Final Results
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Tern PLC (TERN)
5 May 2020 Tern Plc (the "Company", or the "Group") Final results for the year ended 31 December 2019 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 2019. Operational highlights
Commenting on the results, Tern CEO, Al Sisto said: "As a proactive investor which backs innovation, it has been very rewarding to see the commercial progress made by our portfolio companies reflected in our net asset value, which has increased during the period. This rise included a successful Series A fundraise for FundamentalVR, with an outstanding syndicate of new investors we helped solidify at an implied valuation 27% higher than when we took a position in the company just a year earlier. The positive momentum developed in 2018 continued throughout 2019 with important milestones achieved across our business and the businesses of our principal portfolio companies. We expanded our Tern team and we again continued to increase turnover and employees within our principal portfolio companies.
We continue to see a range of exciting and high growth technology companies across the segments of IoT in which we invest. Having strengthened our financial position during the year, we are now well-placed to deliver additional diversification and this will be a priority. We are focused on investing in companies which provide commercial solutions to the healthcare and industrial use cases where security, safety and regulatory compliance are critical requirements and contribute to the synergies within our portfolio.
During this challenging period caused by COVID-19, we have also taken steps to protect our balance sheet, reducing our salaries by 20% and we are working very closely with the entrepreneurs within each of our portfolio companies, helping them to access government funding and to innovate. We remain optimistic about our portfolio businesses. As lockdown eases, there will be an ongoing need for technology to support continuing social distancing measures and we are focused on ensuring our portfolio companies are well positioned for growth when the economy begins to recover."
Shareholder Communication
A shareholder conference call with accompanying presentation slides will be held at 3:00pm on Thursday 28 May 2020. The Company is committed to ensuring that there are appropriate communication structures for all elements of its shareholder base so that its strategy, business model and performance are clearly understood.
Enquiries
Chairman's Statement
I am delighted to report the progress that we made during 2019 in growing the effectiveness and value of our portfolio of companies in the Internet of Things ("IoT") sector. Our mission is to identify, invest in and support entrepreneurial companies to develop IoT solutions which improve productivity, connectivity and security, leading to demonstrably increased performance for their various customers. Tern completed two successful equity fundraisings during the period. At the portfolio company level, fresh capital from financial and trade investors was secured by FundamentalVR in its Series A round. We also continued to support each of our principal portfolio companies with follow-on funding and are pleased to report good progress from them all. Our success is due to the effectiveness of our executives and during this year I was delighted to welcome Matthew Scherba to our team. Matthew has first-class experience as a technology investment executive and adds considerably to our team's ability to identify opportunities and to support our existing portfolio. I would like to take this opportunity to thank all of our executives for their hard work over the year. The recent restrictions imposed in the wake of the COVID-19 pandemic has brought fresh challenges to our portfolio companies and we have been careful to maintain their effectiveness while also ensuring the wellbeing of all employees. A weekly conference call with all the CEOs from our principal portfolio companies and Tern Directors has created valuable opportunities to provide advice, support and partnerships which are forming positive and constructive outcomes. This is an exciting time for venture capital and we remain proud to enable access for our shareholders to share in the opportunities and value offered by exciting high-growth IoT companies. Ian Ritchie CBE, FREng, FRSE Chairman
CEO's Statement
2019 was a year in which we began to execute fully on our transformed business model, leveraging the work accomplished by the Company in 2018. We made material progress on the goals that we set out for Tern and our principal portfolio companies. As always, we set out right from the start to help our portfolio companies to build significant businesses in big markets where there is a clear demand for their services. By investing early in businesses, there is an opportunity to build NAV and NAV per share materially over a number of years. During the year, a key achievement was FundamentalVR's ability to capitalise on the work and capital delivered in 2018, by closing a Series A financing round at a valuation which represented a 27% uplift on the investment of £1.9 million made by the Company in FundamentalVR in May and October 2018. Tern invests in technology companies in the Internet of Things (IoT) space across the categories of healthcare, security, networking and data analytics. We have moved from taking large stakes in these exciting companies to now establishing positions of influence of 25% or more at the seed, early stage Series A and Series A investment rounds. We back intrepid entrepreneurs who are seeking to change the future through the products and technologies they have and are developing with our early funding; providing active involvement and support to succeed at becoming a global force. We do this, as early investors, by thoroughly understanding the companies in which we invest. Our bottom-up investment process requires rigorous due diligence on companies and market analysis. We meet with company management, competitors and suppliers while conducting a deep dive into the underlying business fundamentals to establish our investment thesis based on ensuring the quality of a company. As part of our process we look to answer three key questions before making a commitment, to determine the scalability and sustainability of the company's competitive advantage and how it can be monetised to achieve rapid growth:
