Annual Report • Aug 1, 2023
Annual Report
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254900F3ZHVS78UV6D89-2022-12-31-en Blackfinch Spring VCT plc Annual Report and Financial Statements for the year ended 31 December 2022 Companies House Number 12166417 Committed Blackfinch Spring VCT Annual Report and Financial Statements 2 Highlights Investment Objective Chairman’s Statement The Board Investment Manager’s Review Investment Portfolio Strategic Report Directors’ Report Statement of Corporate Governance Statement of Directors’ Responsibilities Directors’ Remuneration Report Independent Auditor’s Report Income Statement Statement of Changes in Equity Balance Sheet Statement of Cash Flows Notes to the Financial Statements Directors and Advisers Notice of Annual General Meeting 03 03 04 06 08 12 33 51 54 60 Contents 24 April 2023 62 66 80 82 84 85 86 100 101 Blackfinch Spring VCT Annual Report and Financial Statements 3 24 April 2023 Highlights Offer for Subscription In the year ended 31 December 2022, the Company’s offers for subscription raised £7,903,825 (2021: £8,113,233), with the issue of 8,573,388 (2021: 8,721,908) shares. Investments The Company made 17 qualifying investments in the period, for a total of £9.4m, adding 7 companies to its portfolio that now stands at 20. There were no realised returns in the year, but there was a small unrealised gain of £0.4m on investments, which brought the overall investment value to £16.8m. Net Asset Value (“NAV”) Movement The NAV per share dropped back 2.4% from 93.08p to 90.85p because of the effect of operational costs, which outweighed the gain in investment value. Dividends No dividends have been paid or are proposed this early in the life of the Company. The objective of the Company is to invest in innovative growth-stage technology- enabled companies which are on their scale-up journey. Investments are targeted in unquoted companies with the potential for high growth and where there is likely to be a reasonable prospect of a trade sale or clear exit strategy in due course. Summary Data Net Asset Value (£‘000) Shares in issue (‘000) NAV per ordinary share Share price Year ended 31/12/2022 19,267 21,207 90.85p 85.00p Year ended 31/12/2021 11,760 12,634 93.08p 85.00p Investment Objective Blackfinch Spring VCT Annual Report and Financial Statements 4 Chairman’s Statement I am pleased to be writing to Shareholders to present the Report and Accounts annual review for Blackfinch Spring VCT plc (the ‘Company’) for the year ended 31 December 2022. Strong fundraising During the year the Company raised a further £7.9m and so allotted a further 8,573,388 shares. Although this amount was just down from the £8.1m raised in 2021 it was notable that the first allotment of the Company’s fourth offer, which opened on 2 September 2022, raised £1.7m, up from £1.1m in the equivalent allotment of 2021. It is very encouraging to see this continued confidence in the Company’s ability to deliver long-term returns through investments in technology-enabled start-ups. A growing portfolio Investment activity has also continued at pace, with a further seven growth-stage companies added to the portfolio. Their innovative technologies are solving challenges in sectors from recruitment to software development, and even finance. They further diversify the Company’s portfolio, which now stands at 20 businesses. In total, £9.4m was invested during the year, a significant increase from £5.1m in 2021. A weak economic environment Although the UK just avoided a recession in 2022, there was considerable pressure on living costs from rising inflation, particularly energy prices, not least because of Russia’s invasion of Ukraine. This pressure fed through to a few of the portfolio companies, especially those more directly serving consumers. In particular Kokoon, which sells headphones and services for those who struggle to sleep, has required additional funds and support from the Investment Manager. However, most portfolio companies have continued to perform well, with all but three of them delivering growth in the final quarter of the year. Weak market pricing The market prices of public technology companies saw steep declines during 2022, as the exuberance over their performance during the Covid pandemic wore off. As is the market standard for VCT’s, the Company links its portfolio values to these comparable public stocks, and there was a consequent impact on the portfolio company valuations, with several reducing or stagnating, despite good underlying growth in the business. The effect, combined with ongoing operational costs, was to reduce the NAV per share to a low of 89.13p at the end of the third quarter. In the final quarter, continued good performance from portfolio companies outweighed a more modest decline in the public markets, and the NAV per share recovered to 90.85p. Sustained strength in the investment pipeline The Investment Manager reports no decline in the number of innovative new businesses it receives to assess, giving it the pick of many of the best technology investments available. Details of those in the current pipeline are given on pages 27 to 32. 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 5 In addition there remain longer-term prospects to provide follow-on funding for firms in the manager’s earlier-stage EIS Portfolios, but only when they have proved themselves. With a growing active portfolio there are also increasing opportunities for the Company to deploy additional capital into its own best performing businesses. Outlook Despite the global challenges of the last year, the Company has continued to make very good progress towards its objectives. Going into 2023 with a UK recession forecast and record high inflation, the macro-economic environment is likely to be no less testing. However, many innovative technology-enabled companies can deliver value to customers whatever the economic circumstances, and they can succeed regardless. With a strong portfolio, exciting new potential investments in the pipeline, and healthy inflows, the prospects for the next year remain positive. I look forward to the next report to Shareholders. Peter LR Hewitt, JP, FCSI Non-executive Chairman 24 April 2023 Companies House Number - 12166417 For any matters relating to your shareholding in the Company, please contact The City Partnership (UK) Limited on 01484 240 910, or by email at [email protected]. For any other matters please contact Blackfinch Investments Limited (“Blackfinch”) on 01542 717 070 or by email at: [email protected]. Blackfinch maintains a website for the Company: www.blackfinch.ventures/vct 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 6 The Board Peter Lionel Raleigh Hewitt, JP, FCSI, FRSA (Chairman) Peter has been a director of 13 public companies over the last 30 years, chairing 7 of these including 7 years as Chairman and CEO of an AIM quoted construction and facilities management business, which he founded and built from zero to £25m turnover and 400 people in 4 years. He is Co-Chairman and co-founder of Universal Defence and Security Solutions Limited, a global defence consultancy; Chairman of Scampton Holdings Limited and a non-executive director of Terra Mater Renewables Investments AB. Peter is a former Alderman of the City of London and inaugural Chairman of the City’s £20m Social Investment Fund, creating investment strategy and policy. Peter is also an individually Chartered Fellow of the Chartered Securities Institute; a Justice of the Peace on the supplemental list and an Honorary Group Captain in 601 (County of London) Squadron, RAuxAF, where his role is to partner with the SLT of the RAF. Kate Jones Kate’s career spans senior investment leadership and Board roles in the financial services industry including the Pension Protection Fund, JP Morgan, BlackRock, Schroders and M&G. She began her career as a portfolio manager at Prudential M&G before playing an instrumental role in the growth of BlackRock’s Solutions business where she built and led the portfolio management function with responsibility for over £300bn of assets. She is Non-Executive Chair at the Pension Protection Fund and Non-Executive Chairman of JPMorgan Funds Limited. Prior roles have included Trustee and Chair of the Investment Committee for Smart Pension Master Trust and Chair of the board of Trustees of Redstart Educate, a financial education charity. Working with senior executives in multiple sectors across the UK, Kate is also the co-founder of executive coaching business “&become”. Reuben Wilcock Reuben’s expertise in advising early-stage companies has developed through a background spanning academia, technology start-ups and start-up acceleration. He has founded or co-founded four technology start-ups including Joulo, a smart home energy spinout which won the 2013 British Gas Connected Homes award and was acquired by Quby in 2014, and Bar Analytics, an IoT start-up that enables global brands to monitor beer quality and sales. 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 7 With a PhD in Electronics, Reuben has extensive product design experience with deep technical knowledge of hardware, software and manufacturing. He is an inventor on five patents and named author on over 45 peer reviewed publications ranging from integrated circuit design to genetic algorithms. Before joining Blackfinch, Reuben was a leading figure in entrepreneurship at the University of Southampton where he sat on its IP Panel for five years, guiding the commercialisation of research innovations through licensing and spinouts. Reuben is a Royal Academy of Engineering award winning entrepreneur, and the lifetime membership that affords has offered visibility of some of the most innovative university spinouts in the UK. In 2015 Reuben founded and ran the Future Worlds accelerator, mentoring over 250 entrepreneurs and 50 companies over a four-year period. Companies included 5G silicon IP spinout Accelercomm, AI computer vision company Aura Vision, IoT transport startup Route Reports and HGV data analytics company Dynamon. Whilst at Future Worlds, Reuben also developed the business plan and was the execution partner for the Z21 Fund, run in partnership with the Solent LEP. 24 April 2023 Investment Manager’s Review Despite the wider economic challenges, 2022 proved an excellent year for building and consolidating the Company’s portfolio. It now stands at 20 companies across 14 technology sectors, such as in software, water, HR, and marketing. Investment values range from £200k to £1.8m, with an average of £839k. Further details and statistics of the portfolio are given in the sections below. Overall, 17 investments were made in the year, of which seven were into new companies. One of them was StaffCircle, an HR technology company with a highly experienced founder. We had been supporting it in the Blackfinch EIS Portfolios from a very early stage, where it had consistently performed extremely well, bringing it to the growth-stage appropriate for investment by the Company. The other six new companies were co-investments with the Blackfinch EIS Portfolios. One is Tangle Software Inc., which has developed a powerful ‘no-code’ platform to make it far faster to develop new software. The company is registered in the US but it has a British co-founder and a strong UK presence that ensures its eligibility as a VCT Qualifying Investment. We are also pleased to have secured an investment in Currensea, the Company’s first ‘fintech’ (financial technology business). Currensea is already beating its revenue forecasts with its slick travel debit card that makes it easier and cheaper to spend money abroad. Other investments were follow-ons into existing portfolio companies. They included Cyclr, which saw stiff competition amongst new investors to participate in its Series A raise at the end of March, ultimately leading to a higher valuation. Another highlight at the end of the year was Illuma, which had grown its revenue by an impressive multiple of 2.6 from the year before. We invested another £430k, which with the increased valuation of our original investment brought the total value of our holding to £1.8m, the largest in the Company’s portfolio. The follow-ons also included the Company’s first debt investment. Kokoon, which helps people get to sleep with its award-winning headphones and app, saw a decline in sales as the economic outlook deteriorated just at the point it was attempting to raise a large Series A investment. As a consequence, the Company and other investors provided a loan to give the founders time either to secure a large investment, or to sell the business and its patented intellectual property. Blackfinch is assisting the business in this process to ensure the best outcome with the time and funds remaining. Other portfolio companies have continued to perform well. While some have reported that sales are closing more slowly in the current economic climate, overall 17 of them still grew revenue in the final quarter of the year, with some Blackfinch Spring VCT Annual Report and Financial Statements 8 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 9 24 April 2023 delivering impressive increases. Disappointingly, very little of this strong performance across the portfolio has been reflected in higher investment valuations. In line with our valuation policy and industry guidelines, we link these valuations to those of comparable companies listed in public markets. Public technology companies saw dramatic share price reductions in the course of 2022, and these declines have weighed heavily on portfolio valuations. Given the extent of the public market declines, it is encouraging that there remains even a small net gain in unrealised returns. At the end of 2021, the revenue multiples applied to most portfolio companies were at a discount to those of comparable public companies. However, by December 2022 there was an average premium across the portfolio, for example because companies were demonstrating a much higher growth rate than public comparables. These premiums were supported by third-party investments that were made into some companies during the year. Nonetheless, the average revenue multiple reduced from 9.8 last year to 7.1. Further details are given in note 11 to the accounts on pages 93 to 94. Blackfinch has continued to invest in the Ventures team that manages the Company’s investments. A new senior manager joined the team at the start of 2022 and another is set to join in 2023, while two analysts were hired in the summer. We have also significantly built up our network of Venture Partners, the industry leaders and business experts who support the investment team and sit on the boards of portfolio companies. At the end of the year, a total of 75 Venture Partners were available, with 14 of them appointed to company boards. As we head into 2023, we will watch the wider economic situation very closely, and especially the impact it may have on the Company’s portfolio. However, there is currently no shortage of high-growth technology-enabled companies in our pipeline, and those that are doing well in the current climate have particularly high potential in the longer-term. I look forward to being able to report on our next investments in the half yearly review. Richard Cook Founder and CEO, Blackfinch Investments Limited 24 April 2023 Investment Manager’s Review Environmental, Social and Governance Policy (“ESG”) Blackfinch Spring VCT Annual Report and Financial Statements 10 The Blackfinch Ventures team believes every one of our portfolio companies should make at least a small net positive contribution to the world, and that doing so in a responsible, sustainable manner not only benefits society and the planet but also reduces long-term investment risk. Public sentiment is increasingly concerned with social practices, with the environment in general, and with climate change in particular. Companies that ignore such issues face an ever-greater risk of losing both customers and talented employees. Good governance underpins management of these risks alongside more conventional business ones, maximising the prospects of long- term sustainable success for individual companies and the investments made in them. To this end Blackfinch Ventures applies a formal ESG Policy to the investments they make on behalf of the Company. Environmental considerations include not just climate change but also reducing pollution and waste, and the sustainability of raw materials. The Social element means actively working towards a healthier and higher quality of life for all stakeholders, including employees and customers; it includes human rights, diversity, data privacy, and fair working practices. Governance is concerned not just with management structures and risk analysis, but with a culture of transparency, honesty, and integrity. We assess these aspects both from formal due diligence questions and from conversations with founders, employees, and customers. Investing in growing, technology-enabled businesses that address real-world needs naturally leads us to support those that are set to change the way we live and work for the better. However, we do not take this for granted and assess each company in several respects: its central purpose, what it really does in 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 11 pursuit of that purpose, the manner of conducting its business, and importantly the attitude of its founders. Few early-stage companies have formal ESG policies of their own, but they must recognise the importance of the principles involved and place them above short-term business gain. Whilst all portfolio companies aim to deliver an economic benefit – creating jobs and growing the economy – some additionally have an explicit environmental or social purpose. Transreport democratises access to public transport for people with limited mobility by making it easy for them to book assistance throughout their journeys; and Cultureshift is similarly finding very strong demand for its platform to help large organisations tackle workplace bullying and harassment. Other companies provide such benefits indirectly. For example, Brooklyn Vendor Assurance includes the capability in its platform to help large companies manage their suppliers’ ESG performance and progress. 24 April 2023 Investment Manager’s Review Investment Portfolio Blackfinch Spring VCT Annual Report and Financial Statements 12 Investment Brooklyn Supply Chain Solutions Ltd Client Share Ltd Cultureshift Communications Ltd Currensea Ltd Cyclr Systems Ltd Edozo Ltd Illuma Technology Ltd Kokoon Technology Ltd Measure Protocol Ltd Movebubble Limited Odore Ltd Placed Recruitment Ltd Recruitment Smart Technologies Ltd Spotless Water Ltd Staffcircle Ltd Startpulsing Ltd Tangle Software Inc. Teamed Ltd Tended Ltd Transreport Ltd Watchmycompetitor.com Ltd Total fixed asset investments Net current assets Net assets Cost £‘000 900 700 500 1,075 1,300 200 1,130 500 400 - 430 600 780 459 1,000 1,400 350 1,280 700 770 700 15,174 2,483 17,657 Valuation £‘000 900 758 500 1,075 1,483 200 1,835 500 412 - 430 600 780 496 1,000 1,485 350 1,489 706 1,020 765 16,784 2,483 19,267 % of total assets value 4.7 3.9 2.6 5.6 7.7 1.0 9.5 2.6 2.1 - 2.2 3.1 4.0 2.6 5.2 7.7 1.8 7.7 3.7 5.3 4.0 87.0 13.0 100.0 Cost £‘000 500 400 500 - 500 200 700 200 - 550 430 - - 500 - 459 - - 200 500 700 6,339 4,798 11,137 Valuation £‘000 528 462 624 - 696 228 737 200 - - 430 - - 684 - 706 - - 200 647 820 6,962 4,798 11,760 % of total assets value 4.5 3.9 5.3 - 5.9 1.9 6.3 1.7 - - 3.7 - - 6.0 - 5.8 - - 1.7 5.5 7.0 59.2 40.8 100.0 As at 31 December 2022 As at 31 December 2021 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 13 A total of 17 investments were made in the year, up from 14 during 2021. Seven of these investments were in new companies, of which one originated from the Blackfinch EIS Portfolios while six were new co-investments with the EIS Portfolios. Nine others were follow-on investments into existing VCT portfolio companies, and one was a second tranche investment into new portfolio company Currensea that was agreed with the original investment. Four of the investments were made in December, and they are all held at cost. Most other investments are valued on a financial multiple; a full breakdown of valuation method is given on page 93. Overall, eight investments decreased in value in the year, while five increased. However, the increases outweighed the decreases resulting in an aggregate unrealised gain of £0.44m. Movebubble Limited was liquidated in 2021, and loss of £549,997 being full cost of investment was realised in 2021. Therefore, there is no cost disclosed in the current year. 24 April 2023 Trading as Brooklyn Vendor Assurance, the company has created a platform that allows the world’s largest businesses to manage all aspects of their supplier contracts. The solution promotes governance throughout an organisation in areas including risks, performance, ESG, and compliance. Brooklyn’s customers include large enterprises such as Danske Bank and Sainsburys, the product being unique in catering for the very complex needs of the world’s largest organisations who spend millions on compliance and governance each year. