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Positive Electronics Ltd.

BSE: 539178 Sector: Others
NSE: N.A. ISIN Code: INE813P01016
BSE 05:30 | 01 Jan Positive Electronics Ltd
NSE 05:30 | 01 Jan Positive Electronics Ltd

Positive Electronics Ltd. (POSITIVEELECTR) - Chairman Speech

Company chairman speech

I am pleased to present to shareholders the Annual Report of the Company for the yearended 30 September 2015.


This has been another good year for the Company due to profitable realisations strongportfolio performance and a high level of new investment. Following on from the sizeabledisposal proceeds received in the previous financial year the Company made furthersuccessful realisations of three major investments in its portfolio at substantial gainsover cost in the early months of this financial year and two more after the year-end. Inaddition a number of investee companies have returned solid performances in the portfoliocontributing to increases in their valuations.

The returns earned as a result of the above events have been reflected in the Company'sdividend stream in respect of the year. The VCT is also performing well against its peergroup and it is very encouraging to see the Investment Adviser once again winningsignificant industry awards.

Shareholders may have noted that the Finance Act 2015 which became legislation lastmonth requires some changes to the type of investments that the VCT is now permitted tomake as set out in section 274 of the Income Tax Act 2007 ("the VCT Rules").These changes will require the Company's current Investment Policy to be amended. Forfurther information please see Industry Developments and Changes to the Investment Policyon page 4.


The Company's NAV total return per share was 8.5% for the year ended 30 September 2015(2014: 9.4%) after adjusting for 18.00 pence per share of dividends paid in the year.This further positive NAV return for the year was attributable to unrealised gains fromthe strong performances of some of the portfolio companies notably from increases in thevaluations of Entanet Tessella and Virgin Wines and to realised gains from the sale ofthree investments namely Focus Pharma EMaC and Youngman. A number of other portfoliocompanies have also continued to make steady progress and have increased their profits andcashflow which have in some cases enabled them to make early repayments of their loanstock.

As a result of this year's performance the cumulative NAV total return per share(being the closing net asset value plus total dividends paid to date since launch) roseduring the year by 5.9% (2014: 6.9%) from 165.10 pence to 174.88 pence. Using thebenchmark of NAV cumulative total return the VCT was ranked first over five years andtenth and fifteenth over three and ten years respectively among generalist (includingplanned exit) VCTs used by the Association of Investment Companies ("AIC")(based on statistics prepared by Morningstar) to measure performance at 30 November 2015.It is gratifying to be able to report such strong performance over the long-term as wellas in recent years.

For more detailed data on the performance of your investment may I refer you to thePerformance Data Appendix on pages 81 - 82 of this Report. This is also available on theCompany's website at www.incomeandgrowthvct. and can be downloaded by clicking on"table" in "Reviewing the performance of your investment". Thisprovides information by allotment date on NAVs and cumulative dividends paid per share foreach of the VCT's fundraisings.


Your Directors are recommending a final dividend in respect of the year ended 30September 2015 of 6.00 (2014: 4.00) pence per share. The dividend comprising 5.00pence from capital and 1.00 penny from income will be proposed to shareholders at theAnnual General Meeting of the Company to be held on 10 February 2016 for payment toshareholders on the register on 15 January 2016 on 15 February 2016. The Company'sDividend Investment Scheme ("the Scheme") will apply to this dividend andelections under the Scheme should be received by the Scheme administrator Capita AssetServices by no later than Monday 1 February 2016. Please see the paragraph on theDividend Investment Scheme section on pages 4-5 and the Shareholder Information section ofthis Annual Report on page 75 for further details on the Scheme.

This final dividend is in addition to an interim dividend of 6.00 pence (2014: 14.00pence) per share comprising 5.00 pence from capital and 1.00 penny from income paid on30 June 2015.

If approved by shareholders this forthcoming final dividend will bring dividends paidper share in respect of the year ended 30 September 2015 to 12.00 pence (2014: 18.00pence) and the Company will have paid dividends totalling 70.00 pence per share over thelast five years. However as a result of the recent changes in legislation described inmore detail on page 4 I believe that the Company will find it a challenge to generate asimilar level of return over the next five years.

