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Tern PLC (TERN)
Tern PLC: Final results for the year ended 31 December 2018
19-March-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
19 March 2019
Tern Plc (the "Company", or the "Group")
Final results for the year ended 31 December 2018
Tern Plc (AIM: TERN), the investment company specialising in the Internet of
Things ("IoT"), is pleased to announce its final results for the year ended
31 December 2018.
Operational highlights
· New investment made in IoT business: FVRVS Limited ("FundamentalVR")
· Notable commercial success in portfolio including new customer contracts
for Device Authority Limited("DA") and a development agreement signed by
FundamentalVR with the Mayo Clinic, USA. DA, FundamentalVR and InVMA
Limited all continued to grow their revenues
· Year-on-year turnover of principal portfolio companies from 2017 to 2018
increased by 58% (2016 to 2017: 126%)
· Year-on-year increase in employees within principal portfolio companies
from 2017 to 2018 was 52% (2016 to 2017: 55%)
· Placing in July 2018 to raise GBP2.9 million before expenses, brought
total fundraising in 2018 to GBP6 million before expenses (excluding funds
secured through convertible loan note)
· Net asset value increased, overheads kept under control:
* Total assets 2018: GBP17,009,220 (2017: GBP11,069,300)
* Net assets 2018: GBP16,751,773 (2017: GBP10,580,802)
* Loss 2018: GBP312,564 (2017: GBP1,689,555 loss)
Commenting on the results, Tern CEO, Al Sisto said:
"As one of the only dedicated investors in the high-growth IoT sector on
AIM, Tern provides investors with an opportunity to capitalise on the rapid
growth of the IoT sector. With this in mind, we are pleased to see the NAV
of our portfolio increase and our loss for the period decrease. Tern prides
itself on its proactive approach to working with its investment companies,
and the collaborative environment created through this way of working has
delivered benefits for our portfolio during the period and post-period end."
"Turnover and the number of employees across our principal portfolio
companies continues to grow, and we have diversified our portfolio through
the addition of FundamentalVR. We are very pleased with the commercial
successes delivered by this new investment, as well as our other portfolio
companies, and look forward to building our portfolio's NAV further in the
year ahead. Having strengthened our financial position during the year, we
are now well-placed to deliver additional diversification. This will be a
priority and, having refined our investment strategy to focus on companies
who provide commercial solutions to the healthcare industry and industrial
use cases where safety and regulatory compliance are important market
requirements, we feel we are well placed to invest in companies who operate
in high-growth segments of the IoT market."
"I would like to take this opportunity to thank all of our shareholders for
their continued support and enthusiasm, our portfolio employees for their
commitment, and our Directors for their dedication to the Company and its
ongoing mission."
Shareholder Communication
A shareholder conference call with accompanying presentation slides will be
held at 11:00 AM GMT on Wednesday 24 April 2019.
The call will be hosted by the Company's CEO, Al Sisto, who will discuss the
2018 results and answer pre-submitted shareholder questions to the extent
that he is able to do so. This will ensure there is an opportunity to ask
questions for those shareholders who may be unable to attend the AGM.
Full details of how to join the call will be provided in due course but Tern
welcomes shareholder questions ahead of this via tern@newgatecomms.com. The
Company will be unable to accept questions submitted after 10:00 AM GMT on
23 April 2019. Al Sisto will aim to answer as many pre-submitted questions
as possible during the call.
Tern will also be attending Mello 2019 at The Clayton, 626 Chiswick High
Road London, W4 5RY on Thursday 16 May. The directors will be available to
meet with new and existing shareholders at this event.
Enquiries
Tern Plc via Newgate Communications
Al Sisto/Sarah Payne
Allenby Capital Tel: 020 3328 5656
(Nomad and joint broker)
David Worlidge/Alex Brearley
Whitman Howard Tel: 020 7659 1234
(Joint broker)
Nick Lovering/Christopher Furness
Newgate Communications Tel: 020 3757 6880
Elisabeth Cowell/Fiona Norman
Chairman's Statement
In my second year as your non-executive Chairman I am pleased to report the
continuing progress that we have made in growing our exciting portfolio of
companies in the Internet of Things ("IoT") sector.
This year has seen us make a new investment in FundamentalVR (FVRVS
Limited), a company which revolutionises surgical training, practice,
insight and measurement through its leading global Software as a Service
("SaaS") immersive simulation platform for medical and surgical education.
We have also increased our investment in InVMA Limited, which has further
diversified our portfolio, and although Device Authority Limited remains our
most significant holding, we have reduced its impact compared to 2017 and we
expect to do so further in 2019.
Our management team has continued to work closely with our portfolio
companies, providing operational support to give our investee companies a
head-start in their plans to launch, to scale, to secure further funding and
ultimately maximise returns on an eventual realisation.
I would like to thank the Executive team on behalf of our shareholders for
their hard work over the year.
I look forward to another year of growth as we continue to build and
diversify our portfolio in this exciting and fast growing market.
Ian Ritchie CBE, FREng, FRSE
Chairman
CEO's Statement
I am pleased to report a year of substantial progress at Tern plc ("Tern")
following the transformation of our investment strategy from taking long
term controlling interests in businesses to focusing on an influential role.
Tern provides investors with the opportunity to capitalise on the growth of
IoT. We are building momentum and experiencing increased deal flow due to
our ability to deploy our capital across a wider number of opportunities and
reduce the potential reserve capital requirements as the investee company
evolves. As a result, Tern is now working to build a broader base of high
potential, value-creating portfolio companies with many opportunities being
presented to us by other venture and risk capital investors.
Overview
Our investee companies continued to improve their performance with some
notable commercial progress within the portfolio, including FVRVS Limited
("FundamentalVR") securing an agreement with the Mayo Clinic in the USA and
Device Authority ("DA") securing a contract with 3D Systems to provide
robust IoT security for 3D printers. At the corporate level, Tern completed
several significant funding transactions which strengthened our balance
sheet. During 2018, the company raised approximately GBP6 million in new
capital, in addition to the funds secured through the convertible loan note,
each placement progressing with more favourable economics. The last
placement in July 2018 raised approximately GBP2.9 million before expenses.