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 31/12/2021 Net assets 31/12/2020 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date Supply Chain Tech Scale-up Equity £1.24m £(395k) n/a * £900k £900k Revenue Multiple 9.6% March 2021 Blackfinch Spring VCT Annual Report and Financial Statements 14 Investment Manager’s Review Investment Portfolio - Top 10 Holdings 24 April 2023 Currensea is the UK’s first travel-focused direct debit card which connects directly with a consumer’s traditional high street current account. The product allows customers to spend money abroad at the lowest exchange fees, while removing the need to top up, or set up a new bank account. The company also operates corporate and affinity partnerships, where participating organisations and charities can provide free branded cards to their members for mutual benefits. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 30/06/2022 Net assets 30/06/2021 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date Financial Tech Scale-up Equity £651k £1.14m n/a * £1.07m £1.07m Price of recent investment 5.8% August 2022 Blackfinch Spring VCT Annual Report and Financial Statements 15 Investment Manager’s Review Investment Portfolio 24 April 2023 Cyclr has a plug-and-play solution that helps software companies connect their product to data from third-party platforms. The solution avoids having to develop these integrations from scratch, enabling clients to satisfy requests for new integrations far faster and at a fraction of the cost of developing them internally. Cyclr’s elegant solution to this problem is applicable globally, connects to over 300 of the world’s most popular platforms, and its graphical, no-code approach sets it apart from the competition. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 30/11/2021 Net assets 30/11/2020 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date Software Tech Scale-up Equity £1.11m £(136k) n/a * £1.30m £1.48m Revenue Multiple 8.7% March 2021 Blackfinch Spring VCT Annual Report and Financial Statements 16 Investment Manager’s Review Investment Portfolio 24 April 2023 Illuma is a digital advertising company that offers advanced technology designed to select the best websites on which to deploy adverts to generate the highest response rates. Its artificial intelligence learns in real-time, determining the optimum context in which to place any given advert. It does so ethically without the use of cookies or users’ personal data, unlike many competing technologies which it regularly outperforms in benchmark tests. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 31/12/2021 Net assets 31/12/2020 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date Advertising Tech Scale-up Equity £1.76m £356k n/a * £1.13m £1.84m Price of investment 10.7% August 2021 Blackfinch Spring VCT Annual Report and Financial Statements 17 Investment Manager’s Review Investment Portfolio 24 April 2023 Recruitment Smart is a comprehensive end-to-end recruitment platform, powered by powerful proprietary artificial intelligence (AI) technology, that helps enterprises optimise their entire hiring process. Companies can use the platform to sort, screen and manage candidates easily, making the hiring process capital-efficient, equitable and effective. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 31/03/2022 Net assets 31/03/2021 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date Recruitment Tech Scale-up Equity £510k £350k n/a * £780k £780k Revenue Multiple 10.7% September 2022 Blackfinch Spring VCT Annual Report and Financial Statements 18 Investment Manager’s Review Investment Portfolio 24 April 2023 StaffCircle is a company with impressively consistent growth that has developed a platform for managing and engaging employees remotely. Its cloud-based software allows firms to connect digitally with workers, drive performance and maintain culture. It is led by a committed founder who has an impressive track record founding and exiting three previous start-ups. The company’s platform has clearly differentiated market positioning and is steadily accumulating more and more customers. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 31/03/2022 Net assets 31/03/2021 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date HR Tech Scale-up Equity £2.08m £961k n/a * £1.00m £1.00m Revenue Multiple 7.5% April 2022 Blackfinch Spring VCT Annual Report and Financial Statements 19 Investment Manager’s Review Investment Portfolio 24 April 2023 Startpulsing Ltd, trading as OnePulse, allows global brands to gain feedback on ideas in real time from a community of thousands. With responses coming in minutes, it helps companies carefully tailor their products and campaigns to ensure that customers are happy and engaged. It also allows consumers to directly impact the decision making of companies they use every day whilst earning money and staying on top of product releases. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 31/07/2022 Net assets 31/07/2021 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date Marketing Tech Scale-up Equity £399k £618k n/a * £1.40m £1.48m Revenue Multiple and Price of Recent Investment 11.3% March 2021 Blackfinch Spring VCT Annual Report and Financial Statements 20 Investment Manager’s Review Investment Portfolio 24 April 2023 Teamed simplifies the process for companies hiring and managing employees internationally, without the need to set up entities abroad. Its Employee-as-a- Service solution allows employers to seamlessly manage the entire hiring and employee management process, from employment and compliance, to payroll, payments and localised benefits, all in one place. It saves employers the stress, time, and cost of doing it all themselves. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 30/11/2021 Net assets 30/11/2020 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date HR Tech Scale-up Equity £73k £103k n/a * £1.28m £1.49m Revenue Multiple 15.1% September 2022 Blackfinch Spring VCT Annual Report and Financial Statements 21 Investment Manager’s Review Investment Portfolio 24 April 2023 Transreport’s innovative technology platform makes it easy for people with reduced mobility to book and receive the special assistance they need for a journey. As well as this Passenger Assist app, the firm has developed a suite of products targeting the rail industry’s digital transformation, and it has a strong vision to address journeys spanning rail, air and road. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 30/12/2021 Net assets 30/12/2020 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date Transport Tech Scale-up Equity £2.74m £1.36m n/a * £770k £1.02m Revenue Multiple 7.2% December 2020 Blackfinch Spring VCT Annual Report and Financial Statements 22 Investment Manager’s Review Investment Portfolio 24 April 2023 WatchMyCompetitor is a business intelligence software-as-a-service company that tells customers what their competitors are doing, from price adjustments to product launches and leadership changes. Its dashboard summarises current insights, whilst daily feeds – automatically generated but curated by a human analyst – keep customers on top of any rapidly changing market. * Revenue and profit are not publicly available because only abbreviated accounts are filed at Companies House. Company sector Stage Asset class Net assets 31/12/2021 Net assets 31/12/2020 Revenue and profit Cost of investment Value of investment Basis of valuation Equity held by Blackfinch Spring VCT Initial investment date Market Intelligence Tech Scale-up Equity £2.00m £37k n/a * £700k £765k Revenue Multiple 7.7% August 2021 Blackfinch Spring VCT Annual Report and Financial Statements 23 Investment Manager’s Review Investment Portfolio 24 April 2023 By the end of the reporting period, cash represented 14% of the Company’s £19.3m net assets, while investments in qualifying portfolio companies constituted 87%. A full break-down of these investments is shown in the chart below, together with a comparison from the previous year. Investment Manager’s Review Portfolio Statistics Blackfinch Spring VCT Annual Report and Financial Statements 24 24 April 2023 Brooklyn, 5.4% Clientshare, 4.5% Cultureshift, 3.0% Currensea, 6.4% Cyclr, 8.8% Edozo, 1.2% Illuma, 10.9% Kokoon, 3.0% Measure, 2.5% Odore, 2.6% Startpulsing, 8.8% Placed, 3.6% Recruitment Smart, 4.6% Spotless Water, 3.0% Staffcircle, 6.0% Tangle, 2.1% Teamed, 8.9% Tended, 4.2% Transreport, 6.1% WatchMyCompetitor, 4.6% 2022 Portfolio split by valuation (excl. cash) Spotless Water, 10.1% Transreport, 9.3% Brooklyn, 7.6% Clientshare, 6.6% Cyclr, 10.0% Startpulsing, 9.8% Edozo, 3.3% Kokoon, 2.9% CultureShift, 9.0% Illuma, 10.6% WatchMyCompetitor, 11.8% Tended, 2.9% Odore, 6.2% 2021 Portfolio split by valuation (excl. cash) The twenty investments to date are in distinct industry sectors, illustrating the diversification that is being built into the portfolio. It is worth noting that the two largest sectors – HR Tech and Marketing Tech – serve business customers across many sectors and are not tied to any particular industry. We nonetheless plan to further extend the diversification with the next investments. Blackfinch Spring VCT Annual Report and Financial Statements 25 24 April 2023 Water Tech, 3.0% Transport Tech, 6.1% Supply Chain Tech, 5.4% Service Governance Tech, 4.5% Software Tech, 10.9% Marketing Tech, 13.9% Property Tech, 1.2% Sleep Tech, 3.0% HR Tech, 17.8% Advertising Tech, 10.9% Market Intelligence Tech, 4.6% Safety Tech, 4.2% Financial Tech, 6.4% Recruitment Tech, 8.2% 2022 Portfolio split by industry Water Tech, 10.1% Transport Tech, 9.3% Supply Chain Tech, 7.6% Service Governance Tech, 6.6% Software Tech, 10.0% Marketing Tech, 16.0% Property Tech, 3.3% Sleep Tech, 2.9% HR Tech, 9.0% Advertising Tech, 10.6% Market Intelligence Tech, 11.8% Safety Tech, 2.9% 2021 Portfolio split by industry The portfolio has a B2B (business-to-business) focus, but Kokoon and Currensea are predominantly B2C (business-to-consumer), while some investments target both B2B and B2C. The Company holds a minority stake in each of its portfolio companies, each currently 1.8–15%. This range is larger than last year, representing the wider spread of investment amounts into individual companies. Whilst the portfolio continues to be built out and diversified it is likely that forthcoming investments will be of a similar size and equity holding, although the range is likely to continue to increase over time. Blackfinch Spring VCT Annual Report and Financial Statements 26 24 April 2023 B2B, 13.2m, 79% B2C, 1.6m, 9% Both, 2.0m, 12% 2022 Portfolio split by sector B2B, 5.4m, 77% B2C, 0.2m, 3% Both, 1.4m, 20% 2021 Portfolio split by sector Investment Manager’s Review Pipeline Overview An exciting company with a comprehensive, adaptive e-Learning platform to help students achieve better grades. Focused on A-level students, it creates and adapts content according to students’ progress using its impressive Artificial Intelligence. Having already reached profitability, it is seeking expansion into new subjects and to build on the 200 schools it already supports. Company sector Stage Asset class EdTech Scale-up Equity Company 1 Blackfinch Spring VCT Annual Report and Financial Statements 27 The Investment Manager continues to benefit from a solid pipeline of opportunities. Some of the new companies being considered for investment are described below, though it is likely that only some will complete as they move further through the evaluation process. 24 April 2023 Investment Manager’s Review Pipeline Overview Company sector Stage Asset class Customer Experience Tech Scale-up Equity Blackfinch Spring VCT Annual Report and Financial Statements 28 An impressive software company supplying online retailers with solutions to improve the customer experience both before and after a purchase. Its simple ‘plug and play’ interface integrates with common sales solutions, providing an end-to-end system to track orders and communicate with customers. Company 2 24 April 2023 Investment Manager’s Review Pipeline Overview Company sector Stage Asset class Travel Tech Scale-up Equity Blackfinch Spring VCT Annual Report and Financial Statements 29 This dynamic company provides businesses with shared transport for employees’ commutes and other journeys – reducing cost, congestion and carbon footprint. It partners with local taxi and minibus companies, and orchestrates them with its own slick technology that makes it easy to book and manage travel. The company is riding on exponential growth and is led by an experienced founding team. Company 3 24 April 2023 Investment Manager’s Review Pipeline Overview Company sector Stage Asset class Telecom Tech Scale-up Equity Blackfinch Spring VCT Annual Report and Financial Statements 30 A high-growth business with an innovative solution for mobile phone companies, providing them with virtual SIM card technology. It improves their customers’ experience whilst giving more detailed insights on their behaviour. The company operates in a rapidly growing market in which it has already established a profitable niche, having tripled its revenue in 2022. Company 4 24 April 2023 Investment Manager’s Review Pipeline Overview Company sector Stage Asset class Legal Tech Scale-up Equity Blackfinch Spring VCT Annual Report and Financial Statements 31 24 April 2023 This exciting legal tech company offers a centralised transaction management platform for lawyers, increasing efficiency and improving communication with clients. Having already gained significant traction with leading law-firms handling Mergers and Acquisitions, it is planning to support additional types of transaction such as property deals. Company 5 Investment Manager’s Review Pipeline Overview Company sector Stage Asset class Sales Tech Scale-up Equity Blackfinch Spring VCT Annual Report and Financial Statements 32 24 April 2023 A fast-growing company that harnesses Artificial Intelligence to help train salespeople. By analysing and benchmarking a team’s behaviour through computer vision, the platform automatically devises tailored training and sales simulations for each individual. Further advances in the sophisticated technology are being developed by the company’s impressive team of PhDs. Company 6 Strategic Report Investment Policy, Strategy and Objectives Blackfinch Spring VCT Annual Report and Financial Statements 33 Investment Policy The Company will focus its investment in unquoted companies with some or all of the following characteristics: • Growth-stage and technology-enabled with a focus on innovation, • The capability to grow quickly through disrupting their markets, • Strong performance against previous investment round milestones. The Company’s portfolio companies will be: • requiring investment of at least £0.2 million, • entering large growing markets and have the potential for high return multiples, • generally able to show evidence of product-market-fit. Investment Strategy The Company invests in innovative growth-stage technology-enabled companies which are on their scale-up-journey and have the potential for high growth alongside reasonable exit timescales and that are underpinned by clear ESG values. To be considered for investment, companies must be capable of growth through disrupting large growing markets, typically of at least £1bn, and be capable of achieving significant exit multiples. Highly regulated industries, for example medical technology, are considered only in exceptional cases due to the timescales involved in bringing products to market. A key premise of the strategy is identifying companies that have already delivered convincingly on the milestones associated with any previous investment rounds. Companies will need to show evidence of product-market- fit through traction, often in the form of revenue, which is a strong indicator they are past the inflection point of their growth curve. 