248191 Tern AR Cover Spread 26/03/2018 18:08 Page 1
27/28 East Castle Street
London W1W 8DH
info@ternplc.com
e: info@ternplc.com
e: info@ternplc.com
t: 020 3807 0222
t: 020 3807 0222
ternplc.com
ternplc.com
Report &
Accounts
For the year ended
31 December 2017
248191 Tern AR Cover Spread 26/03/2018 18:08 Page 3
Company Information
Notice of 2018 Annual General Meeting
53
DIRECTORS
Angus Forrest (resigned 20 October 2017)
Alan Howarth
Bruce Leith
Sarah Payne
Ian Ritchie (appointed 1 June 2017)
Albert Sisto
Richard Turner (appointed 25 October 2017,
resigned 15 January 2018)
SECRETARY
Sarah Payne
REGISTERED OFFICE
27/28 Eastcastle Street
London
W1W 8DH
COMPANY’S REGISTERED NUMBER
05131386
AUDITORS
NOMINATED ADVISOR AND JOINT BROKER
JOINT BROKER
REGISTRARS
BANKERS
CORPORATE LAWYERS
Grant Thornton UK LLP
30 Finsbury Square
London
EC2A 1AG
WH Ireland Limited
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EC4R 0DR
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London
W1K 3NB
Share Registrars Limited
The Courtyard
17 West Street
Farnham
Surrey
GU9 7DR
Handelsbanken
3rd Floor
86 Jermyn Street
London
SW1Y 6JD
Reed Smith
The Broadgate Tower
20 Primrose Street
London
EC2A 2RS
5.
In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice
clearly stating your intention to revoke your proxy appointment to the Company’s registrars, Share Registrars
Limited, The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR. In the case of a member which is a company,
the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company
or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is
signed (or a duly certified copy of such power or authority) must be included with the revocation notice.
In either case, the revocation notice must be received by the Company’s registrars, Share Registrars Limited,
The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR no later than 9.30 am on 20 April 2018.
If you attempt to revoke your proxy appointment but the revocation is received after the time specified above, then
your proxy appointment will remain valid.
Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have
appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated.
6.
CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment
service may do so by utilising the procedures described in the CREST Manual. CREST Personal Members or
other CREST sponsored members, and those CREST members who have appointed a voting service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action
on their behalf.
In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message
(a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with CRESTCo’s specifications and
must contain the information required for such instructions, as described in the CREST Manual. The message,
regardless of whether it relates to the appointment of a proxy or to an amendment to the instruction given to a
previously appointed proxy must, in order to be valid, be transmitted so as to be received by our agent Share
Registrars (ID 7RA36) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting.
For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by
enquiry to CREST in the manner prescribed by CREST. The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that
CRESTCo does not make available special procedures in CREST for any particular messages. Normal system
timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member
or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means
of the CREST system by any particular time. In this connection, CREST members and, where applicable, their
CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and timings.
Perivan Financial Print 248191
248191 Tern AR pp01-pp16 26/03/2018 18:43 Page 1
1
Highlights of 2017
(cid:129) Device Authority Limited secured new commercial contracts and boosted its partnerships
(cid:129) New investments were made in IOT businesses: InVMA Limited and Wyld Technologies Limited
(cid:129) Management team technology credentials strengthened with new Chairman
Year on year finances stable but NAV impacted by exchange rate movement
31 December
Total Assets
Net Assets
Profit/(loss)
2017
£’000
11,069
10,581
(1,690)
2016
£’000
11,465
11,188
5,297
2015
£’000
1,825
1,692
(185)
The change in our results from 2016 to 2017 is due primarily to recognition of an exchange rate loss in
2017 as the pound sterling strengthened against the US dollar and caused us to revalue our investment in
Device Authority Limited (“Device Authority”), which is based on a US dollar price per share. In 2016, the
profit was driven primarily by the fair value gain on Device Authority, due to the acquisition of Device Authority
Inc. (see note 7).
Contents
Company Information
1 Highlights of 2017
2 About Tern
3 Chairman’s Statement
4 CEO’s Statement
7 Our Markets
10 Strategic Report
20 Corporate Governance and Compliance
22 Report on Directors’ Remuneration
23 Independent Auditor’s Report
28 Income Statement and Statement of
Comprehensive Income
29 Statement of Financial Position
30 Statement of Changes in Equity
13 Investment Report
31 Statement of Cash Flows
16 Board of Directors
32 Notes to the Financial Statements
17 Directors’ Report
51 Notice of 2018 Annual General Meeting
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 2
2
About Tern
Tern PLC is an investment company which specialises in the Internet
of Things (“IoT”), which is a network of devices with electronic
connectivity allowing the digital exchange of data.
Tern invests in companies in the IoT space with an established software
business, existing intellectual property and customer validation.
Tern’s objective with each of its portfolio companies is to add value by
improving capital efficiencies and building sales and market strategies
by taking equity positions and offering support and mentoring in all
areas of the company.
We augment this work by
identifying
opportunities
within the IoT space using a
vast network of connections
to increase the company’s
value.
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 3
3
Chairman’s Statement
For the year ended 31 December 2017
we leverage our strong network and
“We look forward to a year of growth as
operating experience.”
In my first Annual Report as your non-executive
Chairman, I am pleased to communicate to you the
progress we have made in terms of building a portfolio of
exciting companies in the Internet of Things (IoT) sector.
This strategy is based on widely accepted forecasts that
the majority of future computing devices will be distributed
in huge volumes of low cost processors, all connected
together, and to the internet, to solve real world problems.
This year has seen us make new investments in InVMA
and Wyld Technologies, which diversifies our exposure
beyond our existing key stake in Device Authority.
Throughout 2018 we expect Device Authority will continue
to be our most significant holding as we grow and further
develop our portfolio.
Our management team works closely with our portfolio
companies to help them gain traction in their respective
fields. In particular, our strong network enables us to
facilitate industry introductions with potential technology
or reseller partners, both within the UK and abroad,
notably North America.
I would like to thank our Executive team on behalf of our
shareholders for their hard work over the year.
I look forward to a year of growth as we continue to build
our portfolio and aid the development of our investee
companies and I am confident that we will see our
companies prosper in the coming months.
Ian Ritchie CBE, FREng, FRSE
Chairman
26 March 2018
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 4
4
CEO’s Statement
For the year ended 31 December 2017
where we revised our approach to
better ensure the success of our
“2017 has been a year of transition
portfolio companies.”
We are pleased to present our annual report for the year
ended 31 December 2017.
Internet of Things
This past year represented a period of transition for the
Company. We have delivered new investments in
disruptive
(“IoT”) companies,
diversifying our portfolio. In addition, we have realigned
our management team so that it is best positioned to add
value to companies in recognition of the fact that this
exciting sector, which continues to grow in scope and
significance, has moved beyond the early hype stage.
As a result, we were delighted to appoint a highly
credentialed new non-executive Chairman, Ian Ritchie. Ian
brings a wealth of experience in the technology industry
which has already helped guide the Board during ongoing
investment assessment.
We also revised our approach to better ensure the success
of our portfolio companies and adopted an investing
philosophy that does not rely on obtaining majority
holdings in investee companies. We believe this will enable
accelerated growth in the firms within our portfolio. This
was put into practice at the time of our investment in two
new portfolio companies, InVMA Limited and Wyld
Research Limited (acquired by flexiOPS Limited).
Finally, to ensure that the Company’s activities are
appropriately understood by our shareholders, and the
investing community at large, we implemented a new
approach to our communications strategy.
Turning to our trading performance for the year, in 2017
we recognised a loss for the year of £1.7 million,
compared to a profit of £5.3 million in 2016. As our
investment in Device Authority is based upon a US dollar
value per share, the strengthening in the pound sterling in
the year resulted in a £0.8 million exchange rate loss. We
maintained the US dollar valuation of Device Authority,
following a £6.1 million increase in 2016. We also
experienced an increase in legal fees as we added new
new companies to our portfolio and an increase in
directors’ fees as we increased the number of directors
and their time commitment to the Company. The
remaining expenses were broadly flat.
With our transitional changes now complete, Tern’s
management and Directors anticipate that 2018 will
represent a period of net asset value (“NAV”) growth for
Tern. We anticipate this to be achieved via the business
expansion of our portfolio companies and the addition of
one or more investments in new portfolio companies.
Investment Focus and Philosophy
Tern’s fundamental goal is to find technology companies
in the UK involved in specific aspects of the IOT sector.
Then, to invest in these companies, and provide
management assistance and resources that accelerate
the success of these firms.
At the outset, Tern recognised the potential to create
shareholder value through investments in early-stage
companies providing products and services associated
with the IoT. The IoT, as detailed in the ‘Our Markets’
section of this report, is rapidly growing and transforming
entire industries. This growth requires the development of
new commercial ecosystems that create a demand for
firms
the
technologies and capabilities that will be essential to the
development of the IOT.
that can manage different aspects of
As the IoT market has expanded and is maturing, Tern’s
investment philosophy has similarly evolved. The
Company’s management and directors have concluded
that the best near-term opportunities, coupled with our
expertise and resources, are best deployed through
investments in three types of companies: (1) IoT security
services, (2) IoT enablement services, and (3) IoT
Analytics.
These three areas share a range of common features,
that reflect our views on the arenas where Tern is most
likely to find and grow successful portfolio companies.
They are all part of the evolving IoT ecosystem, represent
high-growth areas, present large opportunities for new
technology companies, and have the potential to integrate
with third party IoT platforms. Platforms offer partners that
may act as resellers which can both leverage a company’s
technology without the costs of developing and supporting
a large in-house sales force. Our portfolio companies’
partners also act as a warrant of the quality of the service
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 5
5
CEO’s Statement
For the year ended 31 December 2017
involved, and operate across the many industries involved
in the IoT.
the fundraising process continues. The development of
revenue traction was impacted by several factors;
In sharpening our investment focus, we have also adjusted
our investment philosophy. As mentioned previously, we
initially envisaged that Tern would, as a general rule, seek
to invest in portfolio companies where Tern would have a
controlling interest in the firm. With experience, we have
concluded that it is often equally valuable for the growth
of our portfolio companies, and
the creation of
shareholder value, for Tern to take large influential
positions in firms, which may not represent sole or
controlling ownership. This change in our philosophy is
advantageous for our shareholders in several respects:
(cid:129)
First, we have found that the number of high-value
investment opportunities available is far higher. As a
result, we have greater opportunities
find
companies and build NAV;
to
(cid:129) Second,
through
ownership, Tern’s
shared
responsibility and risk in funding the early growth of
portfolio companies is similarly reduced;
(cid:129)
(cid:129)
Third, in many cases, the co-owners of our portfolio
companies bring added capabilities that further assist
in building the success of these companies; and
Finally, our ability to deploy our capital across a wider
range of
firms, with reduced potential capital
requirements as the operations of each firm evolves,
means that Tern is able to build a broader base of high
potential value-creating portfolio companies.
With a broader portfolio base, the Company will be able
to reduce shareholder risk.
Portfolio Progress
In 2017, the Tern team worked extensively with the
management of Device Authority Limited (“Device
Authority”), our flagship investment, and flexiOps Limited
(“flexiOPS”)
to help drive business expansion and
success. The Board has also reviewed many businesses,
as potential portfolio additions, resulting in the investments
in InVMA Limited (“InVMA”) and Wyld Technologies
Limited (Wyld”).
Device Authority
Device Authority continued to add to its ecosystem of
partners and customers and make progress in line with its
strategy to bring its IoT security platform to market via
partnerships with leading IoT ecosystem providers during
2017. However, we were disappointed that it did not
achieve the announced revenue targets for 2017 or secure
additional investment through the efforts of US Capital
Partners, a San Francisco based investment firm although
(cid:129)
(cid:129)
The delay in the completion of KeyScaler, the
combined platform of Cryptosoft Limited and Device
Authority Inc.
take over and
The disruption created by
consolidations of a number of our key reseller
partners
the
(cid:129) Delays in customer implementation schedules
(cid:129)
The extended length in the time estimated to complete
proof of concepts (POC’s) with customers
We believe these factors were critical in the company not
achieving the early success anticipated in its fund-raising
activities in the United States. As the company enters into
2018 we believe the product and POC issues have been
resolved and key customers will begin shipping in their
forecasted volumes.
Device Authority is valued at £9.69 million which is the
same US dollar asset value as at 31 December 2016, the
reduction is due to a foreign exchange movement due to
the strengthening of the pound sterling between 2016
and 2017.
Key company milestones for Device Authority in 2017 are
set out in the Investment Report on page 13.
InVMA
Since announcing the investment by Tern in September
2017, InVMA, an established and growing player in the
market for IoT enablement, has launched its new product,
AssetMinder. The launch builds on the underlying IoT
trend within the industrial and facilities management
sectors to move towards a proactive performance and
maintenance strategy for assets. Customers across any
industry can now monitor and manage data from all types
of assets and be alerted when pre-determined thresholds
or rules have been met.
AssetMinder delivers real-time insights from remote and
unmanned equipment. According to a market research
report11, the Remote Monitoring and Control Market is
expected to be valued at USD27.11 billion by 2023, at a
CAGR of 4.47% between 2017 and 2023.
As our portfolio grows, there is also an opportunity for
synergistic strategy as evidenced by InVMA signing an
OEM agreement with Device Authority, to integrate
1 Remote Monitoring and Control Market by Solutions (SCADA and
Emergency Shutdown System), Field Instruments (Pressure Transmitter,
Temperature Transmitter, Humidity Transmitter, Level Transmitter,
Flowmeter), Industry and Region-Global Forecast to 2023
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 6
6
CEO’s Statement
For the year ended 31 December 2017
KeyScaler™ into InVMA's new product, AssetMinder, on
a revenue share basis.
flexiOPS
We believe that flexiOPS may be the source of valuable
technology expertise to assist current and future Tern
portfolio companies. During 2017, flexiOPS used its
resources to purchase a stake in Wyld Technologies, a
MESH networking company.
Wyld’s market opportunities are broad from both a
technological perspective, where interest is being shown
in their underlying MESH Networking Capabilities, as well
as in terms of its ability to deliver an integrated solution
which leverages MESH. This was demonstrated in the
recently announced Emergency and Disruption Alert
Network solution.
