Earnings Release • Mar 19, 2019
Earnings Release
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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.
"As one of the only dedicated investors in the high-growth IoTsector 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 por1olio increase and our loss for the period decrease. Tern prides itself on its proac4ve approach to working with its investment companies, and the collabora4ve environment created through this way of working has delivered benefits for our por1olio duringthe period and post-period end."
"Turnover and the number of employees across our principal por1olio companies con4nues to grow, and we have diversified our por1olio through the addi4on of FundamentalVR. We are very pleased with the commercial successes delivered by this new investment, as well as our other por1olio companies, and look forward to building our por1olio's NAV further in the yearahead. Having strengthened our financial posi4on duringthe year, we are now well-placed to deliveraddi4onal diversifica4on.This will be a priority and, havingrefined our investment strategy to focus on companies who provide commercial solu4ons 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 IoTmarket."
"I would like to take this opportunity to thankall of our shareholders for theircon4nued supportand enthusiasm, our por1olio employees for theircommitment,and our Directors for their dedica4on to the Companyand its ongoing mission."
A shareholderconference call with accompanying presenta4on slides will be held at 11:00 AMGMT 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-submiFed shareholder ques4ons to the extent that he is able to do so.This will ensure there is an opportunity to ask ques4ons for those shareholders who may be unable to aFend the AGM.
Full details of how to join the call will be provided in due course but Tern welcomes shareholder ques4ons ahead of this via [email protected]. The Company will be unable to accept ques4ons submiFed aIer 10:00 AMGMT on 23 April 2019. Al Sisto will aim to answeras many pre-submiFed ques4onsas possible duringthe call.
Tern will also be aFending Mello 2019 atThe Clayton, 626 Chiswick High Road London, W4 5RY on Thursday 16May.The directors will be available to meet with new and exis4ngshareholdersat this event.
Tern Plc Al Sisto/Sarah Payne via Newgate Communica4ons
Allenby Capital (Nomad and joint broker) Tel: 020 3328 5656
| Whitman Howard | Tel: 020 7659 1234 |
|---|---|
| (Joint broker) | |
| Nick Lovering/ChristopherFurness |
| Newgate Communica\$ons | Tel: 020 3757 6880 |
|---|---|
| Elisabeth Cowell/Fiona Norman |
In my second year as your non-execu4ve Chairman I am pleased to report the con4nuing progress that we have made in growing our exci4ng por1olio of companies in the Internet ofThings ("IoT") sector.
This year has seen us make a new investment in FundamentalVR (FVRVS Limited), a company which revolu4onises surgical training, prac4ce, insight and measurement through its leading global SoIware as a Service ("SaaS") immersive simula4on pla1orm for medical and surgical educa4on. We have also increased our investment in InVMA Limited, which has further diversified our por1olio, and although Device Authority Limited remains ourmost significant holding, we have reduced its impact compared to 2017 and we expect to do so further in 2019.
Our management team has con4nued to work closely with our por1olio companies, providing opera4onal support to give our investee companiesa head-start in their plans to launch, to scale, to secure further fundingand ul4mately maximise returns on an eventual realisa4on.
I would like to thank the Execu4ve team on behalf of our shareholders for their hard work over the year.
I look forward to anotheryear of growth as we con4nue to build and diversify our por1olio in this exci4ngand fastgrowing market.
Ian Ritchie CBE, FREng, FRSE nmar iahC
I am pleased to reportayear of substan4al progress atTern plc("Tern") followingthe transforma4on of our investment strategy from takinglong term controlling interests in businesses to focusing on an influen4al role. Tern provides investors with the opportunity to capitalise on the growth of IoT. We are building momentum and experiencingincreased deal flow due to ourability to deploy ourcapital acrossa wider number of opportuni4esand reduce the poten4al reserve capital requirementsas the investee company evolves. Asaresult,Tern is now workingto build a broader base of high poten4al, value-crea4ng por1olio companies with many opportuni4es being presented to us by other venture and risk capital investors.
Our investee companies con4nued to improve their performance with some notable commercial progress within the por1olio, 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 transac4ons which strengthened our balance sheet. During 2018, the company raised approximately £6 million in new capital, in addi4on to the funds secured through the conver4ble loan note, each placement progressing with more favourable economics. The last placement in July 2018 raised approximately £2.9 million before expenses. This fund raising demonstrates the benefit of our public lis4ng and the flexibility it gives our balance sheet for funding the development of exci4ng growth businesses. The funds raised during 2018 enabled the company to expand its por1olio by inves4ngin disrup4ve high-growth IoT businessesand the gross total invested capital,asat 31 December 2018, stood at £13.4million. This includes our first investment in an IoT data analy4cs company,FundamentalVR, combined with several reinvestments into our exis4ng por1olio resul4ngin agrowth in our hard netassetvalue ("NAV") to £16.8million, up 58% from £10.6 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 £0.3 million, compared to a loss of £1.7 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 £0.4 million exchange rate gain compared to a £0.8 million exchange rate loss in 2017. We maintained the US dollar valua4on of DA. Our administra4ve expenses were comparable to last year, reflec4ng a decrease in legal fees that was offset by other professional fees as we added new companies to our por1olio. Directors' fees increased as the scope of responsibili4es expanded and 4me commitment to the company increased. Our remaining expenses were broadly flat. The Directors believe that 2019 will provide good opportuni4es for NAV growth for Tern. We an4cipate this to be achieved via the business expansion of our por1olio companies, addi4onal equity investments by third par4es into our por1olio companies and one or more investments in new por1olio companies.
