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27/28 Eastcastle Street
London W1W 8DH
e: info@ternplc.com
t: 020 3807 0222
ternplc.com
Report &
Accounts
For the year ended
31 December 2019
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We partner with entrepreneurial
management teams with disruptive
ideas and accelerate their success
and value creation for our shareholders.
We work with and invest in founders who are passionate about creating groundbreaking
IoT technologies which transform the healthcare, manufacturing and security sectors.
We provide Seed and Series A capital to companies which can demonstrate market
validation and have clear competitive advantages in the UK and Europe. We champion
entrepreneurial spirit, providing hands-on support and expertise which adds value,
creates new international opportunities and helps overcome challenges for the
bene昀t of all stakeholders.
The size of our initial investment ranges from £250,000 to £5 million,
but most often between £1 million and £2 million.
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Leadership
Founded in 2013, London headquartered Tern PLC is an AIM listed
investment company which backs bold entrepreneurs who have a
vision to drive change through IoT technology.
Our team includes former Founders, CEOs and Chief Risk O cers of
successful technology companies who have domain expertise covering
a range of di昀erent areas including crypto, distributed systems to
industrial controls, security and 昀nancial services.
We have a strong track record of creating new commercial opportunities
in Silicon Valley. Our network provides companies with access to a broad
ecosystem of potential partners which can be leveraged to accelerate
market penetration and innovation.
Go-to-Market Expertise
Our unique approach empowers entrepreneurs to globalise and grow
their companies at a rapid pace. As well as providing capital, we partner
with companies and actively support product, pricing and global
strategies to drive revenue growth.
One Team and a World of Opportunity
Tern has a deep domain expertise and insight into our industries of
focus which we channel into every investment we make. We are investors,
operators, technologists and entrepreneurs. By combining deep sector
knowledge, a collaborative team structure, and the broad perspective
scale brings, we show up early, dive deep and make things happen.
We draw on the diversity of our experiences to help the companies we
invest in get bigger faster, whether that involves building out teams,
mentoring their CEOs or making introductions to potential
commercial partners.
We are building a premier technology investment company by fueling
the growth of disruptive enterprise technology companies to generate
returns for our shareholders.
People are the driving force
behind every successful business,
including ours.
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Company Information
DIRECTORS
Ian Ritchie
Albert Sisto
Sarah Payne
Bruce Leith
Alan Howarth
Matthew Scherba (appointed on 30 March 2020)
SECRETARY
Sarah Payne
REGISTERED OFFICE
27/28 Eastcastle Street
London
W1W 8DH
COMPANY’S REGISTERED NUMBER
5131386
AUDITOR
NOMINATED ADVISER AND JOINT BROKER
JOINT BROKER
REGISTRARS
BANKERS
CORPORATE LAWYERS
Nexia Smith & Williamson
25 Moorgate
London
EC2R 6AY
Allenby Capital Limited
5 St. Helen’s Place
London
EC3A 6AB
Whitman Howard Limited
1-3 Mount Street
London
W1K 3NB
Share Registrars Limited
The Courtyard
17 West Street
Farnham
Surrey
GU9 7DR
Handelsbanken
5th Floor
13 Charles II Street
London
SW1Y 4QU
Reed Smith
The Broadgate Tower
20 Primrose Street
London
EC2A 2RS
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1
Highlights of 2019
• Further validation of business model through a successful Series A fundraise for FundamentalVR and
a move from a services to a product business for InVMA
• Notable commercial successes in portfolio including new strategic customer contracts for all principal
portfolio companies
• Year-on-year turnover of principal portfolio companies from 2018 to 2019 increased by 27% (2017 to
2018: 58%)
• 31% year-on-year increase in employees within principal portfolio companies from 2018 to 2019 (2017
to 2018: 52%)
• Additional capital raised of £3.25 million before expenses with £2.5 million of this put to work in existing
portfolio companies to enable growth and generate outside interest
Net asset growth of 13%, including portfolio value increase of 20%
31 December
Total Assets
Net Assets
(Loss)/profit after tax
2019
£’000
19,065
18,913
(781)
2018
£’000
17,009
16,752
(313)
2017
£’000
11,069
10,581
(1,690)
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Contents
In this report
Strategic Report:
1 Highlights of 2019
3 Chairman’s Introduction
4 CEO’s Statement
8 Our Markets
12 Investment Strategy
16 Financial Review
18 Business Risks
21 Investment Report
Report &
Accounts
For the year ended
31 December 2019
Governance:
26 Board of Directors
28 Directors’ Report
31 Corporate Governance and
Compliance
35 Report on Directors’
Remuneration
Financials:
37 Independent Auditor’s Report
40 Income Statement and
Statement of Comprehensive
Income
41 Statement of Financial Position
42 Statement of Changes in Equity
43 Statement of Cash Flows
44 Notes to the Financial
Statements
62 Notice of 2020 Annual General
Meeting
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3
Chairman’s Introduction
For the year ended 31 December 2019
“We are proud to provide our shareholders with
exposure to exciting high-growth IoT companies”
I am delighted to report the progress that we made during 2019 in growing the effectiveness and value of our portfolio
of companies in the Internet of Things (“IoT”) sector. Our mission is to identify, invest in and support entrepreneurial
companies to develop IoT solutions which improve productivity, connectivity and security, leading to demonstrably
increased performance for their various customers.
Tern completed two successful equity fundraisings during the period. At the portfolio company level, fresh capital from
financial and trade investors was secured by Fundamental in its Series A round. We also continued to support each of
our principal portfolio companies with follow-on funding and are pleased to report good progress from them all.
Our success is due to the effectiveness of our executives and during this year I was delighted to welcome Matthew
Scherba to our team. Matthew has first-class experience as a technology investment executive and adds considerably
to our team’s ability to identify opportunities and to support our existing portfolio. I would like to take this opportunity to
thank all of our executives for their hard work over the year.
The recent restrictions imposed in the wake of the COVID-19 pandemic has brought fresh challenges to our portfolio
companies and we have been careful to maintain their effectiveness while also ensuring the wellbeing of all employees.
A weekly conference call with all the CEOs from our principal portfolio companies and Tern Directors has created
valuable opportunities to provide advice, support and partnerships which are forming positive and constructive
outcomes.
This is an exciting time for venture capital, and we remain proud to enable access for our shareholders to share in the
opportunities and value offered by exciting high-growth IoT companies.
Ian Ritchie
Chairman
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CEO’s Statement
For the year ended 31 December 2019
leveraging
Introduction
2019 was a year in which we began to execute fully on our
transformed business model,
the work
accomplished by the Company in 2018. We made material
progress on the goals that we set out for Tern and our
principal portfolio companies. As always, we set out right
from the start to help our portfolio companies to build
significant businesses in big markets where there is a clear
demand
in
businesses, there is an opportunity to build NAV and NAV
per share materially over a number of years. During the
year, a key achievement was FundamentalVR’s ability to
capitalise on the work and capital delivered in 2018, by
closing a Series A financing round at a valuation which
represented a 27% uplift on the investment of £1.9 million
made by the Company in FundamentalVR in May and
October 2018.
their services. By
investing early
for
Tern invests in technology companies in the Internet of
Things (IoT) space across the categories of healthcare,
security, networking and data analytics. We have moved
from taking large stakes in these exciting companies to
now establishing positions of influence of 25% or more at
the seed, early stage Series A and Series A investment
rounds. We back intrepid entrepreneurs who are seeking
to change
the products and
technologies they have and are developing with our early
funding; providing active involvement and support to
succeed at becoming a global force.
through
future
the
investors, by
this, as early
We do
thoroughly
understanding the companies in which we invest. Our
bottom-up investment process requires rigorous due
diligence on companies and market analysis. We meet
with company management, competitors and suppliers
while conducting a deep dive into the underlying business
fundamentals to establish our investment thesis based on
ensuring the quality of a company.
As part of our process we look to answer three key
questions before making a commitment, to determine the
scalability and sustainability of the company’s competitive
advantage and how it can be monetised to achieve rapid
growth:
validation. Leveraging the foundations
“2019 was a year of business model
built in 2018”
• Does the company have a disruptive technology or is
it insulated from disruptive change?
• Can the company rapidly demonstrate financial
strength with low capital intensity and high returns on
invested capital with downstream high margins and
strong cash conversion?
• What, if any, are the environmental or secondary
consequences created by
the company, or
governance and accounting risks that could alter our
investment thesis?
We believe that this improved approach to investing early
with a chance to steer their strategy and product focus
provides for an efficient use of our capital and resources
that will result in higher returns for our shareholders at the
time of realisation. Building on this momentum we are
looking to add exciting new investments and create
additional value from our existing ones in the year ahead.
Operating Review
Significant progress was made in many areas of our
business in 2019 and the adoption rate of IoT products
and technologies continues to accelerate. During 2019,
we supported our principal portfolio companies and their
mission of value creation with our financial and active
involvement. This support was reflected in the net asset
value per share of our portfolio remaining broadly stable
at 7.0p (FY19: 7.1p) which included a 20% increase in the
absolute portfolio value. Our total operating costs during
2019 remained comparable to 2018 at £1.3 million (2018:
£1.3 million). The administration costs increased by
£0.2 million, which was offset by an equivalent reduction
in other expenses. The majority of the administration cost
increase was due to an increase in Directors’ fees and
professional fees from advisors based in the USA.
Directors fees have increased to bring them more in line
with the average in the market and to enable effective
recruitment. The majority of the other expenses were the
result of the Company exploring an opportunity to
substantially expand its portfolio through a strategic
initiative. However, after careful due diligence and with the
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5
CEO’s Statement
For the year ended 31 December 2019
support of our advisors, the Board decided not to pursue
the opportunity any further.
During 2019, our principal portfolio companies continued
to leverage the gains made in 2018 and to develop new
opportunities for accelerating their growth. Progress was
made by our principal portfolio companies in securing new
customers and market partnerships that has led to their
expansion, as demonstrated via our key metric, the delta
in aggregate revenues and headcount year over year. We
believe that these are indicators of market acceptance
and the future growth potential of our principal portfolio
companies. The Directors continuously weigh the possible
returns of our potential new investment opportunities in
accordance with the circumstances and opportunities that
could be created by committing our resources to a new
investment (or additional funds to an existing investment).
By doing so, we attempt to validate if the continued
progress by our portfolio companies is creating lasting
value
for our
shareholders.
that can create attractive returns
The Directors of Tern are also pleased by the efficient use
of capital by our principal portfolio companies in the
monies spent to date to build their products and brands,
which we believe is competitive to their peer groups in
respect of reaching similar stages of development. During
2019, Tern raised an additional £3.25 million before
expenses of which £2.5 million was re-invested into
existing portfolio companies via equity or loan note
instruments to support their continued progress. This
progress produced an aggregate turnover by our principal
portfolio companies for the year ended 31 December
2019 which was 27% ahead of the turnover achieved in
2018. The percentage increase would have been higher
had there not been the impact of commercial orders that
were expected to be signed during Q4 2019 being
delayed, in many cases, because our principal portfolio
companies continued to negotiate to achieve better
outcomes. Some of these transactions were announced
in late 2019 and others were announced in early 2020,
contributing to a strong start to the year for these
businesses, with others being anticipated to follow. The
in aggregate
Directors believe
employees across the principal portfolio companies in
2019, compared to 2018, will provide a strong foundation
for continued revenue growth and market share
expansion in 2020.
the 31%
increase
Tern is focused on carefully expanding its portfolio by
selecting the most innovative and promising companies
from the wide array of opportunities that we meet, which
we believe can become category leaders in the IoT
markets they target. In the year ahead, we are planning
to expand our sourcing geography beyond the UK into
Europe. This should increase the number and quality of
opportunities that we consider and also mitigate the
potential volatility in the capital markets as the final Brexit
for
outcomes are determined. We are searching
investments in disruptive early-stage IoT companies,
which have developed market changing technologies for
the healthcare and industrial IoT markets. These are
markets that have already received significant investment
and that are looking for new ways to enhance outcomes
and increase productivity. For example, the IoT healthcare
market size is projected to reach US$534.3 billion by 2025
expanding at a CAGR of 20% between 2019 and 2025,
according to a report by Grand View Research, Inc.
(March 2019). The global Industrial Internet of Things
(IIoT) market is expected to reach a value of US$922.62
billion by 2025, according to a Million Insights report
(March 2019).
By opening up to new markets, we believe we will also
broaden the potential to syndicate follow on funding rounds
with a broader set of financial and strategic investors. This
should de-risk our position by the syndication of the later
rounds with a blend of strategic and financial investors who
add their resources to facilitate the scale up of the portfolio
company’s business. Our investment committee also
believes
important environmental, social and
governance (ESG) factors are integral to assessing the
quality of a company and thus become an important part
of our investment process. Today, for example, our
portfolio companies are helping to address these
challenges by improving health care outcomes and the
ability to help measure and reduce carbon-based energy
consumption.
that
We have a deep respect for the entrepreneur and the
company building process and throughout 2019 we saw
progress, growth and industry recognition for our principal
portfolio companies. Our financial priorities continue to be
concentrated on accelerating the progress of our principal
portfolio companies’ commercial success; value creation;
robust realisations and the addition of new investments by:
•
Investing in and creating businesses which have
market validation and competitive advantages;
• Providing hands-on support to achieve value creation
and making introductions which help our companies
achieve scale and a presence in the USA;
• Strengthening management and boards where
appropriate;
• Syndication of post-seed round investments in our
companies, focusing on relevant strategic and
financial investors, to provide validation, and additional
growth capital that de-risks the path to commercial
success and monetisation; and
• Exploring innovative ways to expand the synergistic
benefits of our portfolio.
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CEO’s Statement
For the year ended 31 December 2019
Providing a greater opportunity to create and return value
to our shareholders is our primary objective and we
remain committed to expanding our portfolio during 2020
with companies that leverage our strong positioning in the
IoT space. Our deal flow remains strong and this critical
goal will be our focus for 2020 and beyond to fuel the
growth of our NAV per share and to increase the
opportunities to generate realisations and returns for our
shareholders.
Investments and Portfolio Update
Throughout the year Tern has invested in the teams,
technology and product development and brand building
of our principal portfolio companies. We believe that we
have further scaled our principal portfolio companies with
our investment support, introductions to strategic partners
and, in the case of FundamentalVR, crystallising new
sources of capital from the syndication of a follow-on
funding round. Through this strategy we have enabled our
principal portfolio companies access to the capital they
need to grow and scale up their business.
Device Authority
56.8% holding; Invested since 2014
$3.3 million convertible loan
At Device Authority the company has expanded and
refined its go-to-market partners resulting in a growth in
product sales and active customer engagements. Using
this active partner base, the company is developing a
sales and support model that has improved its ability to
scale and add to growth. Also, the focus on healthcare
(Medical IoT: MIoT), high value manufacturing/production
(Industrial IoT: IIoT) and most recently, the connected car
(Automotive IoT: AIoT) has created efficiencies in product
development processes and created opportunities for
follow-on business. A significant investment by Device
Authority in 2019 was to enhance its ability to penetrate
the large enterprise markets with its Microsoft Azure IoT
central connector. This key enhancement to Device
Authority’s KeyScaler product is designed to leverage the
investment in IoT deployments by Microsoft Azure’s large
customer base by providing an end-to-end service offering
in the cloud with enhanced security. We believe that this
product alignment with Microsoft represents an important
new segment for Device Authority’s growth and continued
leadership in the IoT security market.