We believe that this improved approach to investing early with a chance to steer their strategy and product focus provides for an efficient use of our capital and resources that will result in higher returns for our shareholders at the time of realisation. Building on this momentum we are looking to add exciting new investments and create additional value from our existing ones in the year ahead. Operating Review Significant progress was made in many areas of our business in 2019 and the adoption rate of IoT products and technologies continues to accelerate. During 2019, we supported our principal portfolio companies and their mission of value creation with our financial and active involvement. This support was reflected in the net asset value per share of our portfolio remaining broadly stable at 7.0p (FY19: 7.1p) which included a 20% increase in the absolute portfolio value. Our total operating costs during 2019 remained comparable to 2018 at £1.3 million (2018: £1.3 million). The administration costs increased by £0.2 million, which was offset by an equivalent reduction in other expenses. The majority of the administration cost increase was due to an increase in Directors' fees and professional fees from advisors based in the USA. Directors fees have increased to bring them more in line with the average in the market and to enable effective recruitment. The majority of the other expenses were the result of the Company exploring an opportunity to substantially expand its portfolio through a strategic initiative. However, after careful due diligence and with the support of our advisors, the Board decided not to pursue the opportunity any further. During 2019, our principal portfolio companies continued to leverage the gains made in 2018 and to develop new opportunities for accelerating their growth. Progress was made by our principal portfolio companies in securing new customers and market partnerships that has led to their expansion, as demonstrated via our key metric, the delta in aggregate revenues and headcount year over year. We believe that these are indicators of market acceptance and the future growth potential of our principal portfolio companies. The Directors continuously weigh the possible returns of our potential new investment opportunities in accordance with the circumstances and opportunities that could be created by committing our resources to a new investment (or additional funds to an existing investment). By doing so, we attempt to validate if the continued progress by our portfolio companies is creating lasting value that can create attractive returns for our shareholders. The Directors of Tern are also pleased by the efficient use of capital by our principal portfolio companies in the monies spent to date to build their products and brands, which we believe is competitive to their peer groups in respect of reaching similar stages of development. During 2019, Tern raised an additional £3.25 million before expenses of which £2.5 million was re-invested into existing portfolio companies via equity or loan note instruments to support their continued progress. This progress produced an aggregate turnover by our principal portfolio companies for the year ended 31 December 2019 which was 27% ahead of the turnover achieved in 2018. The percentage increase would have been higher had there not been the impact of commercial orders that were expected to be signed during Q4 2019 being delayed, in many cases, because our principal portfolio companies continued to negotiate to achieve better outcomes. Some of these transactions were announced in late 2019 and others were announced in early 2020, contributing to a strong start to the year for these businesses, with others being anticipated to follow. The Directors believe the 31% increase in aggregate employees across the principal portfolio companies in 2019, compared to 2018, will provide a strong foundation for continued revenue growth and market share expansion in 2020. Tern is focused on carefully expanding its portfolio by selecting the most innovative and promising companies from the wide array of opportunities that we meet, which we believe can become category leaders in the IoT markets they target. In the year ahead, we are planning to expand our sourcing geography beyond the UK into Europe. This should increase the number and quality of opportunities that we consider and also mitigate the potential volatility in the capital markets as the final Brexit outcomes are determined. We are searching for investments in disruptive early-stage IoT companies, which have developed market changing technologies for the healthcare and industrial IoT markets. These are markets that have already received significant investment and that are looking for new ways to enhance outcomes and increase productivity. For example, the IoT healthcare market size is projected to reach US$534.3 billion by 2025 expanding at a CAGR of 20% between 2019 and 2025, according to a report by Grand View Research, Inc. (March 2019). The global Industrial Internet of Things (IIoT) market is expected to reach a value of US$922.62 billion by 2025, according to