24 April 2023 They will also need to demonstrate an ability to control the acquisition of new customers, typically verifying the success of campaigns through carefully monitored growth metrics. Companies showing these characteristics have a higher chance of efficient, quantified growth, which is a key ingredient for future success. When assessing investment opportunities, strong emphasis is placed on the founding team who must be highly motivated, driven, and have a track record of making excellent decisions under pressure. This team must complement each other in their skills, which should, in aggregate, cover the core operating areas of the company. Their interests must be strongly aligned to increasing the valuation of the company and their own shareholding or options, rather than only short term personal remuneration. The team’s work ethic is constantly assessed as is their responsiveness, as a measure of how prepared they are for the challenges of entering the next stage of their company’s growth. Every company that is selected for potential investment will have to pass through a comprehensive due diligence exercise which aims to test its innovations, financials and VCT eligibility. A relevant technical expert will spend a day with the company to assess the proposition and status, from high level architecture to low level code and designs. Analysts model the company’s performance and growth, and a VCT tax specialist will typically be instructed to determine whether the investment is expected to be VCT qualifying. Diversification is intended to be achieved across both sector and stage, with the Company planning to invest in a broad range of high-calibre technology enabled opportunities across many sectors. Although Series A is preferred, the Company diversifies stage risk by balancing earlier opportunities with those slightly further along their traction curve. This approach gives the potential for significant returns whilst mitigating the effect of companies that underperform or fail. The Company will typically invest in opportunities that are bringing disruptive innovations to large growing markets and are capable of significant exit multiples. The Investment Manager’s existing Blackfinch Ventures EIS Portfolio service creates a strong opportunity for follow-on co-investment. If approved by the Board and compliant with VCT Rules, these opportunities should benefit from a higher chance of success due to a deep understanding of the proposition and growth data from previous years as a portfolio company. Blackfinch Spring VCT Annual Report and Financial Statements 34 24 April 2023 Co-investments of this nature may be made at different times and on different terms to those of Blackfinch Ventures EIS Portfolios. Where co-investments are made simultaneously, an allocation policy determines the proportion of the overall investment made by each of the EIS Portfolios and the Company, with exceptions requiring approval from the Investment Committee and in some cases the Investment Manager’s Conflicts Committee. Approval of this Conflicts Committee is also required in handling any subsequent conflict between the funds for the investment. Where possible, the Investment Manager will look to lead on the investment round to ensure that timescales and due diligence are within its control. This approach reduces technology, company and compliance risk and, for founders, the speed and confidence of execution is attractive, resulting in a pick of the better opportunities. By the nature of focussing on early-stage investments, the Company will often co-invest with other investment firms and will look to secure strong working relationships with those firms during and after the deal making process. The Investment Manager will not appoint its own manager or partner as the NED on the board of its portfolio companies. Instead, where appropriate it aims to appoint the NED from its network of Venture Partners who are experienced founders, industry leaders and experts bought together for this purpose. These Venture Partners add meaningful value through their experience and network, and founders are increasingly citing this approach as a key differentiator. The Investment Manager’s portfolio team works with the Venture Partners, and also collects monthly financial and KPI data from the companies. Qualifying Investments Qualifying Investments comprise investments in companies which are carrying out a qualifying trade (as defined under the relevant VCT legislation), and have a permanent establishment in the UK, although some may trade overseas. The Qualifying Companies in which investments are made must have no more than £15 million of gross assets immediately prior to the investment (or £16 million immediately after the investment), fewer than 250 employees (or fewer than 500 employees in the case of a Knowledge Intensive Company) and generally cannot have been trading for more than seven years (or ten years in the case of a Knowledge Intensive Company) at the time of the Company’s investment. Blackfinch Spring VCT Annual Report and Financial Statements 35 24 April 2023 Several other conditions must be met for an investment to be classed as a VCT Qualifying Investment. The Company is acquiring a portfolio of Qualifying Investments complying with VCT legislation. At least 30% of the funds raised for shares that were allotted in the year will be invested in Qualifying Investments within 12 months of the end of the year, and at least 80% of these funds will be invested in Qualifying Investments by the start of 2025. Non-Qualifying Investments No non-qualifying investments were made during the year. Funds not invested in Qualifying Investments were held in cash. Subject to the rules applicable to VCTs, funds not employed in Qualifying Investments may nonetheless be invested in a limited range of investments for the purposes of liquidity management, specifically in listed shares, shares or units in alternative investment funds and UCITS (each of which must be redeemable on seven days’ notice by the investor) and short-term cash deposits. These may generate limited additional returns for investors and mitigate against a rise in value of competing companies. Such investments are subject to market fluctuations. Borrowing Policy The Company has no present intention of utilising gearing as a strategy for improving or enhancing returns. Under the Company’s Articles of Association, the borrowings of the Company will not, without the previous sanction of the Company in general meeting, exceed 25% of the aggregate total amount received from time to time on the subscription of shares in the Company. Share Buyback Policy The shares are traded on the London Stock Exchange’s main market for listed securities. Although it is likely that there will be an illiquid market for such shares and, in such circumstances, shareholders may find it difficult to sell their shares in the market, the Company intends to pursue an active buy Blackfinch Spring VCT Annual Report and Financial Statements 36 24 April 2023 back policy to improve the liquidity in the Shares where the Company may repurchase shares which shareholders wish to sell at a discount of 5% to the latest published Net Asset Value per Share, subject to applicable regulations, market conditions at the time and the Company having both the necessary funds and distributable cash resources available for the purpose. The making and timing of any share buybacks will remain at the absolute discretion of the Board. The Directors expect that there will be limited demand for share buybacks from shareholders within the first five years because the only sellers are likely to be deceased shareholders’ estates and those Shareholders whose circumstances have changed (to such extent that they are willing to repay the 30% income tax relief in order to gain access to the net proceeds of the sale). Dividend policy The Company intends but cannot guarantee to pay: (1) a regular annual dividend commencing not earlier than in the financial year beginning 1 January 2024 equivalent to 5% of the Company’s Net Asset Value and (2) special dividends, where appropriate, from the proceeds of successful exits of portfolio companies that are not reinvested. The Company’s ability to pay dividends is subject to the existence of realised profits, legislative requirements and the available cash reserves of the Company. No forecast or projection is implied or inferred. Blackfinch Spring VCT Annual Report and Financial Statements 37 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 38 Key Performance Indicators (“KPIs”) and Alternative Performance Measures (“APMs”) The objective of the Company is to provide long-term returns where shares are invested for at least five years, whilst enabling shareholders to benefit from available VCT tax reliefs. The KPIs and APMs monitored by the Board towards that objective are: a. Total Return relative to amount subscribed. b. The increase in the value of investments. c. Operational expenses as a proportion of shareholders’ funds. d. Ongoing charges ratio, as defined below. Total Return is the NAV plus dividends paid. With no dividends having yet been paid it is equivalent to the NAV. It moved in line with portfolio investment valuations, increasing to a maximum of 93.19p at the end of the second quarter, but dropping back to 90.85p by the end of the year, as valuations were pulled down by the steep declines in comparable public technology companies. Total Return is expected to be the best overall measure of long-term performance, particularly as it reflects dividend payments as well as current NAV. The increase in value of investments will reflect performance within a year, though making it more subject to external market factors. The net increase in the year was £437,759, all from unrealised gains, compared to £622,250 in the previous period. Operational expenses in the period were 3.27% of shareholder funds, down from 3.5% in 2021, which had been limited by the Investment Manager’s fee cap. Operational expenses are central running costs of the Company, including Directors’ fees, annual investment advisory fees, administration fees, but excluding transactions related fees and expenses, any incentive fee, any regulatory and compliance costs, and any trail commissions payable by or on behalf of the Company. The ongoing charges ratio is the annualised operating costs divided by the average NAV over the period. It includes all operating costs expected to be regularly incurred, be they of a capital or revenue nature, and that are payable by the Company, but excludes the costs of acquisition or disposal of investments, financing charges, and gains or losses on investments. The Company’s share price over the period is shown in the graph on page 65. The overall future prospects and outlook for the VCT are discussed in the Chairman’s Statement. The Board also closely monitors the measures defined by HMRC for its VCT tests, such as those discussed in Portfolio Statistics on pages 24 to 26, to ensure that the Company will continue to qualify as a VCT. Ongoing Charges Figure Year to 31 December 2022 (%) 5.07 Year to 31 December 2021 (%) 6.94 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 39 Investment Management Agreement An agreement (the “Investment Management Agreement”) dated 10 December 2020 and made between the Company and Blackfinch whereby Blackfinch will, with effect from the commencement date, be appointed as the Company’s Investment Manager to provide discretionary investment management services to the Company in respect of its portfolio of Qualifying Investments and Non-Qualifying Investments. Blackfinch will receive an annual fee equal to 2.5% of the Net Asset Value (plus VAT if applicable) payable quarterly in arrears, the first payment to be made in respect of the period from the Effective Date until the termination of the Investment Advisory Agreement. Blackfinch is entitled to reimbursement of expenses incurred in performing its duties under the agreement, and will also be entitled to receive and retain transaction and introductory fees, directors’ fees, monitoring fees, consultancy fees, corporate finance fees, syndication fees, exit fees and commissions in relation to portfolio companies. The appointment of the Investment Manager in relation to the investment management services commenced on the Effective Date and will continue unless and until terminated by either party giving to the other not less than 12 months’ notice in writing, such notice not to take effect before the end of the fifth anniversary following the last allotment of Shares pursuant to an offer for subscription made by the Company. The Investment Management Agreement is subject to earlier termination by either party in certain circumstances. The Investment Manager has agreed to indemnify the Company by such amount as is equal to the excess by which the Annual Running Expenses of the Company exceeds 3.5% of the Net Asset Value, calculated on an annual basis The provision by the Investment Manager of discretionary investment management services is subject to the overall control, direction and supervision of the Directors. Performance Incentive As is customary in the venture capital industry, Blackfinch Investments is incentivised with a performance related incentive payable in relation to each accounting period, subject to the Performance Value per Share being at least 130p at the end of the relevant accounting period. 24 April 2023 Key Contracts Blackfinch Spring VCT Annual Report and Financial Statements 40 24 April 2023 The amount of the performance incentive fee is equal to 20% of the amount by which the Performance Value per Share at the end of an accounting period exceeds the High Water Mark (being the higher of 130p and the highest Performance Value per Share at the end of any previous accounting period), and multiplied by the number of Shares in issue at the end of the relevant period. The Directors believe that the performance incentive structure provides a strong incentive for the Investment Manager to make distributions as high and as soon as possible. The Performance Value per Share is defined as the total of: i. the Net Asset Value, ii. all performance incentive fees previously paid or accrued by the VCT to Blackfinch as investment adviser for all previous accounting periods, and iii. the cumulative amount of dividends paid by the VCT before the relevant accounting reference date. This includes the amount of those dividends in respect of which the exdividend date has passed as at that date, divided by the number of shares in issue in the VCT on the relevant date. At the end of the year, the Performance Value per Share is less than the initial High Water Mark of 130p and so no performance incentive is payable. Administration Agreement Under the terms of the administration agreement dated 11 November 2019, Blackfinch agreed to provide certain administration services, company secretarial services and fund accounting services to the Company. In exchange for these services, the Company has agreed to pay to Blackfinch an annual fee of either 0.3% of Net Asset Value or £60,000 (plus VAT if applicable), whichever is higher. This agreement will continue until either party chooses to terminate after giving the other part no less than 12 months’ notice of termination in writing. Termination should not take effect before the end of the fifth anniversary following the last offer for subscription made by the Company, but the agreement is subject to early termination in certain circumstances, such as in the event of certain breaches or the insolvency of either party. Key Contracts Blackfinch Spring VCT Annual Report and Financial Statements 41 24 April 2023 Receiving Agent Agreement Under the terms of the receiving agent agreement dated 1 September 2022, Blackfinch agreed to provide receiving agent services to the Company. In exchange for these services, the Company has agreed to pay to Blackfinch an annual fee of £13,000 (plus VAT if applicable). This agreement will continue until either party chooses to terminate after giving the other part no less than 30 days’ notice of termination in writing. The agreement is subject to early termination in certain circumstances, such as in the event of certain breaches or the insolvency of either party. Investment management services and Administration Blackfinch is paid an annual fee of 2.5% of Net Asset Value (plus VAT if applicable) for the investment management services it provides to the Company. The fee is payable quarterly in arrears. The Company is responsible for its normal third party costs including (without limitation) listing fees, audit and taxation services, legal fees, sponsor fees, registrars’ fees, receiving agent fees, Directors’ fees and other incidental costs. Blackfinch has agreed to cap the total Annual Running Expenses plus any Execution-Only Intermediary Ongoing Fee payments to a maximum of 3.5% of Net Assets and any excess above this will be borne by Blackfinch. A maximum of 75% of the Company’s management expenses will be capable of being charged against capital reserves with the balance charged against revenues. Custody Agreement A Custody Agreement dated 11 November 2019 between the Company and Blackfinch under which Blackfinch agrees to hold securities in certificated form on behalf of the Company as custodian for an annual fee of £5,000 plus VAT, terminable by either party giving to the other not less than 12 months’ notice in writing, such notice not to take effect before the end of the fifth anniversary following the last allotment of shares pursuant to an offer for subscription made by the Company, but subject to early termination in certain circumstances. As required by the Listing Rules, the Directors can confirm that, in their opinion it is in the best interests of the shareholders as a whole to continue the appointment of Blackfinch Investments Limited as the Investment Manager and Administrator. In order to come to a conclusion, the Directors have taken into account the length of notice period, performance to date and the standard of service received. Key Contracts Blackfinch Spring VCT Annual Report and Financial Statements 42 24 April 2023 The Board and the Audit Committee have an ongoing process for identifying, evaluating and monitoring the principal and emerging risks facing the Company. The Board has listed below details of these including the measures taken in order to mitigate these risks as far as practicable. VCT status qualifying risk The Company must comply with section 274 of the Income Tax Act 2007. This act enables investors to take advantage of tax relief on their investment and future returns when investing in a VCT. If the Company breaches any of the rules in section 274, this could result in the loss of VCT status. Breaches could also result in investors becoming liable to pay income tax on dividends received from the Company and in some circumstances, investors may have to repay the initial income tax relief on their investment. The most prevalent risks to VCT status at this time are if the VCT fails to invest 80% of its funds into Qualifying Investments by the second anniversary of the end of the accounting period in which the Company issued the shares, or if any investee company loses its qualifying status. Working closely with the Board, Blackfinch as the Investment Manager keeps track of the VCT’s qualifying status to ensure it remains qualifying. Regular reports are provided to and discussed with the Board, the Board reviews the status of the VCT tests on a quarterly basis. Philip Hare & Associates has also been appointed as Tax Adviser to provide monitoring reports to the Board twice yearly. Investment, performance and valuation risk The Company will mainly invest in growth-stage technology-enabled VCT qualifying companies. These companies by their nature entail a higher level of risk, are more volatile and will be less liquid than holding larger quoted companies. There may also be constraints on the realisation of investments to maintain the VCT tax status of the Company. Principal and Emerging Risks Blackfinch Spring VCT Annual Report and Financial Statements 43 24 April 2023 The Board and Investment Manager aim to minimise the investment risk attached to the investment portfolio as a whole by ensuring that a robust and structured selection, monitoring and realisation process is in place. Diversification is intended to be achieved across both sector and stage, the latter by balancing earlier opportunities with those slightly further along their traction curve. The investment portfolio is reviewed by the Board and Investment Manager together on a regular basis. The Company’s investment valuation methodology is reliant on the portfolio companies issuing accurate and complete information. In particular, the Directors may not be aware of or take into account certain events or circumstances which may happen after the information issued by such companies is reported. The unquoted investments held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines as updated in 2018. