Annual Financial Results

Mobeus Income & Growth 2 VCT plc

Legal Entity Identifier (LEI) 213800LY62XLI1B4VX35

Results announcement for the year ended 31 March 2017

Mobeus Income & Growth 2 VCT plc, ("MIG2", the "Company", "VCT", or the "Fund") is a Venture Capital Trust ("VCT") advised by Mobeus Equity Partners LLP ("Mobeus"), investing primarily in established, unquoted companies.

OBJECTIVE OF COMPANY

The Objective of the Company is to provide investors with a regular income stream, arising both from the income generated by companies selected for the portfolio and from realising any growth in capital, while continuing at all times to qualify as a VCT.

VENTURE CAPITAL TRUST STATUS

Mobeus Income & Growth 2 VCT has satisfied the requirements for full approval as a Venture Capital Trust under section 274 of the Income Tax Act 2017 ("ITA"). It is the Directors' intention to continue to manage the Company's affairs in such a manner as to comply with section 274 of the ITA.

FINANCIAL HIGHLIGHTS

Results for the year ended 31 March 2017

· Net Asset Value ("NAV") Total Return per share was 1.7% and Share Price Total Return per share for the year was 4.0%.

· Shareholders received an interim dividend of 5 pence per share and a second interim dividend of 10 pence per share for the year ended 31 March 2017, paid on 8 August 2016 and 31 March 2017 respectively. This brings total dividends paid to date since inception of the current share class1 to 62 pence per share.

· £2.70 million2 was invested during the year into five new investments totalling £2.21 million2 with a further £0.49 million invested into an existing investment.

· The current total liquid assets available are £12.58 million.

Note: The above data does not reflect the benefit of income tax relief.

1 The first allotment of the former "C" share class, now the current share class, took place on 5 January 2006.

2 Includes £0.45 million previously held in a company preparing to trade.

Performance Summary

The NAV per share as at 31 March 2017 was 106.70 pence.

The table below shows the recent past performance of the current share class, first raised in 2005/06 at an original subscription price of 100p per share before the benefit of income tax relief. Performance data for all fundraising rounds are shown in tables in the Annual Report and Financial Statements (the "Annual Report").

1 Source: Panmure Gordon & Co (mid-market price).

2 Cumulative total return per share comprises either the NAV per share (NAV basis) or the mid-market price per share (Share Price Basis) plus cumulative dividends since shares were first allotted in the fund in December 2005.

3 Data relates to an 11 month period, as the Company shortened its accounting period by 1 month during the year.

The data in the table above excludes the benefit of any income tax relief.

Chairman's Statement

I am pleased to present the annual results of Mobeus Income & Growth 2 VCT plc for the year ended 31 March 2017.

This has been a year of transition for your Company. The adoption of the new Investment Policy, approved by shareholders at last year's Annual General Meeting in response to the new VCT measures introduced by the Finance (No 2) Act 2015 ("New VCT Rules"), meant that we could no longer make investments to finance management buyouts ("MBO"). Consequently, although we can retain the MBOs in which we had already invested because they continue to be qualifying investments, we are now focusing on investing in younger and smaller companies requiring capital to finance their expansion.

The Net Asset Value ("NAV") Total Return was 1.7% for the year (compared with 7.9% for the previous year). These returns (expressed in pence per share) were derived from:

After accounting for the dividends of 15.00 pence paid during the year and this net return of 2.09 pence, the NAV at 31 March 2017 was 106.70 pence, compared to 119.61 pence at the start of the year. The share price total return for the year, also after accounting for the dividends paid, was 4.0% (compared with 5.5% for the previous year).

Your Board regards these returns as satisfactory in the context of the significant changes in the New VCT Rules concerning qualifying investments.

At 31 March 2017, your Company was rated 3rd out of 43 VCTs, over the last 5 years, in the Association of Investment Companies' analysis of NAV Cumulative Total Return for all Generalist VCTs. For further performance details please see the Annual Report.

You will recall that in 2011 the Board set a minimum average annual total NAV return target of 8.0% from 30 April 2010. During the subsequent six years to 31 March 2016, the actual average return was 12.0% per annum.

As explained in my Statement last year, your Board decided to consider what an appropriate target should now be. In recognition of the disruption caused by the significant changes in the rules concerning qualifying investments, we decided to exclude the year ended 31 March 2017 and to reset the target from 1 April 2017.

