Literacy Capital said it expects to write the value of its holding in Cubo Work down to zero in its next portfolio valuation at the end of September, even as the majority of its other investments continued to trade well in the third quarter.
The London-listed investment trust, which invests directly in private UK businesses, said "several issues" had become apparent at Cubo in recent weeks, which its investment manager has been working to understand and remedy.
Cubo is one of just two Literacy holdings where the founder serves as both chief executive and majority shareholder, the other being Kernel, in which BOOK sold most of its stake in 2023.
The business also did not generate positive operating cashflow, a result of its historical expansion and site roll-out strategy.
BOOK's most recent valuation of Cubo, at 30 June, stood at £24.4m, equivalent to 40.6p per share or 8.6% of net asset value (NAV).
"It is unfortunate and regrettable that the developments at Cubo will mitigate the positive developments in other portfolio companies and the efforts of the management teams of these businesses," said Richard Pindar, chief executive of BOOK's investment manager.
Despite the expected writedown, total NAV is not currently expected to fall below £270m as at 30 September, implying a decline of less than 5% in the quarter after all costs and expenses.
Pindar said the company had expected the third quarter to deliver its strongest quarterly NAV performance in at least 18 months, if not three years, before the Cubo issues emerged.
Elsewhere in the portfolio, RCI Group, Literacy's largest asset, continued to trade positively, with a July carve-out acquisition trading ahead of plan and a new group chief financial officer joining in August.
Techpoint completed a bolt-on acquisition in September funded through a refinancing with a new lender rather than further investment from Literacy, while Velociti's integration of Irish fleet software provider ACS, acquired in April, is progressing well and marks Velociti's first acquisition outside the UK.
Red Sky Food Group reported new sales wins across existing and new customers and is planning capacity increases at its Welsh and East London manufacturing sites.
BOOK said it retains significant liquidity following the August extension of its revolving credit facility to September 2029, with the committed element increased to £50m; the facility was drawn £18.7m as of 30 September, with £2m held in cash.
"We are confident that the issues affecting Cubo are isolated to this holding, with BOOK's remaining portfolio companies performing solidly and being well led by honest, capable management teams," Pindar said.