At Tern, we see the size, poten4al and promise of the Internet of Things ("IoT") market as an opportunity to create shareholder value through investments in early-stage companies, by providing productsand servicesassociated with the IoT.Today, businessesare inves4ngin cloud-based services and analy4cs, to make it easierand simpler to understand the performance of a product oraservice offered that is IoT-enabled. Also, it will become increasingly seamless to gather real-4me informa4on so new products and services can be created. We believe that there are s4ll challenges for the IoT market. The first is related to interoperability and the lack of acommon connec4on layer. Many devices don't 'speak' using a common protocol to applica4ons that rely on data being gathered, making the applica4on design difficult and the data vulnerable. The second challenge is the inbound and outbound scale issue around device management, data collec4on, data storage and data analy4cs. We seek to invest in companies thataddress 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 technologiesand capabili4es that will be essen4al to the development of the IoT.
The IoT market is growing rapidly and is maturing and segmen4ng into specific ver4cals. Tern has refined its investment philosophy to address this change, with the goal of realising faster revenue growth and market share gains within our por1olio, to ul4mately result in increased value. We have expanded our investment criteria beyond companies who are targe4ng IoTsecurity, IoT enablement, and IoTanaly4cs with a narrower scope, to companies who provide commercial solu4ons 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 asynergis4c por1olio in which ourcompanies can work together, learn from each other's market experiencesand share industry connec4ons.These market segmentsare global, speak acommon language, have alarge installed base of devicesand are inves4ngin all areas of IoTto create beFer products, customer sa4sfac4on and pa4ent outcomes.
Through our network, our website and aFendance at IoT events, we saw many interes4ng companies during 2018 with a variety of business models and innova4ons focused on the IoT. The UK technology market con4nues to support our thesis that local UK entrepreneurs can and are crea4ng companies with unique IoT products that sa4sfy our investment requirements and have global poten4al. Our approach remains the same; select the most promising companies with strong teams and disrup4ve ideas targe4ng large market opportuni4es. We then use our experience to invest in those companies where we not only deliver funding, butalso opera4onal supportand access to our network, par4cularly in the United States.This helps to grow and scale our por1olio and aid ourcompaniesachieve theirambi4ons. In addi4on, by takinga Board seat, we can apply our exper4se beyond the original investment decision, suppor4ng companies into fulfilling their poten4al for growth and market leadership and driving strong exit mul4ples. This creates a valuable network for the companies, focused on collabora4on and commercial development.
We believe that Tern is well posi4oned to provide investors access to high-growth private technology companies that they wouldn't otherwise be able to source or invest in directly.
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 arefinement 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.
2018 was a transi4onal year for DA. The company con4nued to expand its ecosystem of partners, which is a cri4cal component of their go-tomarket strategy, although we were disappointed by the delay in genera4ng revenue during the first half of the year. DA did secure addi4onal working capital of \$2.9 million between November 2017 and December 2018 from its investorgroup, Alsop Louie Partners, George Samenuk and the Company, through a conver4ble loan note facility to execute its business plan, this enabled the development of blockchain support, key Thingworx interfaces and cloud pla1orms for AWS and Azure. DA also solved several cri4cal product issues and introduced many new product enhancements to improve product market fit, par4cularly for the Healthcare market segment. As a result, proof of concept ("POC") 4me frames shortened and the company began securing new contracts in the second half of the year.
We also believe the concentra4ng of DA's primary market focus to healthcare and high value industrial IoT has and will con4nue 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: hFps://www.marketsandmarkets.com/Market-Reports/iot-medical-device-market-15629287.htm). While the healthcare industry can benefit tremendously from the IoT,a number of stringent security, compliance and opera4onal complexi4es need to be addressed for this market.
Maintainingthe privacy of pa4ent records is paramount to healthcare as it is to protec4ng the intellectual property of products and processes for industry. The first requirement is to have strong mutual authen4ca4on between devices, applica4ons and users. The second is to ensure the sensi4ve informa4on flows all the way from source to des4na4on, encrypted to meet the compliance requirements such as HIPAA and EU GDPR. DA's KeyScaler pla1orm 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 trac4on and announcement in December 2018 that it had secured a five-year contract with aleading medical device manufacturer, which has an an4cipated 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.
