Quarterly trading update and NAV announcement

Literacy Capital PLC

29 August 2023

 

The information contained in this announcement is restricted and is not for publication, release or distribution in the United States of America, any member state of the European Economic Area, Canada, Australia, Japan or the Republic of South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

This announcement contains inside information.

29 August 2023

Literacy Capital plc

Quarterly trading update and NAV announcement for Q2 2023

"Another transaction at a significant premium to carrying value helps to deliver

a NAV return of +4.5% in Q2 and a twelve month return of +41.3%"

Literacy Capital plc ("Literacy", "BOOK" or the "Company"), a listed investment trust primarily focused on investing directly into private businesses based in the UK, today announces its quarterly trading update and NAV update for the three months ending 30 June 2023.

Q2 Highlights:

●	Net asset value ("NAV") per share of 488.5p (Q1'23: 467.3p) and NAV of £293.1m (Q1'23: £280.4m).
●	Total NAV return (after all fees and charitable donation provisions) of +4.5% in the last three months, a net uplift of £12.7m (21.2p per share). The NAV return over the last twelve months is +41.3%.
●	The uplift generated from the asset we agreed to sell was the largest contributor in Q2, with its valuation uplifted to match the terms of the transaction that was announced today. The sale represented a 53.8% premium to the March 2023 carrying value, adding £7.6m to NAV in Q2. The remaining portfolio companies also contributed positively overall in the quarter.
●	Cash proceeds over the rest of the year will be healthy, exceeding the amounts received in H1. The cash from the sale announced today will be used to fully repay the RCF once it is received, before it is recycled into new investment opportunities.
●	Share price performance was strong in the quarter, rising 16.4%, and outperforming its benchmark indices again. The trust will have net cash in H2 and will consider buying back shares, if the share price fails to keep pace with NAV.

Commenting on the Q2 performance, CEO of BOOK's investment manager, Richard Pindar, said:

"Literacy Capital continued to make good progress in Q2, generating a 4.5% NAV return in the three month period. The NAV return over the last twelve months exceeds 41%.

The largest contribution to this performance in the quarter was from the uplift on the transaction announced today. The sale of this investment is further validation of BOOK's model and investment strategy. The sale, coming just five months after the transaction involving Kernel Global, was important for several reasons:

1)	The transaction completed valuing BOOK's holding at a more than 50% premium to the 31 March carrying value. This helps to give further comfort and another reference point regarding the prudence of BOOK's valuations.
2)	BOOK generated a return of more than 10x its investment, and an IRR higher than 50%, evidencing the value our approach can generate. The Kernel transaction in March achieved a 9.8x return (IRR of 65.5%), whilst also completing at a 48.9% premium to carrying value.
3)	The sale results in BOOK receiving more than £20m in cash. Importantly, this can be used to fully repay the RCF and be recycled into new, attractive investment opportunities.

Trading across the portfolio in Q2 was largely positive. There were signs in two businesses, that traded very strongly in 2022, of demand cooling from post-Covid highs. Out of prudence, these two companies were marked down in the quarter.

We continue to view BOOK's prospects very positively and the current environment is creating many interesting investment opportunities to redeploy capital. We do not believe that a discount fairly values BOOK's current portfolio or prospects. As such, if the share price does not keep pace with NAV in the coming months, we will also allocate cash to buying back shares in the trust alongside committing capital to new opportunities."

Net Asset Value

The Company announces that as at 30 June 2023, the NAV per ordinary share was 488.5 pence. This represents a 4.5%, or 21.2p per share, uplift since 31 March 2023 when NAV per ordinary share was 467.3p.

	At 30 Jun 23	At 31 Mar 23	At 30 Jun 22
Net asset value	£293.1m	£280.4m	£207.4m
NAV per ordinary share	488.5p	467.3p	345.7p

The above NAV calculation is based on the Company's issued ordinary share capital as at 30 June 2023 of 60,000,000 ordinary shares of £0.001 each. This NAV calculation includes the cost to ordinary shareholders of the 600,000 warrants in issue. This cost is accrued on a straight-line basis over the vesting period of the warrants.

Portfolio company performance

The portfolio continues to show strong growth year-on-year, with sales growth up 69%. EBITDA growth has been slightly more measured (+30%) but remains healthy.

Whilst these figures remain strong, revenue growth has been less substantial than expected, as market conditions in some sectors have been less ebullient than in 2022. Lower than budgeted sales growth impacts margins and EBITDA growth, given the investment and hires the portfolio companies have made to support their expected expansion. To illustrate this, BOOK's portfolio companies continue to create jobs and opportunities across the UK, with the top ten investments adding more than 300 employees in three months to close the quarter with combined headcount of 4,235. We expect these hires and investments to pay off in H2 2023 and into 2024.

As has been consistently referenced in recent factsheets, interest in BOOK's portfolio companies from prospective acquirors remains very high, even after the two recent sales. More realisations can be expected over the next 18 months.

Transactions and investments

The pipeline for new investment opportunities has remained strong, with £15.0m invested in the three months to 30 June 2023. This is the largest amount invested in a quarter since BOOK listed in June 2021.

Two new investments were completed in the quarter. A small growth capital investment in Cadro, a wealth management platform, completed in April. The following month, a second, more substantial new investment was finalised into Cubo Work. Cubo is a provider of workspaces in several UK cities. Additional funding was provided as part of this deal to accelerate growth, with the expectation that the number of sites will double within six months.

Follow-on funding was also provided to several existing BOOK portfolio companies to support their growth plans. BOOK received no capital calls from PE funds in Q2.

Cash & liquidity

£0.3m was received in Q2. This followed a record £21.1m in Q1, which was the largest amount received by BOOK in a single quarter. This record quarterly figure will be exceeded in H2 2023, following the sale announced today, plus other expected inflows.

The RCF was £17.0m drawn on 30 June 2023 (up from £2.9m on 31 March) and this will be fully repaid from the proceeds received from the sale.

Cash generation is expected to remain strong in H2 2023, given the health and maturity of the portfolio.

Post-balance sheet events

The uplift from the sale announced today is reflected in the 30 June 2023 valuation. No other events occurred between the end of Q2 and the publication of this factsheet requiring reported NAV to be revised.

Factsheet

The Company's factsheet for the three months to 30 June 2023 is now available on the Company's website: www.literacycapital.com/investors

-ENDS-

For further information, please contact:

Literacy Capital plc / Literacy Capital Asset Management LLP

Tom Vernon / Richard Pindar

[phone]

MHP Group

Reg Hoare / Ollie Hoare / Matthew Taylor

[e-mail]

[phone]

Singer Capital Markets Securities Limited

Robert Peel

[phone]

About Literacy Capital plc

Literacy Capital (BOOK.L) is a closed-end investment company that was co-founded by Paul Pindar and Richard Pindar in 2017 with £54m of capital. Literacy listed on the London Stock Exchange's Main Market in June 2021, before gaining Investment Trust status on 1 April 2022. The Company focuses on opportunities to invest for the long-term in growing private businesses where a clear route to creating additional value can be seen with its support.

It also has a unique charitable objective, to donate 0.9% of annual NAV to charities focused on improving UK literacy in children. £7.1 million has been donated or reserved for donation to charities since the trust's creation in 2017, meaning over 13% of the capital raised from investors has been given away. For more information, please visit our website: www.literacycapital.com.

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. 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.

LEI: 2549006P3DFN5HLFGR54

 

END