Unclaimed dividends

Shareholders are encouraged to ensure that the Registrars maintain up-to-date detailsfor themselves and to check whether they have received all dividends payable to them. Thisis particularly important if they have recently moved house or changed their bank. We areaware that a number of dividends remain unclaimed by shareholders and whilst we willendeavour to contact them if this is the case we cannot guarantee that we will be able todo so if the Registrars do not have an up-to-date address and/or email address.

Investment portfolio

For the year the portfolio as a whole achieved a net increase of 2.05 million oninvestments realised and an increase of 4.57 million on investments still held.Investment proceeds over the original cost of the investment were 5.29 million. Theportfolio under management was valued at 60.42 million at the year-end representing 105%of cost and an increase of 17.3% in valuation on a like-for-like basis over the year.

During the year 8.63 million was provided to support new investments into Ward ThomasGroup Media Business Insight Jablite and Tushingham Sails. Five follow-on investmentstotalling 2.77 million were made into existing portfolio companies namely: ASLEntanet CGI Creative Graphics International Racoon and Gro-Group. Just after theyear-end an investment of 3.31 million was made to support the MBO of Access IS aleading provider of data capture and scanning hardware.

Cash proceeds totalling 11.47 million were received from sixteen companies that wereeither sold or which repaid loans. Of this total 7.68 million was received as cashproceeds from three substantial disposals of Focus Pharma Youngman and EMaC. Thesejointly realised total gains over cost of 5.01 million. The companies concerned achievedsignificant growth during the time of the VCT's investment and developed their potentialsuch that the Investment Adviser judged that this was the optimum time for exit. Inaddition the Company received realisation proceeds from a number of other companies suchas BG Training Newquay Helicopters and Alaric Systems totalling 0.76 million. Thebalance of 3.03 million comprised loan repayments from companies still held in theportfolio. Following the year-end the VCT has disposed of two major investments inTessella and Westway.

First Tessella realised cash proceeds of 4.04 million and a gain over current costof 2.68 million being 3.80 pence per share. Total proceeds to date over the life of theinvestment were 4.91 million representing a return of 2.8 times the original cost ofthe investment over the three and a half years that this investment was held.

Secondly Westway realised cash proceeds of 2.57 million and a gain over currentcost of 2.51 million being 3.56 pence per share. Total proceeds to date over the life ofthe investment were 3.52 million representing a return of 6.3 times the original costof the investment. Full details of the investment activity during the year and a summaryof the performance highlights can be found in the Investment Review on pages 11 - 15 ofthis Annual Report.

Industry developments

The UK Finance Act 2015 became law on 18 November 2015. This has introduced rulesdesigned to ensure that VCTs comply with new European Union ("EU") State Aidrules while remaining able to provide finance to small and growing businesses.

The UK's VCT scheme must comply with the EU State Aid rules as the tax relief given toinvestors is deemed to be State Aid to the companies in which the VCTs invest.

These new rules have introduced new criteria regarding:

• the maximum age of companies that are eligible for investments (generally sevenyears under the UK Finance Act);

• besides an annual limit of 5 million already in place there is now also alifetime cap on the total amount of state aided risk finance investment a company canreceive (generally 12 million under the UK Finance Act); and

• a requirement that VCT investment is to be used for growth and developmentpurposes only.

The practical consequences of the application of these EU State Aid rules by the UKFinance Act 2015 are that the range and size of potential investments open to generalistVCTs such as The Income & Growth VCT plc will reduce. In particular the Governmenthas decided that VCT investments made to finance the purchase of existing business owners'shareholdings and the acquisition of businesses will no longer be permitted. This islikely to restrict significantly all VCTs' future participation in management buyout("MBO") transactions. However investments that have already been made remainqualifying investments as part of our investment portfolio.

The UK Finance Act now requires the VCT to re-adjust its focus for new investments toprovide growth capital to younger companies which is likely to alter the balance of theportfolio of the Company over a number of years. The UK Government has also announced anintention to permit VCTs to provide some replacement capital finance within investmentssubject to agreement with the EU State Aid authorities. If this comes to pass it wouldenlarge the pool of possible investment opportunities for VCTs compared to the morerestricted regime that now applies under the new Act.

