BOOK Literacy Capital Plc

The information contained in this announcement is restricted and is not for publication, release or distribution in the United States of America, any member state of the European Economic Area, Canada, Australia, Japan or the Republic of South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

8 April 2024

Literacy Capital plc (the "Company")

Proposed B Share Scheme, amendment to AIFM Agreement and notice of Annual General Meeting

Literacy Capital plc has today released a circular and notice of its annual general meeting (the "AGM") to be held at 10.00 a.m. on 15 May 2024 at 3rd Floor, Charles House, 5-11 Regent Street, St James's, London, SW1Y 4LR (the "AGM Circular").

As well as a description of the ordinary course business to be proposed at the AGM, the AGM Circular contains details of:

-      a proposed mechanism to return capital to shareholders through the issue and immediate redemption of bonus shares (the "B Share Scheme"); and

-      a proposed amendment to the AIFM Agreement between the Company and Book Asset Management LLP (the "Investment Manager" or the "AIFM"), designed to ensure that the management fee payable to the Investment Manager by the Company fairly takes into account time spent managing capital which is subsequently returned to Shareholders pursuant to the B Share Scheme or otherwise (the "AIFM Agreement Amendment").

Full details of the proposed B Share Scheme and the AIFM Agreement amendment, each of which is conditional on the passing of the relevant resolutions at the AGM, are contained in the AGM Circular. A summary of those proposals is set out below.

B Share Scheme

As the Company's portfolio matures and realisations occur, the Board believes it would be prudent to have a method for returning available capital amounts to Shareholders from time to time. While not all capital profits will be returned and may instead be reinvested or used to reduce the Company's credit facility, there may be circumstances where the Board decides that it is prudent to return capital.

After due consideration, the Board believes that one of the fairest and most efficient ways of returning cash to Shareholders is by adopting a B Share Scheme whereby the Company will be able to issue redeemable B Shares to Shareholders and to redeem them on each Redemption Date without further action being required by Shareholders ("B Share Returns of Capital").

The quantum and timing of B Share Returns of Capital to Shareholders following receipt by the Company of the net proceeds of realisations of investments will be dependent on the Company's liabilities at the time of such return (including any outstanding borrowings), its pipeline of investment opportunities and outstanding investment commitments and general working capital requirements. In particular, the net cash proceeds from realisations of investments, after settlement of and provision for liabilities of the Company, will normally be applied towards the repayment of any outstanding borrowings prior to returning capital to Shareholders. Accordingly, the quantum and timing of B Share Returns of Capital are at the discretion of the Board, which will announce details of each B Share Return of Capital, including the relevant Record Date, Redemption Price and Redemption Date, through an RIS Announcement.

The adoption of a B Share Scheme will not limit the ability of the Company to return cash to Shareholders by using other mechanisms and, if the B Share Scheme is adopted, the Board will continue to review its efficiency over time. The Board's proposal to adopt a B Share Scheme should not be taken as any indication as to the likely timing or quantum of any future returns of cash to Shareholders and Shareholders should not conclude that returns of capital are imminent or likely.

AIFM Agreement Amendment

The purpose of the proposed variation is to ensure that the AIFM is remunerated fairly (in a way which does not disadvantage Shareholders), by taking into account the variations in the Net Asset Value of the Company which would be caused by any returns of capital (whether pursuant to the B Share Scheme or otherwise). The AIFM Agreement Amendment, which is conditional on Shareholder approval as described in the following paragraph, would be implemented pursuant to a conditional deed of amendment and restatement to the AIFM Agreement which has been entered into by the Company and the AIFM dated the date of this announcement (the "AIFM Agreement Deed of Amendment").

The Company is not admitted to the Official List and as such the Company is not subject to the Listing Rules. Nevertheless, as a matter of good corporate governance, and as set out in the Company's IPO Prospectus, the Company voluntarily complies with Listing Rule 11 as if the Company were subject to the Listing Rules. Listing Rule 11 (if applicable) would require the Company to seek prior approval of Shareholders before entering into a transaction with a "related party" within the meaning of the Listing Rules. The AIFM would be a related party for these purposes and therefore the AIFM Agreement Deed of Amendment is conditional on the passing of the Related Party Transaction Resolution at the AGM.

