30 May 2024
Tern Plc
("Tern"
or the "Company")
Audited results for the year
ended 31 December 2023
Tern Plc (AIM: TERN), the investment
company specialising in supporting high
growth, early-stage, disruptive Internet of
Things ("IoT") technology businesses, announces its audited results
for the year ended 31 December 2023.
Highlights
·
Net assets of the Company at 31 December 2023 of
£12.3m (31 December 2022: £24.9m). The net asset value per ordinary
share as at 31 December 2023 decreased to 3.2p (31 December 2022:
6.4p).
·
The reduction in net assets of the Company as at
31 December 2023 of £12.6m is principally
due to movements in investments held at fair value through the
profit or loss of £11.0m, and a reduction in the Company's cash
balance of £0.6m.
·
The unaudited aggregated annual recurring revenue ("ARR") of our
holdings1 increased by 50% from 2022 to 2023 (97% from 2021 to
2022).
·
The aggregated employee numbers in our holdings
decreased by 1% from 2022 to 2023
(increased by 66% from 2021 to 2022), however this decrease was
balanced by an associated increase in ARR such that ARR per
employee increased by 51% (19% from 2021 to 2022).
1Our 'holdings' includes the positions we hold in our portfolio
companies and the publicly traded Wyld Networks AB: Our
portfolio at the end 31 December 2023 included: Device Authority
Limited, InVMA Limited (trading as Konektio, from 5 March 2024
InVMA Limited was no longer included in the portfolio), FVRVS
Limited (trading as FundamentalVR) and Talking Medicines Limited,
collectively 'our portfolio': as further described in the section
headed 'Portfolio Companies and Holdings' below and as detailed in
note 2 to the accounts.
Availability
of Annual Report and Notice of AGM
The annual report for the year ended 31
December 2023 will shortly be available from the Company's
website https://www.ternplc.com/investors
and will be posted to shareholders today.
The Company's Annual General Meeting ("AGM")
will be held at 9.30am on Thursday 27 June 2024 at the offices of
Allenby Capital, 5 St Helen's Place, London, EC3A 6AB. The notice
of AGM will shortly be available from the Company's website
https://www.ternplc.com/investors
and will be posted to shareholders today, together with the
form of proxy.
Enquiries
Tern Plc
Ian Ritchie (Chairman)
|
via IFC Advisory
|
Allenby Capital Limited
(Nominated Adviser and
Broker)
Alex Brearley / Dan Dearden-Williams
(Corporate Finance)
Kelly Gardiner / Guy McDougall
(Sales and Corporate Broking)
|
Tel: 0203 328 5656
|
IFC
Advisory
(Financial PR and IR)
Tim Metcalfe
Graham Herring
Florence Chandler
|
Tel: 0203 934 6630
tern@investor-focus.co.uk
|
Chairman's
Statement
Whilst market conditions remain
challenging, I am pleased to report that 2023 was a year of
significant underlying progress for Tern and the majority of its
portfolio companies.
We are an AIM-quoted provider of
venture capital ("VC") to exciting Internet of Things companies,
seeking to create value from investing in disruptive start-ups not
generally available to AIM investors. This model gives our
shareholders the opportunity to effectively act as Limited Partners
(LPs), akin to the capital model in a traditional VC fund, but with
the benefit of daily liquidity for your holding on the London Stock
Exchange and no obligation to provide further capital.
Tern has built a portfolio of
high-growth businesses where we see opportunities in sectors poised
for substantial growth. We actively drive significant value
creation from the organic growth of our companies and seek
well-timed exits to realise a high return on the investment in due
course.
Regrettably, the historically least
successful company in our portfolio, InVMA (trading as Konektio),
has recently entered administration and its value has been written
down to zero. During 2023 we had lost confidence in this company to
the extent that we declined to participate in its last investment
round following which other existing, established shareholders
followed suit.
Despite the fair value decrease, our
portfolio is not just surviving, but thriving - a performance that
I believe is much better than most early-stage investment
portfolios in their space.
·
Device Authority has raised significant new funds
from an industry specialist investor allowing it to fully
capitalise on its industry recognised technology and build on its
partnerships with Microsoft, Entrust, Cybertrak and PTC.
·
Wyld Networks has strong relationships with the
European Space Agency, Eutelsat, Bayer Crop Science and Thales and
has signed deployment deals in Saudi Arabia, Australia, Argentina
and Brazil.
·
FundamentalVR's revenue and gross margin have
continued to improve in 2023. The company has made significant
progress in expanding its contracted annual recurring revenue.