FundamentalVR
26.9% holding; Invested since May 2018
FundamentalVR is an example of Tern finding a disruptive
opportunity, investing early in order to help shape their
business model and making an investment at a
the Tern
reasonable value and share of the business. On
30 October 2019, within seventeen months of our initial
investment, FundamentalVR secured a £4.3 million Series
A fundraise, including a £0.5 million convertible loan note
conversion by Tern, at a post-money valuation of
£11.3 million. We believe that this represents a validation
investment strategy. This syndicated
of
transaction represents an increase in fair value within a
year from Tern’s most recent investment, introducing
strategic and financial investors to our portfolio company
and reducing the risk profile of Tern’s investment to its
shareholders. FundamentalVR’s Virtual Reality Haptic
Simulation platform technology is now being used by an
array of customer groups including medical device
companies, pharmaceutical companies and medical
centres.
InVMA
50% holding; Invested since September 2017
£50k convertible loan
We are also pleased with the transformation of InVMA.
During 2019 the company enhanced its business model
from being strictly an engineering design and services
company to a product company with a very experienced
services component. This enhanced business model is
the culmination of Tern’s original investment thesis for
InVMA which involved changing its market value model
from a services company, which the Directors believe are
generally valued on a one times revenue basis, to a
product company, which the Directors believe are
generally valued on a multiple of revenues. Now, with its
first product AssetMinder, it has the opportunity for
revenue and customer growth that is emanating from a
cash flow neutral base. In January 2020, InVMA
announced that it had secured an initial order to provide
its AssetMinder solution to a global, multi-billion Euro
industrial and
supplier of products
construction markets. This was a critical endorsement of
the product and the work done by InVMA’s management.
the global
to
Wyld Networks
100% holding; Invested since 2016
£0.9 million loan note
Wyld Networks is a portfolio company that is the result of
our rollup of flexiOps, Amiho Technology and Wyld
Research. During 2019, assets costing less than £45,000
were added to the existing business of Wyld Networks
and we supported the business with additional operating
capital of £0.7 million, via a cash flow loan. Combining the
various related products and technologies into one
business, Wyld Networks, we believe that we have
created a compelling proposition in the IoT network
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CEO’s Statement
For the year ended 31 December 2019
communications industry. During 2019 we recruited a
seasoned senior executive into the business to lead the
company as CEO.
The company currently has its products operating in over
300,000 smart meters and with its mesh platform has now
established a unique and value enhanced product suite,
delivering secure intelligent mesh solutions empowering
resilient Consumer, Enterprise and potenital IoT networks
to create value. Wyld Network’s technology is unique in
that it creates a wireless network which connects
smartphones to smartphones as well as smartphones to
IoT devices in a mesh architecture. It establishes a
resilient and low-latency mesh network without the need
to route all the traffic through the traditional hierarchical
mobile infrastructure. This creates potential multiple
revenue generating and cost reducing use cases in
Events, Retail, Transportation, Healthcare and Smart
Buildings. As a proof point, during 2019, Wyld Networks
entered into an agreement with several companies,
notably Delta-T Devices in the Agritech vertical and
Develco in the smart metering vertical. Also, Wyld
Networks was awarded a £121,000 grant by Innovate UK
to collaborate on a new mass production technology,
SmartDrop, for Archipelago Technology Group Ltd. An
important milestone for the business.
Subsequently in early 2020, Wyld patented its technology
and signed an additional three contracts, most notably
with one of the world’s largest Satellite operators to co-
design, develop and market a software solution to enable
direct sensor to satellite connectivity using LoraWan as
the wireless protocol. This is unique and has the potential
to dramatically enhance the business case and return on
investment for the provision of satellite IoT solutions.
Outlook and Summary - Building on our progress
During the year, we executed on our strategic objectives
and key performance indicators outlined in the 2018
annual report and at our AGM. As we progress in 2020,
we are better positioned to build on our successes of 2019
and strive to achieve additional third-party validation of the
value created in our investments, that was and is driven
by the management teams who lead our portfolio
companies. At Tern, we have expanded our team and
resources to help drive continued progress and improved
results as we work to secure the best opportunities for our
value creation model.
to build and grow
We believe our unique and differentiated platform
empowers entrepreneurs
their
companies to achieve commercial success. It starts with
a partnership that has deep domain expertise and years
of operating experience. We help our entrepreneurs
leverage our global reach, with access to our networks of
businesses and contacts that can be catalysts for scale.
The IoT market opportunity is continuing to gather
strength and momentum and we are positioned at the
forefront of the wave. We entered 2020 well positioned to
leverage this opportunity and are focused on executing
our strategy for creating long-tern sustainable value
creation for our shareholders.
forward amid
the world are
COVID-19 Update
Companies around
faced with
unprecedented challenges to keep essential operations
the coronavirus pandemic.
moving
Economic recovery can only follow the recovery of public
health which is the focus of every government. At Tern we
have focused on the safety of our employees and the
employees of our portfolio companies and we have also
taken additional steps to be prepared when emphasis
shifts to social well-being.
We recently conducted a fundraise of £0.8 million which
at the time of writing means we do not need to furlough
Tern staff but as a precautionary measure the Board have
taken 20% salary reductions to protect our balance sheet.
The team is also set up to work effectively from home. We
have established a weekly situation video conference with
the CEOs of our principal portfolio companies to provide
support, advice and share recent experiences. Our
portfolio companies have taken similar actions to each
other, including furloughing some employees, salary
reductions across
for
government support where relevant.
the business and applying
As technology businesses, our portfolio is fortunately
facing less severe challenges during the current crisis and
are operating and meeting the needs of their customers
and prospects by applying their technologies where
appropriate to help in the support of the fight to restore
public health and safety. There will be an ongoing need
for technology to support continuing social distancing
measures as the lockdown eases.
The risks associated with COVID-19 are considered
further in principal business risks and uncertainties.
We remain optimistic about our portfolio businesses and
are working to ensure they will be positioned for growth
when the economy begins its recovery.
Our progress this year was driven by the management
teams of our principal portfolio companies. I would like to
thank them all for their unrelenting belief and commitment
to their businesses and drive to make them the leaders in
their respective industry segments. With the continued
support of our team, our Board, our advisors and our
shareholders we remain focused on accelerating the
growth generated in 2019.
Albert Sisto
CEO
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Our Markets
Adoption of IoT is increasing. Now is the
time for scalable solutions which enhance
service delivery, increase security and
facilitate the delivery of real-time data.
Overview
Technology Innovation in today’s world is moving faster
than our imaginations can keep up with. This is particularly
true in the IoT markets. Last year’s breakthrough
technology becomes the basis for tomorrow’s disruptive
product; a product that has the potential to transform a
market into one previously unimaginable. This has always
been the case, but it is now accelerating with increased
production adoption. The number of patent and trademark
applications is a key measure of the rate of innovation.
The chart below from the US Patent and Trademark Office
(USPTO), shows the increasing number of applications
over the past 20 years, demonstrating the speed at which
new ideas are being created to expand markets and
create new ones.
Source: United States Patent and Trademark Office 2019 Performance
and Accountability Report
This rate of innovation extends into our target IoT market
and is further driven by increased IoT market maturity and
adoption. This supports our investment thesis of investing
in transformational technologies run by innovative teams
that we believe will change what the world will look like in
of adopters using analytics platforms using IoT
data to improve business decision making
Adopters see IoT as central to digital strategy2
the next five to seven years. We look for opportunities
where new technology-driven ideas are positioned for
rapid growth to disrupt global markets and where there is
strong potential for a successful exit.
Innovation that can be integrated into commercial scalable
platforms for global market adoption remains central to
our investment strategy. Our team has an in-depth
understanding of the fundamentals of technologies such
as artificial intelligence, machine learning, blockchain, and
quantum computing and how these innovations can be
applied to our targeted market segments of IoT Security,
Healthcare, Networking and Data Analytics.
It is now becoming widely accepted that the fundamentals
of the overall IoT market are in place to facilitate rapid
global adoption. We continue to believe that breakthrough
technology that changes how markets are served, or
underpins new capabilities, will be the pervasive game-
changing ingredient in businesses that will become global
market leaders.
Our view that the fundamentals of the IoT market are now
in place to facilitate rapid adoption, is now becoming more
widely accepted by both analysts and private sector
organisations through adoption. We continue to believe
that
future
immersive
networks, will be
the pervasive game-changing
ingredients of businesses that will become globally
adopted.
technology underpinned by
Growth of the IoT
The worldwide number of IoT-connected devices is
projected to increase to 43 billion by 2023, an almost
threefold increase from 2018.1 Gartner has forecast that
the enterprise and automotive Internet of Things (IoT)
market will grow to 5.8 billion endpoints in 2020, which is
a 21% increase from 4.8 billion endpoints in 2019 (up 22%
from 2018)1.
When looking at the relevance of adopting IoT, it is no
longer viewed as optional, and is now on a rapid trajectory
to becoming mainstream2.
72% – adopters that say digital transformation is
impossible without IoT
Adopters are also seeing ancillary benefits:
• improved collection of accurate data (48%)
• increased employee productivity (47%)
• better asset utilisation (41%)
• enhanced customer loyalty (39%)
1 https://www.uktech.news/news/gartner-forecats-20-increase-in-iot-market-by-2020-20190829
2 Vodafone Business – IoT Barometer 2019
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Our Markets
Analyst forecasts are reinforced by the IoT market
validation, where 74% of adopters say that within five
years, those companies that haven’t adopted the IoT will
have fallen behind their competitors. There has been a
significant acceleration of the number of companies
adopting IoT, rising by over a third (34%) during 20192.
The scale and importance of IoT projects has also
increased, with growth being driven by significantly
reduced barriers to entry, simplified integration and
improved security to support large-scale deployments. As
IoT deployments become fundamental to operations,
reliance on the data, intelligence and service delivery will
rapidly become business critical.
Geography
According to Gartner’s IoT market forecasts1, the 2020 IoT
device revenue generation will total $389 billion globally
and will be concentrated over three regions: North
America, Greater China and Western Europe. According
to the same market forecasts, these three regions will
represent 75% of the IoT device revenue, with North
America recording $120 billion, Greater China achieving
$91 billion and Western Europe totaling $82 billion.
Our focus will remain predominately the UK market, but
we will also explore other key regions in Europe with hot-
beds of early-stage technology, that have the potential to
reshape markets. This is particularly relevant in the
healthcare sector, where the convergence of technology
and growth drivers have been accentuated by the current
global pandemic.
IoT Enablement Trends
For companies looking to become IoT enabled, the
increasing availability of off-the-shelf IoT enablement
platform solutions, cost effective transformation consulting
services and combined connectivity options
like
Narrowband-IoT (NB-IoT) and LORA (long ranged) WAN
are making implementation easier and faster. The
forthcoming deployment of 5G networks will drive even
greater adoption and many new opportunities.
Early IoT deployments started with relatively simple use
cases, but are evolving into broader, better integrated and
more sophisticated applications. Learning from initial
deployments, combined with the data collected, has led
to the understanding that the benefits far exceed the
planned ROI. These also include the enablement of
additional service models that can often result in new
revenue opportunities, combined with increased customer
engagement such as real-time monitoring and predictive
analytics. Innovation adoption in certain market areas,
including
telemedicine and
personalised healthcare, is gaining momentum from early
positive traction.
remote maintenance,
Both market and customer maturity will manifest into more
sophisticated product and service offerings, shifting the
competitive landscape. It is also likely that late adopters
to IoT strategies may find their organisations increasingly
uncompetitive, prompting them to acquire innovative
technology businesses to maintain profitability and
growth.
Big Data – Analytics Trends
With the proliferation of IoT devices, embedded sensors
will become cheaper and more advanced, increasing the
volume and value of data across the IoT technology stack.
Initial IoT installations solved basic problems, with data
being used internally. The economies of scale to date
have been insufficient to provide significant cross sector
insights.
Now, with increased availability and their resultant cost-
effectiveness, we believe that IoT devices will enable
large-scale monitoring and detection abilities, thereby
creating opportunities
the rapid adoption and
expansion of real-time analytics, machine learning and
artificial intelligence (AI).
for
Important examples that leverage this broad access to
applied data are applications involving Industry 4.0, Smart
Cities, telemedicine, personalised health solutions, that
will be
further advanced by smart networking
deployments. Network implementations that are secured
by scalable IoT cyber solutions. Forward thinking
organisations will take advantage of the opportunities for
the additional revenue potential, and the strategic
business model from monetising the resulting big data
insights.
Cyber Security Trends
Global Market Research forecasts that the global IoT
security market size was valued at $8.5 billion in 2018,
growing to almost $74 billion by 2026, a CAGR of 31.2%
from 2019 to 20263.
Security has been one of the biggest barriers to IoT
adoption. Chief Information Security Officers (“CISO”s)
have problematic and costly issues to deal with as they look
to implement future-proof solutions that secure, monitor,
manage and scale significant numbers of IoT devices. The
need for data-centric security on IoT devices will increase
as ransomware attacks, malware and phishing threats on
IoT devices continue, accelerated by market growth in
areas such as healthcare and Industry 4.0. IoT ecosystems
require layers of defense, from edge devices whose data
travel over multiple networks into data centres. Security is
further complicated by the need for automated identity
creation, remote access, peer-to-peer communications and
the inclusion of multiple communication protocols to
guarantee ecosystem resilience.
3 https://www.alliedmarketresearch.com/internet-of-things-IOT-security-market
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Our Markets
However, as new IoT technologies mature, the mindset is
changing with 84% of IoT adopters1 saying that security
is not a reason to reject innovation. As security becomes
strategically built into new IoT based applications,
deployments from the outset should have security
elements built into devices at the time of manufacturing.
By doing so, risks and labour costs will be significantly
reduced creating opportunities for new deployments and
market expansion. Additionally, companies will seek to
employ automated IoT device life-cycle management and
identity management solutions to achieve the scale
needed by large-scale deployments in automotive, IIoT
and medical device uses. Requirements created by the
Covid-19 crisis, we believe, will result in increased remote
monitoring and telemedicine innovations along with the
companies and technologies to deliver them. This is a
market segment where there will be ongoing opportunities
for investment and value creation.
Connectivity and Networking Trends
There is no one-size-fits-all IoT protocol and IoT device
communication of data remains a growing critical
component to successful IoT deployment at scale.
require secure, stable, and
IoT devices
robust
connectivity, built with simplicity of deployment to support
the increasing dependency on wireless networks. Today,
many IoT devices are located in remote areas with limited
or no connectivity. Low cost network access is needed to
send and receive reliable data without, for example, the
need for power-intensive transmitters, that remain a
significant barrier to adoption. Cellular networks, other
than for GPS, are not optimal for low-cost IoT devices that
only periodically transmit small amounts of data. We
believe that the current adoption of standardised IoT
communication protocols will be key to growth of the IoT
market, with the following technologies fueling greater
adoption and opportunity.