This fund raising demonstrates the benefit of our public listing and the
flexibility it gives our balance sheet for funding the development of
exciting growth businesses. The funds raised during 2018 enabled the company
to expand its portfolio by investing in disruptive high-growth IoT
businesses and the gross total invested capital, as at 31 December 2018,
stood at GBP13.4 million. This includes our first investment in an IoT data
analytics company, FundamentalVR, combined with several reinvestments into
our existing portfolio resulting in a growth in our hard net asset value
("NAV") to GBP16.8 million, up 58% from GBP10.6 million in 2017. This fits with
our strategy to deliver NAV growth for shareholders.
Turning to our trading performance in 2018 we recognised a loss for the year
of GBP0.3 million, compared to a loss of GBP1.7 million in 2017. As our
investment in DA is based upon a US dollar value per share, the weakening of
the pound resulted in a GBP0.4 million exchange rate gain compared to a GBP0.8
million exchange rate loss in 2017. We maintained the US dollar valuation of
DA. Our administrative expenses were comparable to last year, reflecting a
decrease in legal fees that was offset by other professional fees as we
added new companies to our portfolio. Directors' fees increased as the scope
of responsibilities expanded and time commitment to the company increased.
Our remaining expenses were broadly flat. The Directors believe that 2019
will provide good opportunities for NAV growth for Tern. We anticipate this
to be achieved via the business expansion of our portfolio companies,
additional equity investments by third parties into our portfolio companies
and one or more investments in new portfolio companies.
Investment Focus and Philosophy
At Tern, we see the size, potential and promise of the Internet of Things
("IoT") market as an opportunity to create shareholder value through
investments in early-stage companies, by providing products and services
associated with the IoT. Today, businesses are investing in cloud-based
services and analytics, to make it easier and simpler to understand the
performance of a product or a service offered that is IoT-enabled. Also, it
will become increasingly seamless to gather real-time information so new
products and services can be created. We believe that there are still
challenges for the IoT market. The first is related to interoperability and
the lack of a common connection layer. Many devices don't 'speak' using a
common protocol to applications that rely on data being gathered, making the
application design difficult and the data vulnerable. The second challenge
is the inbound and outbound scale issue around device management, data
collection, data storage and data analytics. We seek to invest in companies
that address these issues.
To solve these challenges requires the development of new commercial
ecosystems to create a demand for firms that can manage different aspects of
the technologies and capabilities that will be essential to the development
of the IoT.
The IoT market is growing rapidly and is maturing and segmenting into
specific verticals. Tern has refined its investment philosophy to address
this change, with the goal of realising faster revenue growth and market
share gains within our portfolio, to ultimately result in increased value.
We have expanded our investment criteria beyond companies who are targeting
IoT security, IoT enablement, and IoT analytics with a narrower scope, to
companies who provide commercial solutions to the healthcare industry and
industrial use cases where safety and regulatory compliance are important
market requirements.
We believe that this will accelerate our development of a synergistic
portfolio in which our companies can work together, learn from each other's
market experiences and share industry connections. These market segments are
global, speak a common language, have a large installed base of devices and
are investing in all areas of IoT to create better products, customer
satisfaction and patient outcomes.
Through our network, our website and attendance at IoT events, we saw many
interesting companies during 2018 with a variety of business models and
innovations focused on the IoT. The UK technology market continues to
support our thesis that local UK entrepreneurs can and are creating
companies with unique IoT products that satisfy our investment requirements
and have global potential. Our approach remains the same; select the most
promising companies with strong teams and disruptive ideas targeting large
market opportunities. We then use our experience to invest in those
companies where we not only deliver funding, but also operational support
and access to our network, particularly in the United States. This helps to
grow and scale our portfolio and aid our companies achieve their ambitions.
In addition, by taking a Board seat, we can apply our expertise beyond the
original investment decision, supporting companies into fulfilling their
potential for growth and market leadership and driving strong exit
multiples. This creates a valuable network for the companies, focused on
collaboration and commercial development.
We believe that Tern is well positioned to provide investors access to
high-growth private technology companies that they wouldn't otherwise be
able to source or invest in directly.
Portfolio Progress
In 2018, the Tern team and our business partners worked extensively with the
management of our investee companies as we looked to improve performance and
accelerate growth. We supported a refinement of the go-to-market models of
our companies to reflect a more narrowed focus on healthcare and specific
areas of industrial IoT. We also hosted several CEO round-tables to help
leverage synergies to drive business expansion and success.
Device Authority Limited ("DA")
2018 was a transitional year for DA. The company continued to expand its
ecosystem of partners, which is a critical component of their go-to-market
strategy, although we were disappointed by the delay in generating revenue
during the first half of the year. DA did secure additional working capital
of $2.9 million between November 2017 and December 2018 from its investor
group, Alsop Louie Partners, George Samenuk and the Company, through a
convertible loan note facility to execute its business plan, this enabled
the development of blockchain support, key Thingworx interfaces and cloud
platforms for AWS and Azure. DA also solved several critical product issues
and introduced many new product enhancements to improve product market fit,
particularly for the Healthcare market segment. As a result, proof of
concept ("POC") time frames shortened and the company began securing new
contracts in the second half of the year.
We also believe the concentrating of DA's primary market focus to healthcare
and high value industrial IoT has and will continue to improve their
commercial success. For example, the global IoT medical devices market is
projected to reach USD 63.43 billion by 2023 from USD 20.59 billion in 2018,
at a CAGR of 25.2% during the forecast period (source:
https://www.marketsandmarkets.com/Market-Reports/iot-medical-device-market-1
5629287.htm [1]). While the healthcare industry can benefit tremendously
from the IoT, a number of stringent security, compliance and operational
complexities need to be addressed for this market.
Maintaining the privacy of patient records is paramount to healthcare as it
is to protecting the intellectual property of products and processes for
industry. The first requirement is to have strong mutual authentication
between devices, applications and users. The second is to ensure the
sensitive information flows all the way from source to destination,
encrypted to meet the compliance requirements such as HIPAA and EU GDPR.