Apple's continued expansion of activity in the metaverse space and
Meta's global advertising campaign which featured FundamentalVR are
both significant opportunities for the company.
·
Talking Medicines is currently exceeding its
management's forecasts. They have secured partnerships with for
example data aggregator Socialgist, published with Sermo Physician
Community and signed contracts with multiple US based Healthcare
Advertising Agencies/Advertising Holding Companies that serve
Pharmaceutical Companies.
Each of these companies and their
services have developed into recognised technology leaders in their
targeted markets and are now firmly into their growth
stage.
Unlike in the traditional VC model,
Tern provides more than just funding; it proactively supports the
growth of its portfolio companies. Organic delivery has been
strong, with significant commercial traction and growing recurring
revenues, a key metric in establishing value for a trade sale, IPO
or secondary buyout by another venture/PE backer.
During the year, we have taken the
opportunity to increase our efficiency by significantly cutting our
operating costs by 40%, halving our senior leadership team from
four to two, and moving to a lower cost office.
However, we do need to retain the
ability to continue to support our portfolio companies, especially
successful ones, as they grow, otherwise we are at risk of being
disproportionately diluted as they raise further funds. We always
look for ways of realising capital from our portfolio where
appropriate, but Tern also needs to retain the ability to issue new
ordinary shares as the need arises.
It is worth noting that we have
invested in each of our portfolio companies at an early-stage - in
most cases before they had developed their products or built any
meaningful routes to market. What each of them had demonstrated to
us was exciting opportunities to develop new high growth
businesses. We have, and continue to, invest significant time and
effort with these companies to ensure that they create effective
business models, grow their team effectively, and develop their
market opportunities.
In particular, your Company gains
notable value from the enormous experience of Bruce Leith and Al
Sisto as veteran experienced technology entrepreneurs over many
years, and particularly Al Sisto, who is based in the USA, and is
embedded in current business development cultures there. This has
enabled us to build strong US-based trading businesses for most of
our portfolio companies, operating effectively in the world's
strongest technology market.
Our goal is to build value in these
businesses. Unlike other VCs we do not load management fees onto
our companies, as we want them to use all their resources to grow
in value. In addition, companies in these growth stages are not in
any position to pay dividends - our return comes when we achieve a
liquidity event. Thus, we strive to ensure that the value of our
portfolio companies grow by at least 20% per year and when we do
realise the value in these businesses (by trade sale or public
listing) our goal is to return significant value to our
shareholders, after taking into account the need for reinvestment
in our portfolio. Whilst the carrying values of our portfolio
companies at the year-end do not reflect this targeted annual
increase in value, reflecting the required valuation methodology
for our audited accounts, I believe that the true value that will
ultimately be realised will be far higher.
One of the key characteristics of
early-stage deep tech investments is that we have very little
control of when a liquidity event is likely to emerge. What we must
do is ensure that our companies continue to present significant
value to an acquiring corporation. Also, in the ups and downs of
the technology economies, there are seasons where acquisitions and
public listings can happen, and other seasons where it is very
difficult to achieve a good price. In these circumstances we must
'wait it out' until a good price can be achieved.
It is the Board's intention that the
Company will not invest in any companies or entities not already
part of Tern's existing portfolio until such time as the Company
has realised material value from its current portfolio.
We consider that holding shares in
Tern should therefore always be seen as a long-term investment. If
our companies are growing well, as they are, the value should
eventually be realised, and our shareholders will benefit from the
funds received.
Our current portfolio has been
working well, evidenced by the ability of every one of them to
either achieve a listing on a stock market (Wyld Networks on NASDAQ
First North Growth Market), or to raise later stage investment from
new independent third-party investors (Device Authority,
FundamentalVR, Talking Medicines). These achievements have been
even more impressive by occurring during a challenging time for
tech companies to raise capital, indicating that our positive
confidence in the excellent potential of our companies is shared by
other sources of risk capital.
I would also like to take the
opportunity to recognise the outstanding performance of our senior
leadership team during this year. We are very much a 'hands-on'
team who actively participate in the strategy and development of
our various investment companies. I would also like to thank my
fellow non-executive directors, Alan Howarth and Sarah Payne, who
changed role from CFO to non-executive director in September 2023,
for their excellent judgment and advice.
In short, a stake in Tern should be
seen as an ability to participate in the development of attractive
businesses generally not available to private investors whose
growth, with our guidance and access to our network of resources,
is aimed at providing long-term capital gains.
It is our job to ensure that we work
to achieve the strongest return for your investment, and we assure
you that we will continue to make that our principal
goal.