LoRaWAN (“Long Ranged Wide Area Network”)
LoRaWAN is a wide area network protocol specifically
designed for supporting vast networks of low-power
devices. For example, smart cities use this kind of
protocol. LoRaWAN is low cost, low bandwidth (data rates
between 0.3-50 kbps), and provides bi-directional
communication. It has been primarily deployed in urban
areas, where the range varies from 2 km to 5 km, but is
increasingly being deployed in suburban areas, where the
range is close to 15 km.
NB-IoT (“Narrowband-IoT”)
NB-IoT, also known as LTE Cat NB1, is a Low Power
Wide Area (LPWA) network technology standard used to
connect a wide range of smart sensors operating in the
licensed spectrum of a wireless cellular network to ensure
secure and reliable connectivity. It has been adopted by
most major telecom providers, with costs expected to
further rapidly decrease as demand increases.
The global NB-IoT market size is expected to reach over
$6 billion by 2025, with a CAGR of 34.9% between 2019
to 2025 (Grand View Research, Inc, July 2019). It is a
lower cost solution that provides a low bandwidth
capability to service the growing demand for two-way data
technologies to secure, track and monitor global assets
and people across digital health and smart city
applications. We believe that demand is expected to
aggressively grow, especially with requirements for low
power, broader coverage that can extend to indoor and
underground.
Telemedicine/Personalised Healthcare Trends
IoT communications and IoT healthcare technology is
converging, creating a personalised health tracking
requirement with medical applications, creating
telemedicine opportunities that transform GP/hospital
interactions, while reducing costs and improving care and
outcomes. Telemedicine is the use of technology that
enables remote healthcare. Recent events have created
a global awareness of the need for digital health devices
primarily focused on the healthcare sub-segments of
diagnostics, urgent care and remote patient monitoring.
The delivery of these new solutions will provide new
insights that engage patients in ways that were not
previously possible.
system
integration,
Significant barriers to large scale adoption remain,
including clinical approvals, data privacy and security,
clinical
reimbursement,
communications and battery life expectancy. However, we
expect this market to rapidly develop as the global
population continues to grow and live longer and
healthcare costs rise. Market forecasts support our
expectations, as the telemedicine market is forecast to
grow by a CAGR of 19.3% from 2019 to 2026 to reach a
global market size of $175.5bn by 2026 (Global Market
Insights, April 2020).
The treatment of chronic diseases represents 90% of the
$3.5 trillion of US annual healthcare expenditure,
according to the Centers for Disease Control and
Prevention. We believe that this cost can be reduced
significantly by disruptive technologies that offer more
automated chronic disease products using big data and
AI insights. We will continue to investigate and pursue
opportunities in this area. Additionally, the convergence of
activity-based and medical-grade tracking with big data
and AI will provide clinicians and insurers with previously
unavailable insights on how to manage and treat patients
using proven incentivised programmes that significantly
257950 Tern AR pp01-pp27 new.qxp 06/05/2020 13:38 Page 11
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Our Markets
reduce costs while improving patient outcomes. These
insights also enable new revenue channels for treatment
of more difficult areas with novel new products.
Healthcare payers are increasingly driving healthcare
organisations to digital therapeutics and big data
solutions, which manage expensive procedures and
medication to better understand how to reduce costs. As
a result, hospitals, clinics and care facilities have started
to trial and adopt telemedicine and more personalised,
convenient care, protocols underpinned by data-driven AI
and real-time communications. This is with the goal of
improving diagnosis procedures and maintaining
continuous monitoring to create personalised patient
treatments. This is a significant transition in the delivery
of digital healthcare reimbursement models, linked to
data-driven clinical decisions, that result in improved
patient outcomes.
We believe that the pace of technology-driven adoption of
digital healthcare will accelerate further as a result of
Covid-19, creating opportunities in this sector for growth
that are synergistic with our current portfolio assets. The
M&A activity in the segment is also reflecting the
importance of this area of technology convergence with a
number of recent acquisitive transactions by large pharma
and medical device companies of innovative startup
companies, for example Medtronics recent acquisition of
Digital Surgery.
these breakthroughs cost-effective
Smart Factory – Industry 4.0 Trends
Digitally connected systems enable operational teams to
take advantage of new sets of capability, such as digital
twins and condition monitoring, where devices can be
modeled and failures can be anticipated. The IoT is what
has made
to
implement. Simply, a digital twin is a virtual model of a
process, product or service. This pairing of the virtual and
physical worlds allows analysis of data and monitoring of
systems to head off problems before they even occur, to
prevent downtime, limit inventories of spare components,
develop new opportunities and even plan for the future by
using simulations. These capabilities help to boost a
business’ value instead of acting as a drag on a
company’s bottom line. Factors that boost asset longevity
and uptime, reduce unnecessary expenditure and
downtime, thereby adding to the value that captive
manufacturing or vertical
to an
enterprise.
integration bring
transformation
technologies and
The digital
the
companies that create them for the IIoT market are a key
market segment that we are focused on and we continue
to investigate synergies with our existing portfolio
companies.
Outlook
In 2017 we set out to focus our portfolio building activities
in key areas of the IoT. Our continued pursuit of new and
exciting companies has strengthened our original premise
and expanded our field of vision on the opportunities they
present to us to create value. We remain resolved to
refining our strategies and growing our Net Asset Value
as we expand our position as a leading investment
company in this exciting and expanding IoT market
segment.
the ways
is changing
IoT
in which businesses,
governments, and consumers interact with the physical
world. The IoT has emerged as the third wave of
innovation of the Internet and is beginning to shape the
future of many industries by connecting devices, people,
environments, virtual objects and generating an
unprecedented amount of data that will change the future.
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12
Investment Strategy
For the year ended 31 December 2019
Access to a World of Opportunity
Tern provides AIM market investors with exposure to visionary technology businesses, with high growth potential, that
want to radically disrupt global markets. We tactically invest in IoT entrepreneurs, providing support and advice which
connects the dots between vision, technology product and market.
We source deals from a combination of partnerships and start-up networks as well as through events, investor
relationships and market awareness campaigns. We lead early-stage investment rounds, providing exciting companies
with the capital, expertise and professional contacts to accelerate their development and growth potential.
Our seed to series A investments enable us to identify early-stage disruptive technology, driven by outstanding founders.
We actively work with them to catalyse their growth potential. We recognise the diversity of skills and capabilities in
every management team, and actively support entrepreneurs to suit their specific requirements so that they may achieve
their ambitious goals.
We invest in growth technology companies in the UK but are expanding our geographical remit to areas such as
Scandinavia and the Netherlands, leveraging both the potential benefits, and mitigating the risks, associated with Brexit.
Our strategy reflects the dynamic nature of growth companies, in a constantly evolving global market, and continues
to adapt to find the best commercial and capital solutions aligned to our portfolio companies’ requirements.
In Key Industries
Across our portfolio, visionary entrepreneurs are at the helm of current and future industry leading companies, fueling
the development of technologies and products that will help keep the UK at the forefront of innovation. Our portfolio
companies have access to our network of successful business leaders in each of our targeted markets to bring
tremendous category insight and connections to a deeper network of expertise.
In Key Technologies
We are building a premier technology investment company, by helping drive the growth of disruptive IoT technology
companies, assisting to build market leaders across a wide set of market opportunities.
Building value over time
We provide more than just capital. In addition to taking an active board seat, our operational model leverages our
Directors’ global entrepreneurial experience, strategic insight and network to help businesses overcome the challenges
to growth.
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13
Investment Strategy
For the year ended 31 December 2019
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Investment Strategy
For the year ended 31 December 2019
Global Network
Our extensive network allows us to make product,
commercial, partner and financial introductions, that help
knock down barriers and shorten the curve to product
market fit, growth and next round funding. We maintain
strong links with investors and corporates in the USA,
Europe and into Asia. We also facilitate the cross
pollination of technology and customers internally within
our portfolio.
Capital
We provide entrepreneurs with the necessary capital,
while instilling the necessary capital controls, so that they
can focus on their core business. We are patient
investors, with an aim of mitigating risks, while maximising
the value of our investments for our shareholders. We
take an operational view that allows our portfolio
companies to realise their full potential to acquisition or
IPO.
invest
in visionary
Criteria
We
founders with drive and
imagination, who lead motivated teams with disruptive
technology products, scalable business models and
experienced management teams that are pragmatic with
the ability to tactically execute on a global scale.
Geography
We are Pan-European, predominantly investing in early-
stage IoT and AI companies in the UK. Operating from
London and Silicon Valley, we have a single investment
thesis to support the UK and Europe's robust technology
community to create responsible and sustainable global
companies.
Sectors
We focus on B2B companies in the IoT segments of
security, healthcare, networking and data analytics with a
particular emphasis on companies that provide device
enablement products and use intelligence/machine
learning, with brilliant entrepreneurs who have a proven
track record in developing businesses.
Future developments
Tern has undertaken a series of initiatives to position the
Company for lasting success in its focused market
sectors, as explained in the CEO’s Statement. We
continue to build a portfolio of investments and a pipeline
of investment opportunities in fast growing IoT and AI
markets with an emphasis on companies delivering
responsible and scalable solutions for healthcare,
security, networking and data analytics with global market
potential.
The Board has given consideration to the impact of Brexit
on the investment portfolio and has concluded that it does
not envisage a material impact on performance given the
majority of opportunities for the portfolio are in the UK and
the USA. Brexit impact has also been considered within
the principal business risks and uncertainties set out later
in this section.
The Board has given consideration to the impact of
COVID-19 and its view is set out in the CEO Statement
and principal business risks and uncertainties.
Investing Policy
Tern’s investment policy is to invest principally, but not
exclusively, in the information technology sector within
Europe. The Directors believe that the Company can
invest in and acquire information technology businesses,
improve them by a combination of new management and
investment and realise the value created which will be
returned to shareholders. The Company may be either an
active investor and acquire control of a single company or
it may acquire non-controlling shareholdings. Once a
target has been identified, additional funds may need to
be raised by the Company to complete a transaction.
The Directors see IT as having considerable growth
potential for the foreseeable future and many of the
prospects they have identified are in this sector. The
Company has invested in six investee companies, four of
which comprise the principal portfolio companies and the
Directors believe there are further opportunities to invest
in and acquire established IT businesses which have good
technology, marquee customers and could better exploit
their assets with the injection of experienced management
and new funds with the intention of creating value for
shareholders.
Although the main focus of the investment policy has been
on the exploitation of IT businesses, which the Directors
intend to continue; this will not preclude the Company
from considering investment in suitable projects in other
sectors where the Directors believe that there are high-
growth opportunities.
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15
Investment Strategy
For the year ended 31 December 2019
The Directors believe the main driver of success for the
Company is the expertise that can be provided by the
Directors to the management involved in its investee
companies and the value creation that the team of people
is capable of realising. The Company is, and intends to
continue to be, an active investor. Accordingly, it has
investments,
sought and may seek
representation on the board of investee companies.
future
in
The new capital available to the Company will be used to
support and assist its investee companies to grow, where
appropriate, and used to locate, evaluate and select
investment opportunities that offer satisfactory potential
capital returns for shareholders. The Company may
require further funds in order to invest further in its
these
principal portfolio companies and
opportunities. It is the intention of the Directors to
undertake further fundraising, if such an opportunity
should arise. The Company’s investments may take the
form of equity, debt or convertible
instruments.
Investments may be made in all types of assets falling
within the remit of the Investing Policy and there will be
no investment restrictions.
take up
The Company has made investments and will seek further
investment opportunities which can be developed through
the investment of capital or where part of or all of the
consideration could be satisfied by the issue of new
Ordinary Shares or other securities in the Company. The
investments the Company has made and any new
opportunities have, or would generally have, some or all
of the following characteristics, namely:
•
•
a majority of their revenue derived from IT or the use
of IT, and strongly positioned to benefit from market
growth;
a trading history which reflects past profitability or
potential for significant capital growth going forward;
and
• where all or part of the consideration could be satisfied
by the issue of new Ordinary Shares or other
securities in the Company.
identify and assess potential
The Company will
investment
further
investigation is required, intends to appoint appropriately
qualified advisers to assist.
targets and where
it believes
The Directors may consider it appropriate to take an
equity interest in any proposed investment which may
range from a minority position to 100 percent ownership.
Proposed investments may be made in either quoted or
unquoted companies and structured as a direct
acquisition, joint venture or as a direct interest in a project.
The Company proposes to carry out a comprehensive and
thorough project review process in which all material
aspects of any potential investment will be subject to
rigorous due diligence, as appropriate. It is likely that the
Company’s financial resources will be invested in a small
number of projects or investments.
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16
Financial Review
The year ended 31 December 2019 has been another
year of activity and progress, with two equity fundraises
for the Company and our portfolio companies continuing
to scale, including a successful Series A fundraise for one.
New equity capital of £1.5 million was raised in April 2019
to strengthen the balance sheet and to provide negotiating
strength to protect and maintain long term influential
interests in our portfolio companies. This was evidenced
in the Series A raise by FundamentalVR. In October 2019,
a further £1.75 million was raised to continue that
momentum. With a strong balance sheet, the Company
has been able to maintain its influential holding at existing
portfolio companies and progress pipeline opportunities
with a credible position.
The Company’s investment holdings have increased from
£14.9 million at 31 December 2018 to £17.9 million at
31 December 2019, reflecting a 20% increase on the
previous year. The
includes
additional investment of £2.5 million across all four
principal portfolio companies and fair value growth of £0.3
million. This comprises a £0.9 million fair value gain and
a £0.6 million exchange rate loss due to the strengthening
of sterling.
investment valuation
The fair value gain, excluding exchange rate movements,
is comprised of a £0.6 million uplift at FundamentalVR due
to the successful Series A fundraise in October 2019 and
a £0.3 million uplift at Device Authority as further
convertible
the
loan
Company’s holding.
strengthen
issues
note
Net assets have increased by 13% to £18.9 million
(£16.8 million at 31 December 2018) and include a strong
cash balance of £1 million. There is no debt on the
balance sheet.
Cash and cash equivalents decreased by £0.9 million in
the year, ending the year at £1m (2018: £1.9 million). This
was due to £1.3 million cash used in operations, offset by
a net increase in cash of £0.4 million, which reflected a
net £2.9 million raised through two equity fundraises less
£2.5 million reinvested in existing portfolio companies.
balance sheet position: £1 million of
cash, no debt and an increasingly
diversified portfolio of investments
“We ended the year with a strong
worth £17.9 million”
of
and Statement
Income Statement
Comprehensive Income
Revenue from portfolio companies increased by 18% to
£124,766 (31 December 2018: £106,117). The Company
does not charge high monitoring or Board fees to ensure
capital is not deducted at source and is instead reinvested
in the portfolio companies to drive value creation. Total
investment income has reduced by £0.5 million to £0.4m
(2018: £0.9m) compared to 2018. This has been driven
by foreign exchange losses on the revaluation of the
investment portfolio. Device Authority is valued in US
dollars and the pound strengthened during 2019 resulting
in a £0.6 million exchange rate loss. This compared to a
£0.4 million exchange rate gain in 2018 as the pound
weakened that year. The loss in 2019 was offset by the
fair value gain on FundamentalVR of £0.6m and fair value
gain on Device Authority of £0.3m.
increase
Overheads overall were maintained at £1.3 million in
in
included a £0.2 million
2019. This
administration costs compared to 2018, due to an
increase in Directors’ and consultants’ fees offset in part
by a reduction in recurring legal costs. Directors’ fees
continue to rise slowly to bring them more in line with more
representative market rates and to allow for successful
recruitment, whilst maintaining prudence and affordable
levels for the Company. Increases in consultants’ fees
reflect additional advice and support from consultants
based in the US.