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. The valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. Regulatory and compliance risk The Company is an alternative investment fund for the purposes of the Alternative Investment Fund Managers Directive (“AIFMD”) and has appointed Blackfinch Investments Limited as its Alternative Invest Fund Manager (AIFM). It must abide by the Prospectus and Transparency Directives. The Company is also required to comply with the Companies Act 2006, the rules of the UK Listing Authority, and United Kingdom Accounting Standards. If the Company breaches any of these it could lead to number of detrimental outcomes including but not limited to suspension of the Company’s Stock Exchange listing, reputational damage, or financial penalties. The day to day running of the Company is overseen by Blackfinch. The Board is updated at Board Meetings at least quarterly on all regulatory and compliance matters and take specific legal action when required. The Board and the Investment Manager employ third parties to ensure that the Company complies with all its regulatory obligations. Principal and Emerging Risks Blackfinch Spring VCT Annual Report and Financial Statements 44 24 April 2023 These parties include Howard Kennedy as Sponsor and Legal Adviser, City Partnership as Company Secretary and Philip Hare & Associates as Tax Adviser. The Investment Manager also employs a team of compliance specialists who support the Board in ensuring that the Company is compliant. Operational and Internal control risk There is a risk of failure of the systems and controls of any of the Company’s advisers, leading to an inability to service shareholder needs adequately, provide accurate reporting and accounting, and to ensure the Company is complying with all VCT legislation rules. To mitigate these risks, the Company relies on a number of third parties, in particular the Investment Manager, to provide it with necessary services such as Sponsor, Company Secretary, Receiving Agent, Registrar, Solicitors and Tax Advisers. There is a risk of failure of the systems and controls of any of the Company’s advisers, leading to an inability to service shareholder needs adequately, provide accurate reporting and accounting and to ensure the Company is complying with all VCT legislation rules. The Board regularly reviews the system of internal controls, both financial and non-financial operated by the Company and key third-party advisers. These include controls designed to ensure that the VCT’s assets are safeguarded, that third parties have adequate controls in place to prevent data protection breaches and cyber attacks, and that proper accounting records are maintained. In addition, the Board regularly reviews the performance of its service providers to ensure that they continue to have the necessary expertise and resources to provide the expected level of service. Economic, political and other external factors The valuation of investment companies in the portfolio may be affected by economic, political and other external factors such as a movement in interest rates, labour shortages, high inflation, very high energy costs, general fears of a recession or Russia’s invasion of Ukraine. The Company aims to invest in a diversified portfolio across a range of stages and sectors and also maintains cash to ensure it can provide follow-on investments when companies require it. The Board and the Investment Manager are continually assessing the implications of the aforementioned economic, political and external factors which have an impact on the UK and Global economies. Principal and Emerging Risks Blackfinch Spring VCT Annual Report and Financial Statements 45 24 April 2023 This ensures that exposure to the risks for each portfolio company are addressed and where needed action is taken to minimise the risk. The economic and political environment as well as external factors are kept under constant review and the investment strategy is adapted as far as possible to mitigate emerging risks. Governance risk The Directors of the Company are aware that an ineffective Board could have a negative impact on the Company. The Board recognises the importance of effective leadership and board composition and this is ensured by completing an annual evaluation process, with action taken if required. City Partnership is appointed as Company Secretary to monitor corporate governance best practice. Cash flow risk The Investment Manager closely and continually monitors the availability of cash resources. Cash flow forecasts and budgets are presented to and reviewed by the Board on a regular basis to ensure that the risk of insufficient cash to meet financial obligations is minimised. Principal and Emerging Risks Section 172 Statement Section 172 of the Companies Act 2006 requires the Directors of the Company to act in a way that they consider, in good faith, will most likely promote the success of the Company for the benefit of the members as a whole. In doing so, the Directors should have regard (amongst other matters) to: • the likely consequences of any decision in the long term; • the interests of the Company’s employees; • the need to foster the Company’s business relationships with suppliers, customers and others; • the impact of the Company’s operations on the community and the environment; • the desirability of the Company maintaining a reputation for high standards of business conduct; and • the need to act fairly as between members of the Company. The Board considers its significant stakeholder groups to be its Shareholders, its third-party advisers and its portfolio companies. The Company takes several steps to understand the views of its key stakeholders and considers these, along with the matters set out above, in Board discussions and decision making. The Company has no employees (other than its Directors) and no customers in a traditional sense and therefore there is nothing to report in relation to these relationships. In line with normal practice for Venture Capital Trusts, the day to day management and administration is delegated to the relevant third parties. The Board regularly engages with the third parties to set, approve and oversee the execution of the agreed business strategy and related policies. Ad hoc meetings and communications are convened where necessary to address specific issues to ensure an appropriate and transparent response is formulated. The Board’s principal concern is the interest of the Company’s Shareholders taken as a whole, the Board engages and communicates with Shareholders by various means. At the Annual General Meeting Shareholders will be given the opportunity to engage with the Board and the Investment Manager and hear from some of the portfolio companies. All Shareholders will be encouraged to vote on the resolutions at the Annual General Meeting. During the year, after carefully considering the volume and quality of investment opportunities being seen by the Investment Manager, the Board issued a prospectus on 2 September 2022 to raise up to £20 million with an over- allotment facility of £10 million. Blackfinch Spring VCT Annual Report and Financial Statements 46 24 April 2023 Given the significance of maintaining the Company’s VCT status to the Company’s objectives of maximising the net asset value return and of delivering attractive tax-free dividends to shareholders, the Board monitors the Company’s compliance with the relevant HMRC Regulations at each of its meetings. The Board also reviews at each meeting the risks to which the Company is exposed and the internal controls designed to reduce the probability of such risks arising and to mitigate the effect if they should occur. The Board works closely with the Investment Manager in reviewing how stakeholder issues are handled, ensuring good governance and responsibility in managing the Company’s affairs. As well as having a Director from the Investment Manager on the Board of the VCT, key stakeholders from the Investment Manager also attend Board meetings. The Investment Manager has therefore been well informed of any decisions the Board has made during the period and as a result has had opportunity to discuss the impact these decisions may make, the Investment Manager provides updates to the Board on the entire portfolio at least quarterly. The Investment Manager works closely with management teams to ensure that they continue to evaluate and react accordingly to the evolving situation. Environmental, Social, Governance, Human Rights and Community Issues The Board seeks to carry out the Company’s affairs in a responsible manner and maintain high standards in respect of environmental, governance and social issues. The Company is required by law to provide details of environmental, employee, human rights, social and community issues. As a VCT the Company does not have any employees and as a result does not maintain specific policies in relation to these matters. The Company does, however, encourage the Investment Manager to consider these issues, where appropriate, with regard to investment decisions. The Board considers that the Company’s investment operations create employment, aid economic growth, generate tax revenues and produce wealth, thus benefiting the community and the economy more generally. When considering portfolio companies, the Investment Manager strives to ensure that each one makes at least a small positive, sustainable contribution to the world. In assessing any potential investment or portfolio companies, the following are considered: 1. The central purpose of the business: this must be worthwhile at least in some small way. An economic benefit is considered worthwhile, as explained above. 2. What the business does and plans to do in pursuit of its purpose. 3. How the business is conducted, especially for governance. 4. The attitude of the directors and especially the founders, and their commitment to ESG. ESG is instrumental to the Investment Manager. It invests in companies that can make a difference in the world. With a strong commitment to ESG and a technology mandate the Investment Manager supports firms that are breaking new ground. These firms are innovating with products that address real-world needs. When making investment decisions the Investment Manager focuses on investing in firms that share their views on ESG. ESG factors are also integrated into the Investment Managers internal processes and how they work with firms long term. A detailed assessment is made of ESG in each company, which is then included in the Investment Committee Paper for approval; it will list any relevant risks and mitigation plans. The Investment Manager engages with the Company’s portfolio companies in relation to their corporate governance practices and in developing their policies on environmental, social and community issues on an ongoing basis. Further details on how the Investment Manager incorporates ESG into its investment processes and assesses the potential investment risks are detailed on pages 10 to 11 and can be found within the Blackfinch Ventures ESG Policy at https://blackfinch.com/esg. Blackfinch Spring VCT Annual Report and Financial Statements 47 24 April 2023 Environment Policy & Greenhouse Gas Emissions Blackfinch Spring VCT Annual Report and Financial Statements 48 As a VCT with no physical assets, property, employees or operations, the Company has no direct environmental responsibilities, nor is it directly responsible for the emission of greenhouse gases under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013. The Company does not fall within the scope of The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 effective as of 1 April 2019 which implements the Government’s policy on Streamlined Energy and Carbon Reporting, replacing the Carbon Reduction Commitment Scheme. The 2018 Regulations require companies that have consumed over 40,000 kilowatt-hours of energy to include energy and carbon information in their Directors’ Report. However, the Company has no direct carbon usage therefore there are no disclosures to make in this respect. Therefore, the Board has no specific environmental policy. The Company does however recognise the need to conduct its business, including investment decisions, in a manner that is responsible to the environment wherever possible. 24 April 2023 VCT Regulations Blackfinch Spring VCT Annual Report and Financial Statements 49 The Company has engaged Philip Hare & Associates LLP to advise it on compliance with VCT requirements, including evaluation of investment opportunities as appropriate and regular review of the portfolio. Although Philip Hare & Associates LLP works closely with the Investment Manager, they report directly to the Board. Compliance with the main VCT regulations as at 31 December 2022 and for the period then ended is summarised as follows: a. The Company’s income in the period has been derived wholly or mainly (70% plus) from shares or securities. b. The Company has not retained more than 15% of its income from shares and securities. c. The Company has not made a prohibited payment to shareholders. d. At least 80% by value of the Company’s investments has been represented throughout the period by shares or securities comprised in qualifying holdings of the Company. e. At least 70% by value of the Company’s qualifying holdings has been represented throughout the period by holdings of eligible shares f. At least 30% of the funds raised are invested in qualifying holdings by the anniversary of the end of the accounting period in which those funds are raised. g. No holding in any company has at any time in the period represented more than 15% by value of the Company’s investments at the time of investment. h. The Company’s ordinary capital has throughout the period been listed on a regulated European market. i. The Company has not made an investment in a company which causes it to receive more than the permitted investment from State Aid sources. j. Since 17 November 2015, the Company has not made an investment in a company which exceeds the maximum permitted age requirement. k. Since 17 November 2015, funds invested by the Company in another company have not been used to make a prohibited acquisition. l. Since 6 April 2016, the Company has not made a prohibited non-qualifying investment. 24 April 2023 Statement on Long-Term Viability In accordance with provision 4.27 of The UK Corporate Governance Code published by the Financial Reporting Council in July 2018 (the “Code”), the Directors consider the Annual Report and accounts to be fair, balanced, and understandable. In line with provision 4.31 of the Code the Directors have assessed the Company’s prospects over the five-year period to 31 December 2027. This period has been considered appropriate for a business of this nature and size, because it is the minimum recommended investment period and the period for which investors are required to hold their shares in order to retain tax relief. The Directors have carried out a robust assessment of the principal and emerging risks faced by the Company, considering its business model, future performance, solvency and liquidity. They deliberated over the Company’s ability to maintain its VCT status with HM Revenue and Customers, and over the valuation of investments. The effects of Brexit, rising inflation and labour shortages have been considered. Given the extent of available resources, the Board particularly assessed the ability of the Company to raise finance, as well as its ability to deploy capital. It reviewed income and expenditure projections, and examined robust stress-tested cash flows to understand the impact of different scenarios. It also assessed the Investment Manager and the processes in place for dealing with risks and identifying emerging threats. A detailed risk register is monitored and reviewed by the Board at every Board meeting. The Board has determined that the Company will be able to continue in operation, maintain compliance with the VCT rules and meet its liabilities as they fall due for a period of at least five years from the accounts approval date. Other Disclosures The Board of the Company is made up of three Directors, two of which are male and one is female. The Company has no employees. On behalf of the Board Peter LR Hewitt, JP, FCSI Non-executive Chairman 24 April 2023 Companies House Number - 12166417 Blackfinch Spring VCT Annual Report and Financial Statements 50 24 April 2023 Directors’ Report The Statement of Corporate Governance on pages 54 to 59 forms part of the Directors’ Report. Principal Activity and Status The Company is registered as a public limited company under the Companies Act 2006 (Registration number 12166417). The address of the registered office is 1350-1360 Montpellier Court, Gloucester Business Park, Brockworth, Gloucester GL3 4AH. The Company is a generalist VCT focused on investments in early stage technology-enabled companies with a focus on research and development and innovation. A review of the Company’s business during the year is contained in the Chairman’s Statement and Investment Manager’s Review. Directors The Directors of the Company during the period under review were Peter Hewitt, Kate Jones, Reuben Wilcock. The Company indemnifies its directors and officers and has purchased insurance to cover its Directors. Dividend The Directors envisage that dividends will commence in the financial year beginning 1 January 2024, equivalent to 5% of the Company’s Net Asset Value per share. The ability to pay the intended dividends may also be constrained by, in particular, the existence of realised profits, regulations and the available cash reserves of the Company. Share Capital As shown in note 15 to the financial statements, the Company has only one class of share, being ordinary shares of 1p each. Buy back and Issue of ordinary shares No shares were bought back by the Company during the period, at the year-end authority remained for the Company to buy back 3,178,963 (2021: 1,893,813) shares. There were 21,207,231 (2021: 12,633,843) ordinary shares in issue at the year end. During the year a total of 8,573,388 (2021: 8,721,908) ordinary shares in the Company were issued as a result of offers for subscription at an average price of 92.19 pence per share raising £7,903,825. Blackfinch Spring VCT Annual Report and Financial Statements 51 24 April 2023 Capital Disclosures The rights and obligations attached to the Company’s ordinary shares are set out in the Company’s Articles of Association, copies of which can be obtained from Companies House. The Company has one class of share, ordinary shares, which carry no right to fixed income. The holders of ordinary shares are entitled to receive dividends when declared, to receive the Company’s report and accounts, to attend and speak at general meetings, to appoint proxies and to exercise voting rights. There are no restrictions on the voting rights attaching to the Company’s shares or the transfer of securities in the Company. Co-Investment Allocation Policy Given the Investment Manager’s considerable experience of, and exposure to, the EIS investment sector, the Board has reviewed and is satisfied with the revised co-investment allocation policy from Blackfinch Investments Limited. Annual General Meeting (“AGM”) The Notice of the Annual General Meeting is on pages 101 to 102 of these financial statements. A resolution is proposed to re-elect Peter Hewitt as a Director of the Company. The Board has chosen not to comply with the Provision of the UK Corporate Governance Code for the annual re-election of all directors. The Board believes that given the size and early stage of the Company, annual re-election would be inappropriate. However, the Board has decided that each of its two independent Directors will stand for re-election every second year with only one such Director standing in any given year. Reuben Wilcock, as a non-independent Director is subject to annual re-election in accordance with the Listing Rules. The Notice of AGM includes the following resolutions: • Resolution 7, an ordinary resolution, is proposed to ensure the Directors retain the authority to allot shares in the Company until the date of the 2024 Annual General meeting up to an aggregate nominal amount of £400,000 (representing approximately 158 per cent of the issued ordinary share capital of the Company as at 1 April 2023). • Resolution 8, a special resolution, is proposed to empower the Directors to allot shares under the authority granted by resolution 7 without regard to any rights of pre-emption on the part of the existing shareholders. • Resolution 9, a special resolution, is proposed to renew the existing share buyback authority to ensure that authority to buy back shares is in place until the date of the 2024 Annual General Meeting. Auditor A resolution to appoint BDO LLP as auditor of the Company will be proposed at the AGM. Substantial Shareholdings Blackfinch Spring VCT Annual Report and Financial Statements 52 24 April 2023 Name of shareholder Transact Nominees Limited No of ordinary shares held (‘000) 1,090 % of shares in issue 5.14 31 December 2022 No of ordinary shares held (‘000) 6736 % of shares in issue 5.33 31 December 2021 Going Concern The Directors have made an assessment of the Company’s ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in business for the foreseeable future (being a period of 12 months from the date these financial statements were approved). In reaching this conclusion the Directors took into account the nature of the Company’s