DA's KeyScaler platform is ideally suited to meet these challenges.
Tern, in its role as Board advisor, worked with DA to address the issues
under its control and as the company enters 2019, we believe the product and
POC issues have been tackled. This has been reflected by the company's
commercial traction and announcement in December 2018 that it had secured a
five-year contract with a leading medical device manufacturer, which has an
anticipated value to DA of in excess of $1 million over the life of the
contract.
Sales wins achieved in the fourth quarter will begin shipping in volumes
during 2019 and we believe that this will form the corner-stone of
sustainable commercial success.
FVRVS Limited ("FundamentalVR")
During 2018, Tern was excited to have the opportunity to invest in
FundamentalVR, a leading Virtual Reality ("VR") training and data analysis
technology platform. FundamentalVR is led by surgical training experts and
leading technologists with a mission to revolutionise surgical training by
bringing simulation into the hands of medical professionals around the
world, using low cost, easily accessible technology. FundamentalVR's unique
software platform takes advantage of readily available VR software and
devices, such as the Facebook owned Oculus Rift, and combines it with
cutting edge haptics to create a simulation system that can be used on any
modern PC set up. Using computer learning, the software platform works
together with haptic hardware devices to simulate the physical sensation of
operating on human tissue. It also has the capability to provide artificial
intelligence ("AI") driven real-time feedback, procedure correction data and
best practice insight. The result is a simulation system that provides
surgeons with a more hands-on experience to be better prepared
professionals, resulting in better patient outcomes.
FundamentalVR's goal is to transform the way surgeons prepare, practice and
refine their skills. The company has built an immersive, surgical simulation
application platform, Fundamental Surgery, to provide medical professionals
with the opportunity to rehearse, practice and test themselves within a
safe, controllable space that is as close to real life as possible.
Additionally, this same platform enables healthcare companies, to create a
new way to develop, train and measure the introduction of new medical
devices and drug delivery systems to surgeons in a safe and repeatable way.
The cost of medical care and mistakes continues to grow across the globe,
with the industry lacking an effective practice and rehearsal solution and
quality data on medical and surgical capability, which Fundamental Surgery
can now provide.
During 2018 Tern made two direct investments totalling GBP1.9 million into
FundamentalVR, our second following FundamentalVR's signing of a three year
term joint development agreement with the Mayo Foundation for Medical
Education and Research ("the Mayo Clinic"), the U.S. leading academic
medical centre, which will see the two parties collaborating on a range of
simulation and education products with an initial focus on the general
surgery area. Additionally, the current release of the Fundamental Surgery
platform is now live in the Mayo Clinic's world-renowned simulation centres
located in Rochester, Arizona and Florida.
InVMA Limited ("InVMA")
InVMA continued to make progress during the year. Since our initial
investment in 2017, we have seen the business grow its revenue year on year
in 2018 compared to 2017, with ten new customer engagements including
important wins at industrial leaders like ESAB (part of Colefax), Bernard
Matthews, GKN and Kohler Mira. Also, their new partnership with DMS, a UK
industrial maintenance company, has generated more than a dozen AssetMinder
opportunities with important wins at Yorkshire Water and JLR.
AssetMinder is a strategic product for InVMA as it builds on the trend
within the Industrial IoT ("IIoT") to use intelligent sensors to connect and
collect important data to create a proactive performance and maintenance
strategy for assets. AssetMinder allows companies across all industries to
monitor and manage critical equipment and resources from the data gathered
and to generate alerts to intervene and protect their operations from costly
down-time and potential costly catastrophic outcomes. The AssetMinder
product is positioned in the Remote Monitoring and Control Market which is
estimated to be growing at a CAGR of 4.47% and is expected to be valued at
USD 27.11 billion by 2023.
During 2018, InVMA, with the support of the Tern investment director,
acquired the intellectual property and other assets from AMIHO Technology of
Cambridge. AMIHO Technology was founded in 2009 to solve difficult
environmental logistical problems of remote connectivity for smart sensors
and data collection gateways, for example, smart meters in the energy
industry. Their intellectual property is a series of wireless radio
frequency modules, specifically, long range ("LoRa") and meter-bus ("MBus")
protocols, stand-alone protocol stacks and evaluation kits. Prior to its
acquisition, the product suite achieved commercial success and is currently
installed in over 250,000 smart meters in Eastern Europe. We believe these
products add to the design service capabilities of InVMA to help customers
integrate the technology into their products and to the many facets of our
other portfolio companies where robust IoT connectivity is a requirement.
flexiOPS Limited ("flexiOPS")
2018 has proved to be a pivotal year for flexiOPS. We originally believed
that the business could have been a source of valuable technology expertise
to assist current and future Tern portfolio companies. Unfortunately, the
company has been seriously affected by the political situation in Europe and
the UK and its ability to participate in European grants and therefore the
company decided to exit that part of its business. They are now focusing on
the company's IoT mesh networking assets and expanding its mission following
the purchase of a controlling interest in Wyld Technologies Limited ("Wyld
Technologies"), a mesh networking company in 2017.
During 2018, as part of its expanded role and mission, Wyld began expanding
its product platform base by developing the application, thus enabling Wyld
Fusion to support the adoption and use of their Wyld Mesh networking
product. Wyld Fusion allows devices and people to receive individual or
aggregated data from an application, or series of applications, in real
time. Wyld Fusion delivers timely, actionable information across the mesh to
the right people, things and locations, securely. It enables informed
business decisions and reduces operational risk (real time data selection)
with a high degree of flexibility and complexity. As an outcome from this
expansion of the Wyld Technologies' mission in flexiOPS, we believe Wyld
Mesh, with Wyld Fusion, will enable flexiOPS to offer a Content Delivery
Network combining real-time data streaming with our powerful
device-to-device mesh network.
Their vision is to make Wyld software the platform of choice for large
enterprise companies, governments and smart cities to leverage the power of
crowds to automate and accelerate their tailored messaging in large retail
facilities and large entertainment venues, in response to critical events in
what are typically challenging and hostile environments.
Subsequent to the year end, the AMIHO Technology assets were purchased by
flexiOPS from InVMA to form a new compelling proposition in the IoT embedded
communications industry and flexiOPS was renamed Wyld Networks Limited.
