Annual Financial Results

RNS Number : 8065I

Mobeus Income & Growth 2 VCT PLC

21 June 2017

 

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").

Reporting date as at	Net assets (£ m)	Net asset value (NAV) per share (p)	Share price (mid-market price) (p)1	Cumulative dividends paid per share  (p)	Cumulative total return per share since launch2		Dividends paid and proposed in respect of each year
					(NAV basis)	(Share price basis)
					(p)	(p)	(p)
31 March 2017	38.06	106.70	94.50	62.00	168.70	156.50	15.00
31 March 2016	43.14	119.61	105.25	47.00	166.61	152.25	5.00
31 March 2015	42.10	115.45	104.50	42.00	157.45	146.50	19.00
31 March 20143	33.88	120.73	103.50	23.00	143.73	126.50	4.90
30 April 2013	25.70	106.75	70.30	18.00	124.75	88.30	4.10

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.

Overview

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.

Performance

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:

Year ended 31 March	2017	2016
	(p)	(p)
Realised and net unrealised gains on the investment portfolio	0.86	7.82
Income on investment portfolio and on liquidity	4.71	4.81
Share buyback and adjustments	0.13	0.10
Gross return	5.70	12.73
Less: Investment Adviser's fees and other expenses	(3.61)	(3.57)
Net Return	2.09	9.16

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.

 

Target return

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

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.

Investment portfolio

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:

	£m
Portfolio value at 31 March 2016	29.33
New investments	2.25
Disposal proceeds	(3.81)
Realised gains	0.08
Valuation movements	0.23
Portfolio value at 31 March 2017	28.08

 

Industry and regulatory developments

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.

Liquidity

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.

Fundraising

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.

Audit tender

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.

Share buybacks

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.

Shareholder communications

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.

Succession planning

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.

Annual General Meeting

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.

 

Investment by market sector at valuation

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

Impact of Changes in VCT Rules

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.

Impact of Brexit

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

Company	Business	Date of Investment	Amount of new Investment (£m)
MPB	Online marketplace for used photo and video equipment	June 2016	0.37
MPB is Europe's leading online marketplace for used photo and video equipment. Based in Brighton, their custom-designed pricing technology enables MPB to offer both buy and sell services through the same platform and offers a one-stop shop for all its customers. The investment is to fund expansion of its platform globally, with launches into both the US and German markets. The company's latest audited accounts for the year ended 31 March 2016 show turnover of £8.37 million and loss before interest, tax and amortisation of goodwill of £0.001 million.
BookingTek	Direct booking software for hotels	October  2016	0.45
Based in London, BookingTek has developed software that enables hotels to reduce their reliance on third-party booking systems by means of a real-time booking platform for meeting rooms and restaurant reservations. The investment is to support further growth. The company's latest audited accounts for the year ended 31 July 2016 show turnover of £2.03 million and loss before interest, tax and amortisation of goodwill of £0.29 million.
Biosite	Workforce management	November 2016	0.50
Based in the Midlands, Pattern Analytics (trading as Biosite) is a fast-growing provider of biometric access control and software- based workforce management solutions for the construction sector. The investment was made to support the expansion of the team to facilitate the development of new site-management tools to enable managers to oversee all aspects of a construction project. The company's latest accounts for the year ended 31 July 2016 show turnover of £4.69 million and profit before interest, tax and amortisation of goodwill of £0.49 million.
Tapas Revolution	Restaurant	January 2017	0.45
Based in London, Ibericos Etc. Limited (which trades as Tapas Revolution) is a leading Spanish restaurant chain in the casual dining sector focusing on shopping centres sites with high footfall. Having opened its first restaurant in Shepherd's Bush Westfield, the business has since opened a further six restaurants. The investment provided growth capital to a high-calibre team with significant restaurant rollout experience who have spent the past five years building and refining their offer and are now well placed to capitalise on a strong pipeline of new sites. The company's latest accounts for the year ended 25 October 2016 show a turnover of £4.25 million and loss before interest, tax and amortisation of goodwill of £0.25 million.
Buster & Punch	Retailer	March 2017	0.44
Chatfield Services Limited (trading as Buster & Punch) is a London-based interiors brand founded in 2012 by architect and industrial designer Massimo Buster Minale. Buster + Punch (www.busterandpunch.com) started in a small garage in East London, where it built the "world's first designer LED light bulb" (Buster Bulb) and made its name with its industrial-inspired lighting. Its products are now sold in over 50 countries, both directly to end-consumers, designers and architects, and through well-known retailers including John Lewis, Harvey Nichols and Harrods. The investment will support the business's international expansion plans and the broadening of its product range. The company's latest accounts for the year ended 31 March 2016 show turnover of £1.98 million and profit before interest, tax and amortisation of goodwill of £0.47 million.