Wyld sees commercial opportunity for its solutions in
Transport, Government, Military/Law Enforcement and the
Retail markets among others and will launch an SDK in
the coming months to allow third parties to leverage its
underlying MESH Networking Capabilities.
Investment and Portfolio Vision
Tern’s investment philosophy reflects all of the factors
discussed above. In addition, we seek out companies with
management teams that have the potential to build high
growth businesses.
Generally, market investors lack the ability to directly
participate in the high growth technology IoT services
businesses of the type Tern has identified. Traditionally,
investments in firms of this type have been limited to
venture capital and private equity firms. In contrast, Tern
is designed to give investors an opportunity to participate
in the value associated with building exciting IoT product
and service companies that meet the criteria detailed here.
In addition, as a company whose shares are traded on
AIM, Tern allows investors to continuously assess the
success of our efforts, and increase or reduce their stake
in our initiatives, at any time.
Our vision is that, in three to four years hence, Tern will
have an established portfolio of companies. At the same
time, we anticipate that during this period we will be
building shareholder value through liquidity events by our
portfolio companies. We expect these events to reflect the
importance and relevance of our portfolio companies in
the market and lead to increases to the net asset value of
Tern.
Year-End Funding and Related Activities
In the third quarter, the Company raised £0.6 million in an
over-subscribed funding conducted by Primary Bid. The
proceeds from this activity were directed to the new
investment made into InVMA. The board believed the
Primary Bid vehicle provided the company the most
efficient access to capital given the market conditions at
the time.
Toward the end of 2017, the Directors concluded that
Tern’s shareholders would be best served if Tern ensured
that Device Authority had adequate financial resources to
operate the business while attempting to close its funding
activity. Also, the Board wanted Tern itself sufficiently
financed to continue its focused mission. We therefore
secured a convertible loan note facility of £2.2 million and
drew down £550,000 in 2017 to meet these two
objectives. At the time of this funding, market conditions
necessitated that we offer shares at a substantial discount
to the then trading price of Tern stock. This facility has
now been terminated.
Communications Strategy
Finally, the Directors have recognised that Tern’s
shareholders require the greatest possible transparency.
Therefore, in 2017, Tern’s Directors and management
adopted a revised shareholder communications policy.
The core of this policy is our commitment to discuss the
accomplishments of portfolio companies after they have
been fully realised, as compared to discussing anticipated
results and to ensure there is a connection between the
news flow of investee companies and Tern, as a key
investor. Tern will also host shareholder calls three times
a year.
A Sustaining Vision for the Future
On behalf of the Directors and management of the
Company, we want to thank you for your continued interest
and support of Tern Plc. We are approaching the future
with increased confidence and our prospects for portfolio
expansion appear significant. We are aware of the
challenges and risks ahead but are confident that they are
attainable. We believe we are at a tipping point and our
refined strategy coupled with the size of the IoT
opportunity provide a clear indication of our vision for
renewed growth and shareholder value.
Albert Sisto
Chief Executive Officer
26 March 2018
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 7
7
Our Markets
Overview
The Internet of Things (IoT) is a rapidly growing network
of connected objects able to collect and share data via
embedded sensors and gateways. The IoT turns “dumb”
stand-alone devices into “smart” connected devices that
can receive real-time operating instructions based on the
information collected and shared.
Over the next several years, The Internet of Things (IoT)
is expected to experience extraordinary growth. A BI
Intelligence report, for example, projects that by 2025
there will be more than 55 billion IoT devices installed
around the world, as compared to an estimated global
base of fewer than 10 billion devices in 2017. 1 This same
report anticipates that spending on IoT devices, solutions,
and supporting systems will total $14.6 trillion by 2025,
with total IoT spending exceeding $1 trillion annually in
2021.1
To date, the proliferation of IoT devices is upending
traditional practices, creating new high-value business
practices, and delivering previously unavailable
efficiencies and capabilities, across a wide range of
industries (notably in such diverse areas as industrial
applications, healthcare, agriculture, the smart grid, the
smart home, and connected vehicles). These activities
cross a wide range of functions throughout industries
(such as supply chain and logistics management,
manufacturing, and inventory management).
in
The dramatic growth of the IoT envisioned by BI
Intelligence, and others2 reflect a widely recognised
pattern
technology
the evolution of significant
advances: Initial uses focus on areas that generate
immediate value. Then, new uses build on the experience
of these initial applications and reflect increases in
sophistication as well as growth in specialised activities to
meet the specific needs of industries, functions, or large
clients.
Fig.1
1 Newman, Peter, The Internet of Things 2018: How The Iot Is Evolving to
Reach The Mainstream With Businesses and Consumers (BI
Intelligence, January 2018), p. 19/20
2 See, Columbus, Louis, 2017 Roundup of Internet of Things Forecasts
(https://www.forbes.com/sites/
(Forbes online, Dec. 19, 2017)
louiscolumbus/2017/12/10/2017-roundup-of-internet-of-things-
forecasts/) (retrieved March 14, 2018)
The IoT Ecosystem and Requirements for Successful
IoT Implementation: The IoT creates value for businesses,
healthcare, and consumers through the intelligent and
secure management of the information reported by the
network of devices that communicate with applications and
their users. A communications network only works when all
components are in place and function (fig.1). For example,
a website offers no value to prospective users if it lacks
Internet connectivity. The successful deployment of the IoT
device
necessitates
interdependent operating capabilities in five distinct areas,
which comprise what is called the IoT ecosystem.
communications
network
The five elements of the IoT ecosystem are:
1.) Hardware (the IoT devices themselves in any
installation or solution);
2.) Communication Networks (that connect the IoT
implementation to the user);
3.) Remotes
(such as
tablets, or
smartphones, that provide users with the interface for
connecting with IoT devices and managing their
activities);
computers,
4.) Platforms and Application Enablement (which provide
the messaging, data analytics, data storage, and
customised services associated with IoT solutions);
and
5.) Security protocols (which protect IoT implementations
from outside intrusion).3
Tern’s Focus on Segments Within the IoT Ecosystem
Overview: Tern’s sharpened
investment
activities involves three segments of the IoT ecosystem.
These aspects of the IoT ecosystem are all characterised
by several factors; they are areas where:
focus on
(cid:129)
(cid:129)
software
Innovative
unique
technologies and short development time frames are
needed;
solutions, with
Typically, customers will continuously require upgraded
applications, security and device capabilities;
(cid:129) Software solutions that meet customer needs that can
rapidly scale their services;
(cid:129)
Fragmented markets ensure no single firm or group of
firms dominate these areas;
(cid:129) Capital requirements are low and ROI’s high,
particularly when compared to hardware-based
aspects of the IoT ecosystem; and
3 See Newman, Peter, p.2.
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 8
8
Our Markets
(cid:129)
Large, well-established, technology firms are seeking
reseller or co-promotion partnerships with young
companies to provide customers with end-to-end IoT
implementations.
IoT Security
In 2017 and beyond, the need for scalable, trustworthy IoT
security solutions has become more apparent, with
consequent growth in demand. The factors contributing to
this demand, include:
(cid:129) Widely publicised security breaches and ransomware
attacks in 2017, which resulted in increased public
awareness of the vulnerability of Internet connected
data sources.
(cid:129)
(cid:129)
Industry recognition that the growing implementation
of IoT initiatives means far more opportunities for
cybercriminals to play havoc with industrial and
consumer activities.
the
Industry recognition
integrity of data
that
communications (data in transit) is critical to the
successful operation of the IoT activity. In contrast,
2017 security breaches involved data at rest (in
storage), which were unrelated to essential day-to-day
operations of the firms involved.
Fig.2
To summarise, the success of the IoT requires the ability
to ensure essential IOT-powered business, healthcare,
and consumer activities operate without malicious
intruders interfering with essential operations (fig.2).
The IoT security services market is expected to grow
rapidly over the next five years. In a September 2017
report, IoT Analytics estimated that the market for IoT
security software will
increase at an estimated CAGR
(Compound Annual Growth Rate) of 44% between 2017
and 2022, with IoT security spending increasing from an
estimated $700 million in 2017 to $4.4 billion in 20224.
This report also noted the “fragmented” nature of the IoT
security market, and segments IoT security “into 4 layers,”
which this report defined as device, communication, cloud
and life-cycle management.4
Notably, a Boston Consulting Group analysis that seeks
to assist companies in choosing development IoT
platforms for new IoT initiatives stresses:
(cid:129)
The value of choosing IoT development platforms that
meet the specialised needs of the proposed solution;
(cid:129) Working with IoT development platforms that provide
comprehensive solutions; and
(cid:129)
The value of platforms that offer vertical-specific
applications and services (what Tern terms an
ecosystem of partnerships), which can be particularly
attractive to companies “starting to test the potential
of new IoT based-services.”5
Tern’s approach to portfolio investments in the IoT security
arena aligns with the many insights of these reports. Tern
has sought and will continue to seek, portfolio companies
offering IoT security services which:
(cid:129) Combine the opportunity for rapid growth with the
easy capability to partner with large technology
companies and IoT platforms;
(cid:129) Can be customised to develop value across industries;
and
(cid:129) Deliver solutions that run across the layers of IoT
security needs (device, cloud, communication, and
life-cycle).
IoT Analytics
The era of zettabytes: Every IoT connected device is a
source of data, typically on a continuous, real-time basis.
As a result, the growth of installed connected devices will,
of necessity, create accompanying, dramatic growth in the
volume of real-time data associated with IoT applications.
In a whitepaper, Data 2025, commissioned by Seagate
and issued in April 2017, IDC projected that by 2025, 163
zettabytes of data would be created annually (a zettabyte
is one trillion gigabytes), as compared to 16.1 zettabytes
created in 2016. IDC anticipates that by 2025, nearly 30%
of this 163 zettabyte estimate will reflect real-time data,
and the IoT will generate 95% of this total.6
The era of value: The business transforming value of the
IoT is directly related to the data it generates, and the
ability of users to process and respond to this information.
Last year, in an article titled, “The world’s most valuable
resource is no longer oil, but data,” The Economist
compared the value of data in the approaching era to the
value of energy in the 20th century.7 Data, like energy in
4 IoT Security Market Report 2017 to 2022 (IoT Analytics, Sept. 2017).
Findings summarised at https://iot-analytics.com/product/iot-security-
market-report-2017-22/ (retrieved, March 14, 2018)
5 Bhatia, Akash; Yusuf, Zia; Ritter, David; and Hunke, Nicholas; Who Will
Win The Platform Wars? (BCG Perspectives: June, 2017), pages 4-5
6 Reinsel, David; Gantz, John; Rydning, John; Data Age 2025: The
Evolution of Data to Life-Critical Don’t Focus on Big Data; Focus on the
Data That’s Big (IDC, April 2017), p. 2-3
7 The world’s most valuable resource is no longer oil, but data, the
Economist (May 6, 2017)
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 9
9
Our Markets
the previous century, will power the value and wealth of
entire industries. IoT data and its analysis fall into three
categories: Descriptive, predictive and
general
prescriptive7. While interrelated, these three categories
represent increasing levels of value: For example:
(cid:129)
Initial IoT applications may provide useful descriptive
information on shipment locations for logistics.
(cid:129) Over time, expanded analysis enables predictive early-
warning of supply shortages at specific locations, with
associated enhancements to logistics.
(cid:129)
Finally, greater analysis leads to prescriptive findings:
Ways of fundamentally revising logistics operations to
build enterprise value.
The data analytics challenge and opportunity: At
present, most IoT generated data is not examined. In one
study, the Mckinsey Global Institute concluded that 99%
of the data generated by 30,000 connected sensors on
an oil rig remained unexamined, concluding “That’s
because this information is used mostly to detect and
control anomalies—not for optimisation and prediction,
which provide the greatest value”.8 The value of the IoT
derives from the ability of users to make sense of the
many new sources of information it enables. The
challenge in realising this value involves the complexity of
working with zettabytes of information, capturing and
responding to the information generated in real-time, and
analysing large quantities of information to identify
business
meaningful
transformation or (through the sale of high-value
information) create entirely new revenue streams.
relationships,
power
that
Markets and Markets projects the IoT Analytics market will
grow from $7.19 billion in 2017 to $27.78 in 2022, a
Compound Annual Growth Rate (CAGR) of 31%.9
IoT analytics, and
More significantly, the technical challenges associated
with
the meaningful, real-time
processing of large quantities of data, are substantial. At
the same time, a representative analysis by the Boston
Consulting Group concludes that, as a core component
of IoT business value creation, IoT Analytics services will
capture a significant portion of the services revenue
associated with IoT implementation.10
Tern’s Approach: Tern believes the IoT data Analytics
market is particularly attractive. Emerging potential
portfolio companies are developing technologies with
significant commercial potential. Moreover, the value
delivered by these services, including their potential to
create entirely new revenue streams for clients, means
that the pricing of unique services has the potential to
8 Manyika, James; Chui, Michael; Bisson, Peter; Woetzel, Jonathan;
Dobbs, Richard; Bughin, Jacques; and Aharon, Dan; Unlocking the
potential of the Internet of Things (Mckinsey Global Institute, June 2015),
online summary at https://www.mckinsey.com/business-functions/digital-
mckinsey/our-insights/the-internet-of-things-the-value-of-digitizing-the-ph
ysical-world (retrieved March 14, 2018)
capture a portion of the the value created for clients
(either directly or through partnerships), as opposed to
confronting other constraints.
IoT Enablement
The market for IoT enablement is typically discussed in
connection with the market for IoT development platforms.
Undoubtedly, this reflects a portion of this market. IoT
enablement platforms offer a suite of services that
facilitate the roll-out of IoT solutions, where the platform
the
warrants
participants.
interoperability of
the quality and
However, Tern takes a broader view of this capability.
From Tern’s perspective, short
for
implementations require specific use case expertise.
Moreover, the shift to the cloud and growing specialisation,
mean
the supporting services, and necessary
integrations, associated with IoT implementation will
continuously evolve.
frames
time
Fig.3
Hence, Tern seeks IoT enablement services that work
within specific platforms, derive scale through proprietary
services that can be customised for each use case, while
simultaneously providing the full-service integrations that
new IoT customers require. In this latter context, these
complete solution integrations are both an independent
revenue generating opportunity, and a means of building
the market for solutions owned by the integrator or
potentially other Tern best-of-breed technology partners.