In theory the change in focus to smaller investments in companies requiring growth(and possibly replacement) capital carries a higher risk but also the prospect of higherbut more variable returns. Generating the level of consistently high returns achievedover the last five years in particular is likely to be more challenging. That saidshareholders should note that the existing portfolio contains MBO investments whose fullpotential should be realised over the next five years. In future the portfolio will alsoadd a number of smaller investments from which the level of returns is less certain atthis stage. The Board has confidence in the Investment Adviser justified by the paststrong returns to shareholders to apply its measured approach to the new rules togenerate attractive returns in the future.

Changes to the Investment Policy

The new VCT legislation above requires revisions to this VCT's current InvestmentPolicy (the "Policy") which in turn will require the approval by shareholdersof an ordinary resolution that will be proposed at the AGM. Currently the Policy makesparticular reference to investing in management buyout transactions. The principal changeproposed to the Policy is to remove this reference. The proposed Policy also retainsflexibility to enable the Board and the Investment Adviser to consider a wide range ofopportunities amongst established businesses to provide growth capital under the new VCTlegislative environment. The impact of the changes on the VCT's portfolio and investmentrisk are set out above.

Your Directors are working closely with Mobeus and our other professional advisers tounderstand the full implications of the new rules so as to apply the revised Policy at adetailed practical level. Further details of the proposed changes to the Policy itselfare contained in the Report of the Directors on page 34 explaining the ordinaryresolution to approve a revised Policy which the Board will recommend shareholdersapprove.

Dividend Investment Scheme

The Company's Dividend Investment Scheme ("the Scheme") is a convenient easyand cost effective way for shareholders to build up their shareholding in the Company.Instead of receiving cash dividends they can elect to receive new shares in the Company.For further information on the Scheme and instructions on how to join shareholders arereferred to the Shareholder Information section of this Annual Report on page 75.

Shareholders who already participate or are considering whether to participate in theScheme should consider the preceding sections on Industry Developments and Changes to theInvestment Policy. There is an associated five year holding period required to secureincome tax relief when new shares are allotted under the Scheme. Shareholders maytherefore wish to review their participation until the implications of these changesoutlined in the sections above are clearer. If you are in any doubt about whether toparticipate in the Scheme or not you should consult your financial adviser.

Fundraising and Liquidity

The Company participated with the other three Mobeus advised VCTs in a successfuljoint fundraising that closed early on 10 March 2015 having raised the full amountoffered for subscription by the Company of 10 million.

Annual fundraisings by the Company have provided it with a satisfactory level ofliquidity sufficient to pursue its Objective and meet the Company's running costs. TheCompany is not anticipating that there will be further fundraising until the Board has hadthe opportunity to consider in full the implications of the VCT tax legislation publishedin the Finance Act 2015.

Industry awards for the Investment Adviser

We are delighted to report that the Investment Adviser was named VCT Manager of theYear for the fourth consecutive year at the unquote" British PrivateEquity Awards 2015 and also received the award for Exit of the Year for Focus Pharma. Thiswas in addition to being awarded VCT Manager of the Year by Investor Allstars. These threeawards recognise the continuing high level of consistency achieved by the InvestmentAdviser during the year under consideration in maintaining high standards in all areas ofits activity including deals exits portfolio management and fundraising.

Shareholder Event

The Investment Adviser holds an annual VCT event for shareholders in Central London.These events include presentations on the Mobeus advised VCTs' investment activity andperformance. The Board and the Investment Adviser welcome feedback from shareholders. Wehave been pleased to receive positive comments from those attending in previous years.Many of the comments received have been taken into account as part of a process ofcontinual improvement. The next event will be held on Tuesday 26 January 2016 at theRoyal Institute of British Architects in Central London. There will be a day-time and aseparate evening session. Shareholders have already been sent an invitation to this eventwith further details. The Board looks forward to meeting those shareholders able toattend.


The economic prospects in the UK continue to look relatively favourable with economicgrowth predicted to be 2.4% for the coming year. This should help the existing portfoliocontinue to deliver solid performance. As mentioned earlier in order to conform with theFinance Act 2015 we are proposing changes to the Company's current Investment Policy atthe AGM. There may be a pause in new investment as the Investment Adviser identifiesopportunities that comply with the requirements of the new legislation. Nevertheless theBoard remains cautiously optimistic that future investments will be executed thatcombined with the existing portfolio should deliver attractive returns for shareholders.Finally I would like to take this opportunity to thank all shareholders for theircontinued support.

Colin Hook


17 December 2015