Ian
Ritchie CBE, FREng, FRSE
Chairman
Financial Review
All sectors, excluding energy, saw a
decline in venture investing and valuations during 2023 from higher
valuations and catch-up investing post Covid in 2021. This
valuation adjustment flowed through to some of our portfolio
companies and holdings. However, with the exception of Konektio,
further details of which can be found below, our portfolio
continued to focus on their fundamentals, showing growth through
the period with a focus on maximising growth of annual recurring
revenue.
Statement of Financial Position
Net assets at 31 December 2023 were
£12.5m, a reduction of £12.4m from the net assets of £24.9m at 31
December 2022. This is principally due to movements in investments
held at fair value through the profit or loss ("FVTPL").
The negative impact of foreign
exchange movements at Device Authority and Wyld Networks add to the
decreases in the fair value of the portfolio leading to an overall
decrease in our investments of £11.1m. Our cash balance was £0.6m
lower at 31 December 2023 compared to 31 December 2022. Whilst our
administration costs and other expenses declined in 2023 compared
to 2022, we received no proceeds from the issue of new shares in
2023. Trade and other payables is £0.3m higher at 31 December 2023
compared to 31 December 2022.
Investments held at FVTPL of £12.8m
relate to our portfolio of high- growth technology companies.
During the year, the fair value of this portfolio decreased by
£11.1m, resulting from investments made of £1.4m, disposal of
assets of £1.5m, foreign exchange decrease of £0.3m and a negative
movement in the fair value of investments held at FVTPL of
£10.6m.
Income Statement and Statement of Comprehensive
Income
The total comprehensive loss for the
year was £12.5m (2022: loss of £10.4m), primarily due to a net
negative movement in the fair value of investments held at FVTPL of
£10.6m.
The Company seeks to keep its fees
charged to portfolio companies at modest levels, as the Company's
preference is for capital to instead be reinvested in the portfolio
to drive value creation.
Administration costs decreased to
£1.7m in 2023 (2022: £1.8m). Other expenses decreased to £0.1m in
2023 (2022: £0.4m).
Statement of Cashflows
During the year, £1.4m was used in
the Company's operations, £1.2m deployed within our existing
portfolio, via equity and loan investments.
A £0.5m loan was provided to the
Company during the year and £0.1m was repaid.
Key performance indicators
The Company's financial Key
Performance Indicators ("KPIs") are focused on increasing net asset
value, increasing net asset value per share and delivering
consistent revenue growth of our portfolio. The Company also
monitors non-financial KPIs, the primary focus being on the
increase in employee numbers and revenue per employee in our
portfolio which is an indicator of growth to support commercial
success. These indicators are monitored closely by the Board and
the details of performance against these are given
below.
The return on investments
Unrealised fair value:
·
Wyld Networks: £2.4m valuation (31 December 2022:
£6.0m): The equity valuation has decreased due to a realisation of
£1.5m in disposed Wyld Networks shares, the reduction in Wyld
Networks' market capitalisation of £2.0m (reduction in share price)
plus an exchange rate loss of £0.05m;
·
Device Authority: £4.4m valuation (31 December
2022: £11.9m): The valuation has decreased due to a fair value
reduction of £7.6m, including a foreign exchange rate loss of
£0.2m. The valuation decrease arose from applying Device
Authority's latest fundraise valuation. The convertible loan notes
of £0.7m provided by Tern to the company was converted to equity in
December 2023. (For further details on Device Authority, please see
note 2);
·
Konektio: Nil valuation (31 December 2022: £0.5m):
The equity value of Konektio was written off due to the company
entering into administration;
·
FundamentalVR: £3.6m valuation (31 December 2022:
£3.6m): The valuation has remained static;
·
Talking Medicines: £2.0m valuation (31 December
2022: £1.8m): The valuation has increased due to additional funding
provided to the company of £0.2m via CLN which was outstanding at
the year end;
·
Diffusiondata (previously Push Technology): £0.02m
valuation (31 December 2022: £0.02m): The investment is valued at
fair value with the price of the most recent valuation taken into
account; and
·
SVVUK: £0.3m valuation (31 December 2022: £0.1m):
The investment is valued at fair value at the value provided by the
SVVUK fund. The fair value decrease of £0.1m was offset by the Tern
investment of £0.3m.
Wyld Networks valuation is
determined by reference to the appropriate quoted market price at
the reporting date.
The global downturn in technology
company valuations and multiples applied to early-stage businesses
was taken into consideration when assessing the fair value of the
portfolio.