Conclusion: Tern’s Investment Focus and the IoT
Ecosystem
The rapid growth and adoption of IoT implementation is
an opportunity for Tern to create value by investing in
companies with global reach that provide critical “must
have” solutions for the IoT, in the specific high opportunity
areas of the IoT ecosystem.
Tern looks forward to expanding its portfolio to capitalise
on the success of the IoT in 2018 and subsequent years.
9 IoT Analytics Market by Application (Energy Management, Predictive
Maintenance & Asset Management, Inventory Management, Remote
Monitoring), Component, Analytics Type, Deployment, Organization
Size, & Vertical - Global Forecast to 2022 (Markets and Markets, July
2017)(https://www.marketsandmarkets.com/Market-Reports/iot-
analytics-market-52329619.html:) (retrieved March 14, 2018).
10 Bhatia, Akash; Ritter, David; and Hunke, Nicholas; Yusuf, Zia;
Ruessmann, Michael; Schmeig, Florian; Kalra, Nipun; Winning in IoT: It’s
All About the Business Process (BCG Perspectives: March 2017), p. 2.
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 10
10
Strategic Report
For the year ended 31 December 2017
Business review
The Company is positioned as a quoted platform to invest in, develop and sell private software companies with proven
technology, based in the UK but with global opportunities and ambitions. These businesses are predominantly in the
Internet of Things sector. A more detailed review of the activity and progress of the business, including the portfolio of
investments, is contained in the CEO’s Statement on pages 4-6 and Investment Report on pages 13-15, which form
part of the Strategic Report.
The 2017 results have been materially impacted by an exchange rate loss (£0.8m) on the revaluation of the Device
Authority investment at the balance sheet date. This, coupled with the gain recognised in 2016 on the Device Authority
investment, has resulted in the movement in operating (loss)/profit between 2016 and 2017.
Future developments
As explained in the CEO’s Statement the Company has undertaken a series of initiatives to position the Company for
lasting success in its focused market sector and has continued to build a portfolio of investments and a pipeline of
investment opportunities in IoT enablement.
Key performance indicators
The Company’s principal activity is that of investing in companies. Accordingly, the Company’s financial Key
Performance Indicators (KPIs) are the return on investments and the net assets position of the Company including net
assets per share. These indicators are monitored closely by the Board and the details of performance against these
are given below.
(cid:129)
The return on investments:
(cid:129) Unrealised – Push Technology Limited has been revalued in line with IFRS to a level consistent with recent fund
raisings. Seal Software Group Limited value remains unchanged. Device Authority’s US dollar value remains
unchanged, however a pound sterling reduction has been reflected when revaluing the investment using the
2017 year end exchange rate. InVMA Limited and flexiOPS Limited have been evaluated in line with recent Tern
investment. InVMA Limited is valued at cost which is taken as fair value. flexiOPS Limited is valued at the cost
of investment in Wyld Technologies Limited which is taken as fair value. Device Authority is an early stage
business in an emerging market where there is a lack of comparative businesses available on which to provide
a comparable valuation and therefore value has been based on an assessment of numerous factors: the
underlying value of the patent portfolio, the multiples achieved in comparable markets on recent transactions,
and an assessment by the Board on the strength of the sales pipeline and achievability of the 2018 sales
forecast.
(cid:129)
The net assets of the Company at 31 December 2017 were £10,580,802 (2016: £11,187,739). The net assets per
ordinary share as at 31 December 2017 were 7.38p (2016: 9.44p).
The Company has non-financial KPIs which are also monitored regularly by the Board. These non-financial KPIs are
focused around the number and quality of investment opportunities seen, the time taken to reach the decision to move
forward with a potential investee company and the employee turnover in our portfolio companies. We believe these
factors help serve as leading indicators of the future performance and our impact on our stakeholders.
Financial risk management objectives and policies
The Company’s policy in respect of financial instruments and risk profile is set out in Note 2 to the financial statements.
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 11
11
Strategic Report
For the year ended 31 December 2017
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. 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. 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:
Reliance
on key
people
Risk
The Company is unable to
retain key individuals
Potential impact
(cid:129)
Loss of knowledge and
expertise
(cid:129) Disruption for the Company
or its investment companies
Investment
risk
An investment fails to perform
as anticipated:
(cid:129)
(cid:129)
Investment may require
additional finance
Inability to create maximum
value in a timely fashion
(cid:129) Difficulty in realising
investment
The Company’s influence
reduces
The value of the Company’s
holding falls
If one dominant investment
fails it has a disproportionate
impact on the Company
(cid:129)
(cid:129)
Investee companies may
be operating in highly
competitive markets with
rapid technological change
Investee companies may
be companies in early
stage of commercial
development. Generation of
significant revenues is
difficult to predict and not
guaranteed
(cid:129)
(cid:129)
(cid:129)
The Company is unable to
maintain its holding when the
investee company requires
significant additional funding
The portfolio is dominated by
one or two investments
Strategy
The Company offers a
remuneration package designed
to attract, motivate and retain key
individuals
Key individuals in the investment
companies are offered an
attractive remuneration package
and either shares or share option
incentives
The Company actively takes an
influential role in the strategic
direction of its investments and
monitors all investments regularly
The Company’s strategy has
been formulated by the
management team with a strong
track record of generating gains
from early stage companies
within the technology sector
The Company is building a
portfolio of investments to
insulate itself against poor
performance of any one
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 12
12
Strategic Report
For the year ended 31 December 2017
Liquidity
Risk
The Company is unable to
raise new funds
Potential impact
(cid:129) May have a detrimental effect
on the Company’s ability to
cover administration and
other costs
(cid:129) May adversely affect returns
of investee companies if they
need to raise further funds
Strategy
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 change to
regulation
Foreign
exchange
risk
The valuation of investments
may be impacted by foreign
exchange movements
(cid:129)
(cid:129)
Financial and reputational
impact
The value of the Company’s
holding falls
Maintain strong advisory base.
Legal advice taken on all
investment and employment
issues
The Company actively reviews
the value of investments and will
consider action on foreign
exchange risk where relevant,
following advice from advisors.
Assessment of business risk
The Board regularly reviews operating and strategic risks, with the assistance of its committees. The Company’s
operating procedures include a system for reporting financial and non-financial information to the Board including:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
reports from management with a review of the business at each Board meeting, focusing on any new decisions/risks
arising;
reports on the performance of investments;
reports on selection criteria of new investments;
discussion with senior personnel; and
consideration of reports prepared by third parties.
The Strategic Report was approved and authorised for issue by the Board of Directors on 26 March 2018 and was
signed on its behalf by:
Bruce Leith
Director
26 March 2018
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 13
13
Investment Report
For the year ended 31 December 2017
The Company’s current investment portfolio consists of the following investments, all of which are unquoted:
Device Authority Limited
Market segment: Data Security software
Equity ownership: 56.8% ‘A’ Shares
Cost: £4.34 million
Valuation: £9.69 million
Valuation is based on the price of shares in the most recent fund raise (April 2016), which is taken as fair value,
translated at the exchange rate at the balance sheet date. This was supported by an evaluation of a combination
of factors including the independent valuation of Device Authority’s patent portfolio, a comparison to transaction
multiples in comparable market sectors and an evaluation of sales pipeline and 2018 trading forecast.
Device Authority Limited (“Device Authority”) is an Internet of Things (IoT) security automation company. Device
Authority provides simple, innovative solutions to address the challenges of securing applications and their devices
while using the Internet with a robust, end-to-end security architecture that delivers efficiencies at scale. The Device
Authority KeyScalerTM IoT security platform is purpose-built to address these challenges through automated device
provisioning, credential management, secure updates and policy-driven data encryption.
Device Authority will continue to focus on building its contract base and device registrations, as well as developing its
strategic alliances and OEM integration of the KeyScaler platform. Focus is also being driven to the thoughts around
developing a white labelled version of KeyScaler and co-branding with other IoT platform providers.
Key announcements in 2017 included:
(cid:129) Announcement of a three-year global agreement to power Comodo CA’s IoT security service, which represents a
significant milestone and revenue opportunity for DA;
(cid:129)
(cid:129)
(cid:129)
The integration of Device Authority’s core KeyScalerTM product with Intel® Secure Device Onboard (SDO);
The signing of a three-year agreement with MultiTech, a leading ARM-based developer and manufacturer of
communications equipment for the industrial IoT, for DA to provide KeyScalerTM for its gateway products;
The signing of an agreement with GCE Healthcare Products Group, whose products range from medical gas
regulators and oxygen concentrators, to resuscitation and hospital ward equipment used in emergency, hospital
and homecare environments;
(cid:129) Entered into a new partnership with Super Micro Computer, Inc., a global leader in computing, storage and
networking technologies to enable an on-boarding model, through which applications identify devices and
automatically onboard them to their IoT management application; and
(cid:129) Secured $1.7 million in convertible loan note funding from its significant investors, Alsop Louie Partners, George
Samenuk and Tern.
(cid:129) Online Trust Alliance names Device Authority to the 2017 Online Trust Honor Roll for the second consecutive year.
(cid:129) Device Authority named Innovator in Access Control for second consecutive year.
(cid:129) Device Authority accelerates IoT deployments as a founding member of EdgeX Foundry.
For more information visit: www.deviceauthority.com.
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 14
14
Investment Report
For the year ended 31 December 2017
InVMA Limited
Market segment: IOT Systems Integrator
Equity ownership: 50%
Cost: £375,000
Valuation: £375,000
Valuation is based on cost, which is taken as fair value.
InVMA Limited (“InVMA“) builds solutions that link connected products to their customers’ systems to create new
revenue streams, enhance customer satisfaction and improve operational efficiency. InVMA enables an Internet of
Things that delivers real business value and competitive advantage.
(cid:129)
InVMA works closely with PTC, a $1.1 billion revenue software company, and is one of the only European integrators
certified for PTC’s Thingworx platform, a leading IoT development platform.
Key announcements in 2017 include:
(cid:129)
(cid:129)
(cid:129)
InVMA unveiled AssetMinder, its new turnkey asset performance solution. AssetMinder delivers real-time insights
from remote and unmanned equipment and integrates with Device Authority’s KeyScaler(TM).
InVMA announced £1 million committed sales orders in 2017 through securing new customers in OEM, Oil and
Gas, Asset Rental and Manufacturing markets.
InVMA secured a number of repeatable annual contract wins including with a UK/International Airport, Howden
Process Compressors, MSE Hiller, MEMS and GCE.
For more information visit: www.invma.co.uk.
flexiOPS Limited
Market segment: Project management of research and innovation projects in technology
Equity ownership: 100%
Cost: £37,500*
Valuation: £78,000
* Cost is 50% of the purchase price of two business units flexiOPS and Concerto. Concerto was sold in 2016.
Valuation is based on cost of Wyld Technologies Limited, a 90% subsidiary of flexiOPS Limited, which is taken as
fair value.
flexiOPS Limited (“flexiOPS”) runs project management and innovation technology projects with associated grant
funding. It works across a portfolio of projects including Horizon 2020, the European Commission’s EU Framework
Programme for Research and Innovation, whose purpose is securing Europe’s global competitiveness.
In September 2017, Wyld Technologies Limited (“Wyld”), a wholly owned subsidiary of flexiOPS, acquired the assets
of Wyld Research Limited for £78,000 and a 10% holding in Wyld. Wyld has developed a proven mesh networking
software platform.
In November 2017 Wyld launched its EDEN (Emergency and Disruption Alert Network) solution at the World Rail
Conference in Amsterdam. Wyld is actively working with key strategic partners and prospects to deploy this critical
component of delivering disruption information in challenging environments in 2018.
For more information visit: www.flexiOPS.com.
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 15
15
Investment Report
For the year ended 31 December 2017
Push Technology Limited
Market segment: Data distribution software
Equity ownership: <1%
Cost: £120,197
Valuation: £11,326
Valuation is based on the price of shares in the most recent fundraise, which is taken as fair value.
Push Technology Limited (“Push”) significantly enhances the ability of organisations to communicate in real-time. This
includes direct communication as well as indirect, for example, by refreshing data displayed information in real time
rather than when a user explicitly asks for an update. Interactive applications are infinitely more engaging, updating in
real-time as new data becomes available.
Key announcements in 2017 included:
(cid:129) Release of enterprise-grade, data streaming and messaging solution.
For more information visit: www.pushtechnology.com.
Seal Software Group Limited
Market segment: Database Analytics and Search software
Equity ownership: <1%
Cost: £50,000
Valuation: £62,714
Valuation is based on the price of shares in the most recent fundraise, which is taken as fair value.
Seal Software Group Limited (“Seal”) specialises in writing software which performs complex analysis of contractual
data. Seal is specifically designed to locate and examine contractual documents and extract and present key contractual
information related to language, clauses, clause combinations, and the significant contextual metadata held within
them.
In 2017 the notable events included:
(cid:129) Contracts signed with Parker Hannifin, a Fortune 250 company and PwC.
(cid:129) Strategic partnerships announced with State of Flux, the global procurement and supply chain management
consultancy, TractManager Inc and Coin Sciences, the open source blockchain company.
(cid:129) Continued expansion of worldwide operations with a new office opened in Egypt, as well as bolstering its team in
Sweden.
(cid:129) Aragon Research, a technology-focused research and advisory firm based in Silicon Valley, identified Seal as a key
provider in the emerging Intelligent Content Analytics (ICA) market.
(cid:129) Seal was ranked 310th on Deloitte’s Technology Fast 500™, a ranking of the 500 fastest growing technology, media,
telecommunications, life sciences and energy tech companies in North America.
Customers include Dropbox, Microsoft, Bosch, hp, Merck, Vodafone and many other multi-national organisations.
For more information visit: www.seal-software.com.
248191 Tern AR pp01-pp16 26/03/2018 17:42 Page 16
16
Board of Directors
Ian Ritchie
Chairman
Ian is the non-executive Chairman of Iomart plc, Computer Applications Service,
and Krotos. He founded OWL in 1984, which pioneered hypertext application
development (a forerunner to the world wide web) selling the company to Panasonic
in 1989. Since then he has been involved in over 40 start-up high-tech businesses.