Over the past six years, MBO investments have yielded good income and capital returns for your VCT. Over the next five years, we assume these returns will continue, as the majority of the portfolio is still comprised of such investments, but will gradually decline as the VCT realises its remaining MBO investments. At the same time, it will continue to make growth capital investments, causing the portfolio mix and returns to move towards being substantially comprised of growth capital investments. The Board believes the income return on growth capital investments is likely to be a lower proportion of total returns, replaced by a higher share represented by capital returns, albeit with a more volatile profile.

As well as returns from portfolio investments, a key component of overall NAV return is the proportion of liquidity held by the VCT on deposit or in money market funds. Given the current minimal rate of interest available to the VCT on cash, the Board remains mindful that excess liquidity will reduce overall returns. Finally, the Board has also considered the projected level of Investment Adviser's fees and other annual expenses. After considering all these factors, our conclusion is to set an unchanged minimum average return target of 8.0% per annum.

Dividends paid in respect of the year ended 31 March 2017 totalled 15 pence per share (2016: one interim dividend of 5 pence). On 8 August 2016, a special interim dividend of 5 pence per share was paid, followed by payment of a second interim dividend of 10 pence per share, on 31 March 2017. Of this second interim dividend, 5 pence per share was paid as a further special dividend. The balance of 5 pence per share fulfilled the Company's annual dividend target of paying a dividend in respect of each financial year of not less than 5 pence per share.

Dividends are in part paid to help the VCT comply with the requirements of VCT legislation. Cumulative dividends paid per share since the launch of the current share class have increased to 62 pence per share.

This year, all investments made by the Company were in accordance with the New VCT Rules. In summary, VCT capital is to be applied:-

• to provide companies with funds for growth and development purposes;

• to companies that are generally under seven years old;

• where the maximum amount of funds such companies can receive from State Aid risk finance is subject to two limits, firstly, of £5 million per annum (already in place) and secondly, of an overall lifetime amount (generally £12  million).

In response to these changes, the Company targeted its investment activity towards younger and smaller companies seeking growth capital funding. Partly as a consequence, the total cost of new investment completed by the Company was lower in the year under review than in previous years, which occurred across the whole of the VCT generalist sector.

This slower rate of investment coincided with the first half of the year when the Board and the Investment Adviser continued to adapt to the changes in investment criteria, required by these New VCT Rules. In the second half of the financial year, the rate of new investment picked up. A total of £2.70 million (2016: £4.51 million), including £0.45 million previously held in a company preparing to trade, has been invested in six (2016: six) new and existing companies. Although this amount of investment is lower than in recent previous years, it compares favourably with the levels achieved elsewhere, as Mobeus advised VCTs invested around 15% of the total invested by the VCT generalist sector over a comparable period. These investments were made into MPB, BookingTek (including a small follow-on), Biosite, Preservica (an existing portfolio company), Tapas Revolution, and Buster & Punch during the year. An investment of £0.35 million in MyTutor has been made after the year-end.

The average transaction size of these new investments is around half of that last year, which again reflects the change in investment focus to younger, smaller companies outlined above. Further details of all of these transactions are included in the Investment Review in the Annual Report.

In addition to these new investments already made, the Investment Adviser is reporting a growing pipeline of opportunities, from which we expect a healthy level of new investment to be maintained. While the Board remains of the view that the changes in the VCT legislation clearly restrict the universe of companies that the Company can invest in, it has been encouraged by the numbers and quality of the opportunities identified by the Investment Adviser so far. The Board also believes that such earlier stage investments will carry higher risk alongside potentially higher, but more variable, capital returns, and that loan stock income will represent a lower proportion of total returns from such investments. Transactions to date have sought to mitigate these factors by use of the capital structure applied to that investment.

Shareholders should note that, at the year-end, 86.1% of the value of the investment portfolio (excluding companies preparing to trade) is still held in investments made under the previous MBO-focused investment strategy. A number of companies in the portfolio have experienced more mixed results but the performance of the portfolio as a whole remained satisfactory. Overall, performance of this principal portion of the portfolio remains solid, and should continue to yield annual income returns to shareholders, supplemented by capital returns as they are realised over time.

