Zytronic - Henry Spain Statement

Supportive statement to accompany EGM Resolution – Appointment of Mr Thomas Mark Spain as a Board Member

Tom Spain is an accomplished businessman, having founded Henry Spain Investment Services, which now manages over £175 million of assets. Under his leadership, shareholder funds within his business have grown from just £431 in 2011 to over £6 million today — I will let you have the fun of working out an annualised compound rate of return. 

This remarkable growth reflects disciplined capital allocation and a long-term approach to investing, which has helped hundreds of people realise their investment goals. It is also the story of a favourite mantra around these parts: “once a saver, always a saver.” Such evidence thoroughly debunks malicious and false allegations that he has no track record of running an operating company. In addition, Tom also serves as Chairman of a publicly traded company, where he has refused to take a salary. To the best of our knowledge, no other Chairman in the UK operates in such a fashion — content to benefit solely through the share price appreciation of his holdings, all acquired with his own money. How novel an idea!

Contrary to some speculation, Henry Spain will not be charging a management fee on Zytronic investors’ funds, and we expect Board costs to be significantly lower than they are currently. Though our form will be corporate, we will treat all shareholders as partners, and as large investors ourselves, we will not waste our money — or yours — on unnecessary costs. Looking to Zytronic’s future, we have ambitious aspirations: to grow NAV at a satisfactory rate. Under the last two Boards, every announcement has reported a decline — shareholders should be appalled at the steady erosion of their net asset value. To achieve a reversal, Tom intends to hand over management control and capital allocation responsibilities to Dr Glen Arnold. Dr Arnold is a highly respected investor and financial author, best known for The Deals of Warren Buffett and The Financial Times Guide to Investing. With a background as a professor of investment and a long track record of investing in UK small caps, Dr Arnold combines academic rigour with practical capital allocation experience. Tom is  wholeheartedly supportive of Dr Arnold’s plans for Zytronic, as set out in the supportive statement accompanying the resolution asking for Dr Arnold’s election as a director. Tom would like to add the following: “If elected, I, along with Dr Arnold, will commit to offering shareholders a choice once the sale of the company’s property is concluded:

• A fair capital return option –
allowing shareholders to tender shares back to the Company at net asset value (independently calculated, likely by FRP), less only the necessary administrative costs of creating distributable reserves and making the payments. These costs will be kept to an absolute minimum. • A long-term growth option – for those who wish to remain shareholders, we will build Zytronic into an operating company that acquires wholly owned businesses and controlling stakes in businesses in niche markets at fair to reasonable prices, managed by honest and capable people. Our approach will be disciplined and value-driven, applying the proven principles that built Berkshire Hathaway in its early years and other enduring long-term compounding enterprises. 

This dual approach ensures that every shareholder has a clear choice: either take a fair cash return, or remain invested in a revitalised Zytronic with a long-term compounding strategy.” 

For more detail, shareholders are encouraged to review the strategic plan accompanying Dr Arnold’s supporting statement. It sets out in straightforward terms our thinking for a repurposed business. We look forward to presenting this to shareholders and would welcome
their questions.

Board behaviour has been outrageous in recent months

As the largest shareholder in Zytronic, I cannot accept the conduct of the current Board. Recent actions have undermined trust and shareholder rights:

• Removal of Dr Glen Arnold – despite strong shareholder support for his ideas, the Board acted unilaterally to remove him.
• Backdoor appointments – John Walter and Mark Atkinson were added to the Board without consultation or approval from shareholders.
• Resistance to shareholder democracy – I called for a shareholder meeting to discuss the company’s future, but this was resisted by the previous Board led by Dr Chris Potts. That Board resigned rather than face a requisitioned general meeting.
• Circumvention of shareholder choice – instead of letting investors decide the company’s direction, vacancies have been filled by unelected directors.
• Lack of transparency – without our resolution, there was no intention to call a shareholder meeting. We believe expenses and sales require proper scrutiny, which may never come to light if the company were simply liquidated. This is not the way to rebuild trust or deliver the change in direction that shareholders have been asking for.

Please help us

We ask for your vote. If elected:

• We will press for a speedy repurchase of shares programme – giving an immediate exit option for those who wish to sell.
• We will pursue a long-term compounding strategy – building Zytronic into a disciplined, value-driven conglomerate in the style of Warren Buffett.
• We will align ourselves with shareholders – no management fees, reduced Board costs, and all incentives tied to long-term share price growth.

To take part in this exciting adventure and help create a renewed Zytronic from the ashes, simply continue to hold your shares.

A note on the Board’s accusations

The current Board has sought to discredit us by selectively quoting the performance of two specialist portfolios — ignoring the fact that these are niche strategies, newer in origin, and a small part of our business. What they have not mentioned is that our Cautious,
Balanced, and Growth portfolios — the core strategies we have been running the longest and where the majority of client assets are invested — have all outperformed their respective benchmarks since inception and year-to-date. This fuller picture demonstrates both a consistent track record and a disciplined approach to investment that the Board has chosen not to acknowledge.

Supportive statement to accompany EGM Resolution – Appointment of Dr Glen Arnold as a Board Member

 Glen Arnold is a former director of Zytronic, removed from post without shareholder consultation. As well as a businessman, he’s a renowned expert on the business investment methodologies practiced by great investors, including billionaire Warren Buffett. As
Professor of Investment, Glen supervised PhD students investigating the efficacy of investment approaches. He authored six books about Buffett’s analytical techniques.