Ian has a degree in Computer Science from Heriot-Watt University (1973) and holds
Honorary Doctorates from Robert Gordons, Abertay, Heriot-Watt and Edinburgh
Universities. He writes a monthly column in Scottish Business Insider magazine
and his TED talk has been viewed over 500,000 times.
Albert Sisto
Chief Executive Officer
Al’s an IT industry veteran with more than 25 years senior executive level
experience. As Chief Operating Officer at RSA Data Security Inc, the leading
security software company, he led its transformation from a passive patent licensing
operation to an aggressive, sales oriented software company. At RSA he negotiated
partnership agreements with IBM, Intel, Compaq, Cisco and Nortel. Al was
Chairman, President and CEO of Phoenix Technologies Limited, the global BIOS
software company. He revitalised Phoenix through the acquisition of Internet
appliance business, Ravisent Technologies; investing in semiconductor and
microprocessor designer Transmeta and spinning off Silicon Corporation.
Sarah Payne
Finance Director
Sarah qualified with Ernst & Young as a Chartered Accountant before joining its
corporate finance team. She then spent six years with the BBC, firstly within
commercial and investment strategy and then as Head of Financial Planning and
Analysis. For the seven years before joining Tern Plc, Sarah was an outsourced
Finance Director for SME businesses principally within high tech markets.
Bruce Leith
Business Development Director
Bruce began his career with IBM and has extensive international sales
management and board level experience in the software industry including senior
level positions at DataWorks Corporation, London Bridge Software International
and Codestream. Specialising in delivering high growth, high profit results through
product development, portfolio repositioning and geographical expansion, Bruce
was involved in the successful sales of a number of companies including Interactive
UK, London Bridge and Codestream. Bruce is also an active angel investor in
several high growth software businesses.
Alan Howarth
Non-Executive Director
Alan has extensive experience as a Chairman and Non-Executive Director of
private and public companies. He is a specialist in building and selling technology
businesses. Previously, Alan was a partner at Ernst & Young and is one of the
founding partners of the EY Management Consulting practice in the UK. For the
last fifteen years he has been managing a portfolio of non-executive appointments.
248191 Tern AR pp17-pp31 26/03/2018 17:43 Page 17
17
Directors’ Report
For the year ended 31 December 2017
The directors present their annual report and the audited financial statements of Tern plc (the “Company”) for the year
ended 31 December 2017.
The Company is registered as a public limited company (plc). The Company’s Ordinary shares of 0.02p each are traded
on AIM of the London Stock Exchange.
Principal activities
The principal activity of the Company is investing in unquoted and quoted companies to achieve capital growth.
Results and dividends
The results for the period are shown in the income statement and statement of comprehensive income on page 28.
The loss for the year was £1,689,555 (2016: £5,296,633 profit).
The directors do not recommend payment of a dividend.
Events after the reporting period
On 5 January 2018, the outstanding convertible unsecured loan note was converted into 15,714,285 ordinary shares
of 0.02p each at a price of 1.75p. On 9 January 2018, a second tranche of convertible loan notes totalling £550,000
was issued, pursuant to the convertible unsecured loan note facility. On 17 January 2018, £275,000 of the convertible
loan note was converted into 11,000,000 ordinary shares of 0.02p each at a price of 2.5p. On 16 February 2018 the
remaining £275,000 convertible loan note was converted into 13,750,000 ordinary shares of 0.02p each at a price of
2p. On 8 March 2018, the convertible loan note facility was terminated and a £650,000 equity placing was announced.
On 29 January 2018, a further £125,000 was invested in InVMA to maintain Tern’s 50% shareholding.
On 1 March 2018 a further $360,581 was paid to Device Authority, representing the second tranche of the convertible
secured loan announced on 28 December 2017.
Political and charitable contributions
No political or charitable donations were made during the period.
Control procedures
Operational procedures have been developed for each of the Company’s operating businesses that embody key controls
over relevant areas. The implications of changes in law and regulations are taken into account by the Company.
The Board has considered the need for an internal audit function but has decided that this is not justified at present
given the size of the Company. However, it will keep the decision under review on an annual basis.
Going concern
The financial statements have been prepared on the going concern basis because, as set out in detail in Note 1.3, the
Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence
for the foreseeable future.
Directors and directors’ interests
The directors who held office during the year and their interests in the ordinary shares of the Company are as follows:
A M Howarth
B H Leith
S L Payne
I C Ritchie
A E Sisto
R K Turner
At 31 December 2017
Ordinary shares
At 31 December 2016
Ordinary shares
–
5,957,233
–
–
9,183,333
–
–
5,957,233
–
–
6,263,333
–
The interests of the directors in options granted by the Company are disclosed under the “Report on Directors
Remuneration”.
248191 Tern AR pp17-pp31 26/03/2018 17:43 Page 18
18
Directors’ Report
For the year ended 31 December 2017
Significant shareholdings
As at 26 March 2018, the company had been notified of the following shareholdings of 3% or more of the share capital.
Number of
Ordinary
Shares
Percentage of
Issued Shares
Held
John Mahtani
A E Sisto
Bruce H Leith
Canaccord Genuity Group Inc
City Financial Absolute Equity Fund
12,730,000
9,583,333
8,857,233
7,423,808
7,142,857
6.0%
4.5%
4.2%
3.5%
3.4%
Statement of directors’ responsibilities
The directors are responsible for preparing the directors’ report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial period. Under that law the directors
have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRS)
as adopted for use in the European Union. Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing those financial statements, the directors are required to:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether the Company financial statements have been prepared in accordance with IFRS as adopted by the
European Union subject to any material departures disclosed and explained in the financial statements; and
prepare the accounts on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
Disclosure of information
In the case of each person who was a director at the time this report was approved:
(cid:129)
(cid:129)
so far as that director is aware there is no relevant available information of which the company’s auditors are
unaware; and
that director has taken all steps that the director ought to have taken as a director to make himself aware of any
relevant audit information and to establish that the Company’s auditors were aware of that information.
Publication of accounts on the company website
Financial statements are published on the Company’s website. The maintenance and integrity of the website is the
responsibility of the directors. The directors’ responsibility also extends to the financial statements contained therein.
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19
Directors’ Report
For the year ended 31 December 2017
Independent auditors
The auditor, Grant Thornton UK LLP, was appointed on 15 December 2016 in accordance with section 160 (2) of the
Companies Act 2006. In accordance with S489 (4) of the Companies Act 2006, a resolution to re-appoint Grant Thornton
UK LLP as auditor will be put to the members at the annual general meeting to be held on 24 April 2018.
Signed on behalf of the board
Sarah Payne
Director
26 March 2018
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Corporate Governance and Compliance
For the year ended 31 December 2017
The Company’s shares are traded on AIM and, accordingly, adoption of the revised UK Corporate Governance Code
is not mandatory. Whilst the Company does not voluntarily adopt all provisions of the Code, the Company has drawn
upon best practice available and has sought to comply with a number of the provisions of the Code in so far as it
considers them to be appropriate for a company of this size and nature. Over the past four years as the Company
developed from early stage to established, steps have been taken to increase compliance with more provisions of the
Corporate Governance Code. In 2016 the first Board Committees were established. The Board is accountable to the
Company’s shareholders for good corporate governance. This report and the Report on Directors’ Remuneration
describe how the Company applies the provisions of good corporate governance. A fuller version is available on the
Company’s website (www.ternplc.com) under Investors.
Directors
The Company supports the concept of effective Board leadership and control of the Company. The Board is responsible
for approving Company policy and strategy. All directors have access to advice from the company secretary and
independent professionals at the Company’s expense.
The Board consists of three executive directors and two non-executive directors. The non-executive directors are
independent of management and any business or other relationship which could interfere with the exercise of his
independent judgement.
The Board members are listed on page 16.
Board committees
Audit Committee
The Audit Committee was established in November 2016 and is chaired by Alan Howarth.
There was one Audit Committee meeting in 2017.
Remuneration Committee
The Remuneration Committee was established in November 2016 and is chaired by Alan Howarth.
There were three Remuneration Committee meetings in 2017.
Relations with shareholders
The Company values the views of its shareholders and recognises their interest in the Company’s strategy and
performance, Board membership and quality of management. It therefore encourages shareholders to offer their views.
The Company’s website (www.ternplc.com) maintains up to date news flow for shareholders and other interested parties.
The AGM provides an opportunity for shareholders, particularly private investors, to question the Board on issues
arising.
Three shareholder calls per annum provide an opportunity for shareholders to put their questions to the Board.
The notice convening the AGM is the notice of the meeting sent to shareholders with this report. A separate motion will
be put to the meeting on each substantial issue.
Appointment of directors
The Board deals with all matters relating to the appointment of directors including determining the specification,
identifying suitable candidates and selection of the appointee. No separate nominations committee has been formed.
Throughout the year the Articles of Association have required each director to seek re-election after no more than three
years in office. Therefore, the Board considers it inappropriate that non-executive directors be appointed for a fixed
term as recommended by the Code.
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21
Corporate Governance and Compliance
For the year ended 31 December 2017
Accountability and audit
The Board endeavours to present a balanced and understandable assessment of the Company’s position and prospects
in all reports as well as in the information required to be presented by statutory requirements. All financial information
published by the Company is subject to the approval of the Audit Committee.
The Audit Committee is responsible for reviewing the Company’s internal control and risk management systems, and
reviewing and monitoring the requirement for an internal audit function and the effectiveness of the external audit. The
Committee is responsible for maintaining a system of internal control to safeguard shareholders’ investments and the
Company’s assets and for reviewing its effectiveness. Such a system is designed to manage, but not eliminate, the risk
of failure to achieve business objectives. There are inherent limitations in any control system and accordingly even the
most effective systems can provide only reasonable, and not absolute, assurance against material misstatement or
loss.
Activities of the Audit Committee include monitoring the integrity of the Company’s financial statements and other
formal announcements relating to the Company’s financial performance and reviewing significant financial reporting
judgements contained in them.
The Audit Committee advises the Board on the appointment, reappointment and removal of the external auditor,
considers its effectiveness and approves its remuneration and terms of engagement, which includes developing and
implementing a policy on the provision of non-audit services by the external audit firm. It also reviews and monitors the
independence and objectivity of the external auditor.
Alan Howarth
Director
26 March 2018
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22
Report on Directors’ Renumeration (Unaudited)
For the year ended 31 December 2017
The Remuneration Committee submits its Unaudited Report on Directors’ Remuneration for the year ended 31
December 2017.
Remuneration policy
The Remuneration Committee is responsible for agreeing the framework and remuneration policy for the executive
directors and is chaired by Alan Howarth.
The following Remuneration Report is presented for the year ended 31 December 2017.
The policy of the Remuneration Committee is to provide executive remuneration packages designed to attract, motivate
and retain directors of the calibre necessary to manage the Company and to reward them for enhancing shareholder
value and return. It aims to provide sufficient levels of remuneration to do this but to avoid paying more than is necessary.
There are three main elements of the directors’ remuneration package being basic annual salary, performance related
bonus and share option incentives.
All directors’ salaries are reviewed annually by the Remuneration Committee.
Unaudited Directors’ remuneration
The remuneration of each director, excluding share options awards, during the year ended 31 December 2017 is detailed
in the table below:
A G P Forrest
A M Howarth
B H Leith
S L Payne
I C Ritchie
A E Sisto
R K Turner
Share based payment charge
Total remuneration
Salary and
fees
£
48,117
23,250
46,000
55,999
17,500
68,445
27,461
286,772
118,048
404,820
Pension
payments
£
33
–
–
195
–
–
130
358
–
358
Other
benefits
£
–
–
–
–
–
–
–
–
–
–
Annual
bonuses
£
–
–
–
–
–
–
–
–
–
–
2017
Total
£
48,150
23,250
46,000
56,194
17,500
68,445
27,591
287,130
118,048
405,178
2016
Total
£
48,000
15,000
24,000
54,500
–
52,490
–
193,990
15,317
209,307
Unaudited Directors’ share options
The Director’s outstanding share options as at 31 December 2017 are shown in the table below:
Granted
during the
period
Exercised
during the
period
Outstanding
at 31
December
2016
500,000
250,000
500,000
500,000
–
500,000
–
A G P Forrest
A M Howarth
B H Leith
S L Payne
Ian C Ritchie
A E Sisto
R K Turner
2,500,000
–
2,500,000
2,500,000
–
2,500,000
–
2,250,000 10,000,000
during the
Expired Outstanding
at 31
period December
2017
–
250,000
2,500,000
2,500,000
–
2,500,000
–
3,000,000
–
500,000
500,000
–
500,000
–
4,500,000
7,750,000
Option
Price
Exercise period
13p
8.5p
8.5p
23 Feb 2016 – 22 Feb 2023
19 May 2017 – 18 May 2027
19 May 2017 – 18 May 2027
8.5p
19 May 2017 – 18 May 2027
–
–
–
–
–
–
–
–
Further detail on options granted in the year is set out in Note 19.
Alan Howarth
26 March 2018
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23
Independent Auditor’s Report
For the year ended 31 December 2017
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Tern Plc (the ‘company’) for the year ended 31 December 2017 which
comprise the income statement and statement of comprehensive income, the statement of financial position, the
statement of changes in equity, the statement of cash flows and notes to the financial statements, including a summary
of significant accounting policies. The financial reporting framework that has been applied in the preparation of the
company financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
In our opinion, the financial statements:
(cid:129)
(cid:129)
(cid:129)
give a true and fair view of the state of the company’s affairs as at 31 December 2017 and of its loss for the year
then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard
as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Who we are reporting to
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as
a body, for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to
you where:
(cid:129)
(cid:129)
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a
period of at least twelve months from the date when the financial statements are authorised for issue.
Overview of our audit approach
(cid:129)
(cid:129)
Overall materiality: £211,616, which represents 2% of the company’s net assets
The key audit matter identified for the company was the valuation of investments held for trading
(cid:129) We performed a fully substantive based audit on the company
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24
Independent Auditor’s Report
For the year ended 31 December 2017
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall
audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Key Audit Matter
How the matter was addressed in the audit
Valuation of investments held
for trading
A significant balance on the statement of
financial position is investments held for
trading of £10.2 million as detailed in
Note 11.