Other expenses include one-off costs incurred early in
2019 due to the Company exploring an opportunity to
rapidly expand its portfolio via a strategic initiative.
Although the transaction would have added a significant
number of companies to the portfolio thereby increasing
the NAV and diversifying the risk profile of the portfolio the
decision was taken, with the support of our advisors, not
to proceed on this occasion. These costs were offset by a
£148,173 reduction in the share based payment charge
and the absence, in the current year, of the prior year
convertible loan note cost of £165,000.
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17
Financial Review
Events after the end of the reporting period
On 13 January 2020, it was announced that InVMA had
secured an initial order commitment worth £817,000 over
a two-year period to provide its AssetMinder® solution to
a global, multi-billion Euro revenue supplier to the
industrial and construction sectors.
On 3 March 2020 it was announced that Docusign Inc had
announced its intent to acquire Seal for $188 million
in cash. The proceeds to Tern from this sale are expected
to be broadly in line with the Company’s valuation of its
investment.
On 9 March 2020, it was announced that the Company had
raised approximately £0.8 million before expenses through
a subscription of 13,333,331 new ordinary shares of 0.02p
each at a price of 6p per new ordinary share.
Key performance indicators
The Company’s principal activity is that of investing in
companies. Accordingly, the Company’s financial Key
Performance Indicators (KPIs) are focused on return on
investment: increasing portfolio company value, delivering
consistent investee company turnover growth and
focusing on year-on-year net asset growth. The Company
also monitors non-financial KPIs, the primary focus being
on increase in employee numbers at the portfolio
companies which is an indicator of growth to support
commercial success. These indicators are monitored
closely by the Board and the details of performance
against these are given below.
The return on investments:
Unrealised fair value:
• Device Authority (£12.7 million valuation):
the
valuation has increased due to additional investment
in the Company via convertible loans, plus an increase
in fair value given the preferential terms issued to Tern
and other equity holders on these convertible loans.
This fair value gain has been offset against FX loss
when converting the investment to GBP;
•
InVMA (£1 million valuation): The equity value of
InVMA remains unchanged. The investment is valued
at fair value which has been based upon the most
recent fundraise in September 2017. This valuation
has been assessed as reasonable, taking into
consideration
the
company. During the year, a convertible loan note of
£50,000 was issued, the value of which has been
incorporated into the fair value;
the current performance of
• Wyld Networks Limited (£0.9 million valuation): the
equity valuation remains unchanged, the value of the
cash flow loan issued to the company has been
incorporated into the fair value;
•
FundamentalVR (£3 million valuation): The investment
is held at fair value where the price of the most recent
valuation has been taken into account, incorporating
a £0.6 million fair value uplift;
• Push Technology (£34,205 valuation): the investment
is valued at fair value and the price of the most recent
valuation is taken into account. The value is
unchanged from 2018.
• Seal Software Group (£0.1 million): the US dollar fair
value has been revalued in line with IFRS to a level
raisings, with a
consistent with
strengthening of the pound sterling resulting in a small
decrease in its pound sterling valuation; and
recent
fund
• These investee companies are early stage businesses
in emerging markets where there is a lack of
comparative businesses available on which to provide
a comparable valuation and therefore value has been
based on an assessment of numerous factors: the
underlying value of the Device Authority patent
portfolio, the multiples achieved in comparable
markets on recent transactions, and an assessment
by the Board on the strength of the sales pipeline and
achievability of the 2020 sales forecast.
The net assets of the Company at 31 December 2019
were £18,913,077 (2018: £16,751,773). The net asset
value per ordinary share as at 31 December 2019 was
7.0p (2018: 7.1p).
Investee company turnover growth: the year-over-year
growth in the aggregate revenue of our principal portfolio
companies increased by 27% from calendar year 2018 to
2019 (58% from calendar year 2017 to calendar year
2018) which provides an indication of growth in the overall
portfolio. The annual growth was adversely affected by
some delays in commercial orders that were expected
during the final quarter of 2019. Some of these
transactions were announced in late 2019 and early 2020
and others are anticipated to follow, contributing to a
strong start to 2020.
The Company has non-financial KPIs which are also
monitored regularly by the Board. The non-financial KPIs
are focused around the investee company employee
number growth in our portfolio companies. We believe
these factors help serve as leading indicators of the future
performance and our impact on our stakeholders:
Principal portfolio company employee number growth
increased by 31% from calendar year 2018 to calendar
year 2019 (52% from calendar year 2017 to calendar year
2018), highlighting a continuing growth in the portfolio
overall and particularly in the final six months which saw
employee number growth escalate from 9% in the
six months to 30 June 2019 to 31% for the year ended
31 December 2019.
Sarah Payne
CFO
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Business Risks
For the year ended 31 December 2019
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.
Principal business risks and uncertainties
The management of the business and the nature of the Company’s strategy are subject to a number of risks. The
Directors have set out below the principal risks facing the business. Where possible, processes are in place to monitor
and mitigate such risks. The Company operates a system of internal control and risk management in order to provide
assurance that the Board is managing risk whilst achieving its business objectives with the assistance of the Audit
Committee. The Executive Directors meet at least monthly to review ongoing trading performance for both the Company
and the portfolio companies, discuss budgets, forecasts, opportunities and new risks associated with ongoing trading.
The Board regularly reviews operating and strategic risks and the effectiveness of the Company’s risk management
and related control systems, with the assistance of its committees. No system can fully eliminate risk and therefore,
the understanding of operational risk is central to the management process.
Identifying, evaluating and managing the principal risks and uncertainties facing the Company is an integral part of the
way the business operates. The Company has policies and procedures in place throughout its operations, embedded
within the management structure and as part of the normal operating processes. A formal risk register is maintained
and reviewed by the Board at least quarterly, with key risks identified, discussed and mitigation agreed. Market and
economic conditions are recognised as one of the principal risks in the current trading environment. This risk is mitigated
by the close monitoring of trading conditions and the performance of the Company’s investment portfolio. The Company
is affected by a number of risks and uncertainties, not all of which are wholly within its control as they relate to the
wider macroeconomic and legislative environment within which the Company operates. To enable shareholders to
appreciate what the business considers are the main operational risks, they are briefly outlined below:
Risk
Potential Impact
Mitigation Strategy
Investment
Risk
An investment fails to perform as
anticipated:
Investments may require additional
finance.
•
•
•
Investee companies may
operate in highly competitive
markets with rapid
technological change.
There may be a difficulty in
creating maximum value in a timely
fashion or difficulty in realising the
investment.
The value of the Company’s
holding may fall.
Investee companies may be
in early stages of commercial
development and so
generation of significant
revenues is difficult to predict
or guarantee.
Investment company
management is performing
under par.
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.
The Company is unable to
maintain an influential position and
has reduced influence over the
strategic direction and timing of
any realisation event.
If one dominant investment fails it
may have a disproportionate
impact on the Company.
The Company undergoes rigorous
due diligence before proceeding
with an investment.
The Company actively takes an
influential role in the strategic
direction of its investments and
regularly monitors performance. A
Company Director holds a
Non-Executive Board position on
all investment company boards
where the Company has a
significant (>10%) holding.
The Company’s strategy has been
formulated by the management
team with a strong track record of
generating gains from early stage
companies within the technology
sector.
The Company maintains a
sufficient cash balance to enable
follow on investment where
required.
The Company is building a
portfolio of investments to insulate
itself against poor performance of
any single investment.
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19
Business Risks
For the year ended 31 December 2019
Risk
Potential Impact
Mitigation Strategy
Reliance on
key people
The Company is unable to retain
key individuals or recruit high
calibre team members.
Disruption for the Company or its
investment companies as new
individuals take time to gain an
understanding of the investment
company’s strategy and
requirements.
Liquidity
The Company is unable to raise
new funds due to a reduction in
investor confidence or access to
capital.
UK exit from European Union.
Legal and
regulatory
risk
Reduction in ability to invest in new
opportunities or ability to maintain
holdings in existing investments.
May have detrimental impact on
Company’s ability to fund
operational costs.
May impact on investors
confidence and therefore risk
access to capital.
Detrimental impact on performance
of investment companies with
exposure to the European Union.
Foreign
exchange
risk
The valuation of investments
may be impacted by foreign
exchange movements.
The value of the Company’s
holding falls.
Increased
competition
As the IoT sector becomes more
mature, it will attract increased
interest from entities competing
with the Company for investment
opportunities.
May have a detrimental impact on
the Company’s ability to execute
investments at an acceptable cost.
Shareholder
impact
As a public company listed on
AIM, anyone can acquire shares
in the Company.
The actions of shareholders are
outside of the control of the
Company but can impact on the
Company by association.
The Company offers a
remuneration package designed to
attract, motivate and retain key
individuals.
Key individuals in the portfolio
companies are offered an attractive
remuneration package and either
shares or share option incentives.
The Company will maintain a
sufficient cash balance to finance
itself for a prudent period, or
ensure it has access to funds.
The Company monitors its working
capital to ensure it has sufficient
funds to maintain operations during
any economic slow down.
The Company actively reviews the
value of investments and will
consider action on foreign
exchange risk where relevant,
following advice from advisors.
The Company seeks to mitigate
competition by having a diverse
pipeline of opportunities and a
proven track record of successful
experiences with its portfolio
companies.
The management team has a
strong track record of providing
opportunities in the USA for UK
companies which should remain
attractive to potential investors.
The Board maintains regular
interaction and communication with
all its stakeholders and seeks to
openly articulate its culture and
strategy to shareholders at regular
points through the year.
COVID-19
Economic impact of COVID-19
affects performance of the
Company and its portfolio
companies.
The Company is unable to access
additional funds due to loss of
consumer confidence.
The portfolio companies are
unable to access external
investments.
Closure or delay of customer
business and revenue streams
impacts on operational activities of
the Company and its portfolio
companies.
The Company will maintain a
sufficient cash balance to finance
itself for a prudent period, or
ensure it has access to funds.
As a technology focused business,
the Company and its staff can
operate effectively from home for a
reasonable period of time.
The portfolio companies will
access Government support where
required.
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20
Business Risks
For the year ended 31 December 2019
Assessment of business risk
The Board regularly reviews operating and strategic risks, with the assistance of its committees. The Company’s
operating procedures include a system for reporting financial and non-financial information to the Board including:
•
•
•
•
•
•
•
reports from management with a review of the business at each Board meeting, focusing on any new decisions/risks
arising;
reports on the performance of portfolio companies, this now includes a rotating monthly presentation by a portfolio
company CEO at each Board meeting;
reports on selection criteria of new investments and a discussion around pipeline and new opportunities;
quarterly review of the risk register;
consideration of issues relating to governance and compliance;
reports from the sub-committees when they meet; and
consideration of reports prepared by third parties.
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21
Investment Report
For the year ended 31 December 2019
The Company’s current investment portfolio consists of the following investments, all of which are unquoted and
unaudited:
Principal Portfolio Companies
Device Authority Limited (“Device Authority”)
Market segment: Internet of Things (IoT)
Fair value:
Consists of:
Cost: £6.8 million
Valuation: £12.7 million
Equity ownership: 56.8% ‘A’ shares:
Convertible loan:
Cost: £4.3 million
Cost: £2.5 million
Valuation: £5.9 million
Valuation: £6.8 million
Valuation is based on a probability analysis of the potential outcomes relating to the conversion or redemption of
the convertible loan note, translated at the exchange rate at the balance sheet date. The fair value was supported
by an evaluation of a combination of factors, including the price of shares in the most recent fund raise (April 2016),
a comparison to transaction multiples in comparable market sectors and an evaluation of sales pipeline and 2020
trading forecast.
Device Authority is a global leader in Identity and Access Management (IAM) for the Internet of Things (“IoT”); focused
on medical / healthcare, industrial, automotive and smart connected devices. Device Authority's KeyScaler™ platform
provides trust for IoT devices and the IoT ecosystem, to address the challenges of securing the IoT. KeyScaler™ uses
breakthrough technology including patented Dynamic Device Key Generation (DDKG) and PKI Signature+ that delivers
unrivalled simplicity and trust to IoT devices. This solution delivers automated device provisioning, authentication,
credential management, policy based end-to-end data security/encryption and secure update delivery.
An example of its use case can be found in the healthcare industry which is in a state of digital transformation. Drug
delivery systems, surgical robots, infusion pumps and medical records are now all connected. Knowing the identity of
the user or device and protecting a patient’s data are critical items requiring protection under a variety of laws. Also,
the need to exchange data between the applications using these devices and systems, including updating the software
running these systems, puts them at risk. Device Authority’s KeyScaler™ platform is used by medical device
manufacturers and the applications which use the devices to protect the data exchanged, by applying policy and
encryption techniques to protect the information. Device Authority does this autonomously and at IoT scale providing
a clear return on investment and a protection against human error.
In 2019, Device Authority continued to work with and develop product sales via its active partner base including Venafi,
HID IdenTrust, Wipro, Tech Mahindra and City University of London. Device Authority has also further deepened its
relationship with Microsoft, including a feature on their Channel 9 IoT show showcasing their Azure IoT Central
Connector, which is the latest technology integration with Microsoft inside Device Authority’s Security Suite. Early in
the year Device Authority proved their credentials in the medical space by securing a medical contract with nCipher
Security.
Device Authority also continued to build on its brand recognition which included publishing its Enterprise IoT security
blueprint 2.0 to help educate Enterprises on how to improve their security posture in the connected world. Furthermore,
Device Authority was recognised as a technology leader in the global IoT IAM market by Quadrant Knowledge Solutions.
Device Authority also joined the Venafi Machine Identity Protection Development Fund.
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22
Investment Report
For the year ended 31 December 2019
Alongside the commercial success, Device Authority further strengthened the team, recruiting talent in both the US
and the UK and introducing two new influential board members: Ramesh Kesanupalli, founder of Nok Nok Labs and
Nicko van Someren, a technologist and entrepreneur who has extensive experience in the security industry.
For more information visit: www.deviceauthority.com.
InVMA Limited (“InVMA”)
Market segment: Sensor based applications
Fair value:
Consists of:
Equity ownership: 50%
Convertible loan:
Cost: £1 million
Valuation: £1 million
Cost: £1 million
Cost: £50,000
Valuation: £1 million
Valuation: £50,000
Valuation is based on a combination of factors including an assessment of sales pipeline and 2020 trading forecast.
InVMA helps industrial and manufacturing companies prosper by converging their physical assets with new
transformational digital insights. They provide IoT software solutions, communications and consultancy to digitally
transform their customers through predictive intelligence that automates manual processes, reduces operating costs,
maximises uptime and enables the development of untapped revenue streams.
During 2019, InVMA focused on the transformation of its product, AssetMinder® which solves critical pain points for
monitoring manufacturing processes, production platforms (e.g. oil), and networks of sensors providing predictive
maintenance and performance data; providing alerts when pre-determined thresholds or rules have been met or broken.