During 2018, Tern was excited to have the opportunity to invest in FundamentalVR, a leading Virtual Reality ("VR") training and data analysis technology pla1orm.FundamentalVR is led by surgical training expertsand leadingtechnologists with a mission to revolu4onise surgical training by bringing simula4on into the hands of medical professionals around the world, using low cost, easilyaccessible technology.FundamentalVR's unique soIware pla1orm takesadvantage of readily available VR soIware and devices, such as the Facebook owned Oculus RiI, and combines it with cuSng edge hap4cs to create a simula4on system that can be used on any modern PC set up. Using computer learning, the soIware pla1orm works together with hap4c hardware devices to simulate the physical sensa4on of opera4ng on human 4ssue. It also has the capability to provide ar4ficial intelligence ("AI") driven real-4me feedback, procedure correc4on data and best prac4ce insight. The result is a simula4on system that provides surgeons with a more hands-on experience to be beFer prepared professionals, resul4ngin beFer pa4ent outcomes.
FundamentalVR's goal is to transform the way surgeons prepare, prac4ce and refine their skills. The company has built an immersive, surgical simula4on applica4on pla1orm, Fundamental Surgery, to provide medical professionals with the opportunity to rehearse, prac4ce and test
themselves within a safe, controllable space that is as close to real life as possible. Addi4onally, this same pla1orm enables healthcare companies, to create a new way to develop, train and measure the introduc4on of new medical devicesand drug delivery systems to surgeons in asafe and repeatable way.
The cost of medical care and mistakes con4nues to grow across the globe, with the industry lacking an effec4ve prac4ce and rehearsal solu4on and quality data on medical and surgical capability, which Fundamental Surgery can now provide.
During 2018 Tern made two direct investments totalling £1.9 million into FundamentalVR, our second followingFundamentalVR's signing of a three year term joint development agreement with the Mayo Founda4on for Medical Educa4on and Research ("the Mayo Clinic"), the U.S. leading academic medical centre, which will see the two par4es collabora4ng on a range of simula4on and educa4on products with an ini4al focus on the general surgery area. Addi4onally, the current release of the Fundamental Surgery pla1orm is now live in the Mayo Clinic's worldrenowned simula4on centres located in Rochester, Arizonaand Florida.
InVMA con4nued to make progress duringthe year.Since our ini4al investment in 2017, we have seen the businessgrow 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 MaFhews, GKN and Kohler Mira. Also, their new partnership with DMS, a UK industrial maintenance company, has generated more than a dozen AssetMinder opportuni4es with important winsatYorkshire Waterand 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 proac4ve performance and maintenance strategy for assets. AssetMinder allows companies across all industries to monitorand manage cri4cal equipment and resources from the datagathered and to generate alerts to intervene and protect their opera4ons from costly down-4me and poten4al costly catastrophic outcomes. The AssetMinder product is posi4oned in the Remote Monitoring and Control Market which is es4mated to be growingata 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 logis4cal problems of remote connec4vity for smart sensors and data collec4on 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 evalua4on kits. Prior to its acquisi4on, 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 capabili4es of InVMA to help customers integrate the technology into their products and to the many facets of our other por1olio companies where robust IoTconnec4vity isarequirement.
2018 has proved to be a pivotal year for flexiOPS. We originally believed that the business could have been a source of valuable technology exper4se to assist currentand future Tern por1olio companies. Unfortunately, the company has been seriously affected by the poli4cal situa4on in Europe and the UK and itsability to par4cipate in European grantsand therefore the company decided to exit that part of its business.Theyare 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 networkingcompany in 2017.
During 2018, as part of its expanded role and mission, Wyld began expanding its product pla1orm base by developing the applica4on, thus enabling Wyld Fusion to support the adop4on and use of their Wyld Mesh networking product. Wyld Fusion allows devicesand people to receive individual or aggregated data from an applica4on, or series of applica4ons, in real 4me. Wyld Fusion delivers 4mely, ac4onable informa4on across the mesh to the right people, thingsand loca4ons, securely. It enables informed business decisionsand reduces opera4onal risk (real 4me data selec4on) 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 offera Content Delivery Network combiningreal-4me datastreaming with our powerful device-to-device mesh network.
Theirvision is to make Wyld soIware the pla1orm of choice for large enterprise companies, governmentsand smart ci4es to leverage the power of crowds to automate and accelerate their tailored messaging in large retail facili4es and large entertainment venues, in response to cri4cal events in whatare typically challengingand hos4le environments.
Subsequent to the year end, the AMIHO Technology assets were purchased by flexiOPSfrom InVMA to form a new compelling proposi4on in the IoT embedded communica4ons industryand flexiOPS was renamed Wyld Networks Limited.