Further Investment into existing portfolio companies in the year

Company			Business			Date of Investment		Amount of new Investment (£m)
Preservica			Sellers of proprietary digital archiving software			December  2016		0.49
Preservica has developed the world's leading software for the long-term preservation of digital records, ensuring that digital content remains accessible, irrespective of future changes in technology. Previously a subsidiary of Tessella it was demerged prior to the sale of Tessella in December 2015. The new investment provided growth capital to finance the development of the business. The company's latest accounts for the year ended 31 March 2016 show turnover of £1.78 million and profit before interest, tax and amortisation of goodwill of £0.16 million.
New investment post year-end
Company		Business			Date of investment			Amount of new investment (£m)
MyTutor		Online tutoring			May 2017			0.35
Mytutorweb Limited is a digital marketplace that connects school pupils who are seeking private one-to-one tutoring with university students. The business is satisfying a growing demand from both schools and parents to improve pupils' exam results to enhance their academic and career prospects. This investment represents an opportunity to consolidate the sizeable £2bn UK tutoring market and the investment will be used to drive technological development and build MyTutor's market presence. For the year ended 31 December 2016, the business delivered around 27,000 tutorials with Gross Booking Value of £0.55 million.
Realisations There have been no full realisations during the year under review although the Company received total cash proceeds of £3.81 million (2016: £5.00 million). This was in the form of loan stock repayments of £3.67 million (2016: £2.06 million) detailed below, deferred consideration of £0.08 million from Focus Pharma and MachineWorks, realised in a previous period and other receipts of £0.06 million. Loan stock repayments Loan stock repayments totalled £3.67 million for the year.  These are summarised below:-
	Company			Business			Month		Amount (£000's)
	Backhouse Management			Company preparing to trade			January		679
	Barham Consulting			Company preparing to trade			December, March		679
	Creasy Marketing			Company preparing to trade			March		679
	McGrigor Management			Company preparing to trade			January, February		679
	Hollydale Management			Company preparing to trade			March		531
	Chatfield Services			Company preparing to trade			March		380
	Jablite			Expanded polystyrene products			April		42
	Total								3,669