Under the terms of the AIFM Agreement, the Investment Manager is entitled to a management fee in respect of each financial year equal to 0.9 per cent. of the adjusted audited Net Asset Value as at the end of that year. The Company makes quarterly payments in advance on account against this sum, and a "true-up" exercise is then performed following the publication of the Company's audited annual Net Asset Value in order to ensure that any overpayment or underpayment of the management fee is reflected in the next accounting period's management fee (a "Year-end Adjustment").

The purpose of the proposed variations to the management fee in the AIFM Agreement Deed of Amendment is to ensure that the Year-end Adjustment equitably takes into account any capital returns (made pursuant to the proposed B Share Scheme or otherwise) during the accounting period in question. The Independent Directors believe that the proposed variations to the management fee are reasonable primarily as the current management fee is calculated based on the year-end net assets, and as such its continuance would mean (where capital is returned) that the Investment Manager receives no income reflecting the capital it has managed throughout part of the year which is returned to Shareholders before year-end. This is particularly inequitable to the Investment Manager under a scenario where the capital is distributed to Shareholders later in the year.

By way of example, the following table compares the current fee calculation with the proposed fee calculation, assuming that:

-      the adjusted audited Net Asset Value at the start of a financial year is £300 million; and

-      there is no increase or decrease in the Net Asset Value in the course of the year other than that caused by a return of capital of £10 million.

For the avoidance of doubt, the above example is illustrative only. No reliance should be placed on the above example as an indicative of potential returns to Shareholders. Specifically there can be no guarantee as to the timing or value of returns, if any returns are made.

The table illustrates that, in this example, half the amount returned to shareholders is added back to the adjusted audited Net Asset Value for the purpose of calculating the management fee. Pursuant to the proposals the adjusted audited Net Asset Value at year end, for the purpose of the management fee calculation, will be adjusted by adding: one quarter of the amount of capital returned in the first quarter, half of the amount returned in the second quarter, three-quarters of the amount returned in the third quarter and all of the amount returned in the fourth quarter. These adjustments reflect the period under which the capital is managed by the AIFM prior to distribution.

In further voluntary compliance with Listing Rule 11, the Company has received advice from Singer Capital Markets Advisory LLP, as the Company's financial adviser, that that the proposed variations to the fee provisions of the AIFM Agreement brought about by the entry into of the AIFM Agreement Deed of Amendment (the "Related Party Transaction") are fair and reasonable so far as the shareholders of the Company are concerned. In providing its advice, Singer Capital Markets Advisory LLP has taken into account the Independent Directors' commercial assessment of the Related Party Transaction. The "Independent Directors" for these purposes are Simon Downing, Christopher Sellers and Rachel Murphy. Paul Pindar and Richard Pindar are not considered to be Independent Directors for these purposes as they are principals of the Investment Manager.

An electronic copy of the circular can be viewed at www.literacycapital.com/investors/reports-and-results, and will shortly be submitted to the National Storage Mechanism.

Any capitalised terms not defined in this announcement shall have the same meaning as in the AGM Circular.

For further information, please contact:

Literacy Capital plc / Book Asset Management LLP
Richard Pindar / Tom Vernon
+44 (0) 20 3960 0280

MHP Group
Reg Hoare / Ollie Hoare / Matthew Taylor
book@mhpgroup.com
+44 (0) 20 3128 8100

Singer Capital Markets Advisory LLP, Financial Adviser
Robert Peel / Angus Campbell (Corporate broking)
Alan Geeves / James Waterlow / Sam Greatrex (Sales) 
+44 (0) 20 7496 3000

 LEI: 2549006P3DFN5HLFGR54

A copy of this announcement will be available on the Company's website at www.literacycapital.com. Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website for any other website, is incorporated into, or forms part of, this announcement nor, unless previously published by means of a recognised information service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.

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