The investment por1olio made good progress in 2018, leavingTern well posi4oned for 2019 and beyond. I would like to thank our staff, business partners and por1olio companies for their commitment and contribu4on to this posi4ve performance. As ever, I would also like to extend the Board's thanks to all our stakeholders for their con4nued support. With a larger and maturing por1olio and an expanded pipeline of opportuni4es, we look to 2019with con4nued confidence.
AlbertSisto Chief Execuve Officer
The Company is posi4oned as a quoted pla1orm to invest in, develop and sell private soIware companies with proven technology, based in the UK and Europe but with global opportuni4esand ambi4ons.These businessesare predominantly in the Internet ofThings sector.
The 2018 results have been materially impacted by afair value upliI of £0.8 million, of which £0.4 million is due to an exchange rate gain on the revalua4on of the Device Authority investmentat the balance sheet date. Directors fees increased and legal fees were lower but offset by other one-off professional fees. Overall,administra4ve expenses were comparable to 2017.
UK and Europe but with global opportuni4esand ambi4ons.These businessesare predominantly in the Internet ofThings sector.
As explained in the CEO's Statement the Company has undertaken aseries of ini4a4ves to posi4on the Company for las4ngsuccess in its focused market sector and has con4nued to build a por1olio of investments and a pipeline of investment opportuni4es in IoT Security, IoT enablement and IoTanaly4cs.
The Board has given considera4on to the impact of Brexit on the investment por1olio and has concluded that it does not envisage a material impact on performance given the majority of opportuni4es for the por1olio are in the UK and the USA. Brexit impact has also been considered within the principal business risksand uncertain4es set out later in this sec4on.
The Company's principal ac4vity is that of inves4ng 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 indicatorsare monitored closely by the Board and the details of performance against these are given below.
The net assets of the Company at 31 December 2018 were £16,751,773 (2017: £10,580,802). The net assets per ordinary share as at 31 December 2018were 7.1p (2017: 7.38p).
Investee company turnover growth: the year-over-year growth in the aggregate revenue of our principal por1olio companies (excluding Seal and Push) increased by 58% from calendaryear 2017 to 2018 (126% from calendaryear 2016 to calendaryear 2017) which providesan indica4on of growth in the overall por1olio.
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 opportuni4es seen, as assessed by reviewing all opportuni4es at the monthly Board mee4ng and the investee company employee number growth in our por1olio 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 calendaryear 2016 to calendaryear 2017), highligh4ngacon4nuinggrowth in the por1olio overall.
The management of the businessand the nature of the Company's strategyare 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 monitorand mi4gate such risks. The Company operates asystem of internal control and risk management in order to provide assurance that the Board is managing risk whilst achieving its business objec4ves with the assistance of the Audit CommiFee.The Execu4ve Directors meet at least monthly to review ongoing trading performance for both the Companyand the por1olio companies, discuss budgets, forecasts, opportuni4esand new risksassociated with ongoingtrading.
The Board regularly reviews opera4ng and strategic risks and the effec4veness of the Company's risk managementand related control systems, with the assistance of its commiFees. No system can fully eliminate risk and therefore, the understanding of opera4onal risk is central to the management process.
Iden4fying, evalua4ng and managing the principal risks and uncertain4es facing the Company is an integral part of the way the business operates. The Company has policies and procedures in place throughout its opera4ons, embedded within the management structure and as part of the normal opera4ng processes. A formal risk register is maintained and reviewed by the Board at least quarterly, with key risks iden4fied, discussed and mi4ga4on agreed. Marketand economiccondi4onsare recognised as one of the principal risks in the current trading environment. This risk is mi4gated by the close monitoring of trading condi4ons and the performance of the Company's investment por1olio. The Company is affected by a number of risks and uncertain4es, not all of which are wholly within its control as they relate to the wider macroeconomic and legisla4ve environment within which the Company operates. To enable shareholders to appreciate what the business considers are the main opera4onal risks, theyare briefly outlined below:
| Risk | Poten\$al Impact | Strategy | |
|---|---|---|---|
| Reliance on key people |
The Company is unable to retain key individuals |
Disrup4on for the Company or its investment companies as new individuals take 4me to gain an understanding of the investment company's strategy and requirements. |
The Company offers a remunera4on package designed to aFract, mo4vate and retain key individuals Key individuals in the investment companies are offered an aFrac4ve remunera4on package and either shares or share op4on incen4ves |
| Investment risk |
An investment fails to perform asan4cipated: Investee companies may be opera4ng in highly compe44ve markets with rapid technological change Investee companies may be companies in early stage of commercial development. Genera4on of significant revenues is difficult to predictand notguaranteed Investee company management is performing underpar The Company is unable to maintain its holding when the investee company requires significantaddi4onal funding The por1olio is dominated by one or two investments |