Investment Portfolio Summary

as at 31 March 2017

		Date of first investment                                                                                                                                            and Sector	Total Book cost at 31 March 2017	Valuation at 31 March 2016	Additions at cost	Disposals at valuation	Valuation at 31 March 2017	Change in valuation for year	% of net assets by value
			£	£	£	£	£	£
	Qualifying investments
	ASL Technology Holdings Limited Printer and photocopier services	December 2010 Support services	2,092,009	2,397,086	-	-	2,258,388	(138,698)	5.9%
	Tovey Management Limited (trading as Access IS) Provider of data capture and scanning hardware	October 2015 Software and Computer Services	1,733,500	1,733,500	-	-	2,119,958	386,458	5.6%
	Virgin Wines Holding Company Limited Online wine retailer	November 2013 General retailers	1,284,333	1,886,136	-	-	1,761,822	(124,314)	4.6%
	Entanet Holdings Limited Wholesale voice and data communications provider	February 2014 Fixed Line Telecommunications	1,444,090	2,045,102	-	-	1,550,227	(494,875)	4.1%
	Turner Topco Limited (trading as ATG Media) Publisher and online auction platform operator	October 2008 Media	1,320,963	798,686	-	-	1,151,484	352,798	3.0%
	Fullfield Limited (trading as Motorclean Limited) Vehicle cleaning and valet services	July 2011 Support services	1,025,152	1,281,548	-	-	1,053,281	(228,267)	2.8%
	RDL Corporation Limited Recruitment consultants for the pharmaceutical, business intelligence and IT industries	October 2010 Support services	1,000,000	669,057	-	-	1,031,100	362,043	2.7%
	EOTH Limited (trading as Rab and Lowe Alpine) Branded outdoor equipment and clothing	October 2011 General retailers	817,185	842,686	-	-	1,001,498	158,812	2.6%
	Manufacturing Services Investment Limited Company seeking to carry on a business in the manufacturing sector	February 2014 Support services	1,000,300	1,000,300	-	-	1,000,300	-	2.6%
	Vian Marketing Limited (trading as RedPaddle Co) Design, manufacture and sale of stand-up paddleboards and windsurfing sails	July 2015 Leisure goods	717,038	717,038	-	-	987,739	270,701	2.6%
	Media Business Insight Holdings Limited A publishing and events business focused on the creative production industries	January 2015 Media	1,447,188	910,360	-	-	979,875	69,515	2.6%
	Gro-Group Holdings Limited Baby sleep products	March 2013 General retailers	1,123,088	751,930	-	-	973,928	221,998	2.6%
	Tharstern Group Limited Software based management information systems to the print sector	July 2014 Software and Computer Services	789,815	977,681	-	-	942,138	(35,543)	2.5%
	CGI Creative Graphics International Limited Vinyl graphics to global automotive, recreation vehicle and aerospace markets	June 2014 General Industrials	999,568	889,634	-	-	888,418	(1,216)	2.3%
	TPSFF Holdings Limited (formerly The Plastic Surgeon Holdings Limited) Snagging and finishing of domestic and commercial properties	April 2008 Support services	392,348	767,053	-	-	881,275	114,222	2.3%
	Redline Worldwide Limited Provider of security services to the aviation industry	February 2016 Support services	682,222	682,222	-	-	837,283	155,061	2.2%
	Veritek Global Holdings Limited Maintenance of imaging equipment	July 2013 Support services	967,780	974,052	-	-	715,856	(258,196)	1.8%
	Blaze Signs Holdings Limited Manufacturing and installation of signs	April 2006 Support services	437,030	738,939	-	-	526,492	(212,447)	1.4%
	Master Removers Group Limited (formerly Leap New Co Limited (trading as Anthony Ward Thomas, Bishopsgate and Aussie Man & Van)) A specialist logistics, storage and removals business	December 2014 Support services	369,625	534,927	-	-	526,134	(8,793)	1.4%
	Bourn Bioscience Limited Management of In-vitro fertilisation clinics	January 2014 Healthcare Equipment & Services	757,101	626,517	-	-	504,586	(121,931)	1.3%
	Pattern Analytics Limited (trading as Biosite) Workforce management and security services for the construction industry	November 2016 Software and computer services	495,479	-	495,479	-	495,479	-	1.3%
	Preservica Limited1 Seller of proprietary digital archiving software	December 2015 Software and Computer Services	485,770	-	485,770	-	485,770	-	1.3%
	Ibericos Etc. Limited (trading as Tapas Revolution) Spanish restaurant chain	January 2017 Travel & leisure	451,248	-	451,248	-	451,248	-	1.2%
	BookingTek Limited Software for hotel groups	October 2016 Software and Computer Services	450,442	-	450,442	-	450,442	-	1.2%
	Chatfield Services Limited (trading as Buster & Punch)2 Industrial inspired lighting and interiors retailer	March 2017 General retailers	436,391	848,500	-	412,109	436,391	-	1.1%
	Vectair Holdings Limited Designer and distributor of washroom products	January 2006 Support services	60,293	271,156	-	-	403,701	132,545	1.1%
	Jablite Holdings Limited Manufacturer of expanded polystyrene products	April 2015 Construction and materials	281,398	788,021	-	42,425	401,864	(343,732)	1.1%
	MPB Group Limited Online marketplace for photographic and video equipment	June 2016 General retailers	374,244	-	374,244	-	374,244	-	1.0%
	Hollydale Management Limited Company seeking to carry on a business in the food sector	March 2015 Support Services	566,400	885,000	-	318,600	354,000	-	0.9%
	Backhouse Management Limited Company seeking to carry on a business in the motor sector	April 2015 Support Services	441,220	848,500	-	407,280	169,700	-	0.4%
	Barham Consulting Limited Company seeking to carry on a business in the catering sector	April 2015 Support Services	441,220	848,500	-	407,280	169,700	-	0.4%
	Creasy Marketing Services Limited Company seeking to carry on a business in the textile sector	April 2015 Support Services	441,220	848,500	-	407,280	169,700	-	0.4%
	McGrigor Management Limited Company seeking to carry on a business in the pharmaceutical sector	April 2015 Support Services	441,220	848,500	-	407,280	169,700	-	0.4%
	Lightworks Software Limited Provider of software for  CAD and CAM vendors	April 2006 Software and Computer Services	25,727	65,592	-	-	92,737	27,145	0.2%
	Racoon International Holdings Limited Supplier of hair extensions, hair care products and training	December 2006 Personal goods	1,045,985	167,458	-	-	83,729	(83,729)	0.2%
	Newquay Helicopters (2013) Limited (in members' voluntary liquidation)                                                                                            Helicopter service operators	June 2006 Support services	30,469	66,169	-	35,700	-	(30,469)	0.0%
	Total qualifying investments		26,869,061	27,710,350	2,257,183	2,437,954	26,400,187	169,088	69.1%3
	Non-qualifying investments
	Media Business Insight Limited	as above	561,884	794,824	-	-	855,516	60,692	2.3%
	Manufacturing Services Investment Limited	as above	608,000	608,000	-	-	608,000	-	1.6%
	Tovey Manufacturing Limited (trading as Access IS)	as above	219,873	219,873	-	-	219,873	-	0.6%
	365 Agile Group plc (formerly Iafyds plc) Development of energy saving devices for domestic use	March 2001 Electronic and electrical equipment	254,586	8	-	-	-	(8)	0.0%
	Total non-qualifying investments		1,644,343	1,622,705	-	-	1,683,389	60,684	4.5%
	Total investments per note 8		28,513,404	29,333,055	2,257,183	2,437,954	28,083,576	229,772	73.6%
	Cash and current asset investments4			13,702,539	-	-	9,935,913	-	26.1%
	Total investments including cash and current asset investments		28,513,404	43,035,594	2,257,183	2,437,954	38,019,489	229,772	99.7%
	Other current assets			266,308			185,596		0.6%
	Current liabilities			(160,890)			(144,100)		(0.3)%
	Totals		28,513,404		2,257,183	2,437,954
	Net assets at the year end			43,141,012			38,060,985		100.0%

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.