a Million Insights report (March 2019). By opening up to new markets, we believe we will also broaden the potential to syndicate follow on funding rounds with a broader set of financial and strategic investors. This should de-risk our position by the syndication of the later rounds with a blend of strategic and financial investors who add their resources to facilitate the scale up of the portfolio company's business. Our investment committee also believes that important environmental, social and governance (ESG) factors are integral to assessing the quality of a company and thus become an important part of our investment process. Today, for example, our portfolio companies are helping to address these challenges by improving health care outcomes and the ability to help measure and reduce carbon-based energy consumption. We have a deep respect for the entrepreneur and the company building process and throughout 2019 we saw progress, growth and industry recognition for our principal portfolio companies. Our financial priorities continue to be concentrated on accelerating the progress of our principal portfolio companies' commercial success; value creation; robust realisations and the addition of new investments by:
Providing a greater opportunity to create and return value to our shareholders is our primary objective and we remain committed to expanding our portfolio during 2020 with companies that leverage our strong positioning in the IoT space. Our deal flow remains strong and this critical goal will be our focus for 2020 and beyond to fuel the growth of our NAV per share and to increase the opportunities to generate realisations and returns for our shareholders. Investments and Portfolio Update Throughout the year Tern has invested in the teams, technology and product development and brand building of our principal portfolio companies. We believe that we have further scaled our principal portfolio companies with our investment support, introductions to strategic partners and, in the case of FundamentalVR, crystallising new sources of capital from the syndication of a follow-on funding round. Through this strategy we have enabled our principal portfolio companies access to the capital they need to grow and scale up their business. Device Authority 56.8% holding; Invested since 2014 $3.3 million convertible loan At Device Authority, the company has expanded and refined its go-to-market partners resulting in a growth in product sales and active customer engagements. Using this active partner base, the company is developing a sales and support model that has improved its ability to scale and add to growth. Also, the focus on healthcare (Medical IoT: MIoT), high value manufacturing/production (Industrial IoT: IIoT) and most recently, the connected car (Automotive IoT: AIoT) has created efficiencies in product development processes and created opportunities for follow-on business. A significant investment by Device Authority in 2019 was to enhance its ability to penetrate the large enterprise markets with its Microsoft Azure IoT central connector. This key enhancement to Device Authority's KeyScaler product is designed to leverage the investment in IoT deployments by Microsoft Azure's large customer base by providing an end-to-end service offering in the cloud with enhanced security. We believe that this product alignment with Microsoft represents an important new segment for Device Authority's growth and continued leadership in the IoT security market. FundamentalVR 26.9% holding; Invested since May 2018 FundamentalVR is an example of Tern finding a disruptive opportunity, investing early in order to help shape their business model and making an investment at a reasonable value and share of the business. On 30 October 2019, within seventeen months of our initial investment, FundamentalVR secured a £4.3 million Series A fundraise, including a £0.5 million convertible loan note conversion by Tern, at a post-money valuation of £11.3 million. We believe that this represents a validation of the Tern investment strategy. This syndicated transaction represents an increase in fair value within a year from Tern's most recent investment, introducing strategic and financial investors to our portfolio company and reducing the risk profile of Tern's investment to its shareholders. FundamentalVR's Virtual Reality Haptic Simulation platform technology is now being used by an array of customer groups including medical device companies, pharmaceutical companies and medical centres. InVMA 50% holding; Invested since September 2017 £50k convertible loan We are also pleased with the transformation of InVMA. During 2019 the company enhanced its business model from being strictly an engineering design and services company to a product company with a very experienced services component. This enhanced business model is the culmination of Tern's original investment thesis for InVMA which involved changing its market value model from a services company, which the Directors believe are generally valued on a one times revenue basis, to a product company, which the Directors believe are generally valued on a multiple of revenues. Now, with its first product AssetMinder, it has the opportunity for revenue and customer growth that is emanating from a cash flow neutral base. In January 2020, InVMA announced that it had secured an initial order to provide its AssetMinder solution to a global, multi-billion Euro supplier of products to the global industrial and construction markets. This was a critical endorsement of the product and the work done by InVMA's management. Wyld Networks 100% holding; Invested since 2016 £0.9 million loan note Wyld Networks is a portfolio company that is the result of our rollup of flexiOps, Amiho Technology and Wyld Research. During 