Summary
The investment portfolio made good progress in 2018, leaving Tern well
positioned for 2019 and beyond. I would like to thank our staff, business
partners and portfolio companies for their commitment and contribution to
this positive performance. As ever, I would also like to extend the Board's
thanks to all our stakeholders for their continued support. With a larger
and maturing portfolio and an expanded pipeline of opportunities, we look to
2019 with continued confidence.
Albert Sisto
Chief Executive Officer
Strategic Report
Business review
The Company is positioned as a quoted platform to invest in, develop and
sell private software companies with proven technology, based in the UK and
Europe but with global opportunities and ambitions. These businesses are
predominantly in the Internet of Things sector.
The 2018 results have been materially impacted by a fair value uplift of
GBP0.8 million, of which GBP0.4 million is due to an exchange rate gain on the
revaluation of the Device Authority investment at the balance sheet date.
Directors fees increased and legal fees were lower but offset by other
one-off professional fees. Overall, administrative expenses were comparable
to 2017.
Future developments
As explained in the CEO's Statement the Company has undertaken a series of
initiatives to position the Company for lasting success in its focused
market sector and has continued to build a portfolio of investments and a
pipeline of investment opportunities in IoT Security, IoT enablement and IoT
analytics.
The Board has given consideration to the impact of Brexit on the investment
portfolio and has concluded that it does not envisage a material impact on
performance given the majority of opportunities for the portfolio are in the
UK and the USA. Brexit impact has also been considered within the principal
business risks and uncertainties set out later in this section.
*Key performance indicators *
The Company's principal activity is that of investing in companies.
Accordingly, the Company's financial Key Performance Indicators (KPIs) are
focused on return on investment; delivering consistent investee company
turnover growth; and focusing on year-on-year net asset growth. These
indicators are monitored closely by the Board and the details of performance
against these are given below.
The return on investments:
Unrealised
· Device Authority's underlying US dollar value remains unchanged, however
the fair value is based on the probability of each of the various
conversion options, with the value of each conversion option being
weighted based on the probability of its exercise. A pound sterling
increase has been reflected due to the weakening currency when revaluing
the investment using the 2018 year end exchange rate;
· flexiOPS Limited is valued at fair value which takes into account the
cost of investment in Wyld Technologies Limited. InVMA Limited is also
valued at fair value and the price of the most recent valuation is taken
into account.;
· FVRVS Limited ("FundamentalVR") is held at fair value where the price of
the most recent valuation has been taken into account;
· Push Technology Limited has been revalued in line with IFRS to a level
consistent with recent fund raisings. Seal Software Group Limited's US
dollar fair value remains unchanged, although a weakening of the pound
sterling has resulted in a small increase in its pound sterling valuation;
and
· These investee companies are early stage businesses in emerging markets
where there is a lack of comparative businesses available on which to
provide a comparable valuation and therefore value has been based on an
assessment of numerous factors: the underlying value of the Device
Authority patent portfolio, the multiples achieved in comparable markets
on recent transactions, and an assessment by the Board on the strength of
the sales pipeline and achievability of the 2019 sales forecast.
The net assets of the Company at 31 December 2018 were GBP16,751,773 (2017:
GBP10,580,802). The net assets per ordinary share as at 31 December 2018 were
7.1p (2017: 7.38p).
Investee company turnover growth: the year-over-year growth in the aggregate
revenue of our principal portfolio companies (excluding Seal and Push)
increased by 58% from calendar year 2017 to 2018 (126% from calendar year
2016 to calendar year 2017) which provides an indication of growth in the
overall portfolio.
The Company has non-financial KPIs which are also monitored regularly by the
Board. These non-financial KPIs are focused around the number and quality of
investment opportunities seen, as assessed by reviewing all opportunities at
the monthly Board meeting and the investee company employee number growth in
our portfolio companies. We believe these factors help serve as leading
indicators of the future performance and our impact on our stakeholders.
Investee company employee number growth (excluding Seal and Push) increased
by 52% from calendar year 2017 to calendar year 2018 (55% from calendar year
2016 to calendar year 2017), highlighting a continuing growth in the
portfolio overall.
Financial risk management objectives and policies
Principal business risks and uncertainties
The management of the business and the nature of the Company's strategy are
subject to a number of risks. The directors have set out below the principal
risks facing the business. Where possible, processes are in place to monitor
and mitigate such risks. The Company operates a system of internal control
and risk management in order to provide assurance that the Board is managing
risk whilst achieving its business objectives with the assistance of the
Audit Committee. The Executive Directors meet at least monthly to review
ongoing trading performance for both the Company and the portfolio
companies, discuss budgets, forecasts, opportunities and new risks
associated with ongoing trading.
The Board regularly reviews operating and strategic risks and the
effectiveness of the Company's risk management and related control systems,
with the assistance of its committees. No system can fully eliminate risk
and therefore, the understanding of operational risk is central to the
management process.
Identifying, evaluating and managing the principal risks and uncertainties
facing the Company is an integral part of the way the business operates. The
Company has policies and procedures in place throughout its operations,
embedded within the management structure and as part of the normal operating
processes. A formal risk register is maintained and reviewed by the Board at
least quarterly, with key risks identified, discussed and mitigation agreed.
Market and economic conditions are recognised as one of the principal risks
in the current trading environment. This risk is mitigated by the close
monitoring of trading conditions and the performance of the Company's
investment portfolio. The Company is affected by a number of risks and
uncertainties, not all of which are wholly within its control as they relate
to the wider macroeconomic and legislative environment within which the
Company operates. To enable shareholders to appreciate what the business
considers are the main operational risks, they are briefly outlined below:
Risk Potential Impact Strategy
Reliance on key The Company Disruption for The Company
people is unable to the Company or offers a
retain key its investment remuneration
individuals companies as new package
individuals take designed to
time to gain an attract,
understanding of motivate and
the investment retain key
company's individuals
strategy and
requirements.