Directors' responsibilities pursuant to Disclosure and Transparency Rule 4 of the UK Listing Authority

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

		Year ended 31 March 2017			Year ended 31 March 2016
		Revenue	Capital	Total	Revenue	Capital	Total
		£	£	£	£	£	£
Unrealised gains on investments	8	-	229,772	229,772	-	1,089,897	1,089,897
Realised gains on investments	8	-	76,067	76,067	-	1,732,241	1,732,241
Income	3	1,679,033	-	1,679,033	1,736,490	-	1,736,490
Investment Adviser's fees	4a	(237,791)	(713,374)	(951,165)	(246,651)	(739,953)	(986,604)
Investment Adviser's performance fees	4a & 4b	-	(2,692)	(2,692)	-	-	-
Other expenses	4c	(304,306)	-	(304,306)	(302,518)	-	(302,518)
Profit/(loss) on ordinary activities before taxation		1,136,936	(410,227)	726,709	1,187,321	2,082,185	3,269,506
Taxation on profit/(loss) on ordinary activities	5	(172,122)	143,213	(28,909)	(147,991)	147,991	-
Profit/(loss) for the year and total comprehensive income		964,814	(267,014)	697,800	1,039,330	2,230,176	3,269,506
Basic and diluted earnings per ordinary share:	7	2.69p	(0.75)p	1.94p	2.86p	6.14p	9.00p

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

		31 March 2017	31 March 2016
	Notes	£	£
Fixed assets
Investments at fair value	8	28,083,576	29,333,055
Current assets
Debtors and prepayments		185,596	266,308
Current asset investments		5,197,301	9,337,621
Cash at bank		4,738,612	4,364,918
		10,121,509	13,968,847
Creditors: amounts falling due within one year		(144,100)	(160,890)
Net current assets		9,977,409	13,807,957
Net assets		38,060,985	43,141,012
Capital and reserves
Called up share capital		356,724	360,685
Share premium reserve		15,901,497	15,901,497
Capital redemption reserve		87,583	83,622
Revaluation reserve		2,001,764	1,783,724
Special distributable reserve		7,540,615	8,524,729
Realised capital reserve		11,142,462	15,529,419
Revenue reserve		1,030,340	957,336
Equity shareholders' funds		38,060,985	43,141,012
Basic and diluted net asset value per ordinary share		106.70p	119.61p

Statement of Changes in Equity

for the year ended 31 March 2017

	Non-distributable reserves				Distributable reserves			Total
	Called up share capital	Share premium reserve	Capital redemption reserve	Revaluation reserve	Special distributable reserve	Realised capital reserve	Revenue Reserve
					(Note a)	(Note b)	(Note b)
	£	£	£	£	£	£	£	£
At 1 April 2016	360,685	15,901,497	83,622	1,783,724	8,524,729	15,529,419	957,336	43,141,012
Comprehensive income for the year
Profit/(loss) for the year	-	-	-	229,772	-	(496,786)	964,814	697,800
Total comprehensive income for the year	-	-	-	229,772	-	(496,786)	964,814	697,800
Contributions by and distributions to owners								-
Shares bought back (note c)	(3,961)	-	3,961	-	(411,261)	-	-	(411,261)
Dividends paid	-	-	-	-	-	(4,474,756)	(891,810)	(5,366,566)
Total contributions by and distributions to owners	(3,961)	-	3,961	-	(411,261)	(4,474,756)	(891,810)	(5,777,827)
Other movements
Realised losses transferred to special reserve (note a)	-	-	-	-	(572,853)	572,853	-	-
Realisation of previously unrealised appreciation	-	-	-	(11,732)	-	11,732	-	-
Total other movements	-	-	-	(11,732)	(572,853)	584,585	-	-
At 31 March 2017	356,724	15,901,497	87,583	2,001,764	7,540,615	11,142,462	1,030,340	38,060,985

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

	Non-distributable reserves				Distributable reserves			Total
	Called up share capital	Share Premium reserve	Capital redemption reserve	Revaluation reserve	Special distributable reserve	Realised capital reserve	Revenue Reserve
	£	£	£	£	£	£	£	£
At 1 April 2016	364,686	15,901,497	79,621	1,116,647	9,537,078	14,279,820	823,468	42,102,817
Comprehensive income for the year
Profit for the year	-	-	-	1,089,897	-	1,140,279	1,039,330	3,269,506
Total comprehensive income for the year	-	-	-	1,089,897	-	1,140,279	1,039,330	3,269,506
Contributions by and distributions to owners
Shares bought back	(4,001)	-	4,001	-	(420,387)	-	-	(420,387)
Dividends paid	-	-	-	-	-	(905,462)	(905,462)	(1,810,924)
Total contributions by and distributions to owners	(4,001)	-	4,001	-	(420,387)	(905,462)	(905,462)	(2,231,311)
Other movements
Realised losses transferred to special reserve	-	-	-	-	(591,962)	591,962	-	-
Realisation of previously unrealised appreciation	-	-	-	(422,820)	-	422,820	-	-
Total other movements	-	-	-	(422,820)	(591,962)	1,014,782	-	-
At 31 March 2016	360,685	15,901,497	83,622	1,783,724	8,524,729	15,529,419	957,336	43,141,012