business and Investment Policy, its risk management policies, its investments, and the cash holdings. As at 31 December 2022 the Company held cash balances with a value of £2,684,677 (2021: £4,966,027). Cash flow projections show the Company has sufficient funds to meet all its expected expenditure for the foreseeable future. The Directors have reviewed the portfolio of qualifying investments and expect the Company to continue to satisfy the conditions of VCT compliance. Businesses in this increasingly diversified portfolio are performing well, and the Company has the resources to provide additional short-term funding to those that require it. Thus, the Directors believe it is appropriate to continue to apply the going concern basis in preparing the financial statements. Accountability and Audit The independent auditor’s report is set out on pages 66 to 79 of this report. The Directors who were in office on the date of approval of these Annual Report and Financial Statements have confirmed that, as far as they were aware, there is no relevant audit information of which the auditor is unaware. Each of the Directors has taken all the steps they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor. Financial Instruments The Company’s financial instruments comprise investments held by the VCT, equity, cash balances and liquid resources including debtors and creditors. Indemnity Payments There are no qualifying indemnity payments made on behalf of the Directors. Risk Management Further details, including details about risk management, are set out in the Strategic Report and in note 18 on pages 96 to 98. Social, environmental and carbon reporting disclosures are included in the Strategic Report. Future Developments Significant events which have occurred after the year end are detailed in note 20 on page 98. Future developments which could affect the Company are discussed in the outlook section of the Chairman’s Statement and in the Investment Manager’s Review. On behalf of the Board Peter LR Hewitt, JP, FCSI Non-executive Chairman 24 April 2023 Companies House Number - 12166417 Blackfinch Spring VCT Annual Report and Financial Statements 53 24 April 2023 Statement of Corporate Governance The Board is committed to the principle and application of sound corporate governance and confirms that the Company has taken steps, appropriate to a venture capital trust and relevant to its size and operational complexity to comply with the provisions and recommendations of The UK Corporate Governance Code published by the Financial Reporting Council in July 2018 (the “Code”). The Code can be found on the website of the FRC at www.frc.org.uk. The Directors acknowledge the section headed “Reporting on the Code” in the preamble to the Code which recognises that an alternative to complying with a provision may be justified in particular circumstances based on a range of factors, including the size, complexity, history and ownership structure of a company. Accordingly, the provisions of the Code have been complied with save that (i) the Company does not have a senior independent director (although the Chairman is an independent director), (ii) the Company will not conduct on an annual basis a formal review as to whether there is a need for an internal audit function as the Directors do not consider that an internal audit would be an appropriate control for a VCT, (iii) as all of the Directors are non-executive and not anticipated to change during the life of the Company, it is not considered appropriate to appoint a nomination or remuneration committee and (iv) other than Reuben Wilcock, who as an employee of the Investment Manager is not considered independent therefore is obliged to resign and stand for re-election as a Director on an annual basis pursuant to the Listing Rules, the Directors will not stand for re-election on an annual basis. The Company’s Articles require that all Directors must retire at or before the third AGM after the AGM at which they were last elected to hold office. The Board considers that these provisions are not relevant to the position of the Company due to the size and specialised nature of the Company, the fact that all directors are non-executive and the costs involved. The directors consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position, performance, business model and strategy. The Board The Board has overall responsibility for the Company’s affairs, including determining its investment policy and having overall control, direction, and supervision of the Investment Manager. An investment management agreement between the Company and Blackfinch Investments Limited sets out the matters over which the Investment Manager has authority. This includes monitoring of the Company’s assets. All other matters, including strategy, investment and dividend policies and corporate governance proceedings are reserved for the approval of the Board. The Board meets at least quarterly and additional meetings are arranged as necessary. Blackfinch Spring VCT Annual Report and Financial Statements 54 24 April 2023 Full and timely information is provided to the Board to enable it to function effectively and to allow the Directors to discharge their responsibilities. In addition, the Directors are responsible for ensuring that the policies and operations are in the best interests of all the Company’s shareholders and that the best interests of creditors and suppliers to the Company are properly considered. The Chairman and the company secretary establish the agenda for each Board meeting. The necessary papers for each meeting are distributed well in advance of each meeting ensuring all Directors receive accurate, timely and clear information. The Board has direct access to corporate governance and compliance services through the company secretary which is responsible for ensuring that Board procedures are followed and compliance requirements are met. The Board comprises three non-executive Directors, two of whom act independently of the Investment Manager. Accordingly, the majority of the Board, including the Chairman, are independent of the Investment Manager. The Directors have a wide range of investment, business, financial skills and knowledge relevant to the Company’s business. Brief biographical details of each Director are set out on pages 6 to 7. The Company may by ordinary resolution appoint any person who is willing to act as a Director, either to fill a vacancy or as an additional Director. Directors are initially appointed until the following Annual General Meeting when, under the Company’s Articles of Association, it is required that they be elected by shareholders. Thereafter, the Company’s Articles require that all Directors must retire at or before the third AGM after the AGM at which they were last elected to hold office. Subject to the performance evaluation carried out each year, the Board will agree whether it is appropriate for a Director to seek a further term. The Board, when making a recommendation, will take into account the ongoing requirements of The UK Corporate Governance Code, including the need to refresh the Board and its Committees. The Board seeks to maintain a balance of skills and the Directors are satisfied that as currently composed the balance of experience and skills of the individual directors is appropriate for the Company. The Directors also have access as required to independent professional advice. No Director has a contract of service with the Company. All of the Directors have been provided with letters of appointment, copies of which are available for inspection on request at the Company’s registered office and at the annual general meeting. The Board is committed to ensuring that the Company is run in the most effective manner. The Board monitors the diversity of all Directors to ensure an appropriate level of experience and qualification. The Board believes in the value and importance of diversity in the boardroom but does not consider it appropriate or in the best interests of the Company to set prescriptive targets. When making new appointments the Board takes into account other demands on directors’ time and prior to appointment significant commitments would be disclosed. There are no specific guidelines set on length of directors’ service, including the Chairman, as the Board believes that continuity of experience is most important. Independence of Directors The Board regularly reviews the independence of each Director and of the Board as a whole in accordance with the guidelines in the Code. Reuben Wilcock, as an employee of Blackfinch Investments is not considered independent. Directors’ interests are noted at the start of each Board meeting and any Director would not participate in the discussion concerning any investment in which he or she had an interest. The Board does not consider that length of service will necessarily compromise the independence or effectiveness of Directors and no limit has been placed on the overall length of service. The Board considers that continuity and experience can be of significant benefit to the Company and its shareholders. The Board believes that Peter Hewitt and Kate Jones have demonstrated that they are independent in character and judgment and there are no relationships or circumstances which could affect their objectivity. Blackfinch Spring VCT Annual Report and Financial Statements 55 24 April 2023 Board Performance The Board resolved that, due to the size of the Company, the fact that all Directors are non-executive and the costs involved, external facilitators would not be used in an evaluation of the Board’s performance. At the invitation of the Board, the Chair of the Audit Committee oversaw a thorough evaluation of the performance of the Board, the audit committee and individual Directors. The review concluded that all were performing effectively. The Board assessed and monitored its own culture, including its policies, practices and behaviour and was satisfied it is aligned with the Company’s purpose, values and strategy. Investment Manager and Advisers’ Performance The Board reviewed the performance of the Investment Manager and the Company’s other advisers and was satisfied that all were performing effectively. Board and Committee Meetings The following table sets out the Directors’ attendance at full Board and audit committee meetings held during the period ended 31 December 2022. The Board is in regular contact with the Investment Manager between Board meetings. Board Committees The Board has not established a nomination or remuneration committee as they consider the Board to be small and comprises non-executive Directors. Appointments of new Directors and Directors’ remuneration are dealt with by the full Board. Report of the Audit Committee The audit committee comprises the two independent non-executive Directors, Kate Jones (Audit Chair) and Peter Hewitt. Due to the small size of the Board and his independence and experience the Board believes it is appropriate that Blackfinch Spring VCT Annual Report and Financial Statements 56 24 April 2023 Director Peter Hewitt Kate Jones Reuben Wilcock Held 7 7 7 Attended 7 7 6 Held 6 6 6 Attended 6 6 6 Board Meetings Audit Committee Meetings Reuben Wilcock was appointed to the Board on 18 September 2020 and is not a member of the audit committee but attends the audit committee meetings. the chairman of the board is a member of the audit committee. The Board is also satisfied that the committee as a whole has competence relevant to the venture capital trust sector and the requisite skills and experience to fulfil the responsibilities of the audit committee and meets the requirements of the Code as to recent and relevant financial experience. The committee meets at least twice a year. The Company’s auditors may be required to attend such meetings. The Committee will prepare a report each year addressed to shareholders for inclusion in the Company’s annual report and accounts. The duties of the committee are: • to monitor and make recommendations to the Board in relation to the Company’s published financial statements and other formal announcements relating to the Company’s financial performance; • to monitor and make recommendations to the Board on internal control and risk management systems; and • to make recommendations to the Board in relation to the appointment of the external auditor, to monitor its independence and objectivity, the level of audit fees and to discuss with the external auditor the nature and scope of the audit. Copies of the terms of reference of the audit committee can be found on the Company’s website: https://blackfinch.ventures/vct. During the period ended 31 December 2022 the audit committee met 6 times and: • reviewed the financial statements released by the Company (including the half-yearly report); • reviewed the appropriateness of the Company’s accounting policies; • reviewed the internal controls operated by the Investment Manager and assessed the effectiveness of those controls in minimising the impact of key risks; and • reviewed the external auditor’s terms of engagement, independence and fees; and • reviewed the external auditor’s comprehensive report to the committee on the annual financial statements. The Directors carried out a robust assessment of the principal risks facing the Company and concluded that the key areas of risk which threaten the business model, future performance, solvency or liquidity of the Company are: • compliance with HM Revenue & Customs to maintain the Company’s VCT status; and • valuation of investments. These matters are monitored regularly by the Investment Manager and reviewed by the Board at every Board meeting. They were also discussed with the Investment Manager and the auditor at the audit committee meeting held to discuss these annual financial statements. The committee concluded: VCT status – the Investment Manager confirmed to the audit committee that the conditions for maintaining the Company’s status had been complied with throughout the period. The Company’s VCT status is also reviewed by the Company’s tax adviser, Philip Hare & Associates, as described on page 49. Blackfinch Spring VCT Annual Report and Financial Statements 57 24 April 2023 Valuation of investments - the Investment Manager confirmed to the audit committee that the basis of valuation for unquoted companies was in accordance with published industry guidelines. The valuation of unquoted companies takes account of the latest available information about investee companies and current market data. A comprehensive report on the valuation of unquoted investments is presented and discussed at every Board meeting; Directors are also consulted about material changes to those valuations between Board meetings. Having reviewed the reports received from the Investment Manager, the audit committee is satisfied that the key areas of risk and judgement have been properly addressed in the financial statements and that the significant assumptions used in determining the value of assets and liabilities have been properly appraised and are sufficiently robust. Relationship with the Auditor The audit committee is responsible for overseeing the relationship with the external auditor, assessing the effectiveness of the external audit process and making recommendations on the appointment and removal of the external auditor. When assessing the effectiveness of the process for the year under review the Committee considered the auditor’s technical knowledge and that it has a clear understanding of the business of the Company; that the audit team is appropriately resourced; that the auditor provided a clear explanation of the scope and strategy of the audit and that the auditor maintained independence and objectivity. As part of the review of auditor effectiveness and independence, BDO LLP has confirmed that it is independent of the Company and has complied with applicable auditing standards. BDO LLP does not provide any non-audit services to the Company. BDO LLP has held office as auditor since the inception of the Company. Public interest entities are required to put the external audit contract out to tender at least every ten years. BDO LLP has held office as auditor for three years; in accordance with ethical standards the engagement partner is rotated after at most five years, and the current partner has served for three years. Following the review as noted above the audit committee is satisfied with the performance of BDO LLP and recommends the services of BDO LLP to the shareholders in view both of that performance and the firm’s extensive experience in auditing VCTs. Internal control and Risk management The Board acknowledges that it is responsible for the Company’s internal control systems and for reviewing their effectiveness. In accordance with the Code, the audit committee has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. The internal control systems aim to ensure the maintenance of proper accounting records, the reliability of the financial information upon which business decisions are made and which is used for publication, and that the assets of the Company are safeguarded. Internal controls can only provide reasonable and not absolute assurance against material misstatement or loss. The financial controls operated by the Board include the authorisation of the investment strategy and regular reviews of the results and investment performance. The Board has delegated contractually to third parties, as set out on pages 39 to 41, the management of the investment portfolio, the custodial services, including the safeguarding of the assets and the day-to-day accounting, company secretarial and administration requirements. The Board receives and considers regular reports from the Investment Manager. Ad hoc reports and information are supplied to the Board as required. It remains the role of the Board to keep under review the terms of the investment management agreement with the Investment Manager. Blackfinch Spring VCT Annual Report and Financial Statements 58 24 April 2023 Regular review of the control systems is carried out which covers consideration of the key risks. Each risk is considered with regard to the controls exercised at Board level, reporting by service providers and controls relied upon. The company secretary reviews the annual statutory accounts to ensure compliance with Companies Acts and the Code and the audit committee reviews financial information prior to its publication. Quarterly management accounts are produced for review and approval by the Investment Manager and the Board. Shareholder Reporting The Directors believe that communication with shareholders is important. Shareholders have access to a copy of the Company’s annual report and accounts (expected to be published each April and a copy of the Company’s half-yearly report (expected to be published each August). These will be made available on Blackfinch’s website. Shareholders and their advisers (if applicable) will also receive updated reports from the Company and the Investment Manager on the progress of the Company. In order to reduce the administrative burden and cost of communicating with shareholders, the Company intends to publish all notices, documents and information to be sent to shareholders generally on Blackfinch’s website (https:// blackfinch.ventures/vct). Increased use of electronic communications will deliver significant savings to the Company in terms of administration, printing and postage costs, as well as speeding up the provision of information to shareholders. The reduced use of paper will also have environmental benefits. Shareholders will be notified when documents are published on Blackfinch’s website, such notification will be delivered electronically (or by post where no email address has been provided for that purpose). The Company welcomes the views of shareholders and places great importance on communication with its shareholders. Shareholders will have the opportunity to meet the Board at the annual general meeting. All shareholders are welcome to attend the meeting and to ask questions of the Directors. The Board is also happy to respond to any written queries made by shareholders during the course of the year. All communication from shareholders is recorded and reviewed by the Board to ensure that shareholder enquiries are promptly and adequately resolved. On behalf of the Board Peter LR Hewitt, JP, FCSI Non-executive Chairman 24 April 2023 Companies House Number - 12166417 Blackfinch Spring VCT Annual Report and Financial Statements 59 24 April 2023 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. Under that law the Directors have prepared 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 year. 