2019, assets costing less than £45,000 were added to the existing business of Wyld Networks and we supported the business with additional operating capital of £0.7 million, via a cash flow loan. Combining the various related products and technologies into one business, Wyld Networks, we believe that we have created a compelling proposition in the IoT network communications industry. During 2019 we recruited a seasoned senior executive into the business to lead the company as CEO. The company currently has its products operating in over 300,000 smart meters and with its mesh platform has now established a unique and value enhanced product suite, delivering secure intelligent mesh solutions empowering resilient Consumer, Enterprise and IoT networks to create value. Wyld Network's technology is unique in that it creates a wireless network which connects smartphones to smartphones, as well as smartphones to IoT devices in a mesh architecture. It establishes a resilient and low-latency mesh network without the need to route all the traffic through the traditional hierarchical mobile infrastructure. This creates potential multiple revenue generating and cost reducing use cases in Events, Retail, Transportation, Healthcare and Smart Buildings. As a proof point, during 2019, Wyld Networks entered into an agreement with several companies, notably Delta-T Devices in the Agritech vertical and Develco in the smart metering vertical. Also, Wyld Networks was awarded a £121,000 grant by Innovate UK to collaborate on a new mass production technology, SmartDrop, for Archipelago Technology Group Ltd. An important milestone for the business. Subsequently in early 2020, Wyld patented its technology and signed an additional three contracts, most notably with one of the world's largest Satellite operators to co-design, develop and market a software solution to enable direct sensor to satellite connectivity using LoraWan as the wireless protocol. This is unique and has the potential to dramatically enhance the business case and return on investment for the provision of satellite IoT solutions. Outlook and Summary - Building on our progress During the year, we executed on our strategic objectives and key performance indicators outlined in the 2018 annual report and at our AGM. As we progress in 2020, we are better positioned to build on our successes of 2019 and strive to achieve additional third-party validation of the value created in our investments, that was and is driven by the management teams who lead our portfolio companies. At Tern, we have expanded our team and resources to help drive continued progress and improved results as we work to secure the best opportunities for our value creation model. We believe our unique and differentiated platform empowers entrepreneurs to build and grow their companies to achieve commercial success. It starts with a partnership that has deep domain expertise and years of operating experience. We help our entrepreneurs leverage our global reach, with access to our networks of businesses and contacts that can be catalysts for scale. The IoT market opportunity is continuing to gather strength and momentum and we are positioned at the forefront of the wave. We entered 2020 well positioned to leverage this opportunity and are focused on executing our strategy for creating long-tern sustainable value creation for our shareholders. COVID-19 Update
Companies around the world are faced with unprecedented challenges to keep essential operations moving forward amid the coronavirus pandemic. Economic recovery can only follow the recovery of public health which is the focus of every government. At Tern we have focused on the safety of our employees and the employees of our portfolio companies and we have also taken additional steps to be prepared when emphasis shifts to social well-being.
We recently conducted a fundraise of £0.8 million which at the time of writing means we do not need to furlough Tern staff but as a precautionary measure the Board have taken 20% salary reductions to protect our balance sheet. The team is also set up to work effectively from home. We have established a weekly situation video conference with the CEOs of our principal portfolio companies to provide support, advice and share recent experiences. Our portfolio companies have taken similar actions to each other, including furloughing some employees, salary reductions across the business and applying for government support where relevant.
As technology businesses, our portfolio is fortunately facing less severe challenges during the current crisis and are operating and meeting the needs of their customers and prospects by applying their technologies where appropriate to help in the support of the fight to restore public health and safety. There will be an ongoing need for technology to support continuing social distancing measures as the lockdown eases.
The risks associated with COVID-19 are considered further in principal business risks and uncertainties.
We remain optimistic about our portfolio businesses and are working to ensure they will be positioned for growth when the economy begins its recovery. Our progress this year was driven by the management teams of our principal portfolio companies. I would like to thank them all for their unrelenting belief and commitment to their businesses and drive to make them the leaders in their respective industry segments. With the continued support of our team, our Board, our advisors and our shareholders we remain focused on accelerating the growth generated in 2019. Albert Sisto CEO
The year ended 31 December 2019 has been another year of activity and progress, with two equity fundraises for the Company and our portfolio companies continuing to scale, including a successful Series A fundraise for one.