Statement of Cash Flows

for the year ended 31 March 2017

	Notes	Year ended 31 March 2017 £	Year ended 31 March 2016 £
Cash flows from operating activities
Profit for the financial year		697,800	3,269,506
Adjustments for:
Net unrealised gains on investments		(229,772)	(1,089,897)
Net gains on realisations on investments		(76,067)	(1,732,241)
Tax charge for the current year		28,909	-
Decrease/(increase) in debtors		80,712	(86,327)
Decrease in creditors and accruals		(44,914)	(47,047)
Net cash inflow from operating activities		456,668	313,994
Cash flows from investing activities
Purchase of investments	8	(2,257,183)	(9,164,569)
Disposal of investments	8	3,812,501	5,001,367
Decrease/(increase) in bank deposits with a maturity over three months		507,061	(7,061)
Net cash inflow/(outflow) from investing activities		2,062,379	(4,170,263)
Cash flows from financing activities
Equity dividends paid	6	(5,366,566)	(1,810,924)
Purchase of own shares		(412,046)	(376,756)
Net cash outflow from financing activities		(5,778,612)	(2,187,680)
Net decrease in cash and cash equivalents		(3,259,565)	(6,043,949)
Cash and cash equivalents at start of year		13,195,478	19,239,427
Cash and cash equivalents at end of the year		9,935,913	13,195,478
Cash and cash equivalents comprise:
Cash equivalents		5,197,301	8,830,560
Cash at bank and in hand		4,738,612	4,364,918

Notes to the Financial Statements

for the year ended 31 March 2017

1   Company Information

Mobeus Income and Growth 2 VCT plc is a public limited company incorporated in England, registration number 03946235. The registered office is 30 Haymarket, London, SW1Y 4EX.

2   Basis of preparation

A summary of the principal accounting policies, all of which have been applied consistently throughout the year are set out at the start of the related disclosure throughout the Notes to the Financial Statements within an outlined box.

These Financial Statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 ("FRS102"), with the Companies Act 2006 and the 2014 Statement of Recommended practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('the SORP') (updated in January 2017) issued by the Association of Investment Companies. The Company has a number of financial instruments which are disclosed under FRS102 s11/12 as shown in Note 15 of the Annual Report.

The Company has elected to apply early the revised disclosure requirements as set out in Amendments to FRS102 - Fair Value hierarchy disclosures, issued in March 2016.

3   Income

Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividends receivable on unquoted equity shares are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received. Interest income on loan stock is accrued on a daily basis. Provision is made against this income where recovery is doubtful or where it will not be received in the foreseeable future. Where the loan stocks only require interest or a redemption premium to be paid on redemption, the interest and redemption premium is recognised as income or capital as appropriate once redemption is reasonably certain. When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return the redemption premium is recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company by company basis. Accordingly, the redemption premium recognised in the year ended 31 March 2017 has been classified as capital and has been included within gains on investments.

		2017	2016
		£	£
	Income from bank deposits	29,594	49,237
	Income from investments
	- from equities	181,950	87,073
	- from overseas based OEICs	15,605	14,913
	- from UK based OEICs	8,549	6,493
	- from loan stock	1,443,335	1,578,774
		1,649,439	1,687,253
	Total income	1,679,033	1,736,490
	Total income comprises
	Dividends	206,104	108,479
	Interest	1,472,929	1,628,011
		1,679,033	1,736,490
Total loan stock interest due but not recognised in the year was £275,960 (2016: £166,537).

4   Investment Adviser's fees and Other expenses

All expenses are accounted for on an accruals basis.

a)  Investment Adviser's fees and performance fees

25% of the Investment Adviser's fees are charged to the revenue column of the Income Statement, while 75% is charged against the capital column of the Income Statement. This is in line with the Board's expected long-term split of returns from the investment portfolio of the Company. 100% of any performance incentive fee payable for the year is charged against the capital column of the Income Statement, as it is based upon the achievement of capital growth.

			2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£	£	£	£	£	£
Mobeus Equity Partners LLP
Investment Adviser's fees	237,791	713,374	951,165	246,651	739,953	986,604
Investment Adviser's performance fee	-	2,692	2,692	-	-	-
	237,791	716,066	953,857	246,651	739,953	986,604

Under the terms of a revised investment management agreement dated 10 September 2010, Mobeus Equity Partners LLP ("Mobeus") provides investment advisory, administrative and company secretarial services to the Company, for a fee of 2% per annum calculated on a quarterly basis by reference to the net assets at the end of the preceding quarter, plus a fee of £113,589 per annum, the latter being subject to changes in the retail prices index each year. In 2013, Mobeus has agreed to waive such further increases due to indexation, until otherwise agreed by the Board. In accordance with the policy statement published under "Management and Administration" in the Company's prospectus dated 10 May 2000, the Directors have charged 75% of the Investment Adviser's fees to the capital account. This is in line with the Board's expectation of the long-term split of returns from the investment portfolio of the Company.

Under the terms of the management agreement the total Investment Adviser and administration expenses of the Company excluding any irrecoverable VAT, exceptional costs and any performance incentive fee, are linked to a maximum of 3.6% of the value of the Company's closing net assets. For the year ended 31 March 2017, the expense cap has not been breached (2016: £nil).

The Company is responsible for external costs such as legal and accounting fees, incurred on transactions that do not proceed to completion ("abort expenses") subject to the cap on total annual expenses referred to above.