Key individuals
in the
investment
companies are
offered an
attractive
remuneration
package and
either shares
or share option
incentives
Investment risk An ? Investment may The Company
investment require actively takes
fails to additional an influential
perform as finance role in the
anticipated: strategic
direction of
its investments
? Inability to and monitors
? Investee create maximum all investments
companies value in a timely regularly. A
may be fashion Company
operating in director holds
highly a non-executive
competitive Board position
markets with ? Difficulty in on all
rapid realising investment
technologica investment company boards
l change where the
Company has a
significant
? The Company's (>10%) holding.
? Investee influence reduces
companies
may be
companies in The Company's
early stage ? The value of strategy has
of the Company's been formulated
commercial holding falls by the
development. management team
Generation with a strong
of track record of
significant ? If one dominant generating
revenues is investment fails gains from
difficult to it has a early stage
predict and disproportionate companies
not impact on the within the
guaranteed Company technology
sector
? Investee
company The Company is
management building a
is portfolio of
performing investments to
underpar insulate itself
against poor
performance of
any single
The Company investment
is unable to
maintain its
holding when
the investee
company
requires
significant
additional
funding
The
portfolio is
dominated by
one or two
investments
Liquidity The Company ? May have a The Company
is unable to detrimental will maintain a
effect on the sufficient cash
Company's ability balance to
to cover finance itself
raise new administration for a prudent
funds and other costs period, or
ensure that it
has access to
funds
? May adversely
affect returns of
investee
companies if they
need to raise
further funds
Legal & Legal claims ? Financial and Maintain strong
regulatory risk and changes reputational advisory base.
to impact Legal advice
regulation taken on all
investment and
employment
? Potentially issues.
increase costs of
compliance which
makes it harder
to raise funds The company
monitors its
working capital
to ensure it
? Detrimental has sufficient
impact on funds to
performance of maintain
investment operations
companies with during any
exposure to the economic
European Union slowdown
Foreign exchange The ? The value of The Company
risk valuation of the Company's actively
investments holding falls reviews the
may be value of
impacted by investments and
foreign will consider
exchange action on
movements foreign
exchange risk
where relevant,
following
advice from
advisors
Assessment of business risk
The Board regularly reviews operating and strategic risks, with the
assistance of its committees. The Company's operating procedures include a
system for reporting financial and non-financial information to the Board
including:
? reports from management with a review of the business at each Board
meeting, focusing on any new decisions/risks arising;
? reports on the performance of investments;
? reports on selection criteria of new investments;
? discussion with senior personnel; and
? consideration of reports prepared by third parties.
Investing policy (established July 2013)
To invest principally, but not exclusively, in the information technology
sector within Europe. The Directors believe that the Company can invest in
and acquire information technology businesses, improve them by a combination
of new management and investment and realise the value created which will be
returned to shareholders. The Company may be either an active investor and
acquire control of a single company or it may acquire non-controlling
shareholdings. Once a target has been identified, additional funds may need
to be raised by the Company to complete a transaction.
The Directors see IT as having considerable growth potential for the
foreseeable future and many of the prospects they have identified are in
this sector. They believe there are opportunities to invest in and acquire
established IT businesses which have good technology, marquee customers and
could better exploit their assets with the injection of experienced
management and new funds with the intention of creating value for
Shareholders.
Although the Company intends the main focus of the investment policy to be
on the exploitation of IT businesses; this will not preclude the Company
from considering investment in suitable projects in other sectors where the
Directors believe that there are high-growth opportunities.
It is anticipated that the main driver of success for the Company will be
expertise that can be provided by the Directors to the management involved
in the potential investee companies and the value creation that the team of
people is capable of realising. The Company intends to be an active
investor. Accordingly, it may seek representation on the board of investee
companies.
In the first instance, the new capital available to the Company will be used
to locate, evaluate and select investment opportunities that offer
satisfactory potential capital returns for Shareholders. Once the Directors
have identified the most attractive investments, the Company may require
further funds in order to take up these opportunities. It is the intention
of the Directors to undertake further fundraising, if such an opportunity
should arise. The Company's investments may take the form of equity, debt or
convertible instruments. Investments may be made in all types of assets
falling within the remit of the Investing Policy and there will be no
investment restrictions.
The Directors may consider it appropriate to take an equity interest in any
proposed investment which may range from a minority position to 100 percent
ownership. Proposed investments may be made in either quoted or unquoted
companies and structured as a direct acquisition, joint venture or as a
direct interest in a project.
The Company will seek investment opportunities which can be developed
through the investment of capital or where part of or all of the
consideration could be satisfied by the issue of new Ordinary Shares or
other securities in the Company. The opportunities would generally have some
or all of the following characteristics, namely:
· a majority of their revenue derived from IT or the use of IT, and
strongly positioned to benefit from market growth;
· a trading history which reflects past profitability or potential for
significant capital growth going forward; and
· where all or part of the consideration could be satisfied by the issue
of new Ordinary Shares or other securities in the Company.
The Company will identify and assess potential investment targets and where
it believes further investigation is required intends to appoint
appropriately qualified advisers to assist.
The Company proposes to carry out a comprehensive and thorough project
review process in which all material aspects of any potential investment
will be subject to rigorous due diligence, as appropriate. It is likely that
the Company's financial resources will be invested in a small number of
projects or investments or potentially in just one investment which may be
deemed to be a reverse takeover of the Company under the AIM Rules.
Bruce Leith
Director
Investment Report
The Company's current investment portfolio consists of the following
investments, all of which are unquoted:
Device Authority Limited
Market segment: Data Security software
Fair value: Cost: GBP5.61 million Valuation: GBP11.7 million
Consists of:
Equity ownership: 56.8% 'A' shares Cost: GBP4.34 million Valuation: GBP6.2
million
Convertible loan: Cost: GBP1.27 million Valuation: GBP5.5 million
Valuation is based on a probability analysis of the potential outcomes
relating to the conversion or redemption of the convertible loan note,
translated at the exchange rate at the balance sheet date. The fair value
was supported by an evaluation of a combination of factors, including the
price of shares in the most recent fund raise (April 2016), the independent
valuation of Device Authority's patent portfolio, a comparison to
transaction multiples in comparable market sectors and an evaluation of
sales pipeline and 2019 trading forecast.