The net assets of the Company at 31
December 2023 showed a reduction to £12.3m (31 December 2022:
£24.9m). The net asset value per ordinary share as at 31 December
2023 decreased to 3.2p (31 December 2022: 6.4p).
The year-on-year unaudited annual
recurring revenue ("ARR") of our portfolio companies (level 3
investments) increased by 50% from 2022 to 2023 (97% from 2021 to
2022).
The Company has non-financial KPIs
which are also monitored regularly by the Board. The non-financial
KPIs are focused on the growth in employee numbers in our
portfolio. We believe these factors help serve as leading
indicators of the future performance and our impact on our
stakeholders:
Employees in our portfolio companies
decreased by 1% from 2022 to 2023 (increase of 66% from 2021 to
2022), however this decrease was balanced by an associated increase
in ARR such that ARR per employee increased by 51% from 2022 to
2023 (19% from 2021 to 2022).
Portfolio Companies and Holdings as at 31 December
2023
Wyld Networks
AB (publ) ("Wyld Networks" or "Wyld")
Valuation: £2.4m (31 December 2022: £6.0m)
Holding:
22.5%*
Wyld Networks, quoted on the NASDAQ
First North Growth Market in Stockholm, enables affordable
connectivity across the globe in areas where wireless coverage is
unavailable. The company specialises in providing wireless
connectivity between IoT sensors and Low-Earth-Orbit ("LEO")
satellites supporting ISM, S and L band spectrum with its Wyld
Connect solution for governments and businesses. The company has
expanded its portfolio in launching Wyld Fusion a hybrid
terrestrial and satellite IoT platform
Wyld Networks CEO, Alastair Williamson said:
"As we continue to move
further into our commercialisation phase, we are appreciative for
the continued support and guidance that Tern provides, helping us
promote the company and our solution, navigate the challenges and
capitalise on the further opportunities that lie
ahead."
*Pursuant to Tern's funding facility
announced on 12 June 2023, under which £418,205 was the balance
outstanding as at 31 December 2023, Tern is required to maintain in
escrow shares in Wyld at a value of not less than 1.5 times the
value of outstanding amounts drawn down and accrued interest, as
security for the Facility.
Device Authority Limited ("DA" or "Device
Authority")
Valuation: £4.4m (31 December 2022: £11.9m)
Equity ownership:
35.7% (before any dilution on exercise of share
options)
Device Authority is a pioneering
force in Identity and Access Management (IAM) tailored for
interconnected device ecosystems, empowering organizations to
realize 'Zero Trust' security on a comprehensive scale. In the
realm of security, Zero Trust demands unwavering authentication,
authorization, and ongoing validation of all users, irrespective of
their network positioning, ensuring their adherence to stringent
security configurations and postures prior to accessing
applications and data. Central to this paradigm is Device
Authority's acclaimed KeyScaler® platform, meticulously crafted to
streamline and automate the management of IoT machine identities
across their complete lifecycle. By furnishing end-to-end trust in
devices, data, and operational integrity, KeyScaler® epitomizes a
cornerstone in fortifying organizational security
frameworks.
Device Authority CEO, Darron Antill said:
"Last year saw key
breakthroughs for Device Authority, as winners of the Microsoft
Global award and developing our Enterprise class SaaS platform
(KSaaS) to meet demand and the shift in consumption models from
customers. Working with Board and our lead investor Tern we
developed a strategy to bring in new investment and particularly
cyber security investors to help accelerate the company trajectory
into key vertical markets."
FVRVS Limited ("FundamentalVR")
Valuation: £3.6m (31 December 2022: £3.6m)
Equity ownership: 12.1%
(before any dilution on exercise of share
options)
A global leader in immersive surgical training,
FundamentalVR was founded with the mission to accelerate human
capability in surgery and medicine through virtual technologies to
improve patient outcomes. The company's innovative approach
accelerates the industry shift towards digital surgery, addressing
the competency gap at scale in training for intelligent operating
rooms.
Its purpose-built Fundamental Surgery platform
allows for full rehearsal of medical and surgical procedures, and
its patented HapticVRTM technology mimics the physical touch,
weight, resistance and feedback of surgical actions and accurately
simulates the sensations of soft tissue, bone textures and
muscle.
With over 15,000 competency-building sessions
conducted globally and accredited by and affiliated with
institutions like the American Academy of Opthalmology (AAO), the
American Academy of Orthopaedic Surgeons (AAOS), and the Royal
College of Surgeons of England, FundamentalVR remains committed to
elevating performance and training skilled surgeons and Operating
Room teams at scale.