In accordance with general market practice, the Investment Adviser earned arrangement fees and fees for supplying Directors and/or monitoring services from investee companies. The share of such fees attributable to the investments made by the Company were £67,353 (2016: £111,903) and £139,556 (2016: £124,601) respectively. The fees for supplying directors and/or monitoring services were from 28 (2016: 26) investee companies during the year.

b)   Performance fees

Performance incentive agreement

The following performance incentive fee arrangement dated 20 September 2005 continues to be in place, and operated as detailed below:

New Ordinary and former C share fund shares

Basis of Calculation

The performance incentive fee payable is calculated as an amount equivalent to 20 per cent of the excess of a "Target rate" comprising:-

(i)    an annual dividend target (indexed each year for RPI), and

(ii)   a requirement that any cumulative shortfalls below the annual dividend target must be made up in later years. Any excess is not carried forward, whether a fee is payable for that year or not.

Payment of a fee is also conditional upon the average Net Asset Value ("NAV") per share for each such year equalling or exceeding the average "Base NAV" per share for the same year. Base NAV commenced at £1 per share when C fund shares were first issued in 2005, which is adjusted for subsequent shares issued and bought back.

Any performance fee will be payable annually. It will be reduced to the proportion which the number of "Incentive Fee Shares" represent of the total number of shares in issue at any calculation date. Incentive Fees Shares are the only shares upon which an incentive fee is payable. They will be the number of C fund shares in issue just before the Merger of the two former share classes on 10 September 2010, (which subsequently became Ordinary shares) plus Ordinary shares issued under new fundraisings since the Merger. This total is then reduced by an estimated proportion of the shares bought back by the Company since the Merger, that are attributable to the Incentive Fee Shares.

Clarifications to the agreement

During the year ended 31 March 2016, the Board and the Investment Adviser agreed to confirm and clarify in more detail a number of principles and interpretations applied to the agreement. The principal ones are reflected in the paragraphs above and explained below:-

First, the incentive fee is paid upon dividends paid in a year, not declared and paid in a year, as the original agreement stated. Secondly, the average NAV referred to above is calculated on a daily weighted average basis throughout the year. In turn, this average NAV is compared to a Base NAV that is also calculated on a daily weighted average basis throughout the year. Thirdly, the methodologies to account for new shares issued and buybacks of shares, their inclusion in the incentive fee calculations and to identify the proportion of all shares upon which an incentive fee is payable have been clarified.

Finally, it has been agreed that any excess of cumulative dividends paid over the cumulative annual dividend target is not carried forward, whether a fee is paid for that year or not.

These clarifications have been incorporated into the performance incentive agreement. The Board has been advised that, as these and a number of more minor clarifications, are clarifications of the Incentive Agreement, rather than changes to it, there was no need to seek shareholder approval for them.

Position at 31 March 2017

The cumulative dividends paid exceeded the annual cumulative dividend target at 31 March 2017 by 0.05p per share (£13,458 surplus in aggregate being 78.1% of the total surplus) at the year-end, (where 78.1% is the proportion of Incentive Fee Shares to the total number of shares in issue at the year-end date) and taking into account the target rate of dividends and the dividends paid to shareholders.

The 6p annual dividend hurdle was 7.55p per share at the year-end after adjustment for RPI. The Base NAV was 106.14 per share at the year-end and an average of 106.13p for the year, compared to an average NAV for the year of 116.23p.

Accordingly, an Incentive payment of £2,692 is payable for the year, being 20% of the surplus of £13,458 referred to above.

c)  Other expenses

Expenses are charged wholly to revenue, with the exception of expenses incidental to the acquisition or disposal of an investment, which are written off to the capital column of the Income Statement or deducted from the disposal proceeds as appropriate.

	2017	2016
	£	£
Directors' remuneration (including NIC of £5,080 (2016: £6,080)) (note a)	96,080	97,080
IFA trail commission	15,395	27,009
Broker's fees	12,000	12,000
Auditors' fees- audit (excluding VAT)	22,550	27,947
- tax compliance services (note b) (excluding VAT)	3,550	3,707
- audit related assurance services (note b) (excluding VAT)	4,510	4,767
Registrar's fees	30,707	26,914
Printing	33,215	24,194
Legal & professional fees	13,059	6,091
VCT monitoring fees	8,400	7,500
Directors' insurance	8,310	8,838
Listing and regulatory fees	23,219	20,810
Sundry	18,466	10,818
Running costs	289,461	277,675
Provision against loan interest receivable (note c)	14,845	24,843
Other expenses	304,306	302,518

a): See analysis in the Directors' emoluments table in the Annual Report, which excludes the NIC above. The key management personnel are the non-executive directors. The Company has no employees.

b): The Directors consider the Auditor was best placed to provide the other services disclosed above. The Audit Committee reviews the nature and extent of these services to ensure that auditor independence is maintained.

c):  Provision against loan interest receivable of £14,845 (2016: £24,843) is a provision made against loan stock interest recognised in previous years.

5   Taxation on ordinary activities

The tax expense for the year comprises current tax and is recognised in profit or loss. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date. Any tax relief obtained in respect of Investment Adviser fees allocated to capital is reflected in the capital reserve - realised and a corresponding amount is charged against revenue. The tax relief is the amount by which corporation tax payable is reduced as a result of these capital expenses. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in the tax assessments in periods different from those in which they are recognised in the Financial Statements. Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax is measured on a non-discounted basis. A deferred tax asset would be recognised only to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilised.