Net proceeds totalling £3.81 million were received during the year under review. Of this total, £3.67 million was via partial loan stock repayments and £0.14 million was received in the form of partial realisation proceeds, which included £0.08 million as deferred consideration arising from the previous year's realisations of Focus Pharma and MachineWorks. Unless a compelling case for exit is presented, the Board and Investment Adviser would prefer to develop this portfolio to further maturity.

These portfolio movements for the year are summarised below:

There remain several areas of the New VCT Rules where further clarity is still required and the VCT, the Investment Adviser and the VCT industry as a whole, are continuing to work constructively with Government departments, through its industry bodies, to develop an improved practical approach. It welcomes the inclusion of VCTs in the Government's Patient Capital Review, where it believes VCT funding provides strong support to helping small companies grow successfully.

At 31 March 2017, net assets were £38.06 million (2016: £43.14 million), comprising principally £25.44 million (2016: £22.60 million) in investments (66.8% of net assets (2016: 52.3%)) and liquidity was £12.58 million (2016: £20.44 million) which includes liquidity held in companies preparing to trade of £2.64 million (2016: £6.74 million). Liquidity thus represents 33.1% (2016: 47.4%) of net assets at the year-end.

Liquidity comprises £7.84 million held in a selection of money market funds with AAA credit ratings and £4.74 million held in deposit accounts in a number of well-known financial institutions. Alternative ways of prudently investing cash continue to be sought, although the risk of a loss of capital remains the overriding consideration.

The Board has decided to launch a further fundraising in the current tax year (2017/18) to ensure the Company has adequate levels of funds to pursue its current strategy for the foreseeable future. More details will be announced later this year.

New legislation has been introduced in the UK on audit firm rotation, resulting from the new European Audit Regulation Directive, making it mandatory for listed companies to undergo a tender process for the audit of their company at least every ten years. An auditor can, however, be appointed for up to twenty years provided a public tender process has been carried out after ten years. The Company therefore held an audit tender process over the summer of 2016. The Board, on the recommendation of the Audit Committee, has decided to recommend the reappointment of BDO LLP as the Company's external auditor. For further information on the audit tender, please see the Audit Committee section of the Corporate Governance Statement in the Annual Report.

During the year ended 31 March 2017, the Company bought back 1.1% (2016: 1.1%) of its share capital in issue at the beginning of the year, maintaining an average discount of 10%. Further details are included in the Strategic Report and the Directors' Report.

The annual shareholder event was held on Tuesday 24 January 2017 at the Royal Institute of British Architects in central London. This annual event included presentations on the Mobeus advised VCTs' investment activity and performance and presentations from investee companies. There were separate day-time and evening sessions, and feedback from those who attended indicated that they found it informative and worthwhile.

As I mentioned in my Half-Year Statement, the Board has been planning Board succession. I am pleased to report the appointment to the Board of Ian Blackburn with effect from 1 July 2017.  Ian will bring to the Board a wealth of experience of investing in, advising and managing small and medium-sized companies; a short CV

is set out in the Annual Report. Ian will stand for election at the forthcoming AGM.

In the light of this appointment, Kenneth Vere Nicoll will not be seeking re-election at the AGM. He joined the Board at the launch of the Company in 2000 and has given it 17 years' valuable service. His experience and wisdom over the years have made a major contribution to the Company's success. We wish him well in his future endeavours.

The Annual General Meeting of the Company will be held at 11.00 am on Thursday, 14 September 2017 at a new venue: The Clubhouse, 8 St James's Square, London SW1Y 4JU. Both the Board and the Investment Adviser look forward to welcoming shareholders to the meeting which will provide shareholders with the opportunity to ask questions and to receive a presentation from the Investment Adviser on the investment portfolio. The Notice of the Meeting is included in the Annual Report.

Future prospects

The political uncertainty arising from the recent general election is a risk to both the effective management of the UK economy and the ability to negotiate a satisfactory exit from the European Union. In this environment, the Company and the Investment Adviser will continue to adopt a measured and cautious approach to investment appraisal and maintain active engagement with existing portfolio companies.

The portfolio has a solid foundation of investments made under the previous MBO strategy, the majority of which are mature and profitable companies providing consistent income returns. Over the coming years as these investments are realised, the proportion of investments in younger growth capital companies will increase. Your Board is confident that, with the Investment Adviser's expanded management team, interesting investment opportunities will continue to be identified. The Board remains optimistic about the Company's future prospects.

