Literacy Capital Reports 1.8% NAV Decline in Q2 2026 Despite £20.6 Million Cash Inflows from Wifinity Exit

RCI Group Leads Q2 Recovery Amid Overall NAV Decline

RCI Group, Literacy Capital’s largest holding, emerged as the strongest performer in Q2 2026, reversing its prior quarter’s negative impact on NAV. This turnaround supports management’s view that portfolio companies previously showing weakness over the last twelve months are now gaining positive momentum and contributing to valuation improvements. During the quarter, RCI completed a bolt-on acquisition of 33n, a healthcare consultancy employing clinicians and data scientists that partners with NHS trusts to enhance clinical workflows and patient outcomes. This acquisition aligns with Literacy Capital’s strategy of driving value through add-on transactions that accelerate growth and eventual exits.

Live Business also contributed positively to NAV after Literacy increased its equity stake. However, valuation declines in Oxygen Activeplay and Cubo Work partially offset these gains. The UK’s record-breaking high temperatures and low rainfall in Q2 2026 negatively affected Oxygen’s trading and valuation, highlighting operational risks and the importance of portfolio diversification across sectors and geographies.

Focused Deployment of Cash Into Bolt-On Acquisitions and Portfolio Support

In Q2 2026, Literacy Capital received £20.6 million in cash inflows, including £15.0 million from the Wifinity sale in April and £4.9 million from disposing of its largest residual fund interest in May. Additionally, £0.7 million was distributed from the remaining two fund investments, which have generated strong recent cash flows. These proceeds demonstrate Literacy’s capability to execute exits and recycle capital into portfolio growth initiatives. The company did not disclose whether these exits yielded returns above or below original cost.

The £13.3 million of cash outflows in Q2 were fully allocated to supporting existing portfolio companies via bolt-on acquisitions, capital expenditures, and working capital. Management confirmed that bolt-on acquisitions will remain a priority throughout 2026, targeting high returns on invested capital and accelerating exit timelines. This disciplined capital deployment focuses on businesses with established management and operational improvements. Residual fund interests were reduced to 1.3% of NAV from 3.2% at Q1 2026, reflecting this strategic shift.

Recent Investments Red Sky and Trinitatum Deliver Strong Early Returns

Literacy Capital’s latest investments, Red Sky and Trinitatum, have shown impressive early value creation. Both entered the top five and top ten holdings respectively by 30 June 2026, despite being acquired less than 18 months earlier. Red Sky achieved a 5.8x multiple on money (MoM) return, while Trinitatum recorded a 4.3x MoM return over the same period. These results indicate rapid realization of Literacy’s investment thesis and effective value creation strategies.

Trinitatum notably expanded its workforce nearly fourfold since acquisition, with anticipated NAV uplifts expected as new customer contracts commence. Red Sky continues to pursue merger and acquisition opportunities to enhance its platform and market reach. The strong early performance of these companies underscores Literacy Capital’s successful investment selection and post-acquisition support.

Challenging Market Conditions Drive NAV Decline

The 1.8% drop in NAV per share to 472.6 pence and the 1.2% decrease in total NAV to £284.4 million reflect a difficult operating environment for smaller UK private businesses. This decline is more pronounced than in historical periods, indicating macroeconomic headwinds. However, management remains optimistic as key detractors from the past year, including RCI Group and Grayce, showed positive contributions in Q2, suggesting portfolio challenges may be easing.

The NAV is calculated on 60,175,000 ordinary shares of £0.001 each, including 1,017,500 warrants accrued over their vesting period. Since inception, cumulative cash returns to shareholders total £6.0 million. CEO Richard Pindar acknowledged the weaker NAV performance despite strong exits and emphasized that improved NAV results would enhance news flow and share price momentum, highlighting management’s awareness of the valuation disconnect.

Potential Official List Migration and Enhanced Investor Marketing to Address NAV Discount

Literacy Capital is exploring a move to the Official List on the London Stock Exchange’s Main Market to improve visibility and accessibility among institutional investors. Management believes that current structural barriers contribute to the persistent NAV discount and that this listing upgrade could help narrow it by attracting a broader shareholder base and improving liquidity.

Alongside this, the fund is executing a comprehensive marketing strategy, including a presence at the Investor Summit on 18 September 2026 and a live Q3 2026 performance update by Chair Paul Pindar and CEO Richard Pindar on 26 October 2026 via the Investor Meet Company platform. The fund’s profile was also launched on the Curation Corp investment showcase in July 2026, and Chair Paul Pindar appeared on the "In The Company of Mavericks" podcast to raise awareness among investment and entrepreneurship audiences.

Ongoing Charitable Commitment Reflects Fund’s Social Mission

Literacy Capital maintains a unique charitable focus, donating 0.5% of annual NAV to UK literacy charities. Since 2017, total donations and reserved provisions have reached £13.5 million, including a £355,000 provision in Q2 2026. This commitment is integrated into annual NAV calculations to ensure consistent support aligned with the fund’s mission.

Co-founders Paul and Richard Pindar established the fund in 2017 with £54 million in capital, listing it on the London Stock Exchange in June 2021. The fund achieved Approved Investment Trust status on 1 April 2022, enhancing tax efficiency for UK investors. The charitable objective differentiates Literacy Capital in the investment trust sector, appealing to impact-focused investors and demonstrating steadfast dedication even during challenging market conditions.

Portfolio Composition and Fund Interest Reduction Reflect Strategic Focus

As of 30 June 2026, Literacy Capital’s portfolio reflects a strategic shift with fund interests reduced to 1.3% of NAV from 3.2% at Q1 2026 after disposing of its largest residual fund investment. The remaining two fund investments continue to generate strong cash flows, distributing £0.7 million in Q2. This rationalisation aligns with the fund’s focus on direct investments where it can exert operational influence to drive value.

No new platform investments were made in Q2 despite significant cash inflows, reflecting management’s preference to prioritize bolt-on acquisitions and operational support within existing portfolio companies. The largest holding, RCI Group, benefits from ongoing management support and recent bolt-on acquisitions such as 33n, underscoring the fund’s focus on maximising value within established assets.

Robust Liquidity and Borrowing Capacity Support Growth Strategy

Literacy Capital maintains strong liquidity to fund portfolio growth. As of 30 June 2026, £8.7 million was drawn on its £40 million revolving credit facility (RCF), down from £15.5 million at 31 March 2026, reflecting cash inflows from the Wifinity sale and fund interest disposal. The fund held £0.7 million in cash at quarter-end, retaining significant borrowing headroom to support bolt-on acquisitions and portfolio investments.

This liquidity position enables the fund to pursue its bolt-on acquisition strategy throughout 2026 without capital constraints. The reduced RCF utilisation demonstrates that organic portfolio cash generation and strategic exits are facilitating growth investments while deleveraging. This financial flexibility positions Literacy Capital to capitalize on value creation opportunities within the portfolio or new platform investments if attractive prospects arise.

Management Expresses Confidence in Portfolio Recovery and Growth Prospects

CEO Richard Pindar acknowledged the recent NAV underperformance due to broader economic challenges but highlighted encouraging signs of recovery within key holdings like RCI Group and Grayce, which contributed positively in Q2 after detracting over the prior year. Management anticipates further NAV uplifts as portfolio companies continue to gain momentum.

Pindar emphasized that stronger NAV performance will generate positive news flow and share price momentum. Management is focused on supporting existing portfolio companies to enhance value while advancing marketing initiatives to address barriers limiting investor access to BOOK shares. This dual approach aims to improve both portfolio valuations and market perception, addressing the persistent NAV discount through disciplined execution.