Investment may require addi4onal finance Inability to create maximum value in a 4mely fashion Difficulty in realising investment The Company's influence reduces The value of the Company's holdingfalls If one dominant investment fails it has a dispropor4onate impact on the Company |
The Company ac4vely takes an influen4al role in the strategic direc4on of its investments and monitors all investments regularly. A Company director holds a non execu4ve Board posi4on on all investment company boards where the Company has a significant (>10%) holding. The Company's strategy has been formulated by the management team with a strong track record of genera4ng gains from early stage companies within the technology sector The Company is building a por1olio of investments to insulate itself against poor performance of any single investment |
| Liquidity | The Company is unable to raise new funds |
May have a detrimental effect on the Company's ability to coveradministra4on and othercosts May adversely affect returns of investee companies if they need to raise further funds |
The Company will maintain a sufficient cash balance to finance itself for a prudent period, or ensure that it has access to funds |
| Legal & regulatory risk |
Legal claims and changes to regula4on |
Financial and reputa4onal impact Poten4ally increase costs of compliance which makes it harder to raise funds Detrimental impact on performance of investment companies with exposure to the European Union |
Maintain strongadvisory base. Legal advice taken on all investmentand employment issues. The company monitors its working capital to ensure it has sufficient funds to maintain opera4ons during any economicslowdown |
| Foreign exchange risk |
The valua4on of investments may be impacted by foreign exchange movements |
The value of the Company's holdingfalls |
The Company ac4vely reviews the value of investments and will consider ac4on on foreign exchange risk where relevant, followingadvice from advisors |
The Board regularly reviews opera4ng and strategic risks, with the assistance of its commiFees. The Company's opera4ng procedures include a system for repor4ng financial and non-financial informa4on to the Board including:
reports from management with areview of the businessat each Board mee4ng, focusing on any new decisions/risksarising;
To invest principally, but not exclusively, in the informa4on technology sector within Europe. The Directors believe that the Company can invest in and acquire informa4on technology businesses, improve them by a combina4on of new management and investment and realise the value created which will be returned to shareholders. The Company may be eitheran ac4ve investorand acquire control of asingle company or it may acquire non-controllingshareholdings. Once a target has been iden4fied, addi4onal funds may need to be raised by the Company to complete a transac4on.
The Directors see ITas havingconsiderable growth poten4al for the foreseeable future and many of the prospects they have iden4fied are in this sector. They believe there are opportuni4es to invest in and acquire established IT businesses which have good technology, marquee customers and could beFer exploit their assets with the injec4on of experienced management and new funds with the inten4on of crea4ng value for Shareholders.
Although the Company intends the main focus of the investment policy to be on the exploita4on of IT businesses; this will not preclude the Company from consideringinvestment in suitable projects in other sectors where the Directors believe that there are high-growth opportuni4es.
It is an4cipated that the main driver of success for the Company will be exper4se that can be provided by the Directors to the management involved in the poten4al investee companies and the value crea4on that the team of people is capable of realising. The Company intends to be an ac4ve investor. Accordingly, it may seek representa4on 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 opportuni4es that offer sa4sfactory poten4al capital returns for Shareholders. Once the Directors have iden4fied the most aFrac4ve investments, the Company may require further funds in order to take up these opportuni4es. It is the inten4on of the Directors to undertake further fundraising, if such an opportunity should arise.The Company's investments may take the form of equity, debt orconver4ble instruments. Investments may be made in all types of assets falling within the remit of the Inves4ng Policyand there will be no investment restric4ons.
The Directors may consider itappropriate to take an equity interest in any proposed investment which may range from a minority posi4on to 100
The Directors may consider itappropriate to take an equity interest in any proposed investment which may range from a minority posi4on to 100 percent ownership. Proposed investments may be made in either quoted or unquoted companies and structured as a direct acquisi4on, joint venture orasa direct interest in a project.
The Company will seek investment opportuni4es which can be developed through the investment of capital or where part of or all of the considera4on could be sa4sfied by the issue of new Ordinary Shares or other securi4es in the Company. The opportuni4es would generally have some orall of the followingcharacteris4cs, namely:
The Company will iden4fy and assess poten4al investment targets and where it believes further inves4ga4on 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 poten4al investment will be subject to rigorous due diligence, as appropriate. It is likely that the Company's financial resources will be invested in asmall number of projects or investments or poten4ally in just one investment which may be deemed to be a reverse takeover of the Company under the AIMRules.