Included in the investments held for
trading is a single investment that
represents 95% of the total investments.
This investment is an early stage
business in an emerging market where
there is a lack of observable inputs and
as such the company has considered
multiple valuation techniques to measure
fair value. The models used were:
1. Performance of the business;
2. Price of comparable companies; and
3. Valuation of the underlying patent
portfolio.
There is a risk that the fair value of
investments have not been appropriately
estimated. We therefore identified the
valuation of investments held for trading
as a significant risk, which was one of
the most significant assessed risks of
material misstatement.
Our audit work included, but was not restricted to:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
An assessment of the methodology and the internal control environment
relating to the investments valuation. This involved assessing the design
of key controls relevant to the audit, that changes are monitored,
scrutinised by appropriate personnel and the final assumptions used in
valuation models have been appropriately approved;
Challenging the methodologies and assumptions used by management in
conducting the investments valuation. This was carried out by challenging
management’s valuations models and challenging management to
consider other valuation models in line with industry practice;
Testing the mathematical accuracy of the valuation calculations;
Testing the key inputs to the assumptions in the valuation methodologies,
which were performance and projections of the investments, price of
comparable companies, valuation of underlying patents, discount rates
and long term growth rates. This was carried out by agreeing
management’s analysis to supporting evidence and carrying out sensitivity
analysis;
Liaising with valuation experts to review the valuation models used
including assessing the appropriateness of valuation models used and
assessing the inputs to the assumptions; and
Evaluating the sufficiency of the disclosures for critical accounting
estimates and judgements related to the valuation of the investments held
for trading.
The Company's accounting policy on investments held for trading is shown
in note 1 to the financial statements, critical accounting judgements and
estimates included in note 3 to the financial statements and related
disclosures are included in note 11.
Key observations
With respect to the company’s significant investment, management has
used the aforementioned valuation models to estimate the fair value of
the investment.
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25
Independent Auditor’s Report
For the year ended 31 December 2017
Key Audit Matter
How the matter was addressed in the audit
(cid:129) Given the nature of the investment being an early stage business, other
valuation methods such as discounted cash flow analysis used to derive fair
value estimates cannot always be substantiated.
(cid:129)
(cid:129)
Management has therefore evaluated the reasonableness of a range of
values indicated by the results from the models used. Management’s fair
value measurement is the point within that range that is most
representative of fair value in the circumstances and management has
concluded that the fair value of this investment has maintained its valuation
since the prior year.
We have considered the valuation techniques in aggregate and concur
with management’s conclusion that the valuation techniques in aggregate
indicates the investment has maintained its valuation since the prior year.
With respect to the valuation of the remaining investments, these were based
on the price paid in those investments or price paid on recent transactions as
that is the best indicator of fair value. We concur with management’s valuation
of the remaining investments.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in
determining the nature, timing and extent of our audit work and in evaluating the results of that work.
We determined materiality for the audit of the financial statements as a whole to be £211,616, which is 2% of net
assets. This benchmark is considered the most appropriate because this is used by readers of the financial statements
to judge the performance of the company and is a key performance indicator for management.
Materiality in the prior year was determined as 3% of total assets. Materiality in the current year was determined as
2% of net assets as we deemed net assets to be the most appropriate benchmark. Materiality for the current year is
lower than the level that we determined for the year ended 31 December 2016 as a result of changing the materiality
benchmark.
We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at
75% of financial statement materiality. We have also determined a lower level of specific materiality for certain areas
being directors' remuneration and related party transactions due to the sensitive nature of these transactions.
We determined the threshold at which we will communicate misstatements to the audit committee to be £10,580. In
addition, we will communicate misstatements below that threshold that, in our view, warrant reporting on qualitative
grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the company's business, its
environment and risk profile and in particular included:
(cid:129)
(cid:129)
(cid:129)
gaining an understanding of and evaluating the company's internal controls environment including its financial
and IT systems and controls;
a fully substantive based audit over the significant investment and other material balances; and
there have been no significant changes to the key business operations and hence no changes to the audit scope
for the current year.
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26
Independent Auditor’s Report
For the year ended 31 December 2017
Other information
The directors are responsible for the other information. The other information comprises the Report on Directors’
Remuneration included in the annual report set out on page 22, other than the financial statements and our auditor’s
report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection
with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
(cid:129)
(cid:129)
the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us
to report to you if, in our opinion:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the Statement of directors’ responsibilities set out on page 18, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
248191 Tern AR pp17-pp31 26/03/2018 17:43 Page 27
27
Independent Auditor’s Report
For the year ended 31 December 2017
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Nicholas Watson
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
26 March 2018
248191 Tern AR pp17-pp31 26/03/2018 17:43 Page 28
28
Income Statement and Statement of Comprehensive Income
For the year ended 31 December 2017
Turnover
Movement in fair value of investments
Gross (loss)/profit
Administration costs
Other expenses
Operating (loss)/profit
Finance income
Finance costs
(Loss)/profit before tax
Tax
Notes
7
6
7
8
9
2017
£
97,940
(757,705)
(659,765)
(740,923)
(289,680)
2016
£
69,715
6,043,158
6,112,873
(609,680)
(191,299)
(1,690,368)
5,311,894
1,020
(207)
1,198
(16,459)
(1,689,555)
5,296,633
–
–
(Loss)/profit for the period
(1,689,555)
5,296,633
Since there is no other comprehensive income, the loss for the period is the same as the total comprehensive income
for the period.
EARNINGS PER SHARE:
Basic (loss)/profit per share
Fully diluted (loss)/profit per share
10
(1.4) pence
(1.4) pence
6.4 pence
6.4 pence
The accompanying accounting policies and notes are an integral part of these financial statements.
248191 Tern AR pp17-pp31 26/03/2018 17:43 Page 29
29
Statement of Financial Position
As at 31 December 2017
ASSETS
NON-CURRENT ASSETS
Investments held for trading
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Share capital
Share premium
Loan note equity reserve
Share option and warrant reserve
Retained deficit
CURRENT LIABILITIES
Trade and other payables
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Borrowings
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
2017
£
2016
£
11
10,218,625
10,218,625
10,601,330
10,601,330
12
13
14
14
15
17
576,849
273,826
850,675
100,515
762,851
863,366
11,069,300
11,464,696
1,330,225
13,237,362
123,482
175,982
(4,286,249)
1,325,270
12,390,310
20,650
1,088,595
(3,637,086)
10,580,802
11,187,739
277,164
277,164
211,334
211,334
488,498
172,517
172,517
104,440
104,440
276,957
11,069,300
11,464,696
The financial statements were approved and authorised for issue by the Board of Directors on 26 March 2018 and
were signed on its behalf by:
Sarah Payne
Director
Company number 05131386
The accompanying accounting policies and notes are an integral part of these financial statements.
248191 Tern AR pp17-pp31 26/03/2018 17:43 Page 30
30
Statement of Changes in Equity
For the year ended 31 December 2017
Share
capital
£
Share
premium
£
Loan note Option and
warrant
reserve
£
equity
reserve
£
Retained
deficit
£
Total
equity
£
Balance at 31 December 2015
1,314,118
8,393,536
20,650
897,296
(8,933,719)
1,691,881
Total comprehensive income
–
–
Transactions with owners
Issue of share capital
11,152
4,210,311
Share issue costs
Share based payment charge
–
–
(213,537)
–
–
–
–
–
–
–
–
191,299
5,296,633
5,296,633
–
–
–
4,221,463
(213,537)
191,299
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
–
–
Transactions with owners
Issue of share capital
4,955
972,208
–
–
Issue of convertible loan note
Share and loan issue costs
Transfer on conversion of
convertible loan notes
Transfer of lapsed and
exercised warrants
Transfer of option reserve
Share based payment charge
–
–
–
–
–
–
–
112,563
(125,156)
–
(9,731)
–
–
–
–
–
–
–
–
–
(1,689,555) ( 1,689,555)
–
–
–
977,163
112,563
(125,156)
9,731
713,326
199,287
118,048
–
–
–
118,048
–
–
–
(713,326)
(199,287)
–
Balance at 31 December 2017
1,330,225
13,237,362
123,482
175,982
(4,286,249) 10,580,802
Share capital
The amount subscribed for shares at nominal value.
Share premium
This represents the excess of the amount subscribed for share capital over the nominal value of the respective shares
net of share issue expenses.
Loan note equity reserve
This represents the equity component of convertible loans issued. During 2017, the balance relating to lapsed or
converted options and warrants was transferred to retained deficit.
Option and warrant reserve
This represents the calculated value of the options and warrants issued.
Retained earnings
Cumulative loss of the Company.
The accompanying accounting policies and notes are an integral part of these financial statements.
248191 Tern AR pp17-pp31 26/03/2018 17:43 Page 31
31
Statement of Cash Flows
For the year ended 31 December 2017
OPERATING ACTIVITIES
Net cash used in operations
Purchase of investments
Loan to investee companies
Notes
21
2017
£
(783,866)
(375,000)
(402,436)
2016
£
(64,729)
(3,460,000)
–
Net cash used in operating activities
(1,561,302)
(3,524,729)
FINANCING ACTIVITIES
Proceeds on issues of shares
Share issue expenses
Proceeds from exercise of warrants
Proceeds from exercise of options
Proceeds on issue of loan note
Interest received
Net cash from financing activities
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
603,110
(125,156)
34,303
9,000
550,000
1,020
4,217,500
(213,537)
3,963
–
–
1,198
1,072,277
4,009,124
(489,025)
762,851
273,826
484,395
278,456
762,851
The accompanying accounting policies and notes are an integral part of these financial statements.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 32
32
Notes to the Financial Statements
For the year ended 31 December 2017
1.
ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out below.
1.1
GENERAL INFORMATION
Tern plc is an investing company specialising in private software companies, predominantly in the Internet of
Things.
The Company is a public limited company, incorporated in England and Wales, with its shares traded on AIM,
a market of that name operated by the London Stock Exchange.
The address of Tern’s registered office is 27/28 Eastcastle Street, London W1W 8DH. Items included in the
financial statements of the Company are measured in Pound Sterling, which is the Company’s presentational
and functional currency.
1.2
BASIS OF PREPARATION
The financial statements of the Company have been prepared in accordance with International Financial
Reporting Standards (IFRSs) adopted by the European Union (EU) and therefore the financial statements
comply with Article 4 of the EU IAS Regulation.
IFRS is subject to amendment and interpretation by the International Accounting Standards Board (IASB) and
the International Financial Reporting Interpretations Committee (IFRIC) and there is an ongoing process of
review and endorsement by the European Commission. The financial statements have been prepared on the
basis of the recognition and measurement principles of the IFRS that were applicable at 31 December 2017.
The preparation of financial statements in conformity with generally accepted accounting principles requires
the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management’s best knowledge of the amount, event or actions, actual
results may ultimately differ from those estimates.
The financial statements have been prepared on the historical cost basis. Historical cost is generally based on
the fair value of the consideration given in exchange for the assets. The principal accounting policies set out
below have been consistently applied to all periods presented, except where stated.
In accordance with IFRS 10, par 4 the Company has taken the exemption not to present consolidated financial
statements as it is an investing company that measures all of its investments at fair value through the income
statement.
1.3
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.
1.4
STATEMENT OF COMPLIANCE
International Financial Reporting Standards (“Standards”) in issue but not yet effective
The Company has not applied the following new and revised IFRSs that have been issued but are not yet
effective:
●
●
IFRS 9 Financial Instruments (issued on 24 July 2014 and effective for periods after 1 January 2018)
IFRS 15 Revenue from Contracts with Customers (issued on 28 May 2014) including amendments to
IFRS 15: Effective date of IFRS 15 (issued on 11 September 2015 and effective for periods on or after
1 January 2018)
248191 Tern AR pp32-end 26/03/2018 18:02 Page 33
33
Notes to the Financial Statements
For the year ended 31 December 2017
1.
ACCOUNTING POLICIES (continued)
●
●
●
●
●
●
●
●
●
IFRS 16 Leases (issued on 13 January 2016 and effective for periods on or after 1 January 2019)
Clarifications to IFRS 15 Revenue from Contracts with Customers (issued on 12 April 2016 and effective
for periods on or after 1 January 2018)
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions (issued
on 20 June 2016 and not yet endorsed)
Amendments to IFRS 9: Prepayment features with negative compensation (issued 12 October 2017 and
effective for periods on or after 1 January 2018)
Annual improvements to IFRS 2014-2016 Cycle (issued 8 December 2016) – Relating to IFRS 1 First
time adoption of IFRS and IAS 28 Investment in associates and joint ventures
Annual improvements to IFRS 2014-2016 Cycle (issued 8 December 2016) – Relating to IFRS 12
Disclosure of interest in other entities
Annual improvements to IFRS 2015-2017 Cycle (issued 12 December 2017) – Relating to IAS 12 Income
taxes, IAS 23 Borrowing costs, IFRS 3 Business combinations and IFRS 11 Joint Arrangements
IFRIC Interpretation 22 Foreign currency transactions and advance considerations (issued on 8 December
2016 and not yet endorsed)
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (issued in June 2017 and not yet
endorsed)
Management have additionally performed a review to identify the impact of IFRS9 ‘Financial Instruments’
(effective 1 January 2018). The new standard is based on the concept that financial assets should be classified
and measured at fair value, with changes in fair value recognised in profit and loss as they arise (“FVPL”),
unless restrictive criteria are met for classifying and measuring the asset at either Amortised Cost or Fair Value
Through Other Comprehensive Income (“FVOCI”). The financial assets which the Company holds are loans
and receivables, for which changes to the fair value are posted to the income statement. Similarly, any changes
to the fair value of investments held for trading at the year end are also posted to the income statement.
TURNOVER
Turnover is recognised, as amounts are invoiced, earned and become payable, with adjustment for any amount
that is considered uncollectable. Turnover reflects fees charged for management services and is recognised
rateably over the life of the contract and the provision of such services.