FundamentalVR CEO, Richard Vincent
said: "This has been
an exciting year of growth and technological development for
FundamentalVR as we have pushed both the spatial immersive VR and
haptic capabilities of our platform and its use cases within the
MedTech industry. We're thrilled with the progress we've made, and
we're grateful for the steadfast support of Tern Plc, whose
partnership continues to be instrumental in our
journey."
Talking Medicines Limited
("Talking Medicines")
Valuation: £2.0m
(31 December 2022: £1.8m)
Equity ownership: 23.8%
(before any dilution on exercise of share
options)
Talking Medicines harnesses Advanced Data
Science and Artificial Intelligence to empower healthcare
advertising agencies, enabling them to consistently secure and
retain Pharma clients while achieving heightened productivity and
rapid project delivery. With a vision to transform the $30 billion
healthcare marketing landscape, Talking Medicines unlocks strategic
intelligence embedded within conversational data. By structuring
conversational data, Talking Medicines empowers customers to gain
strategic advantages in analysis, measurement, and the cultivation
of enhanced brand equity.
Talking Medicines' goal is to revolutionise the
pharmaceutical industry with its cutting-edge social intelligence
platform, PatientMetRx. By harnessing the power of artificial
intelligence (AI) and natural language processing (NLP), the
platform provides pharmaceutical companies with unparalleled
insights into patient and healthcare providers (HCPs) experience
and preferences using social data.
This allows companies to deliver a greater
return on investment for marketing and to ultimately improve health
outcomes for patients. With PatientMetRx, pharmaceutical companies
have access to a level of scale and depth of patient insights that
was previously impossible, enabling them to make data-driven
decisions that drive success.
Talking Medicines CEO, Jo Halliday
said: "Al Sisto and
Tern have continued to add valuable support behind our strategic
direction as we have grown both our AI product offering, and
successfully expanded into the US market. We value this continued
input and direction from an experienced team."
Diffusiondata (previously Push
Technology)
Valuation: £0.02m
(31 December 2022: £0.2m)
Equity ownership: <1%
Diffusiondata elevates organizations' capacity
for real-time communication. This extends beyond direct
interactions to encompass indirect channels, such as automatically
refreshing displayed data in real-time, without necessitating user
prompts for updates. Interactive applications thrive on this
capability, becoming infinitely more engaging as they seamlessly
update in real-time with the arrival of new data.
Sure Valley Ventures UK Software
Technology Fund ("SVVUK")
Valuation: £0.3m
(31 December 2022: £0.1m)
Equity ownership: 5.9%
SVVUK stands as a venture capital
powerhouse, directing its investments towards a diverse array of
private UK software companies, with a particular focus on the
burgeoning immersive technology and metaverse sectors. This
encompasses ventures involved in augmented and virtual reality,
artificial intelligence, and cybersecurity. Presently, SVVUK boasts
investments in two promising enterprises: RETìníZE Limited, a
dynamic creative tech firm headquartered in Belfast, and Opsmatix
Systems Limited, operating under the brand Jaid, an innovative
technology company offering cutting-edge AI-driven human
communication solutions. With an unwavering commitment to
innovation, the SVVUK team remains dedicated to assessing
additional investment prospects within their target sectors,
including immersive tech, SaaS, cybersecurity, and IoT. Notably,
many of these opportunities leverage artificial intelligence at
their core, aligning seamlessly with SVVUK's overarching investment
strategy.
Income Statement and Statement of
Comprehensive Income
For the year ended 31 December
2023
|
|
2023
£
|
2022
£
|
Fee income
|
|
199,233
|
66,013
|
Movement in fair value of
investments
|
|
(11,046,575)
|
(8,415,781)
|
Profit on disposal
|
|
28,589
|
11,208
|
Total investment loss
|
|
(10,818,753)
|
(8,338,560)
|
Administration costs
|
|
(1,711,892)
|
(1,792,523)
|
Other expenses
|
|
(194,317)
|
(366,596)
|
Movement in fair value of
derivative financial instrument
|
|
35,749
|
-
|
Operating loss
|
|
(12,689,213)
|
(10,497,679)
|
Finance income
|
|
81,083
|
50,915
|
Loss before tax
|
|
(12,608,130)
|
(10,446,764)
|
Tax
|
|
-
|
-
|
Loss and total comprehensive income
for the period
|
|
(12,608,130)
|
(10,446,764)
|
Since there is no other
comprehensive income, the loss for the year is the same as the
total comprehensive income for the year.
LOSS PER SHARE:
Basic loss per share
|
(3.24)
pence
|
(2.92)
pence
|
Diluted loss per share
|
(3.24)
pence
|
(2.92)
pence
|