The focus on generating AssetMinder® product sales to drive value creation was evidenced in a material post year end
contract. This was validation of a deliberate move from being a systems integrator to a product company, underpinning
the value being created within the business.
During 2019, InVMA announced a number of key contract wins, which continue to establish the company as a key
provider of IoT products and solutions:
•
•
Implementation of Industry 4.0 projects with Heatsense Cables;
Facilities Management IoT deployments with iaconnects; and
• Aerospace and Defence projects, securing an initial order worth £0.25 million during 2019, working alongside its
partner ECA, a leading IT infrastructure specialist.
InVMA continued to develop and grow its partnership network, announcing new partnerships with Robustel, one of the
world’s leading manufacturers of industrial quality solutions for the IoT and M2M market, Solid State Supplies Ltd (part
of Solid State plc), a focused distributor serving the needs of the electronics OEM community in the UK as well as the
partnership with ECA which delivered the early material contract during the year.
For more information visit: www.invma.co.uk.
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23
Investment Report
For the year ended 31 December 2019
FVRVS Limited (“FundamentalVR”)
Market segment: SAAS immersive platform for medical and surgical education driving data insight
Equity ownership: 26.9%
Cost: £2.4 million
Valuation: £3.0 million
Valuation is based on the price of shares in the most recent fundraise in October 2019.
FundamentalVR provides the Company with exposure to the rapidly growing medical simulation market using low cost
open-system IoT devices and provides a basis for developing our IoT analytics pillar of the Tern investment strategy.
This was an active year for FundamentalVR: successfully closing a Series A fundraise and establishing traction in the
market whilst continuing to develop their Fundamental Surgery platform and achieve market recognition.
The FundamentalVR platform is now being used by an array of customer groups including clinics and medical centres,
device companies and pharmaceutical companies. Active clients of this platform include established innovative device
and pharmaceutical businesses. Within the hospital marketplace customers include the Mayo clinic and UCLA (USA),
Sana Kliniken (Germany), UCLH and St George’s (UK).
In October 2019, FundamentalVR closed a £4.3 million Series A funding round, including a £0.5 million convertible
loan note conversion from Tern, with a post-money valuation of £11.3 million. The funding round was led by Downing
Ventures, with participation from the Company, Epic Private Equity and Brighteyes Ventures. Leading medical
institutions also participated in the funding round, including Mayo Clinic, one of America's leading centres of medical
excellence, and Sana Kliniken, one of Europe's leading medical organisations and the third largest hospital organisation
in Germany, which is a strong endorsement of the quality of FundamentalVR's offering.
The platform development continued during the year and the FundamentalVR platform achieved accreditation from
The Royal College of Surgeons in England and the American Academy of Orthopaedic Surgeons in the US, clearly
validating the strength of the proposition.
For more information visit: www.fundamentalvr.com.
Wyld Networks Limited (“Wyld”)
Market segment: Project management of research and innovation projects in technology
Fair value:
Consists of:
Equity ownership: 100%
Cash flow loan:
Cost: £0.9 million
Valuation: £0.9 million
Cost: £37,500
Cost: £853,332
Valuation: £78,000
Valuation: £853,332
Valuation is based on a combination of factors including an assessment of sales pipeline and 2020 trading forecast.
In 2019 Wyld focused on developing Wyld Mesh and Wyld Fusion, a wireless mesh technology to create low cost
and revenue generating Social, Enterprise IoT and 5G device-to-device networks, as well as commencing the
commercialisation of Wyld Connect, a range of LPWAN solutions to provide IoT wireless connectivity.
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Investment Report
For the year ended 31 December 2019
Wyld’s technology is unique in that it creates a wireless network which connects people to people directly from
smartphone-to-smartphone or device-to-device, as well as device-to-people. It establishes a resilient and low-latency
mesh network without the need to route all the traffic through the traditional hierarchical mobile infrastructure.
Wyld’s solutions are developed to market in the following sectors:
1. Social networks - Creation of customer engagement and new revenue streams through the enablement of pop-
up social networks, providing user engagement, gaming, safety and location-aware marketing in events and retail.
2. Enterprise IoT networks - Building a network of meshed smartphones and IoT devices at the edge of the network
in enterprise communication and IoT, ensuring connectivity and reducing operational cost for applications in
healthcare, smart factories and transportation.
3. 5G D2D networks - Creating 5G mesh connectivity to deliver resilient spectrum efficient densification of 5G
networks and low latency applications, such as autonomous vehicle and AR/VR connectivity.
4.
IoT networks - Enabling IoT providers to create LPWAN wireless networks to control IoT devices in hard to reach
locations for applications in agritech, environment, transportation and smart factories.
During the year Wyld secured a framework contract with Delta-T Devices, a world leader in the development of sensors
for the Agritech sector, to develop and deploy a Wyld Connect LPWAN solution integrated into Delta-T Devices agritech
sensors to create a wireless LoRaWan network.
In 2019, in addition to the smart agritech deal with Delta-T Devices, Wyld signed smart-device delivery contracts and
license agreements for its Wyld Connect solutions in the smart energy (Cadis, RCD, Develco) sector.
Wyld Networks was also awarded a £121,000 grant by Innovate UK to collaborate on a new mass production
technology, SmartDrop, for Archipelago Technology Group Ltd.
For more information visit: www.wyldnetworks.com.
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Investment Report
For the year ended 31 December 2019
Other Portfolio Companies
Push Technology Limited (“Push”)
Market segment: Data distribution software
Equity ownership: <1%
Cost: £120,197
Valuation: £34,205
Valuation is based on fair value, which has been assessed as the price of shares in the most recent fundraise in
May 2019.
Push significantly enhances the ability of organisations to communicate in real-time. This includes direct communication
as well as indirect, for example, by refreshing data displayed information in real time rather than when a user
explicitly asks for an update. Interactive applications are infinitely more engaging, updating in real-time as new data
becomes available.
In 2019 Push announced a number of new contract wins including Gratisbroker, the first free online German trading
platform; Brenock, specialising in shipping industry applications and Derivco, a gaming software development company.
Other customers include William Hill, Betfair, Racing Post, Sportingbet amongst others.
For more information visit: www.pushtechnology.com.
Seal Software Group Limited (“Seal”)
Market segment: Database Analytics and Search software
Equity ownership: <1%
Cost: £50,000
Valuation: £109,951
Valuation is based on fair value, which has been assessed as the price of shares in the most recent fundraise in
March 2019.
Seal specialises in writing software which performs complex analysis of contractual data. Seal is specifically designed
to locate and examine contractual documents and extract and present key contractual information related to language,
clauses, clause combinations, and the significant contextual metadata held within them.
In 2019 Seal’s notable events included:
• Announcing new contract wins, including TPR Legal and an expansion of use by Airbus and new partnerships,
including with AI Innovation Centre of Sweden.
• Being named within the Deloitte’s Technology Fast 500TM for a fourth consecutive year. Seal was named the 72nd
fastest growing tech company in the San Francisco Bay Area, and 388th overall with 241% year-over-year growth.
• Seal Co-Founder and CTO, Kevin Gidney, was honoured for Transformative Thinking and Tangible Outcomes in
Artificial Intelligence and has been named as one of the world’s most influential voices in artificial intelligence (AI).
• Continuous product development including a new AI based contract negotiation product.
Customers include Nokia, PayPal, Bosch, DocuSign, Experian, Dell amongst others.
For more information visit: www.seal-software.com
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26
Board of Directors
Ian Ritchie
Chairman
Ian is the non-executive Chairman of Computer Applications
Service, and Krotos and completed his term of office as the
Chairman of Iomart plc in August 2018. 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 is a Fellow of the Royal
Academy of Engineering, the Royal Society of Edinburgh, and
a Fellow and past President of the British Computer Society. His
TED talk has been viewed over 600,000 times.
Committee membership: Member of Audit committee and
Remuneration committee
Albert Sisto
Chief Executive Officer
Albert is an IT industry veteran with more than 25 years of 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. Albert 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
Chief Financial Officer
Sarah qualified with Ernst & Young as a Chartered Accountant
and spent six years with the firm, joining its corporate finance
team for the later years and is now an FCA. She spent six years
with the BBC, firstly within their corporate commercial and
investment strategy team 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.
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27
Board of Directors
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
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.
results
Matthew Scherba
Investment Director
Matthew has over 25 years of international executive
management experience covering the full technology lifecycle,
focused on strategy and commercial development, including
investment and NED roles. He is a life-long entrepreneur with
experience creating, building and scaling early stage technology
businesses. He has founded, run and invested in early stage
companies across Internet of Things (IoT), including software,
hardware, mobile, AI, machine learning, and blockchain.
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 eighteen years he has been
managing a portfolio of non-executive appointments.
Committee membership: Chair of Audit Committee and Chair of
Remuneration Committee
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28
Directors’ Report
For the year ended 31 December 2019
The Directors present their annual report and the audited financial statements of Tern plc (the “Company”) for the year
ended 31 December 2019.
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 software companies, predominantly in the Internet of
Things sector, to achieve capital growth.
Results and dividends
The results for the year are shown in the income statement and statement of comprehensive income on page 40.
The loss for the year was £780,643 (2018: £312,564).
The Directors do not recommend payment of a dividend.
Political and charitable contributions
No political or charitable donations were made during the year.
Control procedures
Operational procedures have been developed for the Company 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. This has been assessed using detailed cash flow analysis so that the Board can conclude
that the Company has sufficient working capital resources to continue for at least 12 months without any additional
financing requirements. The post year end fundraise and impact of COVID-19 has been considered as part of this
assessment. In the event that opportunities are presented such that additional funding was required, management are
confident that they would be able to obtain additional funds from various sources.
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:
Alan Howarth
Bruce Leith
Sarah Payne
Ian Ritchie
Albert Sisto
At 31 December 2019
Ordinary shares
At 31 December 2018
Ordinary shares
–
8,857,233
–
677,000
9,683,333
–
8,857,233
–
677,000
9,683,333
The interests of the Directors in options granted by the Company are disclosed under the “Report on Directors
Remuneration”.
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Directors’ Report
For the year ended 31 December 2019
Significant shareholdings
As at 4 May 2020, the company had been notified of the following shareholdings of 3% or more of the share capital.
John Mahtani
Albert Sisto
Bruce Leith
Number of
Ordinary
Shares
Percentage of
Issued Shares
Held
15,109,605
10,416,666
8,857,233
5.3%
3.7%
3.1%
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:
•
•
•
•
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.
Section 172 compliance
Section 172 of the Companies Act 2006 imposes a general duty on every Director to act in a way they consider, in
good faith, would be most likely to promote the success of the company for the benefit of its members (shareholders)
as a whole. When considering what is most likely to promote the success of the company, Directors must have regard
to various matters designed to ensure that boards consider the broader implications of their decisions, not just for their
shareholders but for a wider group of stakeholders. These matters include:
•
•
•
•
•
•
•
the likely consequences of any decision in the long term;
the interests of the company’s employees;
the need to foster the company’s business relationships with suppliers, customers and others;
the need to maintain an effective investment selection process, including maintaining a strong pipeline of
opportunities and a thorough due diligence process;
the impact of the company’s operations on the community and the environment;
the desirability of the company maintaining a reputation for high standards of business conduct; and
the need to act fairly as between members of the company.
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Directors’ Report
For the year ended 31 December 2019
The Board determines the strategic objectives and policies of the Company to best support the delivery of long-term
value, providing overall strategic direction within an appropriate framework of rewards, incentives and controls. The
Board is collectively responsible for the success of the Company: the Executive Directors are directly responsible for
running the business operations; and the Non-Executive Directors are responsible for bringing independent judgement
and scrutiny to decisions taken by the Board. The Non-Executive Directors must satisfy themselves on the integrity of
financial information and that financial controls and systems of risk management are robust. Following presentations
by the Executive Directors and a disciplined process of review and challenge by the Board, clear decisions on policy
or strategy are adopted, and the Executive Directors are fully empowered to implement those decisions. During the
year, the Board approved additional investment in FundamentalVR as it recognised the potential for a fair value increase
during the year. Stakeholder interests and the matters listed above are factored into all Board discussions and decisions.
A more detailed assessment of stakeholder engagement is included on pages 31-34.
Disclosure of information
In the case of each person who was a Director at the time this report was approved:
•
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.
Independent auditors
The auditor, Nexia Smith & Williamson Audit Limited, was appointed on 10 December 2019 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
Nexia Smith & Williamson Audit Limited as auditor will be put to the members at the annual general meeting.
Signed on behalf of the board
Sarah Payne
CFO
4 May 2020
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31
Corporate Governance and Compliance
For the year ended 31 December 2019
our strategy and creating long term value for our
shareholders. We also recognise the importance of our
wider stakeholders in delivering our strategy and
“Effective corporate governance is critical to delivering
achieving sustainability within our business”
Ian Ritchie – Chairman and Senior Independent Director
Chairman’s Corporate Governance Statement
As Chairman, it is my responsibility to ensure that good standards of corporate governance are embraced throughout
the Group. As a Board, we set clear expectations concerning the Group’s culture, values and behaviours.
The Company’s shares are traded on AIM and the Company is subject to the UK City Code on Takeovers and Mergers.
The Board recognises the value and importance of high standards of corporate governance and has adopted the
Corporate Governance Code 2018 (“the Code”) published by the Quoted Company Alliance (“QCA”). This report and
the Report on Directors’ Remuneration describe how the Company applies certain of the provisions of good corporate
governance. A fuller updated review describing how the Company applies the QCA’s ten principles of corporate
governance 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 four 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 their
independent judgement.
Ian Ritchie has been Chairman, senior independent Director and a Director of the Board for over two years. He has
extensive experience as an independent Director of listed companies and technology startup companies. Albert Sisto
has been a Director of the Board for over six years and CEO for over three years. He has over 25 years of experience
at senior executive level and with security software companies.
The Board members are listed on page 26-27.
Board Evaluation
The Board carries out an evaluation of its performance as a whole annually, taking into account the Financial Reporting
Council’s Guidance on Board Effectiveness. This process is led by the Chairman and the latest evaluation was carried
out in May 2019. Due to the size and nature of the company, the effectiveness of the individual Directors is constantly
evaluated and therefore it is not the belief of the Board that a formal process is required. Due to the detailed review of
performance at each Board meeting, any issues are very quickly apparent and can be dealt with on a timely basis. As
the company grows, the Board will periodically consider whether a more formal annual evaluation process is required
in the future. The Company’s Board, individual Director and Committee evaluation process have not changed materially
over the previous years, on the basis that the Board as a whole consider these evaluation processes to be appropriate
for the Company’s requirements.
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32
Corporate Governance and Compliance
For the year ended 31 December 2019
Board committees
Audit Committee
The Audit Committee was established in November 2016 and is chaired by Alan Howarth.
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. It also reviews and monitors the
independence and objectivity of the external auditor.
There were three Audit Committee meetings in 2019. These were fully attended by all members.
Remuneration Committee
The Remuneration Committee was established in November 2016 and is chaired by Alan Howarth. A detailed
Remuneration Report is included on pages 35-36.