TAXATION
The charge for current tax is based on the results for the period as adjusted for items which are non-assessable
or disallowed. It is calculated using rates that have been enacted or substantively enacted by the statement of
financial position date.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the
statement of financial position differs to its tax base, except for differences arising on:
(cid:129)
(cid:129)
the initial recognition of an asset or liability which is not a business combination and at the time of the
transaction affects neither accounting or taxable profit; and
investments in subsidiaries and jointly controlled entities where the Company is able to control the timing
of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable
future.
Recognition of deferred tax assets is restricted to those instances where it is probable that the taxable profit
will be available against which the differences can be utilised.
The amount of the asset or liability is determined using tax rates that have been enacted or substantially
enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are
settled/(recovered). Deferred tax balances are not discounted.
1.5
1.6
248191 Tern AR pp32-end 26/03/2018 18:02 Page 34
34
Notes to the Financial Statements
For the year ended 31 December 2017
1.
1.7
ACCOUNTING POLICIES (continued)
IMPAIRMENT OF FINANCIAL ASSETS
Assets carried at cost
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at
fair value because its fair value cannot be reliably measured, has been incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the current market rate of return for a similar financial asset.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has
been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and
the present value of estimated future cash flows discounted at the financial asset’s original effective interest
rate. The carrying amount of the asset is reduced, with the amount of the loss recognised in administration
costs.
If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment charge was recognised, the previously recognised
impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income
statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal
date.
INVESTMENTS
Investments are recognised at fair value through the income statement. Changes in foreign exchange rates
impact investments valued in a foreign currency.
TRADE RECEIVABLES
Trade receivables are recognised initially at fair value less provision for impairment. A provision for impairment
of trade receivables is established when there is objective evidence that the Company will not be able to collect
all amounts due according to the original terms of receivables. The amount of the provision is the difference
between the asset’s carrying amount and the present value of estimated future cash flows discounted at the
effective interest rate. The amount of the provision is recognised in the income statement.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried in the statement of financial position at cost. Cash and cash equivalents
comprise cash in hand, deposits held at call with banks, other short term highly liquid investments with original
maturities of three months or less and bank overdrafts. Bank overdrafts are included within borrowings in
current liabilities on the statement of financial position.
TRADE PAYABLES
Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using
the effective interest rate method.
EQUITY INSTRUMENTS
Equity instruments are recorded at the proceeds received net of direct issue costs.
CONVERTIBLE LOANS
Convertible loans are accounted for as compound instruments. The fair value of the liability portion of the
convertible loan notes is determined using a market interest rate for an equivalent non-convertible loan note.
This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity
of the loan notes. The remainder of the proceeds is allocated to the conversion option, which is recognised
and included in shareholders’ equity, net of tax effects, and is not subsequently re-measured.
1.8
1.9
1.10
1.11
1.12
1.13
248191 Tern AR pp32-end 26/03/2018 18:02 Page 35
35
Notes to the Financial Statements
For the year ended 31 December 2017
1.
1.14
ACCOUNTING POLICIES (continued)
SHARE BASED PAYMENTS
All share based payments are accounted for in accordance with IFRS 2 – “Share-based payments”. The
Company issues equity-settled share based payments in the form of share options to certain directors,
employees and advisors. Equity settled share based payments are measured at fair value at the date of grant.
The fair value determined at the grant date of equity-settled share based payments is expensed on a straight
line basis over the vesting period, based on the Company’s estimate of shares that will eventually vest.
Fair value is estimated using the Black-Scholes and binomial valuation models. The expected life used in the
model has been adjusted, on the basis of management’s best estimate for the effects of non-transferability,
exercise restrictions and behavioural considerations. At each statement of financial position date, the Company
revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-
market based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in
profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment
to retained earnings.
2.
FINANCIAL RISK MANAGEMENT
The Company uses a limited number of financial instruments, comprising cash, short-term deposits, loans
and overdrafts and various items such as trade receivables and payables, which arise directly from operations.
The Company does not trade in financial instruments.
2.1
FINANCIAL RISK FACTORS
The Company’s financial instruments comprise its investment portfolio, cash balances, debtors and creditors
that arise directly from its operations. The Company is exposed to market risk through the use of financial
instruments and specifically to liquidity risk, market price risk and credit risk, which result from the Company’s
operating activities.
The Board’s policy for managing these risks is summarised below.
2.1
FINANCIAL RISK FACTORS (continued)
Liquidity risk
The Company makes investments in private companies for the medium term. The Company manages this risk
by holding cash to support its investments and for working capital. The Company has convertible loans from
the directors and a convertible unsecured loan note. Whilst the Company has no quoted investments at present,
if it holds such investments these may be sold to meet the Company’s funding requirements.
As the Company has no significant interest bearing assets, the Company’s income and operating cash flows
are substantially independent of changes in market interest rates.
The following table shows the contractual maturities of the Company’s financial liabilities, including repayments
of both principal and interest where applicable.
As at 31 December 2017
6 months or less
1 to 2 years
Total contractual cash flows
Trade and
other Payables
£
75,584
–
77,584
Convertible
Loans
£
162,437
48,897
211,334
Total
£
238,021
48,897
286,918
248191 Tern AR pp32-end 26/03/2018 18:02 Page 36
36
Notes to the Financial Statements
For the year ended 31 December 2017
2.
FINANCIAL RISK MANAGEMENT (continued)
Market price risk
When the Company owns quoted investments, it will be exposed to market price risk as shown by movements
in the value of its equity investments. Any such risk will be regularly monitored by the directors.
The investments currently held are not liquid as all the investments are unquoted.
Credit risk
The Company’s primary credit risk arises from cash and cash equivalents and deposits with banks and other
financial institutions. The credit risk on liquid funds is limited because the counterparties are banks with high
credit ratings assigned by international credit-rating agencies.
2.2
2.3
CAPITAL RISK MANAGEMENT
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a
going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital.
The Company monitors capital on the basis of carrying amount of equity, less cash and cash equivalents as
presented on the face of the statement of financial position. In order to maintain or adjust the capital structure,
the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue
new shares or sell assets to reduce debt.
FAIR VALUE ESTIMATION
The nominal value less impairment provision of trade receivables and payables is assumed to approximate
their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the
future contractual cash flows at the current market interest rate that is available to the Company for similar
financial instruments.
3.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates
will, by definition, rarely equal the related actual results. The key sources of estimation uncertainty that have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year are outlined below.
Income taxes
Judgement is required in determining the Company’s provision for income tax. Where the final tax outcome is
different from the amounts that were initially recorded, the differences will impact the income tax and deferred
tax provisions in the period in which such determination is made.
Fair value of financial instruments
The Company holds investments that have been designated as held for trading on initial recognition. Where
practicable the Company determines the fair value of these financial instruments that are not quoted (Level 3)
using the most recent bid price at which a transaction has been carried out. These techniques are significantly
affected by certain key assumptions, such as market liquidity. Given the nature of the investments being early
stage business, other valuation methods such as discounted cash flow analysis assess estimates of future
cash flows to derive fair value estimates cannot always be substantiated by comparison with independent
markets and, in many cases, may not be capable of being realised immediately.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 37
37
Notes to the Financial Statements
For the year ended 31 December 2017
3.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
Device Authority has maintained its US dollar valuation compared to 2016 without a bid price comparison in
the year. It is an early stage business in an emerging market where there is a lack of comparative businesses
available on which to provide a comparable valuation and therefore valuation was based on a combination of
factors including the independent valuation of Device Authority’s patent portfolio, a comparison to transaction
multiples in comparable market sectors and an evaluation of sales pipeline and 2018 trading forecast. This
supported a valuation in line with 2016, although an exchange rate loss was recognised on translation at the
balance sheet date.
Share based payments
The calculation of the fair value of equity-settled share based awards and the resulting charge to the statement
of comprehensive income requires assumptions to be made regarding future events and market conditions.
These assumptions include the future volatility of the Company’s share price. These assumptions are then
applied to a recognised valuation model in order to calculate the fair value of the awards. Details of these
assumptions are set out in Notes 18 and 19.
The critical judgement that has a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year is the assessment that investments should be held at fair
value through the profit and loss rather than being consolidated.
4.
SEGMENTAL REPORTING
The accounting policy for identifying segments is based on internal management reporting information that is
regularly reviewed by the chief operating decision maker, which is identified as the Board of Directors.
In identifying its operating segments, management generally follows the Company’s service lines which
represent the main products and services provided by the Company. The directors believe that the Company’s
continuing investment operations comprise one segment.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 38
38
Notes to the Financial Statements
For the year ended 31 December 2017
5.
STAFF COSTS
Staff costs for the Company during the period, including directors
Wages and salaries
Consultancy fees
Social security costs
Share based payment charge
Total staff costs
2017
£
203,864
82,908
22,943
118,048
427,763
2016
£
117,052
76,938
6,681
15,317
215,988
The average number of people (including executive directors) employed by the Company during the period
was:
Directors
Total
2017
No
5
5
2016
No
5
5
DIRECTORS’ AND REMUNERATION
Other than directors the Company had no employees. Total remuneration paid to directors during the period
was as follows:
Directors’ remuneration
– Salaries and benefits
– Consultancy fees
– Share based payment charge
Total directors’ remuneration
2017
£
203,864
82,908
118,048
404,820
2016
£
117,052
76,938
15,317
209,307
Total remuneration of the highest paid director (including share based
payment charge) was
97,957
54,500
A summary of remuneration paid to each director, including pension payments, is included in the Report on
Directors’ Remuneration (page 20).
6.
OTHER EXPENSES
Share based payment (options and warrants)
Other provisions
One-off legal costs
2017
£
118,048
71,000
100,632
289,680
2016
£
191,299
–
–
191,299
248191 Tern AR pp32-end 26/03/2018 18:02 Page 39
39
Notes to the Financial Statements
For the year ended 31 December 2017
7.
OPERATING PROFIT/(LOSS)
Profit/(Loss) from operations has been arrived at after charging:
Remuneration of directors
Auditor’s remuneration
– Audit services
– Tax compliance services
– Tax advisory services
Device Authority auditors’ remuneration
– Other non-audit services
– Tax compliance services
– Tax advisory services
Operating profit/(loss) reconciliation
2016 operating profit
Adjust for impact of Device Authority fair value revaluation
Adjust for exchange loss on revaluation of Device Authority in 2017
Other movements
2017 operating loss
8.
FINANCE COSTS
Interest charge in respect of shareholder convertible loan notes
Write back of interest charged on investee company convertible loan note
9.
TAXATION
Taxation attributable to the Company
2017
£
2016
£
404,820
209,307
25,000
3,500
18,750
8,000
3,500
5,500
2017
£
207
–
207
2017
£
–
20,000
3,500
–
14,000
3,500
5,000
£
5,296,633
(6,129,885)
(757,705)
(98,598)
(1,689,555)
2016
£
7,046
9,413
16,459
2016
£
–
248191 Tern AR pp32-end 26/03/2018 18:02 Page 40
40
Notes to the Financial Statements
For the year ended 31 December 2017
9.
TAXATION (continued)
Domestic income tax is calculated at 20% (2016: 20%) of the estimated assessable profit for the period. The
charge for the period can be reconciled to the loss per the income statement as follows:
(Loss)/profit before tax
Tax at domestic income tax rate
Expenses not deductible for tax purposes
Share based payment charge
Fair value movement
Exchange rate loss
Unutilised tax losses
Tax (credit)/expense
2017
£
2016
£
(1,689,555)
5,296,633
(337,911)
1,059,327
1,161
23,609
(3,524)
155,065
161,600
–
996
38,260
(1,151,696)
–
53,113
–
The Company has unutilised losses of approximately £5.9 million (2016: £5.1 million) resulting in a deferred
tax asset of approximately £1.2 million (2016: £1.0 million). The Company has not recognised a deferred tax
asset in respect of these losses as there is insufficient evidence of future taxable profits.
10.
EARNINGS PER SHARE
(Loss)/profit for the purposes of basic and fully diluted earnings per share
(1,689,555)
5,296,633
2017
£
2016
£
Weighted average number of ordinary shares:
For calculation of basic earnings per share
For calculation of fully diluted earnings per share
Earnings per share:
Basic (loss)/earnings per share
Fully diluted (loss)/earnings per share
2017
Number
2016
Number
124,586,665
124,586,665
82,298,281
82,298,281
2017
2016
(1.4) pence
(1.4) pence
6.4 pence
6.4 pence
248191 Tern AR pp32-end 26/03/2018 18:02 Page 41
41
Notes to the Financial Statements
For the year ended 31 December 2017
11.
NON-CURRENT ASSETS
INVESTMENTS HELD FOR TRADING
Cost of investments brought forward
Additions
Conversion of loan note to equity
Sale of investment
Cost of investments carried forward
Fair value adjustment to investments
Exchange loss
2017
£
10,601,330
375,000
–
–
10,976,330
17,621
(775,326)
2016
£
810,350
3,460,000
610,000
(37,500)
4,842,850
5,758,480
–
Fair value of investments carried forward
10,218,625
10,601,330
All the investments held by the Company are Level 3 investments as defined in Note 16.
12.
TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments
Social security and other taxes
Loan to investee companies
Other receivables
Total
2017
£
100,714
5,683
–
402,436
68,016
576,849
2016
£
1,034
32,033
6,472
–
60,976
100,515
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
There is no provision for bad debt.
The other classes within trade and other receivables do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable
mentioned above. The Company does not hold any collateral as security.
Loan to investee companies includes a £382,436 secured convertible loan note to Device Authority which has
been valued at cost, which is taken as fair value.
13.
CASH AND CASH EQUIVALENTS
Cash at bank and on hand
2017
£
2016
£
273,826
762,851
248191 Tern AR pp32-end 26/03/2018 18:02 Page 42
42
Notes to the Financial Statements
For the year ended 31 December 2017
14.
ISSUED SHARE CAPITAL
ISSUED AND FULLY PAID:
At 31 December 2016
Ordinary shares of £0.0002
Deferred shares of £29.999
Deferred shares of £0.00099
Number of shares
No.