Thirteen years ago he resigned his tenured chair to become a full-time businessman and analyst of companies, selecting excellent companies using value principles. Over the years he has shared his insights with practitioners in the City, e.g., at Schroders
Investment Management. He now works with Tom Spain at Henry Spain Investment Services.  He is author of the UK’s best-selling investment book The Financial Times Guide to Investing.

Glen is wholeheartedly supportive of Tom Spain’s plan to offer shareholders a choice – see the supportive statement for Tom Spain’s AGM resolution to be elected a director of Zytronic. That is:

1.      The long-term growth option. Building Zytronic into an operating company that acquires wholly owned businesses and controlling stakes in businesses in niche markets at fair to reasonable prices, managed by honest and capable people.

2.      A fair capital return option – allowing shareholders to tender shares back to the Company at net asset value (independently calculated), less only the necessary administrative costs of creating distributable reserves and making the payments. These costs will be kept to an absolute minimum.

Below is the Strategic Business Plan to be followed if Glen Arnold and Tom Spain are elected to the Board:

Transforming Capital into Long-Term Shareholder Value

Executive Summary

Zytronic plc is at an inflection point. Following the sale of its principal property asset, the Company will have substantial capital available to redeploy. We propose a disciplined strategy to transform Zytronic into a long-term compounding vehicle, modelled on the proven approaches of successful capital allocators such as Berkshire Hathaway in its early years and Markel Corporation.

Our principal objective is to acquire and hold profitable, well-run operating businesses that generate reliable cash flows, possess durable competitive advantages, and are led by capable, trustworthy management. We will also be interested companies with much higher levels of net current asset values, NCAV, than market capitalisation, with potential for release of shareholder value in the future. NCAV investing also requires a qualitative assessment filter of (a) managerial quality (competence and integrity) and (b) earnings power over the long run
and (c) financial strength. 

These businesses will be purchased at fair to reasonable valuations and held for the long term, allowing value to compound within Zytronic for the benefit of all shareholders.

Strategic Rationale

1. Permanent Capital Advantage – As a public limited company with a strong balance sheet, Zytronic can take a long-term view in acquiring businesses, unconstrained by the short investment horizons of private equity or the fundraising cycles of investment funds.
2. Predictable Compounding – By acquiring high-quality businesses and reinvesting their profits, we can grow shareholder value steadily without relying on speculation or excessive leverage.
3. Shareholder Alignment – Our approach prioritises transparency, prudent capital allocation, and a significant personal investment in the Company by its directors, aligning our incentives with those of all shareholders.

Acquisition Criteria

We will focus on acquiring operating companies that meet the following criteria:

1. Niche Market Position
   
   • Operates in a clearly defined niche with limited direct competition.
   • Products or services that are essential, difficult to replicate, or deeply embedded in customer operations.
2. Durable Competitive Advantages
   
   • Strong brand recognition, intellectual property, network effects, cost advantages, or other economic moats.
   • Consistent profitability through different economic cycles.
3. Honest and Capable Management
   
   • Proven track record of integrity and competence.
   • Willingness to remain with the business post-acquisition, preserving the culture and operational know-how.
4. Sound Financial Performance
   
   • History of generating free cash flow.
   • Strong returns on invested capital with prudent use of debt.
   • In some cases, net current asset value much in excess of market capitalisation.
5. Fair to Reasonable Price
   
   • We will not overpay for growth.
   • Preference for situations where our capital can be deployed at valuations that allow for satisfactory returns without relying on aggressive forecasts.

Capital Allocation Framework

Capital generated by our acquired businesses will be allocated according to the following priorities:

1. Reinvestment in Existing Operations – Funding growth opportunities within our subsidiaries where returns exceed our hurdle rate.
2. Acquisition of Additional Businesses – Pursuing further acquisitions that meet our strict criteria.
3. Shareholder Returns – Returning excess capital (in future years) to shareholders via buybacks where market conditions make this the best use of funds.

Why This Works

This model has been proven over decades by companies such as Berkshire Hathaway and Markel Corporation:

• Berkshire Hathaway began as a failing textile business and evolved into a conglomerate of quality businesses, producing enormous long-term returns without the need to sell core holdings.
• Markel Corporation expanded from its insurance roots into a broad range of niche businesses, compounding book
  value for decades.

Both demonstrate that a patient, disciplined approach to acquiring and holding outstanding companies at fair prices can produce exceptional results over time.

Governance and Shareholder Communication

• We will maintain transparent communication with shareholders, providing clear reporting on acquisitions, performance, and capital allocation decisions.
• Directors and key executives will hold substantial personal investments in Zytronic shares, ensuring alignment with all shareholders.
• The Board will adhere to high governance standards, including rigorous due diligence on all acquisitions.

Conclusion

Zytronic has the opportunity to transform itself from a company in wind-down to a compounding machine for shareholder wealth. By acquiring exceptional businesses that meet our strict criteria, and by managing them with discipline and integrity, we can create a sustainable, long-term growth platform.

This strategy avoids the risks of speculative reinvestment or over-leveraging and instead harnesses the proven principles of intelligent capital allocation, ensuring that every pound invested works hard for shareholders.