Finally, I would like to express my thanks to all shareholders for their continuing support of the Company.

Nigel Melville

Chairman

21 June 2017

Investment Review

Portfolio review

This has been a year of continued progress within the portfolio. The exceptional level of disposals in 2014 and 2015 has reduced the age of the remaining portfolio such that 49.5% by value (51.6% by number) of the current portfolio comprises investments made since the start of 2014. The year has seen investment in six (plus one after the year-end) new growth capital opportunities, which, along with the investment in Redline in February 2016, at the date of this Report represent 15.0% of the portfolio. Many of the MBO portfolio companies are generating cash, have made repayments of their loan stock and are trading well.

Having experienced an unprecedented number of profitable realisations in 2014 and 2015, the Investment Adviser does not anticipate this level to be repeated in the near to medium term. As the portfolio now has a younger profile, development time is required for these more recent investments to mature and grow in value. Unless a compelling offer is made for one of our investments, we plan to hold those that are performing, that are generating income and that show potential to grow their value further.

The value of the portfolio that was held at 31 March 2016 increased by 1.0% over the year. This like-for-like* basis comprised uplifts via realised gains of £0.08 million and net unrealised increases in valuations of £0.23 million.

* - Like-for-like basis is calculated by dividing the value of the portfolio at 31 March 2017 plus the proceeds of any realisations that occurred in the year less the total cost of new investments made in the year, with the portfolio valuation at 31 March 2016.

Investments remain spread across a number of sectors, primarily in support services, software and computer services, and general retailers.

The amendments to VCT legislation in November 2015 were a significant change for the VCT industry and required all VCTs to reconsider the type of investments that VCTs can make in future. The Investment Adviser has responded to this by adding experienced growth capital investment resource to its existing team. In common with other investment advisers in the industry, Mobeus has focused on gaining familiarity with the practical implications of the rules on the types of investment opportunities it can now consider for VCT investment. That process is continuing, including discussions with HMRC in response to their draft Guidance to the legislation. The Investment Adviser is also gaining additional practical experience from assessing prospective opportunities at a detailed level and from continuing to seek HMRC Advance Assurance in respect of new investments as appropriate.

There was an inevitable initial slowdown in new deal activity in the first half of the year. This resulted from both the more restrictive criteria for VCT investment under the New VCT Rules and delays at HMRC in processing applications for Advance Assurance. Independent research shows that the amount of completed new investment across the generalist VCT industry in the 2016 calendar year had fallen by 28.5% and 47.1% compared to 2015 and 2014 respectively. We are pleased that the rate of new investment has recently picked up.

It is too early to comment on the eventual impact of the UK leaving the EU upon the portfolio, as the particular form that departure will take is subject to considerable political and economic uncertainty. Whilst the SME sector will not be immune to any general downturn in the UK economy, the portfolio has historically proved to be resilient and we believe will continue to be so. Portfolio companies with foreign currency exposure routinely cover this exposure and any negative effects of a longer term adjustment in exchange rate have not yet emerged. Some portfolio companies will be beneficiaries of a weaker pound. Faced with such uncertainty, the Investment Adviser will maintain its cautious stance to new investment and monitoring of the companies in the existing portfolio

New investment

Against this background outlined earlier, we are therefore pleased to have made eight new investments since the implementation of the New VCT Rules in November 2015. A total of £2.70 million (including £0.45 million via a company preparing to trade) was invested in six companies during the year under review. This comprised new investments into MPB, BookingTek, Biosite, Preservica (an existing portfolio company), Tapas Revolution and Buster & Punch. After the year-end, £0.35 million was invested into MyTutor. Further details are set out below.

Principal new investments in the year

Further Investment into existing portfolio companies in the year

Investment Portfolio Summary

as at 31 March 2017

1 A further £485,770 was invested into Preservica Limited, adding to the Company's existing shareholding that was received as part of the disposal of Tessella Holdings Limited in December 2015.

2 £848,500 invested in Chatfield Services Limited, a company preparing to trade, was used for the investment into Buster & Punch. This resulted in a net repayment to the company of £412,109.

3 As at 31 March 2017, the Company held more than 70% of its total investments in qualifying holdings, and therefore complied with the VCT Qualifying Investment test. For the purposes of the VCT qualifying test, the Company is permitted to disregard disposals of investments for six months from the date of disposal. It also has up to three years to bring in new funds raised, before these need to be included in the qualifying investment test.