There were four Remuneration Committee meetings in 2019. These were fully attended by all members.
The Audit Committee and Remuneration Committee do not provide formal reports but do report to the Board on all
recommendations. Given the size of the Company and the Board’s familiarity with the business of the Company, it is
not considered necessary to provide formal reports.
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.
The remuneration committee is responsible for agreeing the executive framework and remuneration policy.
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.
Our Key Stakeholders
We rely on our stakeholders for our success in achieving our aim of becoming the leading investment company
specialising in IoT in the UK. Our key stakeholders are our portfolio companies, our people, our shareholders, our
suppliers and the wider community within which we operate.
Our portfolio companies
Each portfolio company has a nominated Director and we work closely with the companies to advise and guide with
feedback obtained during the month via regular interactions with the nominated Director and more formally through
attendance at their monthly board meetings.
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33
Corporate Governance and Compliance
For the year ended 31 December 2019
The portfolio companies provide a report for the Board each month and the CEOs rotate attendance at the Company
Board meeting.
Our employees
Our people are central to the success of our business. We want to deliver outstanding service to our portfolio companies
by ensuring our people are engaged and active in delivering the Company strategy. We are a young and growing
company with a small number of employees, all of whom have regular contact with the CEO and other Directors, where
open communication and feedback is encouraged.
Our 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.
We do this via a programme of events:
AGM
The AGM provides an opportunity for shareholders, particularly private investors, to question the
Board on issues arising in a formal setting and then informally immediately following the AGM.
Directors enjoy the opportunity to engage with shareholders, answer their questions and meet
with them informally
In light of the evolving Coronavirus (COVID-19) pandemic, the Board has been monitoring closely
the rapidly changing situation. The health of our shareholders, employees and stakeholders
remains extremely important to us and accordingly, the Board has taken into consideration the
compulsory ‘Stay at Home’ measures published by the UK Government. These measures
currently provide that public gatherings of more than two people are not permitted, unless the
gathering is ‘essential for work purposes’. Attendance at an annual general meeting by a
shareholder, other than one specifically required to form the quorum for that meeting, is not
‘essential for work purposes’ under those measures. Regrettably therefore, shareholders are
requested not attend the AGM to be held on 8 June 2020 and the Company will be unable to allow
entry to anyone seeking to attend the AGM in person.
The current situation is evolving and once Stay at Home measures are no longer in place, the
Company will host a meeting with the Board which is open to all shareholders to attend. This will
enable Directors and shareholders to engage in an informal environment. The date of this meeting
will be communicated by RNS.
Shareholder calls
Two shareholder calls per annum provide an opportunity for shareholders to put their questions
to the Board. These calls provide a helpful way of presenting an update to the shareholders on a
regular basis and addressing their questions by taking and answering questions posed to the
Directors through this forum.
Mello conference
The Directors attend an investor event every year to provide shareholders with an opportunity to
meet with the Directors and pose questions in an informal environment.
Annual Report
Regulatory and
non-regulatory
news
We publish a full annual report and accounts each year where we articulate the strategy for the
coming year and a review of the annual performance. The report is available in online and paper
format.
We issue regulatory news as required and non-regulatory news to communicate significant
portfolio companies news and explain the relevance and impact of the press release.
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34
Corporate Governance and Compliance
For the year ended 31 December 2019
Website
The Company’s website (www.ternplc.com) maintains a comprehensive, up to date news flow for
shareholders and other interested parties. A dedicated email address is provided (info@ternplc.com)
which is managed by the Company’s financial public relations advisors. The Company may exercise
discretion as to which questions will receive a response and all information provided will be freely
available in the public domain. If necessary, the enquiries will be brought to the Board’s attention.
There is a section dedicated to investors which includes financial results, analyst coverage,
corporate governance information, information on the Board, constitutional and admission
documents and a link to our regulatory news. Shareholders can also subscribe to our portfolio
updates and news.
Our suppliers
Our Company has a small number of suppliers and therefore regular interaction is the norm. Feedback is inherent
within these interactions and input from specifically our nomad, brokers and PR agency have resulted in improved
external communication and better interaction with our wider stakeholder groups.
Our community
Our investment committee includes an assessment of environmental, social and governance (“ESG”) factors within
each investment appraisal. We are closely involved with each of our principal portfolio companies and therefore can
influence their consideration of impact on community. Given our area of expertise our portfolio companies are often
involved in addressing ESG factors by increasing efficiencies and focusing actions on minimising waste. In 2020, our
focus on this area will increase to ensure we are fulfilling our aim to have a positive impact on our environment and
community.
Ian Ritchie
Chairman
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35
Report on Directors’ Remuneration
For the year ended 31 December 2019
The Remuneration Committee submits its Report on Directors’ Remuneration for the year ended 31 December 2019.
The Remuneration Committee is responsible for agreeing the framework and remuneration policy for the Executive
Directors. It sets the remuneration for the Board including basic pay, any bonus awards and share incentive schemes;
agrees the terms of employment of all Board members, including those on cessation of employment, ensuring all
payments are fair to both the employee and the Company; continues to review the appropriateness of the remuneration
policies, with reference to the conditions across the Company and up to-date information in other companies and
ensures that all requirements on the disclosure of remuneration are fulfilled.
The Committee is chaired by Alan Howarth. There were four Remuneration Committee meetings in 2019. These were
fully attended by all members. No advice was sought by the Board or its Committees on any significant matters.
Remuneration Policy
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 returns. It aims to provide appropriate levels of remuneration to do this and a have compensation programs
that are structured at or near the midpoint of our peer group.
There are three main elements of the Directors’ remuneration package being:
•
•
•
basic annual salary,
performance related bonus and
participation in the Company’s share option plan.
All Directors’ salaries are reviewed annually by the Remuneration Committee.
Executive Directors’ service contracts
The Executive Directors are appointed under service contracts which are not for a fixed duration and are terminable
upon six months’ notice by either party.
Non-Executive Directors
Each of the Non-Executive Directors is appointed under a letter of appointment with the Company. Subject to their re-
appointment by shareholders, the initial term of appointment for each Non-Executive Director is three years from the
date of appointment and their appointments are terminable upon three months’ notice by either party. The Non-Executive
Directors’ fees are determined by the Board.
The Company Share Option Plan
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 are 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 increased by 100% then 100% of the shares vest and if there has been no
increase in share price, then 0% of the shares vest. Between these two points the options will vest on a straight-line
basis.
No options were issued to Directors during the year ended 31 December 2019.
Performance Related Bonus
The purpose of the bonus plan is to align the interests of selected senior executives of the Company with those of its
shareholders. Participation in the Plan is at the discretion of the Board and it will enable selected senior executives to
share in a proportion of the value realised from the investments made by the Company over time based on successful
performance against KPIs set by the Board.
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36
Report on Directors’ Remuneration
For the year ended 31 December 2019
Directors’ remuneration
The remuneration of each Director, excluding share options awards, during the year ended 31 December 2019 is
detailed in the table below:
Alan Howarth
Bruce Leith
Sarah Payne
Ian Ritchie
Albert Sisto
Richard Turner
Share based payment charge
Total remuneration
Directors’ share options
Salary and
fees
£
27,500
107,312
112,312
33,500
126,287
–
406,911
–
406,911
Pension
payments
£
–
1,188
1,188
–
–
–
2,376
–
2,376
2019
Total
£
27,500
108,500
113,500
33,500
126,287
–
409,287
–
409,287
2018
Total
£
24,000
65,898
65,703
30,000
84,473
3,553
273,627
165,267
438,894
The Director’s outstanding share options as at 31 December 2019 are shown in the table below:
Outstanding
Granted Exercised
at 31 during the during the during the
year
year
year
Expired Outstanding Option
at 31 Price
December
2019
Exercise period
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
250,000 13p 23 Feb 2016 – 22 Feb 2023
2,500,000 8.5p 19 May 2017 – 18 May 2027
2,500,000 8.5p 19 May 2017 – 18 May 2027
–
2,500,000 8.5p 19 May 2017 – 18 May 2027
7,750,000
– –
December
2018
250,000
2,500,000
2,500,000
–
2,500,000
7,750,000
Alan Howarth
Bruce Leith
Sarah Payne
Ian Ritchie
Albert Sisto
Total
Alan Howarth
Chairman of Remuneration Committee
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37
Independent auditor’s report to the members of Tern Plc
For the year ended 31 December 2019
Opinion
We have audited the financial statements of Tern Plc (the ‘company’) for the year ended 31 December 2019 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 the notes to the financial statements, including a
summary of significant accounting policies. The financial reporting framework that has been applied in their preparation
is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
• give a true and fair view of the state of the company’s affairs as at 31 December 2019 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.
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:
• 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.
Emphasis of matter – impact of COVID-19
We draw attention to note 23 of the financial statements, which describes the impact of COVID-19 on the company.
Our opinion is not modified in respect of this matter.
Key audit matters
We identified the key audit matters described below as those that were of most significance in the audit of the financial
statements of the current period. Key audit matters include the most significant assessed risks of material misstatement,
including those risks that had the greatest effect on our overall audit strategy, the allocation of resources in the audit
and the direction of the efforts of the audit team.
In addressing these matters, we have performed the procedures below which were designed to address the matters in
the context of the financial statements as a whole, and in forming our opinion thereon. Consequently, we do not provide
a separate opinion on these individual matters.
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38
Independent auditor’s report to the members of Tern Plc
For the year ended 31 December 2019
Key audit matter Description of risk
How the matter was addressed in the audit
Valuation of
investments
Investments are
the most significant
balance on the balance sheet and the
value is reliant on third party financial
information and projections.
We challenged the valuation of investments,
assessing the methodology used by management
and considered other potential valuation models
which have been used in the industry.
Due to the nature of the investments there
is a lack of observable inputs and therefore
the key risk is considered to be the fair
value of investments. We therefore identify
the valuation of investments held for
trading as high risk.
The company’s accounting policy on
investments is shown in note 1.9 to the
financial statements, critical accounting
judgements and estimates included in note
3 and related disclosures are included in
note 11.
We tested the key inputs to the valuation model,
valuing the underlying assets and the forecasts of
future revenue. We considered the sensitivity of the
valuations to changes in key assumptions.
We utilised our specialist valuations team to review
the validity of the methodology and calculations
used to value the investments.
We have agreed the valuation of the most
significant investment to the indicative range
suggested by an independent third party.
We tested the mathematical accuracy of the
valuation calculations.
Materiality
The materiality for the financial statements as a whole was set at £378,000. This has been determined with reference
to the benchmark of the company’s net assets, which we consider to be one of the principal considerations for members
in assessing the performance of the group. Materiality represents 2% of the company’s net assets as presented in the
Statement of Financial Position.
Other information
The other information comprises the information included in the Report and Accounts, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information. 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.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• 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.
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39
Independent auditor’s report to the members of Tern Plc
For the year ended 31 December 2019
Matters on which we are required to report by exception
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.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to
you if, in our opinion:
• adequate accounting records have not been kept, 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
As explained more fully in the directors’ responsibilities statement set out on page 29, 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
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.
Use of our report
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.
Sancho Simmonds
Senior Statutory Auditor, for and on behalf of 25 Moorgate
Nexia Smith & Williamson London
Statutory Auditor EC2R 6AY
Chartered Accountants
4 May 2020
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40
Income Statement and Statement of Comprehensive Income
For the year ended 31 December 2019
Fee income
Movement in fair value of investments
Total investment income
Administration costs
Other expenses
Operating loss
Finance income
Loss before tax
Tax
Notes
11
6
7
8
9
2019
£
124,766
293,756
418,522
(1,028,605)
(245,414)
(855,497)
2018
£
106,117
775,910
882,027
(792,534)
(476,716)
(387,223)
74,854
74,659
(780,643)
(312,564)
–
–
Loss and total comprehensive income for the period
(780,643)
(312,564)
Since there is no other comprehensive income, the loss for the year is the same as the total comprehensive income
for the year.
EARNINGS PER SHARE:
Basic and diluted earnings per share
10
(0.3) pence
(0.1) pence
The accompanying accounting policies and notes are an integral part of these financial statements.
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41
Statement of Financial Position
As at 31 December 2019
ASSETS
NONCURRENT ASSETS
Investments
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Share capital
Share premium
Retained earnings
CURRENT LIABILITIES
Trade and other payables
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
2019
£
2018
£
11
17,882,660
14,856,239
17,882,660
14,856,239
12
13
14
14
15
16
174,486
1,007,965
1,182,451
239,180
1,913,801
2,152,981
19,065,111
17,009,220
1,355,571
22,578,619
(5,021,113)
1,348,903
19,660,434
(4,257,564)
18,913,077
16,751,773
152,034
152,034
152,034
257,447
257,447
257,447
19,065,111
17,009,220
The financial statements were approved and authorised for issue by the Board of Directors on 4 May 2020 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.
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42
Statement of Changes in Equity
For the year ended 31 December 2019
Share
capital
£
Share
premium
£
Loan note
equity
reserve
£
Warrant
reserve
£
Retained
earnings
£
Total
equity
£
Balance at 31 December 2017
1,330,225
13,237,362
123,482
175,982
(4,286,249) 10,580,802
Total comprehensive income
–
–
Transactions with owners
Issue of share capital
18,678
6,861,072
Share issue costs
Conversion of convertible loan note
Transfer of lapsed warrants
Share based payment charge
Transfer on conversion of loan notes
–
–
–
–
–
(603,000)
–
–
–
165,000
Balance at 31 December 2018
1,348,903
19,660,434
Total comprehensive income
–
–
Transactions with owners
Issue of share capital
Share issue costs
Share based payment charge
6,668
3,243,335
–
–
(325,150)
–
Balance at 31 December 2019
1,355,571
22,578,619
–
–
–
(123,482)
–
–
–
–
–
–
–
–
–
–
–
–
–
(175,982)
–
–
–
–
–
–
–
–
(312,564)
(312,564)
–
–
–
6,879,750
(603,000)
(123,482)
175,982
165,267
–
165,267
–
165,000
(4,257,564) 16,751,773
(780,643)
(780,643)
–
–
3,250,003
(325,150)
17,094
17,094
(5,021,113) 18,913,077
The accompanying accounting policies and notes are an integral part of these financial statements.
257950 Tern AR pp28-pp43.qxp 06/05/2020 13:39 Page 43
43
Statement of Cash Flows
For the year ended 31 December 2019
OPERATING ACTIVITIES
Net cash used in operations
Purchase of investments
Loan to investee companies
Interest received
Notes
20
2019
£
(1,337,878)
(1,808,034)
(688,332)
3,555
2018
£
(752,350)
(2,523,309)
(1,033,316)
3,450
Net cash used in operating activities
(3,830,689)
(4,305,525)
FINANCING ACTIVITIES
Proceeds on issues of shares
Share issue expenses
Proceeds from exercise of options
Proceeds on issue of loan note
Repayment of loan stock
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
3,250,003
(325,150)
–
–
–
6,010,000
(603,000)
8,500
550,000
(20,000)
2,924,853
5,945,500
(905,836)
1,639,975
1,913,801
1,007,965
273,826
1,913,801
The accompanying accounting policies and notes are an integral part of these financial statements.