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£	£	£	£	£	£
a) Analysis of tax charge:
UK Corporation tax on profits for the year	172,122	(143,213)	28,909	147,991	(147,991)	-
Total current tax charge	172,122	(143,213)	28,909	147,991	(147,991)	-
Corporation tax is based on a rate of 20% (2016: 20%)
b) Profit/(loss) on ordinary activities before tax	1,136,936	(410,227)	726,709	1,187,321	2,082,185	3,269,506
Profit/(loss) on ordinary activities multiplied by small company rate of corporation tax in the UK of 20% (2016: 20%)	227,387	(82,046)	145,341	237,464	416,437	653,901
Effect of:
UK dividends	(36,390)	-	(36,390)	(17,414)	-	(17,414)
Unrealised gains not taxable		(45,954)	(45,954)	-	(217,979)	(217,979)
Realised gains not taxable	-	(15,213)	(15,213)	-	(346,449)	(346,449)
Utilisation of losses on which deferred tax not recognised	(18,875)	-	(18,875)	(72,059)	-	(72,059)
Actual tax charge	172,122	(143,213)	28,909	147,991	(147,991)	-

Tax relief relating to Investment Adviser fees is allocated between revenue and capital where such relief can be utilised.

No asset or liability has been recognised for deferred tax in relation to capital gains or losses on revaluing investments as the Company is exempt from corporation tax in relation to capital gains or losses as a result of qualifying as a Venture Capital Trust.

There is no potential liability to deferred tax (2016: £nil). There is an unrecognised deferred tax asset of £nil (2016: £18,875).

6   Dividends paid and payable

Dividends payable are recognised as distributions in the Financial Statements when the Company's liability to pay them has been established. This liability is established for interim dividends when they are paid, and for final dividends when they are approved by the shareholders, usually at the Company's Annual General Meeting. A key judgement in applying the above accounting policy is in determining the amount of minimum income dividend to be paid in respect of a year.  The Company's status as a VCT means it has to comply with Section 259 of the Income Tax Act 2007, which requires that no more than 15% of the income from shares and securities in a year can be retained from the revenue available for distribution for the year.

Amounts recognised as distributions to equity shareholders in the year:
Dividend	Type	For year ended 31 March	Pence per share	Date Paid	2017 £	2016 £
Interim	Income	2016	2.50p	18/03/2016	-	905,462
Interim	Capital	2016	2.50p	18/03/2016	-	905,462
Interim	Capital	2017	5.00p	08/08/2016	1,799,327	-
Second Interim	Income	2017	2.50p	31/03/2017	891,810	-
Second Interim	Capital	2017	7.50p	31/03/2017	2,675,429	-
					5,366,566	1,810,924

Any proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these Financial Statements.

Set out below are the total income dividends payable in respect of the financial year, which is the basis on which the requirements of section 274 of the Income Tax Act 2007 are considered.

Recognised income distributions in the financial statements for the year:
Dividend	Type	For year ended 31 March	Pence per share	Date Paid	2017 £	2016 £
Revenue available for distribution by way of dividends for the year					964,814	1,039,330
Interim	Income	2016	2.50p	18/03/2016	-	905,462
Second Interim	Income	2017	2.50p	31/03/2017	891,810	-
Total income dividends for the year					891,810	905,462

7   Basic and diluted earnings per share

	2017	2016
	£	£
Total earnings after taxation:	697,800	3,269,506
Basic and diluted earnings per share (note a)	1.94p	9.00p
Net revenue earnings from ordinary activities after taxation	964,814	1,039,330
Basic and diluted revenue earnings per share (note b)	2.69p	2.86p
Unrealised capital gains	229,772	1,089,897
Realised capital gains	76,067	1,732,241
Capital Investment Adviser's fees (net of taxation)	(570,161)	(591,962)
Investment Adviser's performance fee	(2,692)	-
Total capital earnings	(267,014)	2,230,176
Basic and diluted capital earnings per share (note c)	(0.75)p	6.14p
Weighted average number of shares in issue in the year	35,877,280	36,312,815

Notes:

a)  Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue.

b) Revenue earnings per share is the revenue return after taxation divided by the weighted average number of shares in issue.

c) Capital earnings per share is the total capital return after taxation divided by the weighted average number of shares in issue.

d) There are no instruments that will increase the number of shares in issue in future. Accordingly, the above figures currently represent both basic and diluted earnings.

8   Investments at fair value

The most critical estimates, assumptions and judgements relate to the determination of the carrying value of investments at "fair value through profit and loss" (FVTPL). All investments held by the Company are classified as FVTPL and measured in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") guidelines, as updated in December 2015. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income. For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. Unquoted investments are stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEV guidelines: All investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, each investment is considered as a whole on a 'unit of account' basis, alongside the following factors: (i)  Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used. (ii) In the absence of i) and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:- a)  an earnings multiple basis. The shares may be valued by applying a suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortisation (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Investment Adviser compared to the sector including, inter alia, a lack of marketability).  or:-      b)  where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. (iii) Premiums, to the extent that they are considered capital in nature, and that will be received upon repayment of loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable. (iv) Where an earnings multiple or cost less impairment basis is not appropriate and overriding factors apply, discounted cash flow or net asset valuation bases may be applied. A key judgement made in applying the above accounting policy relates to investments that are permanently impaired. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Adviser, will agree the values that represent the extent to which an investment loss has become realised and treated as a realised loss in the Income Statement. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value.