4 Disclosed as Current asset investments and Cash at bank within Current assets in the Balance Sheet.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year and the Directors have elected to prepare the Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period.

In preparing these Financial Statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether the Financial Statements have been prepared in accordance with United Kingdom accounting standards, subject to any material departures disclosed and explained in the Financial Statements;

· prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

· prepare a Strategic Report, a Directors' Report and Directors' Annual Remuneration Report which comply with the requirements of the Companies Act  2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Website publication

The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of Financial Statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the Financial Statements contained therein.

The Directors confirm to the best of their knowledge that:

(a) The Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give a true and fair view of the assets, liabilities, financial position and the profit of the Company.

(b) The Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, the Board considers that the Annual Report and Financial Statements, taken as a whole, as fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.

The names and functions of the Directors are stated in the Annual Report.

For and on behalf of the Board

Nigel Melville

Chairman

21 June 2017

FINANCIAL STATEMENTS

Income Statement

for the year ended 31 March 2017

The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the unrealised gains and realised gains on investments and the proportion of the Investment Adviser's fee and performance fee charged to capital.

The total column is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS"). In order to better reflect the activities of a VCT and in accordance with the 2014 Statement of Recommended Practice ("SORP") (updated in January 2017) by the Association of Investment Companies ("AIC"), supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The revenue column of profit attributable to equity shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 Income Tax Act 2007.

All the items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year.

Balance Sheet

as at 31 March 2017

Company number: 03946235

Statement of Changes in Equity

for the year ended 31 March 2017

Notes

a): The cancellation of the formerly named C Share Fund's share premium reserve (as approved at the Extraordinary General meeting held on 10 September 2008 and by the order of the Court dated 28 October 2009), together with the previous cancellation of the share premium reserve attributable to the former Ordinary Share Fund and C Shares, has provided the Company with a special distributable reserve. The purpose of this reserve is to fund market purchases of the Company's own shares as and when it is considered by the Board to be in the interests of the shareholders, and to write-off existing and future losses as the Company must take into account capital losses in determining distributable reserves. The total transfer of £572,853 from the realised capital reserve to the special distributable reserve above is the total of realised losses incurred by the Company in the year.

b): The realised capital reserve and the revenue reserve together comprise the Profit and Loss Account of the

Company.

c): During the year, the Company purchased 396,076 of its own shares at the prevailing market price for a total cost of £411,261, which were subsequently cancelled. The difference between the total cost above of £411,261 and that per the Statement of Cash Flows of £412,046 is due to a stamp duty creditor at 31 March 2016 of £785.

The composition of each of these reserves is explained below:

Called up share capital

The nominal value of shares originally issued, increased for subsequent share issues either via an Offer for Subscription or reduced due to shares bought back by the Company.

Capital redemption reserve

The nominal value of shares bought back and cancelled is held in this reserve, so that the company's capital is maintained.

Share premium reserve

This reserve contains the excess of gross proceeds less issue costs over the nominal value of shares allotted under Offers for Subscription in 2014 and 2015.

Revaluation reserve

Increases and decreases in the valuation of investments held at the year-end are accounted for in this reserve, except to the extent that the diminution is deemed permanent. In accordance with stating all investments at fair value through profit and loss (as recorded in note 8), all such movements through both revaluation and realised capital reserves are shown within the Income Statement for the year.

Special distributable reserve

The cost of share buybacks is charged to this reserve. In addition, any realised losses on the sale or impairment of investments (excluding transaction costs), and 75% of the Investment Adviser's fee and 100% of any performance fee expense, and the related tax effect, are transferred from the realised capital reserve to this reserve.

Realised capital reserve

The following are accounted for in this reserve:

· Gains and losses on realisation of investments;

· Permanent diminution in value of investments;

· Transaction costs incurred in the acquisition and disposal of investments;

· 75% of the Investment Adviser's fee (subsequently transferred to the Special distributable reserve along with the related tax effect) and 100% of any performance fee payable, together with the related tax effect to this reserve in accordance with the policies, and

· Capital dividends paid.

Revenue reserve

Income and expenses that are revenue in nature are accounted for in this reserve together with the related tax effect, as well as income dividends paid that are classified as revenue in nature.

Statement of Changes in Equity

for the year ended 31 March 2016