Device Authority Limited ("DA") is an Internet of Things (IoT) security
automation company. DA provides simple, innovative solutions to address the
challenges of securing applications and their devices while using the
Internet with a robust, end-to-end security architecture that delivers
efficiencies at scale. DA's KeyScalerTM IoT security platform provides trust
for IoT devices and the IoT ecosystem, including key partners such as
Certificate Authorities, HSM vendors, IoT platforms, system integrators and
cloud platforms. KeyScaler delivers automated device provisioning and
registration, token-based authentication, credential management for
certificates and passwords, and end-to-end data security. KeyScaler also
protects private keys and crypto keys, prevents unauthorised access and
delivers end-to-end data security and confidentiality for Enterprise
Blockchain.
For example, the healthcare industry is in a state of digital
transformation. Drug delivery systems, surgical robots, infusion pumps and
medical records are now all connected. Knowing the identity of the user or
device and protecting a patient's data are critical items requiring
protection under a variety of laws. Also, the need to exchange data between
the applications using these devices and systems, including updating the
software running these systems, puts them at risk. DA's KeyScaler product is
used by medical device manufacturers and the applications which use the
devices to protect the data exchanged, by applying policy and encryption
techniques to protect the information. DA does this autonomously and at IoT
scale providing a clear ROI and a protection against human error.
In 2018, DA continued to build on a strong base of strategic partners,
including TeamViewer, SyroCon Consulting and Eonti, Larsen and Toubro
Infotech ('LTI') and Gemalto. Furthermore, it announced support for the
Microsoft Azure IoT Hub. DA also continued to be recognised as a critical
force in the global IoT security market, for example, gaining recognition as
a 2018 Emerging Star in the IOT Security Market by Quadrant Knowledge
Solutions.
During the year, DA announced the launch of KeyScaler As A Service,
providing IoT Security in the Cloud. This service enables IoT service
providers and manufacturers to offer their customers the best security for
IoT devices without the infrastructure or running costs associated with
on-premise environments, expanding its ability to make markets for its
platform by simplifying customer deployment options.
Fundraising activities continue with US Capital in search for a key
strategic US partner. In addition, the DA Board is considering additional
advisors to review DA's strategic opportunities.
Other key announcements in 2018 included:
· Announcing a customer success story, providing robust IoT Security for
3D Systems' cloud-based service for 3D printers;
· Provision of a new solution for securing Enterprise Blockchain
infrastructure which is powered by KeyScaler;
· Announcing the launch of their joint blueprint to secure the connected
health industry, following the announcement of a strategic partnership
with Thales (nCipher). This IoT market is a strategic focus for DA as
healthcare forecasts predict growth to reach USD 524 billion by 2025,
according to a report by Grand View Research, Inc published in 2018; and
· DA's KeyScaler Platform announced that it now secures InVMA's (another
portfolio company) AssetMinder Performance Management Solution for IoT,
with the product due to launch in early 2019.
InVMA Limited
Market segment: IOT Systems Integrator
Equity ownership: 50% Cost: GBP1.0 million Valuation: GBP1.0 million
Valuation is based on fair value. This was evaluated by a combination of
factors including an assessment of sales pipeline and 2019 trading forecast.
InVMA Limited ("InVMA") delivers IoT applications, based on the industry
leading PTC/Thingworx development platform that deliver real business value
and competitive advantage to its customers.
Since the Company's investment in late 2017, InVMA, as part of its business
transformation, has launched AssetMinder, a product which monitors and
manages data from all types of sensors and provides alerts when
pre-determined thresholds or rules have been met or broken. In 2018, InVMA
has focused on generating AssetMinder product sales to drive value creation.
InVMA also announced the integration of InVMA's AssetMinder with Device
Authority's KeyScaler which is an important proof point of the Company's
influence in integrating the products and technologies of its portfolio
companies.
In 2018, InVMA announced it had developed Clarity for GCE Healthcare using
PTC's ThingWorx(R) Industrial Innovation Platform. The global market for
real time health monitoring devices is expected to reach USD 67,982.2
million by 2022 and is expected to grow at a CAGR of 14.29% during the
forecast period 2016-2022 according to Global Real Time Health Monitoring
Devices Market Research Report - Forecast to 2022 published in April 2017.
InVMA have secured new strategic partnerships and contract wins in key
segments of the Industrial IoT market already, including the announcement of
a contract with ESAB, part of the Colfax Group, to support the architecture
of a new ESAB WorldCloud platform which will be powered by Microsoft Azure
IoT and PTC's ThingWorx platform.
Other key announcements in 2018 include:
· Partnering with ARM to deliver connected IoT. The new partnership will
enable enterprise customers to manage, connect, provision and update
devices through an end-to-end IoT platform that is easily scalable and
flexible;
· New capabilities for AssetMinder(R), its turnkey asset performance
management solution which will significantly reduce the cost of
maintenance using new high frequency wireless sensors; and
· Acquiring the intellectual property and assets of IoT communications
company AMIHO Technology Limited. This software will enable customers to
integrate the IP technology into their products to enable them to robustly
connect on the LoRA and M-Bus protocols
FVRVS Limited ("FundamentalVR")
Market segment: SAAS immersive platform for medical and surgical education
driving data insight
Equity ownership: 34.7% Cost: GBP1.9 million Valuation: GBP1.9 million
Valuation is based on fair value. This was evaluated by a combination of
factors including an assessment of sales pipeline and 2019 trading forecast.
FundamentalVR provides the Company with exposure to the rapidly growing
medical simulation market using low cost open-system IoT devices and
provides a basis for developing our IoT analytics pillar of the Tern
investment strategy.