Nominal value
£
Share premium
£
118,511,443
23,702
42,247
1,267,368
34,545,072
34,200
153,098,762
1,325,270
12,390,310
Ordinary shares issued for cash
Ordinary shares issued on exercise of warrant
9,138,027
1,077,385
Ordinary shares issued on conversion of loan stock
14,460,000
Ordinary shares issued on exercise of share options
100,000
Share issue expenses
–
1,828
215
2,892
20
–
601,282
34,088
327,858
8,980
(125,156)
At 31 December 2017
Ordinary shares of £0.0002
Deferred shares of £29.999
Deferred shares of £0.00099
Ordinary shares
177,874,174
1,330,225
13,237,362
143,286,855
28,657
42,247
1,267,368
34,545,072
34,200
177,874,174
1,330,225
13,237,362
The shares have attached to them full voting, dividend and capital distribution (including on winding up) rights.
They do not confer any rights of redemption.
Deferred shares of £29.999
The shares have no voting or dividend rights. There are no capital distribution (including on winding up) rights,
other than to receive the nominal amount paid on the shares, after the ordinary shareholders have received
the sum of £100 per share.
Deferred shares of £0.00099
The shares have no dividend or voting rights. There are no capital distribution rights including on winding up,
other than to receive the nominal amount paid on the shares. The company has the right to purchase all the
shares for £1.
On 13 August 2017, 9,138,027 ordinary shares were issued at 6.6p per share for cash as the result of a private
placing, raising £603,110 before expenses.
On 19 December 2017, 10,000,000 ordinary shares of 0.02p were issued on conversion of loan stock at 2.75p
per share.
During the year 4,460,000 ordinary shares of 0.02p were issued to directors of the Company on conversion
of loan stock at 1.25p per share.
During the year 100,000 ordinary shares of 0.02p were issued to a previous director of the Company on
exercise of options at 9p per share.
During the year 879,234 ordinary shares of 0.02p were issued to warrant holders on exercise of warrants at
3p per share and 198,151 ordinary shares of 0.02p were issued to warrant holders on exercise of warrants at
4p per share.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 43
43
Notes to the Financial Statements
For the year ended 31 December 2017
15.
TRADE AND OTHER PAYABLES
Trade payables
Accruals
Payroll control
Other taxes and social security
Total
2017
£
47,600
201,580
18,699
9,285
277,164
2016
£
73,554
94,950
–
4,013
172,517
The directors consider that the carrying amount of trade payables approximates to their fair value.
16.
FAIR VALUE MEASUREMENT
FINANCIAL ASSETS
The Company classifies its financial instruments in the following categories: at fair value through profit or loss,
held to maturity, loans and receivables, and available-for-sale. The classification depends on the purpose for
which the financial instrument was acquired. Management determines the classification of its financial
instruments at initial recognition and re-evaluates this designation at each financial period end.
When financial assets are recognised initially, they are measured at fair value, being the transaction price plus
directly attributable transaction costs. See the Investment Report on pages 13-15.
Investments held for trading
All investments determined upon initial recognition as held at fair value through profit or loss are designated
as investments held for trading. Investment transactions are accounted for on a trade date basis. Asset sales
are recognised at the trade date of the disposal. Assets are sold at their fair value, which comprises the
proceeds of sale less any transaction cost. The fair value of the financial instruments in the statement of
financial position is based on the quoted bid price at the statement of financial position date, with no deduction
for any estimated future selling cost. Unquoted investments are valued by the directors using primary valuation
techniques such as recent transactions, last price and net asset value. Changes in the fair value of investments
held at fair value through profit or loss and gains and losses on disposal are recognised in the statement of
comprehensive income as “movement in fair value of investments”. Investments are initially measured at fair
value plus incidental acquisition costs. Subsequently, they are measured at fair value in accordance with IAS 39.
This is either the bid price or the last traded price, depending on the convention of the exchange on which the
investment is quoted.
The Company determines the fair value of its investments based on the following hierarchy:
LEVEL 1 – Where financial instruments are traded in active financial markets, fair value is determined by
reference to the appropriate quoted market price at the reporting date. Active markets are those in which
transactions occur in significant frequency and volume to provide pricing information on an on-going basis.
LEVEL 2 – If there is no active market, fair value is established using valuation techniques, including discounted
cash flow models. The inputs to these models are taken from observable market data including recent arm’s
length market transactions, and comparisons to the current fair value of similar instruments; but where this is
not feasible, inputs such as liquidity risk, credit risk and volatility are used.
LEVEL 3 – Valuations in this level are those with inputs that are not based on observable market data.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 44
44
Notes to the Financial Statements
For the year ended 31 December 2017
16.
FAIR VALUE MEASUREMENT (continued)
The following table shows the Levels within the hierarchy of investments measured at fair value on a recurring
basis at 31 December 2017 and 31 December 2016:
31 December 2017
Level 1
Level 2
Level 3
Total
Investments held for trading (£)
Investee company convertible loan (£)
–
–
–
–
10,218,625
10,218,625
382,436
382,436
31 December 2016
Level 1
Level 2
Level 3
Total
Investments held for trading (£)
–
–
10,601,330
10,601,330
The fair value assessment was made by the directors’ using the price of the shares in the most recent fundraise,
where this was available. This was coupled with an assessment of market valuations on recent transactions
and a review of underlying asset values to support the valuation applied. If no such fundraise had occurred
then the cost of the investment was used, which the directors assessed equated to fair value.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market, do not qualify as trading assets and have not been designated as either fair value
through profit or loss or available-for-sale. Such assets are carried at amortised cost using the effective interest
rate method. Gains and losses are recognised in the statement of comprehensive income when the loans and
receivables are derecognised or impaired, as well as through the amortisation process.
17.
BORROWINGS
Shareholder Loans
Convertible unsecured loan note
2017
£
48,897
162,437
211,334
2016
£
104,440
–
104,440
SHAREHOLDER LOANS
On 16 August 2013, the Company entered into an agreement for the issue of £200,000 convertible loan notes
repayable on 1 January 2015 if not converted prior to that date, this date was subsequently extended to
1 January 2016 in December 2014. The Shareholder Loans are interest free and unsecured and may be
converted at 2.016p per share at any time prior to the redemption date. In December 2016 the repayment date
for the balance of the loan outstanding was extended to 1 January 2019. On 1 January 2017 and 31 December
2017, £15,000 of this loan was outstanding. Assuming full conversion, this would convert into 744,047 ordinary
shares.
On 30 July 2014, the Company issued a convertible loan note for £100,000, interest free and repayable on
1 January 2016. In December 2016, the repayment date for the balance of the loan outstanding was extended
to 1 January 2019. The loan is convertible at 1.25p per share at any time prior to the redemption date.
On 31 December 2017 £5,000 of the loan was outstanding (2016: £41,500). Assuming full conversion, this
would convert into 400,000 ordinary shares.
On 17 September 2014, the Company issued £200,000 convertible loan notes, interest free and repayable on
1 January 2016. The loan is convertible at 1.25p per share at any time prior to the redemption date.
In December 2016 the repayment date for the balance of the loan outstanding was extended to 1 January
2019. On 31 December 2017 £36,250 of the loan was outstanding (2016: £55,500). Assuming full conversion,
this would convert to 2,900,000 ordinary shares.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 45
45
Notes to the Financial Statements
For the year ended 31 December 2017
17.
BORROWINGS (continued)
The net proceeds from the issue of the Shareholder Loans have been split between the liability element and
an equity component, representing the fair value of the embedded option to convert the liability into equity of
the Company.
Liability brought forward
Loan notes converted
Interest charge
Liability at 31 December
LOAN MATURITY ANALYSIS
Non-current liabilities – More than one year, but not more than five years
2017
£
104,440
(55,336)
(207)
48,897
2017
£
–
–
2016
£
97,394
–
7,046
104,440
2016
£
104,440
104,440
CONVERTIBLE UNSECURED LOAN NOTE
In November 2017, the Company agreed a Convertible Unsecured Loan Note facility of up to £2.2 million
(“CULN”). The CULNs were to be issued in principal amounts of £25,000 and aggregated into four tranches
(the “Tranches”). The first tranche was issued in November 2017.
The CULNs are convertible at any time before the maturity date, being the third anniversary of the relevant
issue of the CULNs at the lesser of : a) 125% of the closing mid-price one trading day before the date of any
Issue; or b) the lowest closing bid price from the three previous trading days prior to notice of conversion being
served. The CULNs shall not bear interest. In certain events of default or a change of control, a redemption
of up to a maximum of 120 per cent. would be payable. The Company can redeem at any time one or more
CULNs at a price equal to 105 per cent. of the CULNs.
£275,000 of the issued CULN had been exercised by the year end with £275,000 remaining.
The binomial method was used to calculate the fair value of the CULN. The table below lists the inputs to the
model used for the options granted during the year:
Stock price
Strike price
Expected volatility
Time to maturity in years
Binomial steps
Directors (2017)
2.5 pence
2.25 pence
100%
3
20
The debt element of the CULN was assessed as £162,437, with £112,563 held in an equity reserve.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 46
46
Notes to the Financial Statements
For the year ended 31 December 2017
18.
SHARE BASED PAYMENTS
WARRANTS
On 15 September 2014, 396,302 warrants were issued to the vendor of Device Authority, exercisable at any
time prior to 12 September 2017. 198,151 of the warrants were exercisable at 2p per share and 198,151 were
exercisable at 4p per share. At 1 January 2017 198,151 of the warrants remained and these were exercised
in full during the year at 4p per share.
On 25 November 2014, 1,260,000 warrants were issued on a one for ten basis to subscribers to the placing
for 12,600,000 shares at 3p per share on that date. The warrants were exercisable at 3p per share at any time
prior to 3 December 2017. As at 1 January 2017 905,645 warrants remained outstanding. During the year,
879,234 warrants were exercised and 26,411 lapsed.
On 7 October 2016, 18,214,277 warrants were issued on a one for every two shares to subscribers in the
fund¬raising round on that date. In that round, 36,428,557 shares were issued at 7p per share. The warrants
are exercisable at 12p per share at any time prior to 12 April 2018. None of these warrants were exercised
during the year.
The estimated fair value of the warrants issued in 2016 was calculated by applying the Black-Scholes option
pricing model. The assumptions used in the calculation were as follows:
Share price at date of grant
Exercise price
Expected dividend
Contractual life
Risk free rate
Estimated fair value of each warrant
8.0 pence
12.0 pence
Nil
1.5 years from vesting date
2.5%
0.97 pence
A total share based payment charge of £175,982 was expensed in 2016 in respect of the warrants issued.
The number of warrants outstanding at 31 December 2017 was as follows:
Date of
issue
At 31 Dec
2016
12.09.14
25.11.14
198,151
905,645
07.10.16 18,214,277
19,318,073
Issued
Exercised
Lapsed
At 31 Dec
2017
Exercise Exercisable
on or
Price per
before
share
–
–
–
–
198,151
879,234
–
–
26,411
–
–
4.0p
3.0p
12.09.17
3.12.17
–
18,214,277
12.0p
12.04.18
1,077,385
26,411
18,214,277
19.
SHARE BASED PAYMENTS
OPTIONS
The Company operates an equity settled share based remuneration scheme for directors, employees and
advisors. Under the director and employees’ scheme issued during the year, options may be granted to
purchase shares which must be exercised within ten years from the date of the grant.
The options will be capable of exercise on the third anniversary of the grant date according to the increase in
share price on the vesting date. If the share price has increased by 100% then 100% of the shares will vest
and if there has been no increase in share price, then 0% of the shares will vest. Between these two points
the options will vest on a straight-line basis.
Under the previous scheme, which is still in place for the non-executive director and previous directors, shares
were granted which must be exercised within seven years from the date of grant. These options vest
immediately on issue.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 47
47
Notes to the Financial Statements
For the year ended 31 December 2017
19.
SHARE BASED PAYMENT CHARGES (continued)
In 2015 share options were issued to a professional adviser as part of their fees. Under the advisors’ scheme
options may be granted to purchase shares which must be exercised within five years from the date of grant.
The advisor options vest quarterly over the first twelve months.
The binomial method was used to calculate the fair value of the new director and employees’ scheme. The
Black Scholes method was used for all other schemes to calculate the fair value of options at the date of grant.
The table below lists the inputs to the model used for the options granted during the year:
Stock price
Strike price
Expected volatility
Time to maturity in years
Binomial steps
Directors (2017)
2.5 pence
8.5 pence
100%
3
20
A total share based payment charge of £118,048 was expensed in 2017 (2016: £15,317) in respect of the
options granted, of this £118,048 (2016: £15,317) related to options issued to directors during the year.
The share options held as at 31 December 2017 are set out in the table below:
Outstanding at
31 December
2016
Granted
during the
period
Exercised
during the
period
Lapsed Outstanding at
31 December
2016
During the
period
Option
Price
Exercisable
on or
before
Directors
1,500,000
10,000,000
500,000
250,000
–
–
Total
Directors
2,250,000
10,000,000
–
–
–
–
4,000,000
500,000
7,500,000
8.5p 18 May 2027
–
15.25p 28 Oct 2022
–
250,000
13p 22 Feb 2023
4,500,000
7,750,000
Other
1,000,000
–
100,000
–
200,000
250,000
–
–
–
–
–
–
900,000
200,000
250,000
9p 15 Feb 2022
8.5p 18 May 2027
15p 16 Dec 2020
Total
Options
3,500,000
10,200,000
100,000
4,500,000
9,100,000
Note: A detailed breakdown of directors’ options is set out in the Report on Directors’ Remuneration.
20.
RELATED PARTY TRANSACTIONS
During 2014, £300,000 was advanced by the directors by way of interest free convertible loans. At 31 December
2017, the balance of loans unconverted was £48,897 (2016: £104,440), plus an additional £10,919 relating to
equity (2016: £20,650).
Device Authority Limited, a company in which Tern has a controlling shareholding, is also considered a related
party. During the year Tern invoiced Device Authority Limited £20,000 (2016: £39,715) in respect of
management services. At the year-end Tern was owed £12,000 in trade receivables by Device Authority Limited
(2016: nil). Tern has also provided a convertible loan note to Device Authority Limited. As at 31 December
2017, £382,436 was outstanding (2016: nil).
248191 Tern AR pp32-end 26/03/2018 18:02 Page 48
48
Notes to the Financial Statements
For the year ended 31 December 2017
20.