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 they have been prepared in accordance with applicable UK 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; and • prepare a Strategic Report, a Directors’ Report and Directors’ 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. The Directors are responsible for ensuring that the Annual Report and accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy. Blackfinch Spring VCT Annual Report and Financial Statements 60 24 April 2023 Statement Of Directors’ Responsibilities Website Publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website, this website is maintained by the Investment Manager on behalf of the Company. 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 DTR4 The Directors confirm to the best of their knowledge: • The financial statements which have been prepared in accordance with UK Generally Accepted Accounting Practice give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company. • The Annual Report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description of the principal risks and uncertainties that it faces. The Board considers the annual report and accounts, taken as a whole, are fair, balanced and understandable and that it provides the necessary information for shareholders to assess the Company’s performance, business model and strategy. On behalf of the Board Peter LR Hewitt, JP, FCSI Non-executive Chairman 24 April 2023 Companies House Number - 12166417 Blackfinch Spring VCT Annual Report and Financial Statements 61 24 April 2023 Directors’ Remuneration Report Introduction This report has been prepared in accordance with the requirements of the Companies Act 2006 and The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the “Regulations”). Ordinary resolutions for the approval of the Directors’ Remuneration Policy and the Directors’ Annual Report on remuneration will be put to members at the Company’s AGM to be held on 8 June 2023. The Company’s auditor, BDO LLP, is required to give its opinion on certain information included in this report. The disclosures which have been audited are indicated as such. The auditor’s opinion on these and other matters is included in the Independent Auditor’s Report on pages 66 to 79. Annual Statement from the Chairman of the Company Directors’ fees are reviewed annually and are set by the Board to attract individuals with the appropriate range of skills and experience. In determining the level of fees their duties and responsibilities are considered, together with the level of time commitment required in preparing for and attending meetings. Directors fees have not changed in the period. Directors’ Remuneration Policy The Board as a whole considers Directors’ remuneration and, as such, a remuneration committee has not been established. The Board’s policy is that the remuneration of non-executive Directors should reflect the experience of the Board as a whole, be fair and comparable with that of other companies that are similar in size and nature to the Company and have similar objectives and structures. Directors’ fees are set with a view to attracting and retaining the Directors required to oversee the Company effectively and to reflect the specific circumstances of the Company, the duties and responsibilities of the Directors and the value and amount of time committed to the Company’s affairs. It is the intention of the Board that, unless any revision to this policy is deemed necessary, this policy will continue to apply in the forthcoming and subsequent financial years. The Board has not received any views from the Company’s shareholders in respect of the levels of Directors’ remuneration. The Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits. No arrangements have been entered into between the Company and the Directors to entitle any of the Directors to compensation for loss of office. Blackfinch Spring VCT Annual Report and Financial Statements 62 24 April 2023 Directors’ Annual Report on Remuneration Terms of appointment No Director has a contract of service with the Company. Each of the Directors entered into an agreement with the Company dated 11 November 2019 (in the case of Kate Jones and Peter Hewitt) and 18 September 2020 (in the case of Reuben Wilcock) whereby he or she is required to devote such time to the affairs of the Company as the Board reasonably requires consistent with their role as non-executive Director. Peter Hewitt is entitled to receive an annual fee of £20,000 (plus VAT if applicable), Kate Jones is entitled to receive an annual fee of £18,000 (plus VAT if applicable) and for the services to be provided by Reuben Wilcock, Blackfinch is entitled to receive an annual fee of £12,000 (plus VAT if applicable). Each party can terminate the agreement by giving to the other at least six months’ notice in writing to expire at any time after the date 15 months from the respective commencement dates. No benefits are payable on termination. Directors are subject to election by shareholders at the first annual general meeting after their appointment. The Company’s Articles of Association provide for a maximum level of total remuneration of £100,000 per annum in aggregate. Directors are remunerated exclusively by fixed fees and do not receive bonuses, share options, long term incentives, pension or other benefits. There is no comparative information in respect of employee remuneration as the Company has no employees. Directors’ fees for the year (Audited) The fees payable to individual Directors in respect of the year ended 31 December 2022 are shown in the table below. * The aggregated amount of NI contribution paid on directors’ remuneration totalled to £1,736 (2021: £2,245). Contributions paid on remuneration of Peter Hewitt and Kate Jones were £994 and £742 respectively (2021: £1,233 and £1,012). Changes in presentation - in the prior year Annual Report the annual fixed fees and total fixed fees paid in the period were incorrectly stated. The £12,000 fixed fees were disclosed under Richard Cook rather than Reuben Wilcock. Richard Cook retired from the Board on 18 September 2020. Therefore, there were no fees paid to Richard during the year. Blackfinch Spring VCT Annual Report and Financial Statements 63 24 April 2023 Director Peter Hewitt Kate Jones Reuben Wilcock Richard Cook Total annual fixed fee (£) 20,000 18,000 12,000 - 50,000 Total fixed fee for period ended 31 December 2022* (£) 20,000 18,000 12,000 - 50,000 Total annual fixed fee (£) (restated) 20,000 18,000 12,000 - 50,000 Total fixed fee for period ended 31 December 2020 (£) (restated) 19,841 18,000 12,000 - 49,841 Annual percentage change in Directors’ remuneration The following table sets out the annual percentage change in Director’s fees, excluding taxable expenses. * Richard Cook retired from the Board on 18 September 2020. Relative importance of spend on pay The table below shows the remuneration paid to Directors and shareholder distributions in the year ended 31 December 2022: Directors’ shareholdings (Audited) The Directors who held office at 31 December 2021 and their interests in the shares of the Company (including beneficial and family interests) were: Subsequent to the Company’s year end no shares were allotted to any of the directors. The Company confirms that it has not set out any formal requirements or guidelines for a Director to own shares in the Company. Blackfinch Spring VCT Annual Report and Financial Statements 64 24 April 2023 Total dividend paid to shareholders Total repurchase of own shares Total directors’ fees 2022 (£) - - 50,000 Peter Hewitt Kate Jones Reuben Wilcock Shares held 5,063 - 3,298 % of issued share capital 0.024 - 0.015 31 December 2022 2021 (£) - - 49,841 Shares held 5,038 - 3,282 % of issued share capital 0.04 - 0.03 31 December 2021 Director’s name Peter Hewitt Kate Jones Reuben Wilcock Richard Cook % change for the year ended 31 December 2022 0.80 - - n/a % change for the year ended 31 December 2021 44.74 31.31 179.07 n/a % change for the period ended 31 December 2020 - - - - Company Performance The Board is responsible for the Company’s investment strategy and performance, although the management of the Company’s investment portfolio is delegated to the Investment Manager through the management agreement. The graph below compares the Company’s share price to the FTSE Small Cap index for the period from the launch of the Company. This index was chosen as the benchmark for investment performance because its constituents are smaller UK listed companies and therefore closest to the small private companies within the Company. Shareholder Voting At the last Annual General Meeting, 100 per cent of shareholders who exercised their voting rights voted for the resolution approving the Directors’ Remuneration Report, showing significant shareholder approval. On behalf of the Board Peter LR Hewitt, JP, FCSI Non-executive Chairman 24 April 2023 Companies House Number - 12166417 Blackfinch Spring VCT Annual Report and Financial Statements 65 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 66 24 April 2023 Independent Auditor’s Report to the members of Blackfinch Spring VCT plc Opinion on the financial statements In our opinion the financial statements: • give a true and fair view of the state of the Company’s affairs as at 31 December 2022 and of its profit for the year then ended; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of Blackfinch Spring VCT plc (the ‘Company’) for the year ended 31 December 2022 which comprise the Income Statement, the Statement of Changes in Equity, the Balance Sheet, the Statement of Cash Flows and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to the audit committee. Independence Following the recommendation of the Audit Committee, we were appointed by the Board of Directors to audit the financial statements for the year ending 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement including retenders and reappointments is 3 years, Blackfinch Spring VCT Annual Report and Financial Statements 67 24 April 2023 covering the years ending 31 December 2020 to 31 December 2022. We remain independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to the Company. Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Company’s ability to continue to adopt the going concern basis of accounting included: • Obtaining the VCT compliance reports prepared by management’s expert during the year and as at year end and reviewing the calculations therein to check that the Company was meeting its requirements to retain VCT status; • Consideration of the Company’s expected future compliance with VCT legislation, the absence of bank debt, contingencies and commitments and any market or reputational risks; • Reviewing the forecasted cash flows that support the Directors’ assessment of going concern, challenging assumptions and judgements made in the forecasts, and assessing them for reasonableness. In particular, we considered the available cash resources relative to the forecast expenditure which was assessed against the prior year for reasonableness; and • Evaluating the Directors’ method of assessing the going concern in light of market volatility. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Blackfinch Spring VCT Annual Report and Financial Statements 68 24 April 2023 In relation to the Company’s reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. Overview An overview of the scope of our audit Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters Materiality Valuation unquoted investments of 2022, 2021 Company financial statements as a whole £385,000 (2021:£236,000) based on 2% (2021: 2%) of Net assets Blackfinch Spring VCT Annual Report and Financial Statements 69 24 April 2023 Key Audit Matter Valuation of unquoted investments (Note 1 and Note 11) How the scope of our audit addressed the key audit matter Our sample for the testing of unquoted investments was stratified according to risk considering, inter alia, the value of individual investments, the nature of the investment, the extent of the fair value movement and the subjectivity of the valuation technique. For all Investments in our sample we: Challenged whether the valuation methodology was the most appropriate in the circumstances under the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines and the applicable accounting standards. We have recalculated the value attributable to the Company, having regard to the application of enterprise value across the capital structures of the investee companies. For investments sampled that were valued using less subjective valuation techniques (cost and price of recent investment reviewed for changes in fair value) we: • Verified the cost or price of recent investment to supporting documentation; • Considered whether the investment was an arm’s length transaction through reviewing the parties involved in the transaction and checking whether or not they were already investors of the investee Company; • Considered whether there were any indications that the cost or price of recent investment was no longer representative of fair value considering, inter alia, the current performance of the investee company and the milestones and assumptions set out in the investment proposal; and • Considered whether the price of recent investment is supported by alternative valuation techniques. We consider the valuation of investments to be the most significant audit area as there is a high level of estimation uncertainty involved in determining the unquoted investment valuations. There is also an inherent risk of management override arising from the unquoted investment valuations being prepared by the Investment Manager, who is remunerated based on net asset value. For these reasons we considered the valuation of unquoted investments to be a key audit matter. Blackfinch Spring VCT Annual Report and Financial Statements 70 24 April 2023 Key Audit Matter How the scope of our audit addressed the key audit matter For investments sampled that were valued using more subjective techniques (revenue multiples and progress against milestones) we: • Challenged and corroborated the inputs to the valuation with reference to management information of investee companies, market data and our own understanding and assessed the impact of the estimation uncertainty concerning these assumptions and the disclosure of these uncertainties in the financial statements; • Reviewed the historical financial statements and any recent management information available to support assumptions about maintainable revenues used in the valuations; • Considered the revenue applied and the discounts applied by reference to observable listed company market data; and • Challenged the consistency and appropriateness of adjustments made to such market data in establishing the revenue multiple applied in arriving at the valuations adopted. Where appropriate, we performed a sensitivity analysis by developing our own point estimate where we considered that alternative input assumptions could reasonably have been applied and we considered the overall impact of such sensitivities on the portfolio of investments in determining whether the valuations as a whole are reasonable and free from bias. Key observations Based on the procedures performed we consider the investment valuations to be appropriate considering the level of estimation uncertainty. Blackfinch Spring VCT Annual Report and Financial Statements 71 24 April 2023 Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows: Materiality Basis for determining materiality Rationale for the benchmark applied Performance materiality Basis for determining performance materiality Rationale for the percentage applied for performance materiality Company Financial statements 2022 £’000 385 289 Company Financial statements 2021 £’000 236 177 In setting materiality, we have had regard to the nature and disposition of the investment portfolio. Given that the VCT’s portfolio is comprised of unquoted investments which would typically have a wider spread of reasonable alternative possible valuations, we have applied a percentage of 2% of gross assets. 75% of Materiality (2021: 75% of Materiality) Blackfinch Spring VCT Annual Report and Financial Statements 72 24 April 2023 The level of performance materiality applied was set after having considered a number of factors including the expected total value of known and likely misstatements and the level of transactions in the year. 2% of Net assets (2021: 2% of Gross investments) Lower testing threshold We determined that for Revenue return before tax, a misstatement of less than materiality for the financial statements as a whole, could influence users of the financial statements as it is a measure of the Company’s performance of income generated from its investments after expenses. As a result, we determined a lower testing threshold for those items impacting revenue return of £76,000 (2021: £52,000) based on 10% of total expenditure (2021: 10% of total expenditure). Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £19,000 (2021:£11,800). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. Other information The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Financial Statements other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Corporate governance statement The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Blackfinch Spring VCT Annual Report and Financial Statements 73 24 April 2023 Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit. Going concern and longer-term viability Other Code provisions • The Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified; and • The Directors’ explanation as to their assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate. • Directors’ statement on fair, balanced and understandable; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks; • The section of the annual report that describes the review of effectiveness of risk management and internal control systems; and • The section describing the work of the Audit Committee. Blackfinch Spring VCT Annual Report and Financial Statements 74 24 April 2023 Other Companies Act 2006 reporting Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report and Directors’ report Directors’ remuneration Matters on which we are required to report by exception In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. • In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or • the financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Blackfinch Spring VCT Annual Report and Financial Statements 75 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 76 24 April 2023 Responsibilities of Directors As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: Non-compliance with laws and regulations Based on: • Our understanding of the Company and the industry in which it operates and • Discussion with management and those charged with governance. We considered the significant laws and regulations to be the Companies Act 2006, the FCA listing and DTR rules, the principles of the UK Corporate Governance Code, industry practice represented by the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“the SORP”) and updated in 2022 with consequential amendments and the applicable financial reporting framework. We also considered the Company’s qualification as a VCT under UK tax legislation. Our procedures in respect of the above included: • Agreement of the financial statement disclosures to underlying supporting documentation; • Enquiries of management and those charged with governance relating to the existence of any non-compliance with laws and regulations; • Obtaining the VCT compliance reports prepared by management’s expert during the year and as at year end and reviewing their calculations to check that the Company was meeting its requirements to retain VCT status; and • Reviewing minutes of meeting of those charged with governance throughout the period for instances of non-compliance with laws and regulations. Fraud We assessed the susceptibility of the financial statement to material misstatement including fraud. Our risk assessment procedures included: • Enquiry with management and those charged with governance regarding any known or suspected instances of fraud; Blackfinch Spring VCT Annual Report and Financial Statements 77 24 April 2023 • Review of minutes of meeting of those charged with governance for any known or suspected instances of fraud; • Discussion amongst the engagement team as to how and where fraud might occur in the financial statements; and • Considering performance incentive schemes and performance targets and the related financial statement areas impacted by these. Based on our risk assessment, we considered the areas most susceptible to fraud to be the valuation of unquoted investments and management override of controls. Our procedures in respect of the above included: • The procedures set out in the Key Audit Matters section above; • Obtaining independent evidence to support the ownership of a sample of investments; • Recalculating investment management fees in total; • Obtaining independent confirmation of bank balances; and • Testing journals which met a defined risk criteria by agreeing to supporting documentation and evaluating whether there was evidence of bias by the Investment Manager and Directors that represented a risk of material misstatement due to fraud. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members who were all deemed to have appropriate competence and capabilities and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. Blackfinch Spring VCT Annual Report and Financial Statements 78 24 April 2023 There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Peter Smith (Senior Statutory Auditor) For and on behalf of BDO LLP, Statutory Auditor London, UK 24 April 2023 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Blackfinch Spring VCT Annual Report and Financial Statements 79 24 April 2023 Income Statement for the year ended 31 December 2022 Blackfinch Spring VCT Annual Report and Financial Statements 80 Return on investments Investment Manager’s fee Incidental investments expenses Other expenses (Loss)/profit before taxation Taxation (Loss)/profit attributable to equity shareholders Return per share (pence) Ordinary shares (pence) Note 11 7 8 9 10 Revenue £’000 - (107) - (337) (444) - (444) (2.48) Capital £’000 438 (320) - - 118 - 118 0.66 Total £’000 438 (427) - (337) (326) - (326) (1.82) 24 April 2023 Financial Statements for the year ended 31 December 2021 (Restated) Blackfinch Spring VCT Annual Report and Financial Statements 81 Return on investments Investment Manager’s fee Incidental investments expenses Other expenses (Loss)/profit before taxation Taxation (Loss)/profit attributable to equity shareholders Return per share (pence) Ordinary shares (pence) Note 11 7 8 9 10 Revenue £’000 Restated (61) - (291) (352) - (352) (3.63) Capital £’000 Restated 622 (182) 8 - 448 - 448 4.63 Total £’000 622 (243) 8 (291) 96 - 96 1.00 24 April 2023 Income Statement The total column of this Income Statement represents the profit and loss account of the Company, prepared in accordance with Financial Reporting Standard 102 (“FRS 102”). The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice, “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”) revised in November 2014 and updated in July 2022. A separate Statement of Comprehensive Income has not been prepared as all comprehensive income is included in the Income Statement. All the items above derive from continuing operations of the Company. The notes on pages 86 to 99 are an integral part of the financial statements. Statement of Changes in Equity for the year ended 31 December 2022 Blackfinch Spring VCT Annual Report and Financial Statements 82 Opening balance as at 1 January 2022 Total comprehensive income for the period Contributions by and distributions to owners: Shares issued Share issue expenses Closing balance as at 31 December 2022 Called up share capital £’000 126 - - 86 - 212 Share premium £’000 11,809 - - 7,818 (71) 19,556 Non-distributable reserves Distributable reserves 24 April 2023 Total Capital Reserve £’000 1,172 - 438 - - 1,610 Capital Reserve £’000 (783) - (320) - - (1,103) Revenue Reserve £’000 (564) - (444) - - (1,008) Total Reserves £’000 11,760 - (326) 7,904 (71) 19,267 Statement of Changes in Equity for the year ended 31 December 2021 Blackfinch Spring VCT Annual Report and Financial Statements 83 Opening balance as at 1 January 2021 Total comprehensive income for the period Contributions by and distributions to owners: Shares issued Share issue expenses Redeemable preference shares redeemed Closing balance as at 31 December 2021 Called up share capital £’000 89 - 87 - (50) 126 Non-distributable reserves Distributable reserves 24 April 2023 Total Share premiem £’000 3,863 - 8,026 (80) - 11,809 Capital reserve £’000 - 1,172 - - - 1,172 Capital reserve £’000 (58) (725) - - - (783) Revenue reserve £’000 (213) (351) - - - (564) Total reserves £’000 3,681 96 8,113 (80) (50) 11,760 There were no unrealised movements during the period, and the distributable reserve were £Nil. The notes on pages 86 to 99 are an integral part of the financial statements. Balance Sheet as at 31 December 2022 Blackfinch Spring VCT Annual Report and Financial Statements 84 Fixed assets Investments Current assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Net assets Capital and reserves Called up share capital Share premium account Capital reserves Revenue reserves Total shareholders’ funds Net asset value per Ordinary share (pence) Note 11 13 14 15 17 31 December 2022 £’000 16,784 2 2,685 2,687 (204) 2,483 19,267 212 19,556 507 (1,008) 19,267 90.85 The Financial Statements were approved by the Directors and authorised for issue on 24 April 2023 and signed on their behalf by: Peter LR Hewitt, JP, FCSI Non-executive Chairman 24 April 2023 Companies House Number - 12166417 The notes on pages 86 to 99 are an integral part of the financial statements. 24 April 2023 31 December 2021 £’000 (Restated) 6,962 3 4,966 4,969 (171) 4,798 11,760 126 11,809 389 (564) 11,760 93.08 Statement of Cash Flow for the year ended 31 December 2022 Blackfinch Spring VCT Annual Report and Financial Statements 85 Operating activities Investment Manager’s fees paid Cash paid to Directors Other cash payments Net cash outflow from operating activities Cash flows from investing activities Purchase of investments Net cash outflow from investing activities Net cash outflow before financing Cash flows from financing activities Proceeds from share issues Share issue costs Net cash inflow from financing (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Reconciliation of profit before taxation to net cash outflow from operating activities: (Loss)/profit before taxation for the period Net gain on investments Decrease/(increase) in debtors Increase in creditors and accruals Net cash outflow from operating activities Year ended 31 Dec 2022 £’000 (392) (61) (276) (729) (9,385) (9,385) (10,114) 7,904 (71) 7,833 (2,281) 4,966 2,685 (326) (438) 2 33 (729) The notes on pages 86 to 99 are an integral part of the financial statements. 24 April 2023 Notes 11 Year ended 31 Dec 2021 £’000 (231) (55) (173) (459) (5,080) (5,080) (5,539) 8,113 (80) 8,033 2,494 2,472 4,966 96 (622) (12) 79 (459) Notes To The Financial Statements 1. Company information The Company is a Public Limited Company incorporated in England and Wales. The registered address is 1350-1360 Montpelier Court, Gloucester Business Park, Gloucester, England, GL3 4AH. The principal activity is investing in un-listed growth companies. 2. Basis of preparation These Financial Statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (‘FRS 102’), and with the Companies Act 2006 and in accordance with the SORP issued by the Association of Investment Companies (“AIC”) in July 2022. The Financial Statements have been prepared on the historical cost basis except for the modification to a fair value basis for certain financial instruments as specified in the accounting policies below. The Financial Statements are prepared in pounds sterling, which is the functional currency of the company. All values in these financial statements are rounded to the nearest thousand (£’000), except where stated. 3. Going concern The Board of Directors is satisfied that the Company has adequate availability to continue as a going concern and are satisfied that the Company has adequate resources to continue in business for the foreseeable future (being a period of 12 months from the date these Financial Statements were approved). In reaching this conclusion the Directors took into the account the nature of the Company’s business and Investment Policy, its risk management policies, and the cash holdings. As at 31 December 2022 the Company held cash balances with a value of £2,684,677 (2021: £4,966,027). Cash flow projections show the Company has sufficient funds to meet all its expected expenditure for the foreseeable future. The Directors have reviewed the portfolio of qualifying investments and expect the Company to continue to satisfy the conditions of VCT compliance. Businesses in this increasingly diversified portfolio are performing well, and the Company has the resources to provide additional short-term funding to those that require it. Thus, the Directors believe it is appropriate to continue to apply the going concern basis in preparing the financial statements. 4. Segmental reporting The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. Blackfinch Spring VCT Annual Report and Financial Statements 86 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 87 5. Significant judgements and estimates The preparation of the Financial Statements may require the Board to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities and income and expenses. Estimates and assumptions mainly relate to the fair value of the fixed asset investments, particularly unquoted investments. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions are under continuous review with attention paid to the carrying value of the investments. More information related to the unquoted investment and their valuations is included in note 11 and the Investments Manager’s Review on pages 8 to 9. 6. Accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below. a.Investments The Company did not hold any listed investments at any time during the reporting period. Investments in unlisted companies are held at fair value through profit or loss. Information about the portfolio is provided internally to the Directors on that basis and the Directors consider the basis to be consistent with the Company’s investment strategy. The fair value of unquoted investments is assessed by the Directors with reference to the International Private Equity and Venture Capital Valuation Guidelines December 2022 (“IPEVCV guidelines”) which include the following techniques: (i) Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company within the last twelve months. This value will be used only if, after careful consideration of all the facts and circumstances it is considered the best measure of fair value. (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 historical, current, or forecast post-tax earnings before interest and amortisation, or to the revenues (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Investment Manager compared with the sector including, inter alia, a lack of marketability); or b) an assessment of other relevant, objective evidence. (iii) Where an earnings multiple or other objective evidence is not appropriate and overriding factors apply, discounted cash flow or net asset valuation bases may be applied. b. Expenses All expenses are accounted for on an accruals basis. In respect of analysis between revenue and capital items presented within the income statement, all expenses have been accounted for as revenue except as follows: 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 88 Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated, and accordingly the investment management fee is currently allocated 25% to revenue and 75% to capital, which reflects the Directors’ expected long-term view of the nature of the investment returns of the Company. Expenses which are incidental to the purchase of an investment are charged through the capital reserve. c. Cash at bank and in hand Cash and cash equivalents are basic financial assets and comprise bank deposits repayable on up to three months’ notice. d. Financial instruments The Company has applied the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS102 to all of its financial instruments. Financial instruments are recognised in the Company’s balance sheet when the Company becomes part to the contractual provisions of the instrument. Basic financial assets, which include debtors, are measured at transaction price. Basic financial liabilities, including creditors, are measured at amortised cost. e. Equity Called up share capital Equity instruments (ordinary shares and redeemable preference shares) issued by the Company are recorded at the nominal amount. Share premium The share premium account is a non-distributable reserve which represents the price paid for shares and the nominal value of the shares, less issue costs. Non-distributable capital reserve Non-distributable capital reserve represents increase and decrease in the value of investments held at the year-end. Distributable capital reserve The following are disclosed in this reserve; - gains and losses on the disposed of investments; and - expenses allocated to this reserve in accordance with the above policies Revenue reserve The revenue reserve represents accumulated profits and losses, and any surplus profit is distributable by way of dividends. f. Taxation Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting periods using the tax rates and laws that that have been enacted or substantively enacted by the reporting date. 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 89 The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the “marginal” basis as recommended in the SORP. Any tax relief obtained in respect of management fees allocated to capital is reflected in the capital column of the Statement of Comprehensive Income and a corresponding amount is charged against the revenue column. 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 at the reporting date, except as otherwise indicated. Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Deferred tax is calculated using the tax rates and laws that that have been enacted or substantively enacted by the reporting date that are expected to apply to the reversal of the timing difference. The tax expense/(income) is presented either in the Income Statement or Statement of Changes in Equity depending on the transaction that resulted in the tax expense/(income). Deferred tax liabilities are presented within provisions for liabilities and deferred tax assets within debtors. 7. Investment Manager’s fee Blackfinch Investments Limited has been appointed as the Company’s Investment Manager. This appointment shall continue for a period of a period of five years following the allotment of any Ordinary shares until terminated by the expiry of not less than 12 months’ notice in writing given by either party. The appointment may also be terminated in circumstances of material breach by either party. Details of the appointment may be found in the Strategic Report on pages 33 to 37. 24 April 2023 Blackfinch Investments Limited Revenue £’000 107 Capital £’000 320 Total £’000 427 Revenue £’000 61 Capital £’000 182 Total £’000 243 Year ended 31 December 2022 Year ended 31 December 2021 Blackfinch Spring VCT Annual Report and Financial Statements 90 8. Other expenses The Company has no employees other than the Directors. Information relating to Director’s remuneration can be found in the audited section of the Director’s Remuneration Report on pages 62 to 65. 9. Taxation a) Analysis of charge for the period b) Factors affecting the tax charge for the period Directors’ remuneration fees Administration fees Registrars and receiving agent fee Auditors remuneration – audit of Statutory Financial Statements Other professional fees Other costs Irrecoverable VAT 2021 £’000 55 60 8 35 63 1 69 291 24 April 2023 (Loss)/profit on ordinary activities before taxation (Loss)/profit before taxation multiplied by standard rate of corporation tax of 19% (2021: 19%) Effect of: UK dividends received Current year losses carried forward Losses brought forward Deferred taxation not recognised Tax charge for the period (Note 9a) 2022 £’000 49 60 23 50 42 1 112 337 Year ended 31 December Year ended 31 December Charge for the period Year ended 31 December 2021 £’000 - Year ended 31 December 2022 £’000 - Year ended 31 December 2021 £’000 96 18 - (526) (271) - - Year ended 31 December 2022 £’000 (326) (62) - (764) (797) - - 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. No deferred tax asset has been recognised on surplus expenses carried forward as it is not envisaged that any such tax will be recovered in the foreseeable future. The value of the unrecognised deferred tax asset is £390,297 (2021: £199,335) based on losses carried forward of £1,561,187 (2021: £797,341). 10. Return per share The Company has no securities that would have a dilutive effect and hence basic and diluted earnings per ordinary share are the same. The Company has no potentially dilutive shares and consequently, basic and diluted earnings per ordinary share are equivalent in the year ended 31 December 2022. * Please see Note 21 on page 99 for details. Blackfinch Spring VCT Annual Report and Financial Statements 91 24 April 2023 Revenue Capital Total Earnings per share pence (2.48) 0.66 (1.82) Net (loss) / profit £’000 (444) 118 (326) Weighted average shares ’000 17,920 17,920 17,920 Earnings per share pence (3.63) 4.63 1.00 Net (loss) / profit £’000 (352) 448 96 Weighted average shares ’000 9,688 9,688 9,688 2022 2021 (restated) The Company is required to report the category of fair value measurements used in determining the value of its investments, to be disclosed by the source of inputs, using a three-level hierarchy: Level 1: quoted prices in active markets for identical assets or liabilities. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is defined as a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in level 1 and comprise AIM quoted investments and other fixed income securities classified as held at fair value through profit or loss. The Company has no investments classified in this category. Level 2: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The Company has no investments classified in this category. Blackfinch Spring VCT Annual Report and Financial Statements 92 24 April 2023 Opening valuation: Cost as at 31 December 2021 Unrealised gains at 31 December 2021 Realised losses at 31 December 2021 Valuation at 31 December 2021 Movements in the year: Purchased at cost Disposal proceeds Unrealised gains/(losses) Total movements in period Closing valuation: Cost at 31 December 2022 Unrealised gains at 31 December 2022 Realised losses at 31 December 2022 Valuation at 31 December 2022 £’000 6,339 1,172 (550) 6,961 9,385 - 438 9,823 15,724 1,610 (550) 16,784 11. Investments Movements in investments during the period are summarised as follow: Level 3: the fair value of financial instruments that are not traded in an active market (for example, investments in unquoted companies) is determined by using valuation techniques such as revenue or earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. All of the Company’s investments fall into this category at 31 December 2022. Most companies were valued using a multiple of revenue, while that had recently received investment were valued at the price of that recent investment. The overall value of investments according to these different methods is shown in the table below. Each method is subject to uncertainties. Revenue multiples are based on the multiples of comparable public companies. A change in the value of a market multiple could lead to a significant change in the fair value of the portfolio. Similarly, the prices of new investments that are agreed are subjective and could affect the value of any prior holding in that company. The Board has adjusted the inputs to the valuation calculations to determine the impact of changing these parameters on the fair value of the portfolio, as follows: The aggregate effect of these impacts could be to increase the value of the Company’s unquoted investments by £1.26m (8.3%) or decrease it by £0.98m (6.4%). For valuations determined from a revenue multiple, the ranges and weighted averages of the multiple and the premium/discount relative to market comparables are shown below. Valuation methodology Revenue multiple Held at price of recent investment Total value of investments (£ ‘000) 12,818 3,966 Blackfinch Spring VCT Annual Report and Financial Statements 93 24 April 2023 Valuation methodology Revenue multiple Price of recent investment Input modified Reference public revenue multiple Price of new investment Increase to input +1x -1x +20% -20% Increase in fair value of investments (£ ‘000) 916 - 661 346 -316 Increase in NAV per share 4.32p -3.11p 1.63p -1.49p Revenue Multiple Premium (discount) Range Weighted average Range Weighted average 4.3 – 10.2 7.1 (15%) – 100% 34% 7.6 – 14.0 9.8 (61%) – 0% (34%) 31 December 2022 31 December 2021 12. Significant interest Details of holdings may be found in the Investment Manager’s Review and Investment Portfolio on pages 8 to 23. Blackfinch Spring VCT Annual Report and Financial Statements 94 24 April 2023 Investment Brooklyn Supply Chain Solutions Ltd Client Share Ltd Cultureshift Communications Ltd Currensea Ltd Cyclr Systems Ltd Edozo Ltd Illuma Technology Ltd Kokoon Technology Ltd Measure Protocol Ltd Odore Ltd Placed Recruitment Ltd Recruitment Smart Technologies Ltd Spotless Water Ltd StaffCircle Ltd Startpulsing Ltd Tangle Software Inc. Teamed Ltd Tended Ltd Transreport Ltd Watchmycompetitor.com Ltd Total Equity held by Blackfinch EIS Portfolios (%) 17.4 17.3 3.8 2.3 15.5 18.7 6.5 16.8 5.6 3.2 8.0 3.0 8.5 40.4 20.7 6.1 2.7 35.8 11.2 3.3 Equity held by the Company (%) 9.6 9.2 7.7 5.8 8.0 2.5 10.7 1.8 2.8 4.3 3.4 10.7 3.8 7.3 11.3 8.5 14.1 9.0 7.2 7.7 13. Debtors 14. Creditors 15. Called up share capital During the year, the Company issued 8,573,388 Ordinary. 16. Reserves Called up share capital represents the nominal value of the shares that have been issued. Share premium account includes any premiums received on issue of share capital less any transaction costs associated with the issuing of shares and any amounts transferred to the special reserve. Capital reserves includes all costs which are considered capital in nature. As at 31 December 2022 there were realised losses of £1,103,522 (2021: losses £783,478), and unrealised gains of £1,610,039 (2021: £1,172,247) Revenue reserve includes all retained profits and losses. The balance on the account is distributable. Blackfinch Spring VCT Annual Report and Financial Statements 95 24 April 2023 Amounts falling due within one year: Prepayments Other debtors Total 2021 £’000 2 1 3 2022 £’000 2 - 2 Amounts falling due within one year: Trade creditors Other creditors Accruals Total 2021 £’000 - 10 161 171 2022 £’000 10 - 194 204 Ordinary shares (1p shares) Allotted, issued, and fully paid during the period: Ordinary shares Total 2022 Number ‘000 21,207 - 21,207 2022 £‘000 212 - 212 2021 Number ‘000 12,634 12,634 2021 £‘000 126 126 17. Net Asset Value per Ordinary Share 18. Financial Instruments The Company’s financial instruments comprise equity, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy to invest in qualifying investments. The Company held the following categorises of financial instruments at 31 December 2022: Blackfinch Investments Limited reviews the value of the investments in the Blackfinch Spring VCT portfolio on a quarterly basis. Valuations are determined in accordance with the most recent IPEV (International Private Equity and Venture Capital) Valuation Guidelines. When an investment has been made recently, the value of that investment is based on its cost, reviewed for impairment or uplift. This valuation is also calibrated with the most appropriate choice of a market-based multiple or discounted cash flow analysis, and considering any significant triggers or events that may affect it. This same valuation model will typically be used to value the investment when there has been no recent investment to provide firm evidence of the market price of an investment, subject to a review to confirm it is still most appropriate. Adjustments consistent with the IPEV guidelines may be made to the resulting company valuation if deemed appropriate by the board. The Company’s technology-enabled thesis means that many portfolio companies invest for long-term growth and will not reach sustained profitability for some years. Consequently, a revenue multiple will often be the most appropriate market-based methodology to use for the calibration and valuation models. However, the Company would expect to Blackfinch Spring VCT Annual Report and Financial Statements 96 24 April 2023 Ordinary share NAV per share pence 90.85 Net assets £’000 19,267 2022 Ordinary shares ’000 21,207 NAV per share pence 93.08 Net assets £’000 11,760 2021 Ordinary shares ’000 12,634 Assets at fair value through profit or loss: Equity investments Assets measured at amortised cost: Cash at bank Other debtors Liabilities measured at amortised cost: Creditors Accruals Cost £’000 15,724 2,685 - (10) (194) 18,205 Fair value £’000 16,784 2,685 - (10) (194) 19,265 Cost £’000 6,339 4,966 1 (10) (161) 11,135 Fair value £’000 6,962 4,966 1 (10) (161) 11,758 2022 2021 switch to an earnings multiple when an investment has achieved the scale required for consistent profitability. In the valuation models and calibration exercise, comparable trading multiples are selected, based on the most relevant combination of sector, size, growth rate, developmental stage, and strategy. The multiple for each company is calculated by dividing the enterprise value of the comparable by its revenue or earnings as appropriate, and adjusting for other considerations such as illiquidity, growth-rate, territories served, and other company specific circumstances. Further details of the bases on which financial instruments, including investments, are held may be found in Notes 6 and 11 and in the Investment Manager’s Review on pages 8 to 9. Credit risk Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its debtors, creditors and cash held with bank. Credit risk arising on transactions with debtors and creditors relates to transactions awaiting settlement. Risk related to unsettled transactions is considered to be small due to the short settlement period involved. At 31 December 2022, cash held by the Company was held by the Lloyds Bank. Bankruptcy or insolvency of the bank may cause the Company’s rights with respect to the cash held by it to be delayed or limited. Should the credit quality or the financial position of the bank deteriorate significantly the Company has the ability to move the cash holdings to another bank. Interest risk The Company does not have any direct exposure to interest rates. Not interest is earned on bank deposits. Other financial assets and other liabilities attract no interest. The potential impact to Portfolio Companies of interest rates is kept under review by the Investment Manager. Investment valuation risk The Board tracks the investment valuation risk inherent in the Company’s portfolio on the risk register that is reviewed quarterly. It maintains an appropriate spread of risk and ensures full and timely access to relevant information from the Investment Manager. The Company does not use derivative instruments to hedge against market risk. The equity of the Company’s unquoted investee companies are not traded and, as such, their prices are more uncertain than those of more frequently traded stocks. Investment valuations are derived from investee company valuations, which in turn are based on inputs such as the price of recent investments and the revenue multiples of comparable public companies. A sensitivity analysis on these inputs is given in note 11 above. The Board has additionally estimated that a 30% fall in the carrying value of the Company’s unquoted investments would reduce profit before tax for the year and the Company’s net asset value per share by £5.04m and 23.74p respectively. Such a drop is considered to be an appropriate illustration given historical volatility and market expectations of future performance. Blackfinch Spring VCT Annual Report and Financial Statements 97 24 April 2023 Liquidity risk The Company’s financial instruments include investments in unlisted equity investments which are not traded in an organised public market, and require a mid to long term commitment, which generally may be illiquid. The Company retains a portion of the portfolio in cash in order to finance new investment opportunities. 19. Capital Management Policies and Procedures The Company’s capital management objectives are: • to ensure that it will be able to continue as a going concern; • to satisfy the relevant HMRC requirements; and • to maximise the income and capital return to its shareholders. As a VCT, the Company must hold at least 80% of its assets by value in Qualifying Investments by the second anniversary of the end of the accounting period in which the Company issued the shares. In addition, at least 30% of all new funds raised by the Company must be invested in Qualifying Investments within 12 months of the end of the accounting period in which the Company issued the shares. Qualifying Investments will be made in companies which are carrying out a qualifying trade, and have a permanent establishment in the UK, although some may trade overseas. The Company will target an annual dividend equivalent to 5% of its Net Asset Value, and special dividends, where appropriate, from the proceeds of successful exits of portfolio companies that are not reinvested. It is envisaged that dividends will not be paid before 2024 and will be subject to the existence of realised profits, legislative requirements, and the available cash reserves of the Company. 20. Post Balance Sheet Events Non-adjusting event Since 31st December 2022 the Company has completed the following additional investment transactions: • investment of £262,500 in Brooklyn Supply Chain Solutions Ltd; • investment of £157,500 in Client Share Ltd; • investment of £440,000 in CollectiveTech Ltd; • investment of £280,000 in Cultureshift Communications Ltd; • investment of £262,500 in Edozo Ltd; • investment of £87,500 in Illuma Technology Ltd; • investment of £280,000 in Measure Protocol Ltd; • investment of £262,500 in StaffCircle Ltd; • investment of £175,000 in Startpulsing Ltd; • investment of £140,000 in Tangle Software Inc.; • investment of £175,000 in Tended Ltd; • investment of £360,000 in Up Learn Ltd; and • investment of £280,000 in Watchmycompetitor.com Ltd. Blackfinch Spring VCT Annual Report and Financial Statements 98 24 April 2023 21. Changes in presentation and prior year adjustments Income Statement for the year ended 31 December 2021 - loss on investments totalling to £549,997 has been incorrectly disclosed under Revenue rather than Capital. Therefore, Revenue and Capital (Loss) and profit balances have changed. Revenue loss attributable to equity shareholders decreased from £901,321 to £351,324 and Capital profit attributable to equity shareholdings decreased from £997,652 to £447,655. These changes did not make any impact on the total profit amount which was £96,331. Revenue and Capital returns per share had to be amended accordingly, decreasing the revenue loss per share from 9.30p to 3.63p and decreasing the capital return per share from 10.30p to 4.63p. Note 10 Return per share – figures for 2021 have been restated due to misallocations of the loss on investments between Revenue and Capital, as stated above. Balance sheet at 31 December 2021 – Creditors balance was mistyped and stated as £107,866 rather than £170,866. Total net current assets balance was correct. 22. Contingencies, Guarantees and Financial Commitments Under the terms of the Investment Advisory Agreement, the running expenses of the Company which are provided for in an annual budget approved by both the Board and the Investment Manager are restricted to a maximum of 3.50% of the Net Asset Value of the Company. Such excess, if occurred, is to be either paid by the Investment Manager or to be refunded by way of a reduction to its annual investments advisory fee. The running expenses incurred in the year were 3.27% of the total Net Asset Value as at 31 December 2022 (2021: 3.51%). There were no other contingencies or guarantees as at 31 December 2022 (2021: none). 23. Related Parties and Transactions with the Investment Manager The Company retains Blackfinch Investments Limited as its Investment Manager. In addition to the investment adviser fee Blackfinch Investments Limited also receives a secretarial and administration fee of £60,000 per annum, paid quarterly. Details of the agreement with the Investment Manager are set out on pages 39 to 40. The remuneration and shareholdings of the Directors, who are key management personnel of the Company, is disclosed in the Directors’ Remuneration Report on pages 62 to 65. 24. Geographical Analysis The operation of the Company is wholly in the United Kingdom. Blackfinch Spring VCT Annual Report and Financial Statements 99 24 April 2023 Blackfinch Spring VCT Annual Report and Financial Statements 100 24 April 2023 Directors and Advisers Directors (all non-executive) Peter Lionel Raleigh Hewitt (Chairman) Katie Jones Dr Reuben Wilcock All of: Registered Office at 1350-1360 Montpellier Court Gloucester Business Park Brockworth, Gloucester Gloucestershire, GL3 4AH VCT Tax Adviser Philip Hare & Associates LLP Hamilton House, 1 Temple Avenue London, EC4Y 0HA Solicitors and Sponsor Howard Kennedy Corporate Services LLP No. 1 London Bridge London, SE1 9BG Auditor BDO LLP 55 Baker Street London, W1U 7EU Registrars and Receiving Agent The City Partnership (UK) Limited The Mending Rooms Park Valley Mills, Meltham Road Huddersfield, HD4 7BH Investment Manager, Promoter and Administrator Blackfinch Investments Limited 1350-1360 Montpellier Court Gloucester Business Park Brockworth, Gloucester Gloucestershire, GL3 4AH Secretary The City Partnership (UK) Limited The Mending Rooms Park Valley Mills Meltham Road Huddersfield, HD4 7BH Blackfinch Spring VCT plc (Registered in England and Wales with registered number 12166417) NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN that the Annual General Meeting of Blackfinch Spring VCT plc (“the Company”) will be held at 11am on 8 June 2023 for the purposes of considering and, if thought fit, passing the following resolutions, resolutions 1 to 7 as ordinary resolutions and resolutions 8 and 9 as special resolutions: Ordinary Resolutions 1. To receive and adopt the Directors’ Report and Financial Statements of the Company for the financial year ended 31 December 2022 together with the Independent Auditor’s Report thereon. 2. To approve the Directors’ Remuneration Report for the year ended 31 December 2022 other than the part of such report containing the Directors’ Remuneration Policy. 3. To appoint BDO LLP as auditor of the Company from the conclusion of the AGM until the conclusion of the next AGM of the Company to be held in 2024 at which financial statements are laid before the Company. 4. To authorise the directors to fix the remuneration of the auditor 5. To re-elect Peter Hewitt as a director of the Company. 6. To re-elect Reuben Wilcock as a director of the Company in accordance with the Listing Rules. 7. That, the Directors be and hereby are generally and unconditionally authorised in accordance with Section 551 of the CA 2006 to exercise all of the powers of the Company to allot shares in the Company or to grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal value of £400,000, representing approximately 158% of the issued share capital of the Company as at 1 April 2023, being the latest practical date prior to publication of this document, provided that the authority conferred by this Resolution 7 shall expire at the conclusion of the Company’s next annual general meeting or on the expiry of fifteen months following the passing of this Resolution 7, whichever is the later (unless previously renewed, varied or revoked by the Company in general meeting). Blackfinch Spring VCT Annual Report and Financial Statements 101 24 April 2023 Special Resolutions 8. That, the Directors be and hereby are empowered pursuant to Section 570(1) of CA 2006 to allot or make offers or agreements to allot equity securities (which expression shall have the meaning ascribed to it in Section 560(1) of CA 2006) for cash pursuant to the authority given in accordance with Section 551 of CA 2006 by Resolution 7 above as if Section 561(1) of CA 2006 did not apply to such allotments, provided that the power provided by this Resolution 8 shall expire at the conclusion of the Company’s next annual general meeting or on the expiry of fifteen months following the passing of this Resolution 8, whichever is the later (unless previously renewed, varied or revoked by the Company in general meeting). 9. That, the Company be and is hereby authorised to make one or more market purchases (within the meaning of section 693(4) of the CA 2006) of Ordinary Shares provided that: 9.1 the maximum aggregate number of Ordinary Shares authorised to be purchased is an amount equal to 14.99% of the issued Ordinary Shares; 9.2 the minimum price which may be paid for an Ordinary Share is their nominal value; 9.3 the maximum price which may be paid for an Ordinary Share is an amount equal to the higher of (i) 105% of the average of the middle market quotation per Share taken from the London Stock Exchange daily official list for the five Business Days immediately preceding the day on which such Ordinary Share is to be purchased; and (ii) the amount stipulated by the UK version of Article 5(6) of Market Abuse Regulation (596/2014/EU); and 9.4 unless renewed, the authority hereby conferred shall expire either at the conclusion of the annual general meeting of the Company following the passing of this Resolution 9 or on the expiry of fifteen months from the passing of this Resolution 9, whichever is the later, save that the Company may, prior to such expiry, enter into a contract to purchase Ordinary Shares which will or may be completed or executed wholly or partly after such expiry. Blackfinch Spring VCT Annual Report and Financial Statements 102 24 April 2023 IMPORTANT INFORMATION Capital at Risk. Blackfinch Spring VCT Plc, 1350-1360 Montpellier Court, Gloucester Business Park, Gloucester, GL3 4AH. Registered company in England and Wales Company no. 12166417.
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