New equity capital of £1.5 million was raised in April 2019 to strengthen the balance sheet and to provide negotiating strength to protect and maintain long term influential interests in our portfolio companies. This was evidenced in the Series A raise by FundamentalVR. In October 2019, a further £1.75 million was raised to continue that momentum. With a strong balance sheet, the Company has been able to maintain its influential holding at existing portfolio companies and progress pipeline opportunities with a credible position.
The Company's investment holdings have increased from £14.9 million at 31 December 2018 to £17.9 million at 31 December 2019, reflecting a 20% increase on the previous year. The investment valuation includes additional investment of £2.5 million across all four principal portfolio companies and fair value growth of £0.3 million. This comprises a £0.9 million fair value gain and a £0.6 million exchange rate loss due to the strengthening of sterling.
The fair value gain, excluding exchange rate movements, is comprised of a £0.6 million uplift at FundamentalVR due to the successful Series A fundraise in October 2019 and a £0.3 million uplift at Device Authority as further convertible loan note issues strengthen the Company's holding.
Net assets have increased by 13% to £18.9 million (£16.8 million at 31 December 2018) and include a strong cash balance of £1 million. There is no debt on the balance sheet.
Cash and cash equivalents decreased by £0.9 million in the year, ending the year at £1m (2018: £1.9 million). This was due to £1.3 million cash used in operations, offset by a net increase in cash of £0.4 million, which reflected a net £2.9 million raised through two equity fundraises less £2.5 million reinvested in existing portfolio companies. Income Statement and Statement of Comprehensive Income
Revenue from portfolio companies increased by 18% to £124,766 (31 December 2018: £106,117). The Company does not charge high monitoring or Board fees to ensure capital is not deducted at source and is instead reinvested in the portfolio companies to drive value creation. Total investment income has reduced by £0.5 million to £0.4m (2018: £0.9m) compared to 2018. This has been driven by foreign exchange losses on the revaluation of the investment portfolio. Device Authority is valued in US dollars and the pound strengthened during 2019 resulting in a £0.6 million exchange rate loss. This compared to a £0.4 million exchange rate gain in 2018 as the pound weakened that year. The loss in 2019 was offset by the fair value gain on FundamentalVR of £0.6m and fair value gain on Device Authority of £0.3m.
Overheads overall were maintained at £1.3 million in 2019. This included a £0.2 million increase in administration costs compared to 2018, due to an increase in Directors' and consultants' fees offset in part by a reduction in recurring legal costs. Directors' fees continue to rise slowly to bring them more in line with more representative market rates and to allow for successful recruitment, whilst maintaining prudence and affordable levels for the Company. Increases in consultants' fees reflect additional advice and support from consultants based in the US.
Other expenses include one-off costs incurred early in 2019 due to the Company exploring an opportunity to rapidly expand its portfolio via a strategic initiative. Although the transaction would have added a significant number of companies to the portfolio thereby increasing the NAV and diversifying the risk profile of the portfolio the decision was taken, with the support of our advisors, not to proceed on this occasion. These costs were offset by a £148,173 reduction in the share based payment charge and the absence, in the current year, of the prior year convertible loan note cost of £165,000.
Events after the end of the reporting period
On 13 January 2020, it was announced that InVMA had secured an initial order commitment worth £817,000 over a two-year period to provide its AssetMinder(R) solution to a global, multi-billion Euro revenue supplier to the industrial and construction sectors. On 3 March 2020 it was announced that Docusign Inc had announced its intent to acquire Seal for $188 million in cash. The proceeds to Tern from this sale are expected to be broadly in line with the Company's valuation of its investment. On 9 March 2020, it was announced that the Company had raised approximately £0.8 million before expenses through a subscription of 13,333,331 new ordinary shares of 0.02p each at a price of 6p per new ordinary share. 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: increasing portfolio company value, delivering consistent investee company turnover growth and focusing on year-on-year net asset growth. The Company also monitors non-financial KPIs, the primary focus being on increase in employee numbers at the portfolio companies 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:
The net assets of the Company at 31 December 2019 were £18,913,077 (2018: £16,751,773). The net asset value per ordinary share as at 31 December 2019 was 7.0p (2018: 7.1p). Investee company turnover growth: the year-over-year growth in the aggregate revenue of our principal portfolio companies increased by 27% from calendar year 2018 to 2019 (58% from calendar year 2017 to calendar year 2018) which provides an indication of growth in the overall portfolio. The annual growth was adversely affected by some delays in commercial orders that were expected during the final quarter of 2019. Some of these transactions were announced in late 2019 and early 2020 and others are anticipated to follow, contributing to a strong start to 2020. The Company has non-financial KPIs which are also monitored regularly by the Board. The non-financial KPIs are focused around 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: Principal portfolio company employee number growth increased by 31% from calendar year 2018 to calendar year 2019 (52% from calendar year 2017 to calendar year 2018), highlighting a continuing growth in the portfolio overall and particularly in the final six months which saw employee number growth escalate from 9% in the six months to 30 June 2019 to 31% for the year ended 31 December 2019.
