Copies of the Company's Annual and Half-yearly Reports, stock exchange announcements and further information on the Company can be obtained from the Company's website www.literacycapital.com .

 

Identification codes

 

Admission to trading:   Specialist Fund Segment (SFS)

Ticker:                               BOOK

ISIN:                                   GB00BMF1L080

 

Contacting the Company

 

Shareholder queries are welcomed by the Company. While any queries regarding your shareholding should be directed to the Registrar, shareholders who wish to raise any other matters with the Company may do so via the registered office of the company (see Corporate Information section).

 



 

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