Director
The Company's current investment por1olio consists of the followinginvestments,all of which are unquoted:
| Market segment: Data Security so#ware | ||
|---|---|---|
| Fairvalue: | Cost: £5.61million | Valua4on: £11.7million |
| Consists of: | ||
| Equity ownership: 56.8% 'A'shares | Cost: £4.34million | Valua4on: £6.2million |
| Conver4ble loan: | Cost: £1.27million | Valua4on: £5.5million |
Valua4on is based on a probabilityanalysis of the poten4al outcomes rela4ngto the conversion or redemp4on of the conver4ble loan note, translated at the exchange rate at the balance sheet date.The fairvalue was supported byan evalua4on of acombina4on of factors, including the price of shares in the most recent fund raise (April 2016), the independentvalua4on of Device Authority's patent por1olio,acomparison to transac4on mul4ples in comparable market sectorsand an evalua4on of sales pipeline and 2019 tradingforecast.
Device Authority Limited ("DA") is an Internet of Things (IoT) security automa4on company. DA provides simple, innova4ve solu4ons to address the challenges of securing applica4ons and their devices while using the Internet with a robust, end-to-end security architecture that delivers efficiencies at scale. DA's KeyScaler TM IoT security pla1orm provides trust for IoT devices and the IoT ecosystem, including key partners such as Cer4ficate Authori4es, HSM vendors, IoT pla1orms, system integrators and cloud pla1orms. KeyScaler delivers automated device provisioning and registra4on, token-based authen4ca4on, creden4al management for cer4ficates and passwords, and end-to-end data security. KeyScaler also protects private keysand crypto keys, prevents unauthorised accessand delivers end-to-end datasecurity and confiden4ality forEnterprise Blockchain.
For example, the healthcare industry is in a state of digital transforma4on. Drug delivery systems, surgical robots, infusion pumps and medical records are now all connected. Knowing the iden4ty of the user or device and protec4ng a pa4ent's data are cri4cal items requiring protec4on under a variety of laws. Also, the need to exchange data between the applica4ons using these devices and systems, including upda4ng the soIware running these systems, puts them at risk. DA's KeyScaler product is used by medical device manufacturers and the applica4ons which use the devices to protect the data exchanged, by applying policy and encryp4on techniques to protect the informa4on. DA does this autonomouslyand at IoTscale providingaclear ROIand a protec4on against human error.
In 2018, DA con4nued to build on a strong base of strategic partners, including TeamViewer,SyroCon Consul4ng and Eon4, Larsen and Toubro Infotech ('LTI') and Gemalto. Furthermore, itannounced support for the MicrosoI Azure IoT Hub. DA also con4nued to be recognised as acri4cal force in the global IoT security market, for example, gaining recogni4on as a 2018 Emerging Star in the IOT Security Market by Quadrant Knowledge Solu4ons.
During the year, DA announced the launch of KeyScaler As A Service, providing IoT Security in the Cloud. This service enables IoT service providersand manufacturers to offer theircustomers the best security for IoT devices without the infrastructure or runningcostsassociated with on-premise environments, expandingitsability to make markets for its pla1orm by simplifyingcustomer deployment op4ons.
Fundraisingac4vi4es con4nue with US Capital in search forakey strategic US partner. In addi4on, the DA Board is consideringaddi4onal advisors to review DA's strategic opportuni4es.
Otherkeyannouncements in 2018 included:
Market segment: IOT Systems Integrator
Equity ownership: 50% Cost: £1.0million Valua4on: £1.0million
Valua4on is based on fairvalue.This was evaluated byacombina4on of factors includingan assessment of sales pipeline and 2019 trading forecast.
InVMA Limited ("InVMA") delivers IoT applica4ons, based on the industry leading PTC/Thingworx development pla1orm that deliver real businessvalue and compe44ve advantage to its customers.
Since the Company's investment in late 2017, InVMA, as part of its business transforma4on, has launched AssetMinder, a product which monitors and manages datafrom all types of sensors and provides alerts when pre-determined thresholds or rules have been met or broken. In 2018, InVMA has focused on genera4ng AssetMinder product sales to drive value crea4on. InVMA also announced the integra4on of InVMA's
2018, InVMA has focused on genera4ng AssetMinder product sales to drive value crea4on. InVMA also announced the integra4on of InVMA's AssetMinder with Device Authority's KeyScaler which is an important proof point of the Company's influence in integra4ng the products and technologies of its por1olio companies.
In 2018, InVMA announced it had developed Clarity for GCE Healthcare using PTC'sThingWorx(R) Industrial Innova4on Pla1orm. The global market for real 4me 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 pla1orm which will be powered by MicrosoI Azure IoTand PTC'sThingWorx pla1orm.
Otherkeyannouncements in 2018 include:
| Market segment:SAASimmersive pla1orm formedical and surgical educa4on driving datainsight | |
|---|---|
Equity ownership: 34.7% Cost: £1.9million Valua4on: £1.9million
Valua4on is based on fairvalue.This was evaluated byacombina4on of factors includingan assessment of sales pipeline and 2019 trading forecast.
FundamentalVR provides the Company with exposure to the rapidly growing medical simula4on market usinglow cost open-system IoT devices and providesa basis for developing our IoTanaly4cs pillar of the Tern investment strategy.