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44
Notes to the Financial Statements
For the year ended 31 December 2019
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 and Companies Act 2006.
IFRS is subject to amendment and interpretation by the International Accounting Standards Board (IASB) and
the International Financial Reporting Interpretations Committee (IFRIC) and there is an ongoing process of
review and endorsement by the European Commission. The financial statements have been prepared on the
basis of the recognition and measurement principles of the IFRS that were applicable at 31 December 2019.
The preparation of financial statements in conformity with generally accepted accounting principles requires
the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management’s best knowledge of the amount, event or actions, actual
results may ultimately differ from those estimates.
The financial statements have been prepared on the historical cost basis except for investments and certain
financial instruments which are measured at fair value at the end of each reporting period. Historical cost is
generally based on the fair value of the consideration given in exchange for the assets. The principal accounting
policies set out below have been consistently applied to all periods presented, except where stated.
In accordance with IFRS 10, para 4 the Directors consider the Company to be an investment company and
has taken the exemption not to present consolidated financial statements or apply IFRS3 when it obtains
control of another entity as it is an investing company that measures all of its investments at fair value through
the income statement in accordance with IFRS 9.
1.3
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. This has been assessed using detailed cash flow analysis so that the Board
can conclude that the Company has sufficient working capital resources to continue for at least 12 months
without any additional financing requirement. The post year end fundraise and the impact of COVID-19 has
been considered as part of this assessment. In the event that opportunities are presented such that additional
funding was required, management are confident that they would be able to obtain additional funds from
various sources. More detail is set out in Note 23.
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45
Notes to the Financial Statements
For the year ended 31 December 2019
1.
1.4
1.5
1.6
ACCOUNTING POLICIES (continued)
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 7 Financial Instruments: Disclosures, IAS 39 Financial Instruments: Recognition and
Measurement, amendments regarding pre-replacement issues in the context of the IBOR reform (issued
in September 2019 and effective for annual periods beginning on or after 1 January 2020)
IFRS 17 Insurance Contracts (issued in May 2017 and effective for annual periods beginning on or
after 1 January 2021)
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors, amendments to the definition of material (issued in October 2018 and effective
for annual periods beginning on or after 1 January 2020)
ADOPTION OF NEW AND REVISED STANDARDS
On 1 January 2019, the Company adopted International Financial Reporting Standard 16 Leases (IFRS 16).
IFRS 16 replaces IAS 17 Leases. Under the provisions of the new standard, most leases, including the majority
of those previously classified as operating leases, will be brought onto the statement of financial position, as
both a right-of-use assets and a largely offsetting lease liability. The right of use asset and lease liability are
both based on the present value of lease payments due over the term of the lease, with the asset being
depreciated in accordance with IAS 16 ‘Property, plant and equipment’ and the liability increased for the
accretion of interest and reduced by lease payments. The Company has adopted the new IFRS, however
given the lease is short term and immaterial, it has had no change to the net assets or any line items in the
2019 financial statements.
TURNOVER
Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which the Company is
expected to be entitled in exchange for transferring services to a portfolio company or recharging legal advice
to a portfolio company. For each contract with a portfolio company there is only one performance obligation in
the contract and the transaction price is readily identifiable. Revenue is recognised as each performance
obligation is satisfied in a manner that depicts the transfer to the portfolio company of the goods or services
promised.
There is no variable consideration within the transaction price.
Rendering of services
Revenue from a contract to provide services is recognised over time as the services are rendered based on
either a fixed price or an hourly rate.
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46
Notes to the Financial Statements
For the year ended 31 December 2019
1.
1.7
1.8
1.9
1.10
1.11
ACCOUNTING POLICIES (continued)
TAXATION
The tax expense represents the sum of the tax currently payable and any deferred tax. 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:
•
•
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.
INVESTMENTS
The investment valuation consists of equity investments and convertible loan notes and loans issued to an
investment company. The convertible loan note is a financial asset with multiple embedded derivatives which
includes a warrant instrument. IFRS 9 permits the entire contract to be designated at FVTPL.
In accordance with IFRS 10, paragraph 4, investments are recognised at FVTPL in line with guidance set out
in IFRS 9. Changes in foreign exchange rates impact investments valued in a foreign currency.
IMPAIRMENT OF FINANCIAL ASSETS
Assets carried at fair value through profit or loss (FVTPL)
Under IFRS 9 no impairment testing is required for equity investments which are measured at fair value through
profit or loss (“FVTPL”).
Under IFRS 9, the change in lifetime expected credit losses for trade receivables is recognised as an
impairment gain or loss in the income statement.
TRADE RECEIVABLES
Trade receivables are classified as a financial asset and are valued at amortised cost in accordance with IFRS
9. 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 calculated as the change in lifetime expected credit losses and recognised in the income
statement, in accordance with IFRS 9.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried in the statement of financial position. 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.
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47
Notes to the Financial Statements
For the year ended 31 December 2019
1.
1.12
1.13
ACCOUNTING POLICIES (continued)
TRADE PAYABLES
Trade payables are financial liabilities measured at amortised cost in accordance with IFRS 9.
EQUITY INSTRUMENTS
Equity instruments are recorded at the proceeds received net of direct issue costs.
1.14
LOANS TO PORTFOLIO COMPANIES
Convertible Loans
Convertible loans provided to investment companies are evaluated with reference to IFRS 9. The convertible
loan facility issued to Device Authority is a financial asset with multiple embedded derivatives and a warrant
instrument. The convertible loan facility issued to InVMA is a financial asset with multiple embedded derivatives.
IFRS 9 permits the entire contract for both loans to be designated at FVTPL.
Other Loans
The loan facility provided to Wyld Networks is a financial asset designated at FVTPL. Assets are measured at
fair value at each reporting date, with any movement in fair value taken to profit or loss for the year.
1.15
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, with a corresponding adjustment to retained earnings, based on the
Company’s estimate of shares that will eventually vest.
Fair value is estimated using the Black-Scholes model as relevant for the terms and conditions of the options.
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, convertible loans and various
items such as trade receivables and payables, which arise directly from operations. The Company does not
trade in financial instruments.
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48
Notes to the Financial Statements
For the year ended 31 December 2019
2.
2.1
FINANCIAL RISK MANAGEMENT (continued)
FINANCIAL RISK FACTORS
The Company’s financial instruments comprise its investment portfolio, loans to portfolio companies, 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.
Liquidity risk
The Company makes investments in private companies for the medium term which are therefore not
immediately liquid. The Company manages this risk by holding cash to support its investments and for working
capital. The Company ensures it has sufficient cash through a combination of means including proceeds from
asset sales, equity raises and, in the past, the use of convertible loan notes. The financial performance and
position of the investee companies are regularly monitored to assess when further investment may be required,
this includes a review of cash flow forecasts. 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.
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.
Trade and Other Payables
Six months or less
Six months to 2 years
Total contractual cash flows
2019
£
152,034
–
152,034
2018
£
257,447
–
257,447
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 convertible loan notes held in Device Authority and InVMA also expose the Company to market price
variation as the conversion possibilities include a price to be set by a qualifying fundraise.
The investments currently held are not liquid as all the investments are unquoted.
Foreign exchange risk
The Company generally conducts its business within the UK, however some of its investments are valued
based on a US dollar valuation, particularly Device Authority, the most significant investment, and therefore
their value can change dependent on currency exchange movement. To the extent that exchange rate
fluctuations impact the value of the Company’s investments in its foreign operations, they are not hedged.
Credit risk
The Company’s primary credit risk arises from loans made to its portfolio companies and trade receivables.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of
accounts receivable and derivative instruments. These instruments contain a risk of counterparties failing to
discharge their obligations. The Company monitors credit risk and manages credit risk exposure by type of
financial instrument by assessing the creditworthiness of counterparties. The Company does not anticipate
non-performance by counterparties, however it generally requires security over the companies’ assets to
support financial instruments with credit risk.
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49
Notes to the Financial Statements
For the year ended 31 December 2019
2.
2.1
2.2
2.3
FINANCIAL RISK MANAGEMENT (continued)
FINANCIAL RISK FACTORS (continued)
The Company derives a significant percentage of revenue from a small number of investments. Sales to these
portfolio companies are not expected to fluctuate significantly and are not significant in value.
The credit risk on loans is low as the expectation is to convert loan balances on realisation of the assets. The
credit risk on trade receivables is low due to the generally low balance held.
The maximum credit exposure is equal to the carrying values of cash at bank, accounts receivables and
investments.
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 the carrying amount of equity plus debt 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 to
their fair values. The fair value of financial assets is based on an assessment of returns from the conversion
or repayment of the loans. 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.
The fair value of trade receivables is estimated 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
calculated as the change in lifetime expected credit losses and recognised in the income statement, in
accordance with IFRS 9.
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.
ESTIMATES
Fair value of financial instruments
The Company holds investments of £17.9 million 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
to assess estimates of future cash flows and 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.
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50
Notes to the Financial Statements
For the year ended 31 December 2019
3.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
Device Authority has maintained its US dollar valuation compared to 2018 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, an independent comparison
to transaction multiples in comparable market sectors and an evaluation of sales pipeline and 2020 trading
forecast. This supported a valuation in line with 2018, although an exchange rate loss was recognised on
translation at the balance sheet date.
The Company holds financial assets that have been held at FVTPL. The value of the convertible loan note
has been estimated by assessing the probability of each possible redemption or conversion scenario and
accounting for this within the overall fair value assessment.
JUDGEMENTS
Investments held at FVTPL
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 consolidated.
This assessment was reached following a review of all the key conditions for an investment entity, as set out
in IFRS 10 and the Company was judged to have met those key conditions as follows:
•
•
•
The Company obtains funds from one or more investors for the purpose of providing those investor(s)
with investment management services;
The Company commits to its investors that its business purpose is to invest funds solely for returns
from capital appreciation, investment income, or both; and
The Company measures and evaluates the performance of substantially all of its investments on a fair
value basis.
In coming to this conclusion, the Company also judged that its investment-related activities do not represent
a separate substantial business activity or a separate substantial source of income to the investment entity.
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 and therefore the figures presented on the face of
the income statement and statement of financial position represent the segmental information.
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51
Notes to the Financial Statements
For the year ended 31 December 2019
5.
STAFF COSTS
Staff costs for the Company during the year, including Directors
Wages and salaries
Consultancy fees
Social security costs
Pension costs
Share based payment charge
Total staff costs
2019
£
433,042
27,500
54,593
2,428
17,094
534,657
2018
£
277,920
24,000
31,860
1,601
165,267
500,648
The average number of people (including Executive Directors) employed by the Company during the year
was:
Directors
Employees
Total
2019
No
5
1
6
2018
No
5
1
6
DIRECTORS’ REMUNERATION
Other than Directors the Company had two employees as at 31 December 2019. Total remuneration paid to
Directors during the year was as follows:
Directors’ remuneration
– Salaries and benefits
– Consultancy fees
– Social security costs
– Pension costs
– Share based payment charge
Total Directors’ remuneration
2019
£
379,411
27,500
42,872
2,376
–
452,159
2018
£
248,026
24,000
28,393
1,601
165,267
467,287
Total remuneration of the highest paid Director (including share based
payment charge) was
126,287
139,562
A summary of remuneration paid to each Director, including pension payments, is included in the Report on
Directors’ Remuneration (page 35-36).
Key management personnel is deemed to consist solely of the statutory Directors.
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52
Notes to the Financial Statements
For the year ended 31 December 2019
6.
OTHER EXPENSES
Share based payment (options)
Sundry non-recurring expenses
Non-recurring legal and professional costs
Recharged portfolio professional fees
Transaction costs associated with convertible loan note
Discount on issue of convertible loan note
7.
OPERATING LOSS
2019
£
17,094
10,697
172,319
45,304
–
–
245,414
2018
£
165,267
88,868
38,332
19,249
55,000
110,000
476,716
2019
£
2018
£
Loss from operations has been arrived at after charging:
Remuneration of Directors
452,159
467,287
Fees payable to the Company’s auditor for services provided to the
Company:
– Audit services
– Audit related services
– Tax compliance services
– Tax advisory services
29,500
–
4,000
–
27,400
20,000
3,500
45,675
Fees were incurred during the year payable to the Company’s previous auditor prior to their resignation.
These consist of: non audit related services £18,700; tax compliance services £3,360; tax advisory services
£5,500 and other professional services £62,590. Fees in relation to 2018 also relate to the previous auditors.
8.
FINANCE INCOME
Bank interest
Interest income in respect of shareholder convertible loan notes
Interest income on loan notes
Interest accrued on convertible loan notes
2019
£
3,259
–
296
71,299
74,854
2018
£
3,450
3,567
–
67,642
74,659
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53
Notes to the Financial Statements
For the year ended 31 December 2019
9.
TAXATION
Taxation attributable to the Company
2019
£
–
2018
£
–
Domestic income tax is calculated at 19% (2018: 19%) of the estimated assessable profit for the year. The
charge for the year can be reconciled to the loss per the income statement as follows:
Loss before tax
Tax at domestic income tax rate
Expenses not deductible for tax purposes
Income not taxable
Unutilised tax losses
Tax (credit)/expense
2019
£
(780,643)
(148,322)
4,042
(55,814)
200,094
–
2018
£
(312,564)
(59,387)
65,409
(123,479)
117,457
–
The Company has unutilised losses of approximately £6.5 million (2018: £5.6 million) resulting in a deferred
tax asset not recognised of approximately £1.2 million (2018: £1.1 million). The losses do not have an expiry
date. The Company has not recognised a deferred tax asset in respect of these losses as there is insufficient
evidence of future taxable profits. The Company has not recognised a deferred tax liability in respect of fair
value gains on investments as most asset sales are expected to be exempt from taxation due to the substantial
shareholding exemption (SSE).
10.
EARNINGS PER SHARE
Loss for the purposes of basic and fully diluted loss per share
(780,643)
(312,564)
2019
£
2018
£
Weighted average number of ordinary shares:
For calculation of basic earnings per share
For calculation of fully diluted earnings per share
Loss per share:
Basic and diluted loss per share
2019
Number
2018
Number
251,945,498
217,221,165
251,945,498
217,221,165
2019
2018
(0.3) pence
(0.1) pence
Note: The fully diluted loss per share for 2019 and 2018 is the same as the basic loss per share as the loss
for the year has an anti-dilutive effect on earnings per share.
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54
Notes to the Financial Statements
For the year ended 31 December 2019
11.
NONCURRENT ASSETS
INVESTMENTS
Cost of investments brought forward
Reclassification of convertible loan note from other debtors
Reclassification of cash flow loans from other debtors
Interest accrued on convertible loan note
Additions
Cost of investments carried forward
Fair value adjustment to investments
Fair value of investments carried forward
Fair value of equity investments
Fair value of convertible loans
Fair value of cash flow loans
Fair value of investments
2019
£
2018
£
14,856,239
10,218,625
–
1,270,753
165,000
71,299
–
67,642
2,496,366
2,523,309
17,588,904
14,080,329
293,756
775,910
17,882,660
14,856,239
10,196,240
6,833,088
853,332
9,337,041
5,519,198
–
17,882,660
14,856,239
The convertible loan facility issued to Device Authority is a financial liability with multiple derivatives and the
entire contract has been designated at FVTPL, with any movement in fair value taken to profit or loss for the
year. In 2019 the fair value increase was £0.3 million (2018: £0.3 million). The convertible loan note has been
secured with a charge over Device Authority’s intellectual property.