Sarah Payne CFO Business Risks
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:
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:
Investment Report The Company's current investment portfolio consists of the following investments, all of which are unquoted: Principal Portfolio Companies Device Authority Limited ("Device Authority")
Device Authority is a global leader in Identity and Access Management (IAM) for the Internet of Things ("IoT"); focused on medical / healthcare, industrial, automotive and smart connected devices. Device Authority's KeyScaler(TM) platform provides trust for IoT devices and the IoT ecosystem, to address the challenges of securing the IoT. KeyScaler(TM)uses breakthrough technology including patented Dynamic Device Key Generation (DDKG) and PKI Signature+ that delivers unrivalled simplicity and trust to IoT devices. This solution delivers automated device provisioning, authentication, credential management, policy based end-to-end data security/encryption and secure update delivery.
An example of its use case can be found in the healthcare industry which 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. Device Authority's KeyScaler(TM) platform 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. Device Authority does this autonomously and at IoT scale providing a clear return on investment and a protection against human error. In 2019, Device Authority continued to work with and develop product sales via its active partner base including Venafi, HID IdenTrust, Wipro, Tech Mahindra and City University of London. Device Authority has also further deepened its relationship with Microsoft, including a feature on their Channel 9 IoT show showcasing their Azure IoT Central Connector, which is the latest technology integration with Microsoft inside Device Authority's Security Suite. Early in the year Device Authority proved their credentials in the medical space by securing a medical contract with nCipher Security. Device Authority also continued to build on its brand recognition which included publishing its Enterprise IoT security blueprint 2.0 to help educate Enterprises on how to improve their security posture in the connected world. Furthermore, Device Authority was recognised as a technology leader in the global IoT IAM market by Quadrant Knowledge Solutions. Device Authority also joined the Venafi Machine Identity Protection Development Fund. Alongside the commercial success, Device Authority further strengthened the team, recruiting talent in both the US and the UK and introducing two new influential board members: Ramesh Kesanupalli, founder of Nok Nok Labs and Nicko van Someren, a technologist and entrepreneur who has extensive experience in the security industry.
InVMA Limited ("InVMA")
InVMA helps industrial and manufacturing companies prosper by converging their physical assets with new transformational digital insights. They provide IoT software solutions, communications and consultancy to digitally transform their customers through predictive intelligence that automates manual processes, reduces operating costs, maximises uptime and enables the development of untapped revenue streams. During 2019, InVMA focused on the transformation of its product, AssetMinder(R) which solves critical pain points for monitoring manufacturing processes, production platforms (e.g. oil), and networks of sensors providing predictive maintenance and performance data; providing alerts when pre-determined thresholds or rules have been met or broken. The focus on generating AssetMinder(R) product sales to drive value creation was evidenced in a material post year end contract. This was validation of a deliberate move from being a systems integrator to a product company, underpinning the value being created within the business. During 2019, InVMA announced a number of key contract wins, which continue to establish the company as a key provider of IoT products and solutions:
InVMA continued to develop and grow its partnership network, announcing new partnerships with Robustel, one of the world's leading manufacturers of industrial quality solutions for the IoT and M2M market, Solid State Supplies Ltd (part of Solid State plc), a focused distributor serving the needs of the electronics OEM community in the UK as well as the partnership with ECA which delivered the early material contract during the year.