Key announcements in 2018 include:
· Since the Company invested in May 2018, FundamentalVR has launched in
the USA, Australia and New Zealand and appointed Hybrid Health as its
channel partner for Australian and New Zealand markets;
· FundamentalVR has been recognised as having made significant impact on
this market. This has been evidenced by winning the prestigious Auggie
Award for 'Most Impactful Breakthrough'; being named as one of the best 50
inventions in 2018 by Time magazine and more recently being nominated for
the Immersive Healthcare of the Year award;
· FundamentalVR has also celebrated commercial success by launching a
strategic collaboration and joint development agreement with the Mayo
Clinic, resulting in the Fundamental surgery platform being installed in
their US centres; and
· Two ground-breaking surgical simulators have been installed at UCLH's
flagship University College Hospital, one of the UK's leading teaching
hospitals, as well as the UCLH staff training centre. UCLH are the first
in Europe to have adopted the VR and Haptic simulation system for Spine
and Orthopaedic training
flexiOPS Limited
Market segment: Project management of research and innovation projects in
technology
Equity ownership: 100% Cost: GBP37,500* Valuation: GBP78,000
Cost is 50% of the purchase price of two business units flexiOPS and
Concerto. Concerto was sold in 2016. Valuation is based on fair value. This
was evaluated by a combination of factors including an assessment of sales
pipeline and 2019 trading forecast.
flexiOPS completed its portfolio of EU funded research and development cloud
projects during 2018 and with the changing political landscape in the UK,
securing new EU grants has been very difficult. As a result, the company has
now re-focused on supporting the networking element of Tern's IoT enablement
strategy by aiding the growth and development of the Wyld Technologies
Limited ("Wyld Technologies") ad-hoc mesh networking offering following
their acquisition in late 2017.
During 2018, Wyld Technologies focused on building out its development team
and product platform, and now has a product roadmap that is in line with
current market requirements via its ability to deliver and collect critical
data with its ad-hoc mesh networking platform in the all critical "last
mile".
Mesh networks enable data to be transmitted from different devices
simultaneously. This topology can withstand high traffic and even if one of
the components fail, an alternative is always available, ensuring data
transfer is not affected. As mesh network topology is self-forming and
self-healing it is more efficient at creating robust ad-hoc networks;
providing assured quality to ensure continuity of service.
Post year-end, flexiOPS changed its name to Wyld Networks Limited.
Push Technology Limited
Market segment: Data distribution software
Equity ownership: <1% Cost: GBP120,197 Valuation: GBP34,205
Valuation is based on the price of shares in the most recent fundraise,
which is taken as fair value.
Push Technology Limited ("Push") significantly enhances the ability of
organisations to communicate in real-time. This includes direct
communication as well as indirect, for example, by refreshing data displayed
information in real time rather than when a user explicitly asks for an
update. Interactive applications are infinitely more engaging, updating in
real-time as new data becomes available.
Key announcements in 2018 included:
? New software release to increase security authentication and authorisation
handling.
Seal Software Group Limited
Market segment: Database Analytics and Search software
Equity ownership: <1% Cost: GBP50,000 Valuation: GBP130,377
Valuation is based on the price of shares in the most recent fundraise,
which is taken as fair value.
Seal Software Group Limited ("Seal") specialises in writing software which
performs complex analysis of contractual data. Seal is specifically designed
to locate and examine contractual documents and extract and present key
contractual information related to language, clauses, clause combinations,
and the significant contextual metadata held within them.
In 2018 the notable events included:
· Unveiling a global partnership with DocuSign to automate and connect the
process of how agreements are prepared, signed, enacted and managed.
· Winning the 2018 Aragon Research Innovation Award for Content Analytic,
winning the award for Outstanding Data Analytics Solution at the annual
Big Data Excellence awards in May 2018 and being named a 2018 Cool Vendor
in Content Services by Gartner.
· Being named within the Deloitte's Technology Fast 500(TM) for a third
consecutive year. Seal was named the 64th fastest growing tech company in
the San Francisco Bay Area, and 337th overall with 239 percent
year-over-year growth. Seal Software was also included by Inc magazine
within the 5000 List of America's Fastest-Growing Private Companies for
the second consecutive year.
Customers include Dell, PayPal, Salesforce, Bosch, Experian and many other
multi-national organisations.
Income Statement and Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
GBP GBP
Turnover 106,117 97,940
Movement in fair value of investments 775,910 (757,705)
Gross profit/(loss) 882,027 (659,765)
Administration costs (792,534) (740,923)
Other expenses (476,716) (289,680)
Operating loss (387,223) (1,690,368)
Finance income 74,659 1,020
Finance costs - (207)
Loss before tax (312,564) (1,689,555)
Tax - -
Loss for the period (312,564) (1,689,555)
Since there is no other comprehensive income, the loss for the period is the
same as the total comprehensive income for the period
EARNINGS PER SHARE:
Basic and diluted earnings per share (0.1) pence (1.4) pence
Statement of Financial Position
As at 31 December 2018
2018 2017
GBP GBP
ASSETS
NON-CURRENT ASSETS
Investments held for trading 14,856,239 10,218,625
14,856,239 10,218,625
CURRENT ASSETS
Trade and other receivables 239,180 576,849
Cash and cash equivalents 1,913,801 273,826
2,152,981 850,675
TOTAL ASSETS 17,009,220 11,069,300
EQUITY AND LIABILITIES
Share capital 1,348,903 1,330,225
Share premium 19,660,434 13,237,362
Loan note equity reserve - 123,482
Share option and warrant reserve - 175,982
Retained deficit (4,257,564) (4,286,249)
16,751,773 10,580,802
CURRENT LIABILITIES
Trade and other payables 257,447 277,164
TOTAL CURRENT LIABILITIES 257,447 277,164
NON-CURRENT LIABILITIES
Borrowings - 211,334
TOTAL NON-CURRENT LIABILITIES - 211,334
TOTAL LIABILITIES 257,447 488,498
TOTAL EQUITY AND LIABILITIES 17,009,220 11,069,300
Statement of Changes in Equity
For the year ended 31 December 2018
Share Share Loan Option Retained Total