RELATED PARTY TRANSACTIONS (continued)
flexiOPS Limited, a company wholly owned by Tern, is also considered a related party. During the year Tern
invoiced flexiOPS £60,000 (2016: £30,000) in respect of management services. As at 31 December 2017 Tern
was owed £6,000 in trade receivables by flexiOPS Limited. Tern has also provided a working capital loan to
flexiOPS Limited. As at 31 December 2017, £20,000 was outstanding (2016: nil).
InVMA Limited, a company in which Tern has a 50% shareholding, is also considered a related party. During
the year, Tern invoiced InVMA Limited £67,651 (2016: nil) in respect of management and legal services. As at
31 December 2017 Tern was owed £81,181 in trade receivables by InVMA Limited.
Wyld Technologies Limited, a company in which flexiOPS Limited has a 90% shareholding, is also considered
a related party. During the year Tern invoiced Wyld Technologies Limited £1,333 (2016: nil). As at 31 December
2017 Tern was owed £1,533 in trade receivables by Wyld Technologies Limited.
During the year, Leith Partners Limited, a company in which Bruce Leith has a controlling shareholding, invoiced
the Company £14,000 for management services (2016: £24,000). There were no amounts outstanding to or
from the company at 31 December 2017.
During the year, Sixth Bridge LLC, a company in which Al Sisto has a controlling shareholding, invoiced the
Company £45,658 for management services (2016: £37,938). There were no amounts outstanding to or from
the company at 31 December 2017.
During the year, Alan Howarth & Associates Limited, a company in which Alan Howarth has a controlling
shareholding, invoiced the Company £23,250 for management services (2016: £15,000). There were no
amounts outstanding to or from the company at 31 December 2017.
21.
CASH FLOW FROM OPERATIONS
(Loss)/profit for the year
Adjustments for items not included in cash flow:
Movement in fair value of investments
Exchange rate loss
Share based payment charge
Cost of investment sold
Finance expense
Finance income
2017
£
2016
£
(1,689,555)
5,296,633
(17,621)
(5,758,480)
775,326
118,048
–
207
(1,020)
–
191,299
37,500
16,459
(1,198)
Operating cash flows before movements in working capital
(814,615)
(217,787)
Adjustments for changes in working capital:
(Increase)/decrease in trade and other receivables1
Increase/(decrease) in trade and other payables
Cash used in operations
1 Excludes loan to investee companies
(73,898)
104,647
16,527
136,531
(783,866)
(64,729)
248191 Tern AR pp32-end 26/03/2018 18:02 Page 49
49
Notes to the Financial Statements
For the year ended 31 December 2016
22.
OPERATING LEASE COMMITMENTS
Year to
31 Dec 2017
£
Year to
31 Dec 2016
£
Minimum lease payments under operating leases recognised
as an expense in the period
18,600
3,125
At the period end date, the Group had outstanding commitments for future minimum lease payments under
non-cancellable leases which fall due as follows:
Land and Buildings:
Within one year
23.
FINANCIAL INSTRUMENTS
31 Dec 2017
£
31 Dec 2016
£
26,040
3,125
The Group uses financial instruments, other than derivatives, comprising cash to provide funding for the Group’s
operations.
CATEGORIES OF FINANCIAL INSTRUMENTS
The IAS 39 categories of financial asset included in the statement of financial position and the headings in
which they are included are as follows:
FINANCIAL ASSETS:
Cash and bank balances
Loans and receivables
Loans
Other receivables
Fair value through income statement
Investments held for trading
2017
£
2016
£
273,826
762,851
402,436
168,730
–
62,010
10,218,625
10,601,330
FINANCIAL LIABILITIES AT AMORTISED COST:
The IAS 39 categories of financial liabilities included in the statement of financial position and the headings in
which they are included are as follows:
Trade and other payables
Accruals
Borrowings
2017
£
66,299
201,580
211,334
2016
£
73,554
94,950
104,440
248191 Tern AR pp32-end 26/03/2018 18:02 Page 50
50
Notes to the Financial Statements
For the year ended 31 December 2016
24.
EVENTS AFTER THE REPORTING PERIOD
On 5 January 2018, the outstanding convertible unsecured loan note was converted into 15,714,285 ordinary
shares of 0.02p each at a price of 1.75p. On 9 January 2018, a second tranche of Convertible Loan Notes
totalling £550,000 was issued, pursuant to the convertible unsecured loan note facility. On 17 January 2018,
£275,000 of the convertible loan note was converted into 11,000,000 ordinary shares of 0.02p each at a price
of 2.5p. On 16 February 2018 the remaining £275,000 convertible loan note was converted into 13,750,000
ordinary shares of 0.02p each at a price of 2p. On 8 March 2018 the convertible loan note facility was
terminated and a £650,000 equity placing was announced.
On 29 January 2018, a further £125,000 was invested in InVMA to maintain Tern’s 50% shareholding.
On 1 March 2018 a further $360,581 was paid to Device Authority, representing the second tranche of the
convertible secured loan announced on 28 December 2017.
25.
ULTIMATE CONTROLLING PARTY
The directors do not consider there to be a single ultimate controlling party.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 51
51
Notice of 2018 Annual General Meeting
NOTICE IS HEREBY GIVEN that the 2018 Annual General Meeting of Tern plc (“the Company”) will be held at 9.30 am
on Tuesday 24 April 2018 at the offices of Reed Smith, The Broadgate Tower, 20 Primrose Street, London, EC2A 2RS
for the following purposes:
ORDINARY BUSINESS
To consider, and if thought fit, to pass the following resolutions as ordinary resolutions:
1.
2.
3.
4.
To receive and adopt the Company’s annual accounts for the financial year ended 31 December 2017, together
with the Directors’ Report and Auditors’ Report on those accounts.
To re-appoint Grant Thornton UK LLP as auditors to hold office from the conclusion of the meeting to the
conclusion of the next meeting at which the accounts are laid before the Company at a remuneration to be
determined by the directors.
Mr Bruce Leith retires by rotation, in accordance with the Articles of Association of the Company, having
consented to be considered for re-election, and is hereby re-appointed as a director of the Company.
Mr Ian Ritchie to the extent he has been appointed as a director of the Company since the date of the last annual
general meeting, becomes subject to retirement by rotation in accordance with the Company’s Articles of
Association, and having consented to be considered for re-appointment, is hereby re-appointed as a director of
the Company.
SPECIAL BUSINESS
To consider, and if thought fit, to pass the following resolutions, of which resolution 5 will be proposed as an ordinary
resolution and resolutions 6 and 7 will be proposed as special resolutions:
5.
That for the purpose of section 551 of the Companies Act 2006 (the Act) the directors of the Company be and
are hereby generally and unconditionally authorised to exercise all powers of the Company to allot equity securities
(within the meaning of Section 560 of the Act) up to an aggregate nominal amount of £50,000 provided that this
authority shall expire (unless previously renewed, varied or revoked by the Company in general meeting) at the
conclusion of the next annual general meeting of the Company, save that the Company may before such expiry
make an offer or agreement which would or might require relevant equity securities to be allotted after such expiry
and the board may allot relevant equity securities in pursuance of such an offer or agreement as if the authority
conferred hereby had not expired.
This authority is in substitution for all subsisting authorities previously conferred upon the directors for the purposes
of section 551 of the Act, without prejudice to any allotments made pursuant to the terms of such authorities.
6.
That, subject to the passing of resolution 5 above, the directors of the Company be and are hereby empowered
pursuant to section 570 of the Act to allot equity securities (within the meaning of section 560 of the Act) pursuant
to the authority conferred by resolution 5 above as if section 561 of the Act did not apply to any such allotment
provided that the power conferred by this resolution shall be limited to:
6.1
the allotment of equity securities for cash in connection with an issue or offer of equity securities (including,
without limitation, under a rights issue, open offer or similar arrangement) to holders of equity securities in
proportion (as nearly as may be practicable) to their respective holdings of equity securities subject only to
such exclusions or other arrangements as the board may consider necessary or expedient to deal with
fractional entitlements or legal or practical problems under the laws of any territory, or the requirements of
any regulatory body or stock exchange in any territory; and
6.2
the allotment (otherwise than pursuant to sub-paragraph 6.1 of this resolution (6) of equity securities up to
an aggregate nominal value of £50,000.
The power conferred by this resolution 6 shall expire (unless previously renewed, revoked or varied by the
Company in general meeting), at such time as the general authority conferred on the board by resolution 5 above
expires, except that the Company may at any time before such expiry make any offer or agreement which would
or might require equity securities to be allotted after such expiry and the directors of the Company may allot or
sell equity securities for cash in pursuance of such an offer or agreement as if the authority conferred hereby
had not expired.
248191 Tern AR pp32-end 26/03/2018 18:02 Page 52
52
Notice of 2018 Annual General Meeting
7.
That the Company be and is hereby generally and unconditionally authorised to make market purchases (within
the meaning of section 693(4) of the 2006 Act) of its Ordinary Shares provided that:
7.1
the maximum number of Ordinary Shares authorised to be purchased is 10% of the entire issued share
capital of the Company;
7.2
the minimum price which may be paid for an Ordinary Share is £0.0002;
7.3
7.4
7.5
the maximum price which may be paid for an Ordinary Share is an amount equal to 105% of the average
of the middle-market prices shown in the quotation for an Ordinary Share as derived from the Stock
Exchange Alternative Trading Service of the Stock Exchange for the 5 business days immediately preceding
the day on which the Ordinary Share is purchased;
the authority hereby conferred shall expire on the earlier of the date falling 15 months after the Annual
General Meeting or on the conclusion of the next annual general meeting of the Company to be held in
2019; and
the Company may make a contract to purchase its Ordinary Shares under the authority hereby conferred
prior to the expiry of such authority, which contract will or may be executed wholly or partly after the expiry
of such contract.
By Order of the Board
Sarah Payne,
Company Secretary
Dated 26 March 2018
Notes to the AGM notice
1.
2.
3.
4.
In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001 and by paragraph 18(c) of
The Companies Act (Consequential Amendments) (Uncertificated Securities) Order 2009, only those members
entered on the Company’s register of members not later than 9.30 am on 20 April 2018, or if the meeting is
adjourned, Shareholders entered on the Company’s register of members not later than 2 days before the time
fixed for the adjourned meeting (excluding non-business days) shall be entitled to attend and vote at the meeting.
A member of the Company entitled to attend and vote at this meeting is entitled to appoint a proxy (or proxies) to
attend, speak and vote in his place. A proxy need not be a member of the Company. You can only appoint a proxy
using the procedures set out in these notes and the notes to the Form of Proxy.
To be effective, the Form of Proxy must be deposited at the office of the Company’s registrars, Share Registrars
Limited, The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR so as to be received not later than 9.30 am
on 20 April 2018, or if the meeting is adjourned, not later than 48 hours before the time fixed for the adjourned
meeting.
To change your proxy instructions simply submit a new proxy appointment using the methods set out above and
in the notes to the Form of Proxy. Note that the cut-off times for receipt of proxy appointments (see above) also
apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off
time will be disregarded.
Where you have appointed a proxy and would like to change the instructions, please contact the Company’s
registrars, Share Registrars Limited, The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR.
248191 Tern AR Cover Spread 26/03/2018 18:08 Page 3
Company Information
Notice of 2018 Annual General Meeting
53
DIRECTORS
Angus Forrest (resigned 20 October 2017)
Alan Howarth
Bruce Leith
Sarah Payne
Ian Ritchie (appointed 1 June 2017)
Albert Sisto
Richard Turner (appointed 25 October 2017,
resigned 15 January 2018)
SECRETARY
Sarah Payne
REGISTERED OFFICE
27/28 Eastcastle Street
London
W1W 8DH
COMPANY’S REGISTERED NUMBER
05131386
AUDITORS
NOMINATED ADVISOR AND JOINT BROKER
JOINT BROKER
REGISTRARS
BANKERS
CORPORATE LAWYERS
Grant Thornton UK LLP
30 Finsbury Square
London
EC2A 1AG
WH Ireland Limited
24 Martin Lane
London
EC4R 0DR
Whitman Howard Limited
1-3 Mount Street
London
W1K 3NB
Share Registrars Limited
The Courtyard
17 West Street
Farnham
Surrey
GU9 7DR
Handelsbanken
3rd Floor
86 Jermyn Street
London
SW1Y 6JD
Reed Smith
The Broadgate Tower
20 Primrose Street
London
EC2A 2RS
5.
In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice
clearly stating your intention to revoke your proxy appointment to the Company’s registrars, Share Registrars
Limited, The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR. In the case of a member which is a company,
the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company
or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is
signed (or a duly certified copy of such power or authority) must be included with the revocation notice.
In either case, the revocation notice must be received by the Company’s registrars, Share Registrars Limited,
The Courtyard, 17 West Street, Farnham, Surrey, GU9 7DR no later than 9.30 am on 20 April 2018.
If you attempt to revoke your proxy appointment but the revocation is received after the time specified above, then
your proxy appointment will remain valid.
Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have
appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated.
6.
CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment
service may do so by utilising the procedures described in the CREST Manual. CREST Personal Members or
other CREST sponsored members, and those CREST members who have appointed a voting service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action
on their behalf.
In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message
(a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with CRESTCo’s specifications and
must contain the information required for such instructions, as described in the CREST Manual. The message,
regardless of whether it relates to the appointment of a proxy or to an amendment to the instruction given to a
previously appointed proxy must, in order to be valid, be transmitted so as to be received by our agent Share
Registrars (ID 7RA36) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting.
For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by
enquiry to CREST in the manner prescribed by CREST. The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that
CRESTCo does not make available special procedures in CREST for any particular messages. Normal system
timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member
or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means
of the CREST system by any particular time. In this connection, CREST members and, where applicable, their
CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and timings.
Perivan Financial Print 248191
248191 Tern AR Cover Spread 26/03/2018 18:08 Page 1
27/28 East Castle Street
London W1W 8DH
info@ternplc.com
e: info@ternplc.com
e: info@ternplc.com
t: 020 3807 0222
t: 020 3807 0222
ternplc.com
ternplc.com
Report &
Accounts
For the year ended
31 December 2017