Keyannouncements in 2018 include:
Market segment: Project management of research and innovaon projects in technology
Equity ownership: 100% Cost: £37,500* Valua4on: £78,000
Cost is 50% of the purchase price of two business units flexiOPS and Concerto. Concerto was sold in 2016. Valua4on is based on fair value. This was evaluated byacombina4on of factors includingan assessment of sales pipeline and 2019 tradingforecast.
flexiOPS completed its por1olio of EU funded research and development cloud projects during 2018 and with the changing poli4cal landscape in the UK, securing new EU grants has been very difficult. As a result, the company has now re-focused on suppor4ng 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 offeringfollowingtheiracquisi4on in late 2017.
During 2018, Wyld Technologies focused on building out its development team and product pla1orm, and now has a product roadmap that is in line with current market requirements viaitsability to deliverand collect cri4cal data with its ad-hoc mesh networking pla1orm in the all cri4cal "last mile".
Mesh networks enable datato be transmiFed from different devices simultaneously. This topology can withstand high trafficand even if one of the components fail,an alterna4ve isalwaysavailable, ensuring datatransfer is notaffected. As mesh network topology is self-formingand selfhealingit is more efficientat crea4ngrobustad-hoc networks; providingassured quality to ensure con4nuity of service.
Postyear-end, flexiOPSchanged its name to Wyld Networks Limited.
| Market segment: Data distribuon so#ware | |||
|---|---|---|---|
| Equity ownership: <1% | Cost: £120,197 | Valua4on: £34,205 | |
| Valua4on is based on the price of shares in the most recent fundraise, which is taken as fairvalue. |
Push Technology Limited ("Push") significantly enhances the ability of organisa4ons to communicate in real-4me.This includes direct communica4on as well as indirect, for example, by refreshing data displayed informa4on in real 4me rather than when a user explicitlyasks for an update. Interac4ve applica4onsare infinitely more engaging, upda4ngin real-4me as new data becomesavailable. Keyannouncements in 2018 included:
New soIware release to increase securityauthen4ca4on and authorisa4on handling.
Market segment: Database Analycs and Search so#ware
Valua4on is based on the price of shares in the most recent fundraise, which is taken as fairvalue.
Seal SoIware Group Limited ("Seal") specialises in wri4ngsoIware which performs complex analysis of contractual data.Seal is specifically designed to locate and examine contractual documentsand extractand presentkey contractual informa4on related to language, clauses, clause combina4ons,and the significant contextual metadata held within them.
In 2018 the notable events included:
Customers include Dell, PayPal,Salesforce, Bosch,Experian and many othermul4-na4onal organisa4ons.
| 2018 £ |
2017 £ |
|
|---|---|---|
| Turnover | 106,117 | 97,940 |
| Movement in fair value of investments | 775,910 | (757,705) |
| Gross profit/(loss) | 882,027 | (659,765) |
| Administra4on costs | (792,534) | (740,923) |
| Other expenses | (476,716) | (289,680) |
| Opera4ng 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 othercomprehensive income, the loss for the period is the same as the total comprehensive income for the period
Statement of Financial Posi4on As at 31 December 2018
| 2018 | 2017 | |
|---|---|---|
| £ | £ | |
| 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 op4on 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 |
| TOTALEQUITY AND LIABILITIES | 17,009,220 | 11,069,300 |
For the year ended 31 December 2018
| Share capital £ |
Share premium £ |
L o a n n o t e r e s e r v e |
O p 4 o n e q u i t y a n d £ r e s e r v e |
Retained deficit £ £ |
Total w a r r a n t equity £ |
|
|---|---|---|---|---|---|---|
| Balance at 31 December 2016 | 1,325,270 | 12,390,310 | 20,650 | 1,088,595 | (3,637,086) | 11,187,739 |
| Total comprehensive income | - | - | - | - | (1,689,555) | ( 1,689,555) |
| Transac4ons with owners | ||||||
| Issue of share capital | 4,955 | 972,208 | - | - | - | 977,163 |
| Issue of conver4ble loan note | - | - | 112,563 | - | - | 112,563 |
| Share issue costs | - | (125,156) | - | - | - | (125,156) |
| Transfer on conversion of conver4ble loan notes |
- | - | (9,731) | - | 9,731 | - |
| Transfer of lapsed and exercised warrants |
- | - | - | (713,326) | 713,326 | - |
| Transfer of op4on reserve | - | - | - | (199,287) | 199,287 | - |
| Share based payment charge | - | - | - | - | 118,048 | 118,048 |
| Balance at 31 December 2017 | 1,330,225 | 13,237,362 | 123,482 | 175,982 | (4,286,249) | 10,580,802 |
| Total comprehensive income | - | - | - | - | (312,564) | (312,564) |
| Transac4ons with owners Issue of share capital |
18,678 | 6,861,072 | - | - | - | 6,879,750 |
| Share issue costs | - | (603,000) | - | - | - | (603,000) |
| Conversion of conver4ble loan note | - | - | (123,482) | - | - | (123,482) |
