Positive Electronics Ltd Management Discussions.


The Directors are pleased to present the Strategic Report of the Company for the year ended 30 September 2015. The purpose of this Report is to inform shareholders and to help them to assess how the Directors have performed their duty to promote the success of the Company. The Report has been prepared by the Directors in accordance with section 414A of the Companies Act 2006 ("the Companies Act").

Company Objective

The Objective of the Company is to provide investors with an attractive return by maximising the stream of tax-free dividend distributions from the income and capital gains generated by a diverse and carefully selected portfolio of investments.

Summary of Investment Policy

The VCTs policy is to invest primarily in a diversified portfolio of UK unquoted companies. Investments are usually structured as part loan and part equity in order to generate regular income from existing investments and capital gains from realisations.

Under the present policy, investments are made selectively across a number of sectors, primarily in MBO transactions in companies that are established and profitable. The VCT aims to invest in larger, more mature, unquoted companies through investing alongside three other VCTs advised by Mobeus with similar investment policies. This enables the VCT to participate in combined investments recommended by the Investment Adviser of up to 5 million in each business per year.

The Company aims to maintain in excess of 70% of net funds raised in qualifying investments. Uninvested funds are held in a range of instruments of varying maturities, subject to the overriding criterion that the risk of loss of capital is minimised.

The full text of the Companys Investment Policy is set out on page 26 of this Strategic Report. Shareholders should note that in the light of the regulatory developments referred to in the Chairmans Statement, this policy requires revision and a resolution to approve changes to the policy will be submitted to shareholders at the AGM.

The Company and its business model

The Companys Investment Policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue & Customs ("HMRC") whilst maximising returns to shareholders from both income and capital. One of the rules to retain VCT status is that the Company remains a fully listed company on the London Stock Exchange, and thus must also comply with the listing rules governing such companies.

The Company is externally advised with a Board comprising non-executive directors. The Board has overall responsibility for the Companys affiairs, including the determination of its Investment Policy. Investment advisory and operational support are outsourced to external service providers including the Investment Adviser, Company Secretary and Administrator and Registrar, with the strategic and operational framework and key policies set and monitored by the Board. Investment and divestment proposals are originated, negotiated and recommended by the Investment Adviser and are then subject to comment and approval by the Directors.

Private individuals invest in the Company to benefit from both income and capital returns generated by investment performance. By investing in a VCT they are eligible for up-front income tax relief (currently 30% of the amount subscribed for new shares by an investor), as well as tax-free dividends received from the Company. Investors are also not liable for any capital gains tax upon the eventual sale of the shares. Shares have to be held for a minimum of five years to retain the initial tax relief received.

The Companys business model is set out in the diagram below.


The Board has identified six key performance indicators that it uses in its own assessment of the Companys progress. These are:

- Annual and cumulative returns per share for the year; - The VCTs performance compared with its peer group; - Dividend policy; - Compliance with VCT legislation; - Share buyback and discount policy; and - Costs.

It is intended that these will provide shareholders with sufficient information to assess how the Company has performed against its Objective in the year to 30 September 2015, and over the longer term, through the application of its investment and other principal policies:

1. Annual and cumulative returns per share for the year Total shareholder returns per share for the year

The NAV and share price total returns per share for the year ended 30 September 2015 were 8.5% and 7.7% respectively, as shown below: