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Literacy Capital outperforms in 2021 while growth means more charitable donations

Literacy Capital : Book

Literacy Capital outperforms in 2021 while growth means more charitable donations – Literacy Capital (BOOK) has posted its results for the 12 months to 31 December 2021. During the period, its NAV increased by  94.1% while the share price closed the year at 295p, a 6.4% premium to net assets, and 84.4% higher than the price on Admission to the London Stock Exchange on 25 June 2021.

Growth in net assets in 2021 was driven by uplifts across a number of portfolio companies. Of the 14 direct investments held at the end of 2020, seven of them delivered a return to BOOK of at least 100% in 2021. Of these seven investments, three generated a return in excess of 200% in the year. These uplifts were driven by a combination of strong growth in profitability, cash generation and a number of transactions involving BOOK investee businesses with third-party investors at material premiums.

Cash proceeds received by BOOK in 2021 were materially higher than those received in 2020. This was as a result of an increasingly mature portfolio with companies achieving greater levels of scale, profitability and cash generation. This increase was deliberate in order to manage capital within BOOK efficiently and to increase the amount of available cash to fund new investment opportunities.

Meanwhile, the company’s charitable donations in 2021 increased significantly, expanding the range and size of charitable activities that it can now support. Literacy Capital makes an annual donation equivalent to 0.9% of its NAV at each year end, and in 2021, the total provision recognised for donations to charities focussing on improving literacy was £1,527k, up from £772k in 2020.

Comment from the CEO:

We are pleased with the way in which our largest portfolio companies and investments have traded strongly in 2021 and their prospects remain very positive.  The growth and strong performance of certain investments has led BOOK’s portfolio to be more highly concentrated than many funds. This concentration results from excellent trading performance and strong uplifts in value of those companies, rather than allocating disproportionate amounts of capital to these companies. We do not wish to risk large amounts of BOOK’s capital by committing disproportionate amounts of cash to new investments, but we will look to run winners and avoid selling assets prematurely to enjoy the substantial upside that this can generate.

We enjoy a high degree of insight and influence in BOOK’s portfolio companies. This involves the monthly, or even weekly, provision of management information and frequent interaction with the management teams of these businesses. In many cases, we have appointed several members of these management teams and have the ability to make changes if we feel it is necessary to improve the prospects of the business. Therefore, while some funds would be nervous with higher levels of portfolio concentration, the nature of our investments in these private companies means we are comfortable with the composition of our portfolio. We view this concentration as a positive and as an opportunity. We hope that their current momentum will enable BOOK to continue outperforming, whilst our receipt of company data and information in a timely fashion gives us good awareness should this momentum falter. If required, we have the ability to influence outcomes across our portfolio companies or make any necessary changes.

We are particularly grateful and thankful to all of the management teams and employees of our portfolio companies for their hard work in 2021. It has been a challenging year for many of them, with the continued impact of Covid-19 and supply chain problems that have affected businesses globally. We thank them for their efforts in 2021 and hope that many of these issues will ease in 2022.

We are satisfied that the amount of cash realised in 2021 was more than three times higher than the figure achieved in 2020. We are confident that we will be able to generate more cash from the portfolio to finance new investments, as the companies continue to grow, trade strongly and generate cash. Alongside the recently agreed £15m Revolving Credit Facility, we remain confident that BOOK has the capital it needs to deploy into new investment opportunities that are available to us. This facility will also enable us to manage cash drag, which can reduce shareholder returns.

BOOK : Literacy Capital outperforms in 2021 while growth means more charitable donations

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