| Transfer of lapsed warrants | - | - | - | (175,982) | 175,982 | - |
| Share based payment charge | - | - | - | - | 165,267 | 165,267 |
| Transfer on conversion of loan notes | - | 165,000 | - | - | - | 165,000 |
| Balance at 31 December 2018 | 1,348,903 | 19,660,434 | - | - | (4,257,564) | 16,751,773 |
For the year ended 31 December 2018
| 2018 | 2017 | |
|---|---|---|
| £ | £ | |
| OPERATING ACTIVITIES | ||
| Net cash used in opera4ons | (752,350) | (783,866) |
| Purchase of investments | (2,523,309) | (375,000) |
| Loan to investee companies | (1,033,316) | (402,436) |
| Net cash used in opera4ng ac4vi4es | (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 op4ons | 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 ac4vi4es | 5,948,950 | 1,072,277 |
| (Decrease)/increase in cash and cash equivalents | 1,639,975 | (489,025) |
| Cash and cash equivalents at beginning of year | 273,826 | 762,851 |
|---|---|---|
| Cash and cash equivalents at end of year | 1,913,801 | 273,826 |
The financial informa4on set out in the announcement does not cons4tute the company's statutory accounts for the years ended 31 December 2018 or 2017. The financial informa4on 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 astatement under eitherSec4on 498(2) orSec4on 498(3) of the Companies Act 2006 and did not include references to any maFers to which the auditors drew aFen4on by way of emphasis.
The financial informa4on 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 astatement under sec4on 498(2) or 498(3) of the Companies Act 2006 and did not include references to any maFers to which the auditors drew aFen4on by way of emphasis. The statutory accounts will be delivered to the Registrar of Companies followingthe Company'sannual general mee4ng.
The financial statements of the Company have been prepared in accordance with Interna4onal Financial Repor4ngStandards (IFRSs) adopted by the European Union (EU) and therefore the financial statements comply with Ar4cle 4 of the EU IAS Regula4on.
IFRSis subject to amendmentand interpreta4on by the Interna4onal Accoun4ngStandards Board (IASB) and the Interna4onal Financial Repor4ng Interpreta4ons CommiFee (IFRIC) and there isan ongoing process of review and endorsement by the European Commission.The financial statements have been prepared on the basis of the recogni4on and measurement principles of the IFRSthat were applicable at 31 December 2018.
The prepara4on of financial statements in conformity with generallyaccepted accoun4ng principles requires the use of es4matesand assump4ons thataffect the reported amounts of assetsand liabili4esat the date of the financial statementsand the reported amounts of revenuesand expenses duringthe repor4ng period. Although these es4matesare based on management's bestknowledge of the amount, event orac4ons,actual results may ul4mately differ from those es4mates.
The financial statements have been prepared on the historical cost basis except for investmentsand certain financial instruments which are measured at fairvalue at the end of each repor4ng period. Historical cost isgenerally based on the fairvalue of the considera4on given in exchange for the assets.The principal accoun4ng policies set out below have been consistentlyapplied to all periods presented, except where stated.
In accordance with IFRS 10, par 4 and followingareassessment of whether the Company isan investment company, the Company has taken the exemp4on not to present consolidated financial statements orapply IFRS3when it obtains control of another en4tyas it isan inves4ngcompany that measuresall of its investmentsat fairvalue through the income statement in accordance with IFRS 9.
| 2018 £ |
2017 £ |
|
|---|---|---|
| Cost of investments brought forward | 10,218,625 | 10,601,330 |
| Reclassifica4on of conver4ble loan note from other debtors 1,270,753 | - | |
| Interest accrued on conver4ble loan note | 67,642 | - |
| Addi4ons | 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 conver4ble loans | 5,519,198 | - |
| Fair value of investments | 14,856,239 | 10,218,625 |
| 2018 £ |
2017 £ |
|
|---|---|---|
| Loss for the purposes of basic and fully diluted earnings per share | (312,564) | (1,689,555) |
| 2018 Number |
2017 Number |
| For calcula4on of basic earnings per share | 217,221,165 | 124,586,665 |
|---|---|---|
| For calcula4on of fully diluted earnings per share | 221,079,230 | 124,586,665 |
| 2018 | 2017 | |
| Earnings per share: | ||
| Basic and diluted earnings per share | (0.1) pence | (1.4) pence |
The annual report will be available from the company website from 25March 2019 and will be posted to shareholders on or before 29March 2019. The annual report containsa no4ce of the AGMwhich 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 LEICode: 2138005F87SODHL9CQ36 Sequence No.: 7854 EQS News ID: 788839
End ofAnnouncementEQS News Service
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