capital premium note and deficit equity
equit warrant
y reserve
reser GBP
GBP GBP ve GBP GBP GBP
Balance at 31 1,325,27 12,390, 20,65 1,088,59 (3,637,08 11,187,
December 2016 0 310 0 5 6) 739
Total - - - - (1,689,55 (
comprehensive 5) 1,689,5
income 55)
Transactions
with owners
Issue of share 4,955 972,208 - - - 977,163
capital
Issue of - - 112,5 - - 112,563
convertible 63
loan note
Share issue - (125,15 - - - (125,15
costs 6) 6)
Transfer on - - (9,73 - 9,731 -
conversion of 1)
convertible
loan notes
Transfer of - - - (713,326 713,326 -
lapsed and )
exercised
warrants
Transfer of - - - (199,287 199,287 -
option reserve )
Share based - - - - 118,048 118,048
payment charge
Balance at 31 1,330,22 13,237, 123,4 175,982 (4,286,24 10,580,
December 2017 5 362 82 9) 802
Total - - - - (312,564) (312,56
comprehensive 4)
income
Transactions
with owners
Issue of share 18,678 6,861,0 - - - 6,879,7
capital 72 50
Share issue - (603,00 - - - (603,00
costs 0) 0)
Conversion of - - (123, - - (123,48
convertible 482) 2)
loan note
Transfer of - - - (175,982 175,982 -
lapsed )
warrants
Share based - - - - 165,267 165,267
payment charge
Transfer on - 165,000 - - - 165,000
conversion of
loan notes
Balance at 31 1,348,90 19,660, - - (4,257,56 16,751,
December 2018 3 434 4) 773
Statement of Cash Flows
For the year ended 31 December 2018
2018 2017
GBP GBP
OPERATING ACTIVITIES (752,350) (783,866)
Net cash used in operations (2,523,309) (375,000)
Purchase of investments (1,033,316) (402,436)
Loan to investee companies
Net cash used in operating activities (4,308,975) (1,561,302)
FINANCING ACTIVITIES
Proceeds on issues of shares 6,010,000 603,110
Share issue expenses (603,000) (125,156)
Proceeds from exercise of warrants - 34,303
Proceeds from exercise of options 8,500 9,000
Proceeds on issue of loan note 550,000 550,000
Repayment of loan stock (20,000) -
Interest received 3,450 1,020
Net cash from financing activities 5,948,950 1,072,277
(Decrease)/increase in cash and cash 1,639,975 (489,025)
equivalents
Cash and cash equivalents at beginning 273,826 762,851
of year
Cash and cash equivalents at end of year 1,913,801 273,826
Notes
1) BASIS OF PREPARATION
The financial information set out in the announcement does not constitute
the company's statutory accounts for the years ended 31 December 2018 or
2017. The financial information for the year ended 31 December 2017 is
derived from the statutory accounts for that year, which were prepared under
IFRSs, and which have been delivered to the Registrar of Companies. The
auditor's report on those accounts was unqualified, did not contain a
statement under either Section 498(2) or Section 498(3) of the Companies Act
2006 and did not include references to any matters to which the auditors
drew attention by way of emphasis.
The financial information for the year ended 31 December 2018 is derived
from the audited statutory accounts for the year ended 31 December 2018 on
which the auditors have given an unqualified report, that did not contain a
statement under section 498(2) or 498(3) of the Companies Act 2006 and did
not include references to any matters to which the auditors drew attention
by way of emphasis. The statutory accounts will be delivered to the
Registrar of Companies following the Company's annual general meeting.
The financial statements of the Company have been prepared in accordance
with International Financial Reporting Standards (IFRSs) adopted by the
European Union (EU) and therefore the financial statements comply with
Article 4 of the EU IAS Regulation.
IFRS is subject to amendment and interpretation by the International
Accounting Standards Board (IASB) and the International Financial Reporting
Interpretations Committee (IFRIC) and there is an ongoing process of review
and endorsement by the European Commission. The financial statements have
been prepared on the basis of the recognition and measurement principles of
the IFRS that were applicable at 31 December 2018.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Although these estimates are based on
management's best knowledge of the amount, event or actions, actual results
may ultimately differ from those estimates.
The financial statements have been prepared on the historical cost basis
except for investments and certain financial instruments which are measured
at fair value at the end of each reporting period. Historical cost is
generally based on the fair value of the consideration given in exchange for
the assets. The principal accounting policies set out below have been
consistently applied to all periods presented, except where stated.
In accordance with IFRS 10, par 4 and following a reassessment of whether
the Company is an investment company, the Company has taken the exemption
not to present consolidated financial statements or apply IFRS3 when it
obtains control of another entity as it is an investing company that
measures all of its investments at fair value through the income statement
in accordance with IFRS 9.
2) NON-CURRENT ASSETS
INVESTMENTS
2018 2017
GBP GBP
Cost of investments brought forward 10,218,625 10,601,330
Reclassification of convertible loan note 1,270,753 -
from other debtors
Interest accrued on convertible loan note 67,642 -
Additions 2,523,309 375,000
Cost of investments carried forward 14,080,329 10,976,330
Fair value adjustment to investments 775,910 (757,705)
Fair value of investments carried forward 14,856,239 10,218,625
Fair value of equity investments 9,337,041 10,218,625
Fair value of convertible loans 5,519,198 -
Fair value of investments 14,856,239 10,218,625
3) EARNINGS PER SHARE
2018 2017
GBP GBP
Loss for the purposes of basic and fully (312,564) (1,689,555)
diluted earnings per share
2018 2017
Number Number
Weighted average number of ordinary
shares:
For calculation of basic earnings per 217,221,165 124,586,665
share
For calculation of fully diluted 221,079,230 124,586,665
earnings per share
2018 2017
Earnings per share:
Basic and diluted earnings per share (0.1) pence (1.4) pence
4) ANNUAL GENERAL MEETING (AGM)
The annual report will be available from the company website from 25 March
2019 and will be posted to shareholders on or before 29 March 2019. The
annual report contains a notice of the AGM which will be held at 9.30am on
25 April 2019 at the offices of Reed Smith, The Broadgate Tower, 20 Primrose
Street, London, EC2A 2RS.
ISIN: GB00BFPMV798
Category Code: FR
TIDM: TERN
LEI Code: 2138005F87SODHL9CQ36
Sequence No.: 7854
EQS News ID: 788839
End of Announcement EQS News Service
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(END) Dow Jones Newswires
March 19, 2019 03:02 ET (07:02 GMT)
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