FVRVS Limited ("FundamentalVR")
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. This was an active year for FundamentalVR: successfully closing a Series A fundraise and establishing traction in the market whilst continuing to develop their Fundamental Surgery platform and achieve market recognition. The FundamentalVR platform is now being used by an array of customer groups including clinics and medical centres, device companies and pharmaceutical companies. Active clients of this platform include established innovative device and pharmaceutical businesses. Within the hospital marketplace customers include the Mayo clinic and UCLA (USA), Sana Kliniken (Germany), UCLH and St George's (UK). In October 2019, FundamentalVR closed a £4.3 million Series A funding round, including a £0.5 million convertible loan note conversion from Tern, with a post-money valuation of £11.3 million. The funding round was led by Downing Ventures, with participation from the Company, Epic Private Equity and Brighteyes Ventures. Leading medical institutions also participated in the funding round, including Mayo Clinic, one of America's leading centres of medical excellence, and Sana Kliniken, one of Europe's leading medical organisations and the third largest hospital organisation in Germany, which is a strong endorsement of the quality of FundamentalVR's offering. The platform development continued during the year and the FundamentalVR platform achieved accreditation from The Royal College of Surgeons in England and the American Academy of Orthopaedic Surgeons in the US, clearly validating the strength of the proposition.
Wyld Networks Limited ("Wyld")
In 2019 Wyld focused on developing Wyld Mesh and Wyld Fusion, a wireless mesh technology to create low cost and revenue generating Social, Enterprise IoT and 5G device-to-device networks, as well as commencing the commercialisation of Wyld Connect, a range of LPWAN solutions to provide IoT wireless connectivity. Wyld's technology is unique in that it creates a wireless network which connects people to people directly from smartphone-to-smartphone or device-to-device, as well as device-to-people. It establishes a resilient and low-latency mesh network without the need to route all the traffic through the traditional hierarchical mobile infrastructure. Wyld's solutions are developed to market in the following sectors: 1. Social networks - Creation of customer engagement and new revenue streams through the enablement of pop-up social networks, providing user engagement, gaming, safety and location-aware marketing in events and retail. 2. Enterprise IoT networks - Building a network of meshed smartphones and IoT devices at the edge of the network in enterprise communication and IoT, ensuring connectivity and reducing operational cost for applications in healthcare, smart factories and transportation. 3. 5G D2D networks - Creating 5G mesh connectivity to deliver resilient spectrum efficient densification of 5G networks and low latency applications, such as autonomous vehicle and AR/VR connectivity. 4. IoT networks - Enabling IoT providers to create LPWAN wireless networks to control IoT devices in hard to reach locations for applications in agritech, environment, transportation and smart factories. During the year Wyld secured a framework contract with Delta-T Devices, a world leader in the development of sensors for the Agritech sector, to develop and deploy a Wyld Connect LPWAN solution integrated into Delta-T Devices agritech sensors to create a wireless LoRaWan network. In 2019, in addition to the smart agritech deal with Delta-T Devices, Wyld signed smart-device delivery contracts and license agreements for its Wyld Connect solutions in the smart energy (Cadis, RCD, Develco) sector. Wyld Networks was also awarded a £121,000 grant by Innovate UK to collaborate on a new mass production technology, SmartDrop, for Archipelago Technology Group Ltd.
Push Technology Limited ("Push")
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.
In 2019 Push announced a number of new contract wins including Gratisbroker, the first free online German trading platform; Brenock, specialising in shipping industry applications and Derivco, a gaming software development company.
Other customers include William Hill, Betfair, Racing Post, Sportingbet amongst others.
Seal Software Group Limited ("Seal")
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 2019 Seal's notable events included:
Customers include Nokia, PayPal, Bosch, DocuSign, Experian, Dell amongst others.
Investing Policy Tern's investment policy is 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. The Company has invested in six investee companies, four of which comprise the principal portfolio companies and the Directors believe there are further 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 main focus of the investment policy has been on the exploitation of IT businesses, which the Directors intend to continue; 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. The Directors believe the main driver of success for the Company is the expertise that can be provided by the Directors to the management involved in its investee companies and the value creation that the team of people is capable of realising. The Company is, and intends to continue to be, an active investor. Accordingly, it has sought and may seek in future investments, representation on the board of investee companies. The new capital available to the Company will be used to support and assist its investee companies to grow, where appropriate, and used to locate, evaluate and select investment opportunities that offer satisfactory potential capital returns for shareholders. The Company may require further funds in order to invest further in its principal portfolio companies and 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 has made investments and will seek further 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 investments the Company has made and any new opportunities have, or would generally have, some or all of the following characteristics, namely:
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.