Movements in investments during the year are summarised as follows:

	Traded on AIM	Unquoted equity shares	Unquoted preference shares	Loan Stock	Total
	£	£	£	£	£
Cost at 31 March 2016	254,586	10,176,306	23,311	19,698,819	30,153,022
Permanent impairments at 31 March 2016	(254,586)	(1,537,968)	(739)	(810,398)	(2,603,691)
Unrealised gains/(losses) at 31 March 2016	8	(385,285)	(1,037)	2,170,038	1,783,724
Valuation at 31 March 2016	8	8,253,053	21,535	21,058,459	29,333,055
Purchases at cost	-	1,933,524	-	323,659	2,257,183
Sale proceeds (note a)	-	(144,214)	-	(3,668,287)	(3,812,501)
Reclassification at value	-	(84)	84	-	-
Realised (losses)/gains on investments	-	(1,222,413)	-	1,298,480	76,067
Unrealised (losses)/gains on investments (note b)	(8)	(1,886,002)	378,155	1,737,627	229,772
Valuation at 31 March 2017	-	6,933,864	399,774	20,749,938	28,083,576
Cost at 31 March 2017	254,586	10,571,020	23,395	17,664,403	28,513,404
Permanent impairments at 31 March 2017 (note c)	(254,586)	(1,365,869)	(739)	(810,398)	(2,431,592)
Unrealised (losses)/gains at 31 March 2017	-	(2,271,287)	377,118	3,895,933	2,001,764
Valuation at 31 March 2017	-	6,933,864	399,774	20,749,938	28,083,576

A breakdown of the increases and the decreases in unrealised valuations of the portfolio is shown in the Investment Portfolio Summary in the Annual Report.

Major movements in investments

     Note a) Disposals of investment portfolio companies during the year were:

	Type	Investment Cost	Disposal Proceeds	Opening        Valuation	Realised gain in year
		£	£	£                       £	£
	Share buyback
Chatfield Services Limited	and loan repayment	412,109	412,109	412,109	-
Backhouse Management Limited	Loan repayment	407,280	678,800	407,280	-1
Barham Consulting Limited	Loan repayment	407,280	678,800	407,280	-1
Creasy Marketing Services Limited	Loan repayment	407,280	678,800	407,280	-1
McGrigor Management Limited	Loan repayment	407,280	678,800	407,280	-1
Hollydale Management Limited	Loan repayment	318,600	531,000	318,600	-1
Jablite Holdings Limited	Loan repayment	30,693	42,425	42,425	-
Others		35,700	111,767	35,700	76,067
		2,426,222	3,812,501	2,437,954	76,067

1 - The gain on the loan repayments above of £1,298,480 has been set against an equivalent permanent impairment in the equity instrument of the investments in these companies (see note c). Thus, no gain or loss resulted.

Note b) Within net unrealised gains of £229,772 for the year, the significant gains in value compared to last year were as follows: £386,458 in Tovey Management Limited (trading as Access IS), £362,043 in RDL Corporation Limited, £352,798 in Turner Topco Limited (trading as ATG Media), and £270,701 in Vian Marketing Limited (trading as Red Paddle Co). These gains were partially set off by unrealised falls in valuation compared to last year, being: £494,875 in Entanet Holdings Limited, £343,732 in Jablite Holdings Limited, £258,196 in Veritek Global Limited, and £228,267 in Fullfield Limited (trading as Motorclean).

The increase in unrealised valuations of the loan stock investments above reflects the changes in the entitlements to loan premiums, and/or in the underlying enterprise value of the investee company. The increase does not arise from assessments of credit risk or market risk upon these investments.

Note c) During the year, permanent impairments of the cost of investments have reduced from £2,603,691 to £2,431,592. The net reduction of £172,099 is due to a) two investee companies being dissolved in the year, which removes the cost and related impairment of these investments of £1,470,579 from these Financial Statements, and b) impairments of equity of five investee companies of £1,298,480, referred to in note a) above.

9     Post balance sheet events

On 3 May 2017, TPSFF Holdings Limited (formerly The Plastic Surgeon Holdings Limited) repaid loan stock of £0.04 million.

        On 22 May 2017, £0.35 million was invested into MyTutor.

10    Statutory information

 

The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 31 March 2017 in terms of section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 March 2017 will be delivered to Companies House following the Company's Annual General Meeting.  The auditors have reported on those accounts: their report was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

11    Annual Report

        The Annual Report for the year ended 31 March 2017 will shortly be made available on the Company's website: www.mig2vct.co.uk. and shareholders will be notified of this by email or post or sent a hard copy in the post in accordance with their instructions.  Copies will be available thereafter to members of the public from the Company's registered office. 

12    Annual General Meeting

 

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.

Contact details for further enquiries:

Robert Brittain of Mobeus Equity Partners LLP (the Company Secretary) on 020 7024 7600 or by e-mail to [e-mail]. 

Mark Wignall or Clive Austin at Mobeus Equity Partners LLP (the Investment Adviser) on 020 7024 7600 or by e-mail to [e-mail].

DISCLAIMER

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

FR UAUNRBOANUAR