Income Statement and Statement of Comprehensive Income For the year ended 31 December 2019
Since there is no other comprehensive income, the loss for the year is the same as the total comprehensive income for the year. EARNINGS PER SHARE: Basic and diluted earnings per share (0.3) pence (0.1) pence Statement of Financial Position As at 31 December 2019
Statement of Changes in Equity For the year ended 31 December 2019
For the year ended 31 December 2019
Notes
The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2019 or 2018. The financial information for the year ended 31 December 2018 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 2019 is derived from the audited statutory accounts for the year ended 31 December 2019 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. For the year ended 31 December 2019 it did include an emphasis of matter paragraph in relation to the impact of COVID-19 on the Company. 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 and Companies Act 2006. 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 2019. The accounting policies are consistent with those applied in the preparation of the interim results for the period ended 30 June 2019. The accounting policies are also consistent with the statutory accounts for the year ended 31 December 2018, with the exception of IFRS 16 Leases, which is a new standard applicable and mandatory for the year ended 31 December 2019. The new standard did not have a material impact on the statutory accounts for the year ended 31 December 2019.
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.
In accordance with IFRS 10, para 4 the Directors consider the Company to be an investment company and 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. 1.1 GOING CONCERN
The financial statements have been prepared on the going concern basis. The Directors have a reasonable expectation that the Company has adequate resources to continue operating for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Company's financial statements. This has been assessed using detailed cash flow analysis so that the Board can conclude that the Company has sufficient working capital resources to continue for at least 12 months without any additional financing requirement. The post year end fundraise and the impact of COVID-19 has been considered as part of this assessment. In the event that opportunities are presented such that additional funding was required, management are confident that they would be able to obtain additional funds from various sources.
The convertible loan facility issued to Device Authority is a financial liability with multiple derivatives and the entire contract has been designated at FVTPL, with any movement in fair value taken to profit or loss for the year. In 2019 the fair value increase was £0.3 million (2018: £0.3 million). The convertible loan note has been secured with a charge over Device Authority's intellectual property.
The cash flow loan issued to Wyld Networks is secured and carries interest at a rate to be agreed by the Company and Wyld Networks. The balance outstanding on the cash flow loan as at 31 December 2018 was reclassified as a non-current asset as repayment is not anticipated in the foreseeable future. All loans issued in 2019 have been included in additions.
The annual report for the year ended 31 December 2019 will shortly be available from the company website (https://www.ternplc.com/investors) and will shortly be posted to shareholders. The annual report contains a notice of the AGM which will be held at 3pm on 8 June 2020 at Gridiron, One Pancras Square, London N1C 4AG.
In light of the evolving Coronavirus (COVID-19) pandemic, the Board has been monitoring closely the rapidly changing situation. The health of our shareholders, employees and stakeholders remains extremely important to us and accordingly, the Board has taken into consideration the compulsory 'Stay at Home' measures published by the UK Government. These measures currently provide that public gatherings of more than two people are not permitted, unless the gathering is 'essential for work purposes'. Attendance at an annual general meeting by a shareholder, other than one specifically required to form the quorum for that meeting, is not 'essential for work purposes' under those measures. Regrettably therefore, shareholders are requested not attend the AGM to be held on 8 June 2020 and the Company will be unable to allow entry to anyone seeking to attend the AGM in person. The shareholder call on 28 May 2020, ahead of the AGM, will provide a forum for questions. As noted below, Shareholders should instead vote by proxy. Our advisers have also been requested not to attend.
The Company will convene the AGM with the minimum necessary quorum of two shareholders (which the Company will facilitate). The Company will include all valid proxy votes (whether submitted electronically or in hard copy form) in its polls at the AGM and the Chair of the meeting will call for a poll on each resolution. The Company accordingly requests that shareholders submit their proxy votes electronically or by post in advance.
The current situation is evolving and the Company will make any further announcements that may be required by way of a Regulatory News Service and on the Company's website. If the Stay at Home measures are not in force at the date of the AGM and there are no other restrictions on attendance in place, you may be able to attend the meeting in person, subject to any public health guidance issued at the time.
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| ISIN: | GB00BFPMV798 |
| Category Code: | FR |
| TIDM: | TERN |
| LEI Code: | 2138005F87SODHL9CQ36 |
| Sequence No.: | 61682 |
| EQS News ID: | 1035795 |
| End of Announcement | EQS News Service |
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