The cashflow loan issued to Wyld Networks is secured and carries interest at a rate to be agreed by the
Company and Wyld Networks. The balance outstanding on the cash flow loan as at 31 December 2018 was
reclassified as a non-current asset as repayment is not anticipated in the foreseeable future. All loans issued
in 2019 have been included in additions.
12.
TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments and accrued income
Loan to investee companies
Other receivables
Total
2019
£
112,648
52,531
–
9,307
174,486
2018
£
38,958
22,874
165,000
12,348
239,180
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 the trade receivables and investee
company receivables mentioned above. The investee company receivables are secured on the assets of the
companies.
The loan to investee companies has been reclassified to investments.
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55
Notes to the Financial Statements
For the year ended 31 December 2019
13.
CASH AND CASH EQUIVALENTS
Cash at bank
2019
£
2018
£
1,007,965
1,913,801
The Directors consider that the carrying amount of cash at bank is a reasonable approximation to their fair
value.
14.
ISSUED SHARE CAPITAL
ISSUED AND FULLY PAID:
At 31 December 2018
Ordinary shares of £0.0002
Deferred shares of £29.999
Deferred shares of £0.00099
Ordinary shares issued for cash
Share issue expenses
At 31 December 2019
Ordinary shares of £0.0002
Deferred shares of £29.999
Deferred shares of £0.00099
Ordinary Shares
Number of shares
No.
Nominal value
£
Share premium
£
236,676,887
47,335
42,247
1,267,368
34,545,072
34,200
271,264,206
1,348,903
19,660,434
33,342,158
–
6,668
–
3,243,335
(325,150)
304,606,364
1,355,571
22,578,619
270,019,045
54,003
42,247
1,267,368
34,545,072
34,200
304,606,364
1,355,571
22,578,619
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 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. The Company has the right to purchase all the
shares for £1.
On 9 April 2019, 17,647,058 ordinary shares were issued at 8.5p per share for cash as the result of a private
placing raising £1,500,000 before expenses.
On 5 November 2019, 15,695,100 ordinary shares were issued at 11.15p per share for cash as the result of a
private placing, raising £1,750,003 before expenses.
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56
Notes to the Financial Statements
For the year ended 31 December 2019
15.
RESERVES
Details of the movements in reserves are set out in the Statement of Changes in Equity. A description of each
reserve is set out below.
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 less amounts realised on conversion of loans.
Warrant reserve
This represents the calculated value of the warrants issued less amounts realised on exercise or lapse of
warrants.
Retained earnings
Cumulative loss of the Company.
16.
TRADE AND OTHER PAYABLES
Trade payables
Accruals
Other taxes and social security
Total
2019
£
84,523
51,535
15,976
152,034
2018
£
64,370
185,138
7,939
257,447
The Directors consider that the carrying amount of trade payables approximates to their fair value.
17.
FAIR VALUE MEASUREMENT
FINANCIAL ASSETS
The Company classifies its financial instruments in the following categories: at fair value through profit or loss
or amortised cost. 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.
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57
Notes to the Financial Statements
For the year ended 31 December 2019
17.
FAIR VALUE MEASUREMENT (continued)
FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
Investments
All investments are determined upon initial recognition as held at fair value through profit or loss. 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. The fair value of the financial instruments in the statement of
financial position is based on the last transaction 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 and last price. 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 measured at fair value in
accordance with IFRS 9. Details of the valuation technique for each individual investment is set out in the
Investment Report on pages 21 to 25.
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.
The following table shows the levels within the hierarchy of investments measured at fair value on a recurring
basis at 31 December 2019 and 31 December 2018:
31 December 2019
Level 1
Level 2
Level 3
Total
Equity investments (£)
Convertible loan notes (£)
Cash flow loans
Total investments
See note 11 for more detail.
–
–
–
–
–
–
–
–
10,196,240
10,196,240
6,833,088
853,332
6,833,088
853,332
17,882,660
17,882,660
31 December 2018
Level 1
Level 2
Level 3
Total
Investments (£)
Convertible loan notes (£)
Total investments
–
–
–
–
–
–
9,337,041
5,519,198
9,337,041
5,519,198
14,856,239
14,856,239
The fair value assessment was made by the Directors using the price of the shares in the most recent fundraise,
where this was available, as well as an assessment of market valuations placed on comparable businesses,
a review of the underlying asset values and a review of the sales pipeline and forecast to support any valuation
applied. The fair value of the investment in Device Authority includes an assessment of the probability of each
possible redemption or conversion scenario and accounting for this within the overall fair value assessment.
This includes conversion on a qualifying fundraise, conversion on an exit and redemption at a premium. If the
probability of the most sensitive variable varies by 10% the impact on the overall valuation is approximately
£690,000.
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58
Notes to the Financial Statements
For the year ended 31 December 2019
17.
FAIR VALUE MEASUREMENT (continued)
Convertible loans provided to investment companies are evaluated with reference to IFRS 9. The financial
asset will be measured and accounted for at FVTPL. Assets are measured at fair value at each reporting date,
with any movement in fair value taken to profit or loss for the year.
Financial instruments at amortised cost
Non-convertible loans and receivables that are held with the intention of collecting contractual cash flows are
classified and measured at amortised cost. 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.
18.
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 options issued during the year were granted to purchase
shares which must be exercised within ten years from the date of the grant.
The options are 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 increased by 100% then 100% of the shares options vest
and if there has been no increase in share price, then 0% of the share options vest. Between these two points
the options will vest on a straight-line basis. All options issued prior to 2019 were fully vested at 31 December
2018.
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.
In 2015 and 2017 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 or ten years
from the date of grant. The advisor options are fully vested.
The Black Scholes method was used to calculate the fair value of the Director and employees’ scheme 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 in 2019:
Weighted average share price at date of grant
Weighted average exercise price
Expected volatility
Vesting period
Contractual life
Risk free rate
Employees
9.15 pence
9.15 pence
100%
1
10
1.94%
A total share based payment charge of £17,094 was recognised in 2019 (2018: £165,267) in respect of the
options granted, of this £17,094 (2018: £165,267) related to equity settled options issued to employees.
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59
Notes to the Financial Statements
For the year ended 31 December 2019
18.
SHARE BASED PAYMENTS (continued)
The share options held as at 31 December 2019 are set out in the table below:
Outstanding at
Granted Exercised
31 December during the during the during the
year
2018
year
year
Lapsed Outstanding at Option Exercisable
on or
before
31 December
2019
Price
Directors
7,500,000
250,000
Total Directors
7,750,000
–
–
–
Employees
Other
– 2,500,000
900,000
100,000
250,000
–
–
–
Total Options
9,000,000 2,500,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,500,000
8.5p 18 May 2027
250,000
13p 22 Feb 2023
7,750,000
2,500,000
9.15p
1 Dec 2029
900,000
100,000
250,000
9p 15 Feb 2022
8.5p 18 May 2027
15p 16 Dec 2020
11,500,000
Note: A detailed breakdown of Directors’ options is set out in the Report on Directors’ Remuneration.
19.
RELATED PARTY TRANSACTIONS
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 £39,844 in respect of management services and
recharged professional services (2018: £20,000). At the year-end Tern was owed £75,844 in trade receivables
by Device Authority Limited (2018: £36,000). Tern has also provided a convertible loan note to Device Authority
Limited. As at 31 December 2019, the convertible loan outstanding was £2,527,848 (2018: £1,270,753).
Wyld Networks Limited, a company wholly owned by Tern, is also considered a related party. During the year
Tern invoiced Wyld Networks £15,914 in respect of management services and recharged professional services
(2018: £30,000). As at 31 December 2019 Tern was owed £9,120 in trade receivables by Wyld Networks
Limited (2018: nil). Tern has also provided a working capital loan to Wyld Networks Limited. As at 31 December
2019, the working capital loan outstanding was £853,332 (2018: £165,000).
Wyld Technologies Limited, a company 90% owned by Wyld Networks Limited, is also considered a related
party. During the year Tern invoiced Wyld Technologies Limited £13,680 in respect of management services
(2018: nil). As at 31 December 2019 Tern was owed £720 in trade receivables by Wyld Technologies Limited
(2018: 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 £33,097 in respect of management services (2018: £39,700). As at 31
December 2019, Tern was owed £26,963 in trade receivables by InVMA Limited (2018: £2,958).
FVRVS Limited, a company in which Tern has a 26.9% shareholding, is also considered a related party. During
the year, Tern invoiced FVRVS Limited £16,328 in respect of management services and recharged legal
services (2018: £19,249). There were no amounts outstanding to or from the Company at 31 December 2019
(2018: nil).
During the year, Alan Howarth & Associates Limited, a company in which Alan Howarth has a controlling
shareholding, invoiced the Company £27,500 for management services (2018: £24,000). There were no
amounts outstanding to or from the Company at 31 December 2019.
Executive Directors made payments of £6,678 in total to the Company in respect of tax liabilities resulting from
gains accrued on the conversion of Directors’ convertible loan notes (2018: £27,950).
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Notes to the Financial Statements
For the year ended 31 December 2019
20.
CASH FLOW FROM OPERATIONS
Loss for the year
Adjustments for items not included in cash flow:
Movement in fair value of investments
Share based payment charge
Transaction costs associated with convertible loan note
Discount on issue of convertible loan note
Interest income accrued
Finance income
2019
£
2018
£
(780,643)
(312,564)
(293,756)
17,094
–
–
(71,299)
(3,555)
(775,910)
165,267
55,000
110,000
(71,209)
(3,450)
Operating cash flows before movements in working capital
(1,132,159)
(832,866)
Adjustments for changes in working capital:
(Increase)/decrease in trade and other receivables1
Decrease in trade and other payables
Cash used in operations
1 Excludes loans to investee companies
21.
FINANCIAL INSTRUMENTS
(100,306)
(105,413)
100,233
(19,717)
(1,337,878)
(752,350)
The Group uses financial instruments, other than derivatives, comprising cash to provide funding for the
Group’s operations.
CATEGORIES OF FINANCIAL INSTRUMENTS
The IFRS 9 categories of financial asset included in the Statement of Financial Position and the headings in
which they are included are as follows:
2019 2018
£ £
FINANCIAL ASSETS:
Cash at bank 1,007,965 1,913,801
Financial instruments at amortised cost
Trade receivables 112,648 38,958
Loans – 165,000
Other receivables 9,307 12,348
Fair value through profit or loss (FVTPL)
Investments 17,882,660 14,856,239
FINANCIAL LIABILITIES MEASURED AT AMORTISED COST:
The IFRS 9 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
2019
£
84,523
51,535
2018
£
64,370
185,138
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Notes to the Financial Statements
For the year ended 31 December 2019
22.
EVENTS AFTER THE REPORTING PERIOD
On 13 January 2020, it was announced that InVMA had secured an initial order commitment worth £817,000
over a two-year period to provide its AssetMinder® solution to a global, multi-billion Euro revenue supplier to
the industrial and construction sectors.
On 3 March 2020 it was announced that DocuSign Inc intended to acquire Seal for $188 million in cash.
On 9 March 2020, it was announced that the Company had raised approximately £0.8 million before expenses
through a subscription of 13,333,331 new ordinary shares of 0.02p each at a price of 6 pence per new ordinary
share.
23.
COVID19
Companies around the world are faced with unprecedented challenges to keep essential operations moving
forward amid the coronavirus pandemic. Economic recovery can only follow the recovery of public health which
is the focus of every government. At Tern we have focused on the safety of our employees and the employees
of our portfolio companies and we have also taken additional steps to be prepared when emphasis shifts to
social well-being.
We recently conducted a fundraise of £0.8 million which at the time of writing means we do not need to furlough
Tern staff but as a precautionary measure the Board have taken 20% salary reductions to protect our balance
sheet. The team is also set up to work effectively from home. We have established a weekly situation video
conference with our principal portfolio company CEOs to provide support, advice and share recent experiences.
Our portfolio companies have taken similar actions to each other, including furloughing some employees,
salary reductions across the business and applying for government support where relevant.
As technology businesses, our portfolio is fortunately facing less severe challenges during the current crisis
and are operating and meeting the needs of their customers and prospects by applying their technologies
where appropriate to help in the support of the fight to restore public health and safety. There will be an ongoing
need for technology to support continuing social distancing measures as the lockdown eases.
The risks associated with COVID-19 are considered further in principal business risks and uncertainties,
including the risk that fundraising for the portfolio companies may be more difficult to access. The Company
has mitigated this risk by ensuring it has sufficient cash reserves and continuing discussions with potential
strategic partners and investors for the portfolio companies.
We remain optimistic about our portfolio businesses and are working to ensure they will be positioned for
growth when the economy begins its recovery.
COVID-19 is considered to be a non-adjusting post balance sheet event and therefore has not been taken
into account in preparing the Statement of Financial Position, including the fair value of investment portfolio,
as at 31 December 2019.
24.
ULTIMATE CONTROLLING PARTY
The Directors do not consider there to be a single ultimate controlling party.
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Notice of 2020 Annual General Meeting
NOTICE IS HEREBY GIVEN that the 2020 Annual General Meeting of Tern plc (“the Company”) will be held at 3pm on
Monday 8 June 2020 at the Company offices: Gridiron, One Pancras Square, London N1C 4AG.
IMPORTANT INFORMATION – IMPACT OF THE COVID19 PANDEMIC ON THE AGM
In light of the evolving Coronavirus (COVID-19) pandemic, the Board has been monitoring closely the rapidly changing
situation. The health of our shareholders, employees and stakeholders remains extremely important to us and
accordingly, the Board has taken into consideration the compulsory ‘Stay at Home’ measures published by the UK
Government. These measures currently provide that public gatherings of more than two people are not permitted,
unless the gathering is ‘essential for work purposes’. Attendance at an annual general meeting by a shareholder, other
than one specifically required to form the quorum for that meeting, is not ‘essential for work purposes’ under those
measures. Regrettably therefore, shareholders are requested not attend the AGM to be held on 8 June 2020 and the
Company will be unable to allow entry to anyone seeking to attend the AGM in person. As noted below, Shareholders
should instead vote by proxy. Our advisers have also been requested not to attend.
The Company will convene the AGM with the minimum necessary quorum of two shareholders (which the Company
will facilitate). The Company will include all valid proxy votes (whether submitted electronically or in hard copy form) in
its polls at the AGM and the Chair of the meeting will call for a poll on each resolution. The Company accordingly
requests that shareholders submit their proxy votes in respect of the resolutions as set out in this Notice, electronically
or by post in advance, in accordance with the instructions set out in this Notice.
The current situation is evolving and the Company will make any further announcements that may be required by way
of a Regulatory News Service and on the Company’s website. If the Stay at Home measures are not in force at the
date of the AGM and there are no other restrictions on attendance in place, you may be able to attend the meeting in
person, subject to any public health guidance issued at the time.
Shareholders should submit their votes via proxy as early as possible, and shareholders are requested to appoint the
Chair of the meeting as their proxy. If a shareholder appoints someone else as their proxy, that proxy will not be able
to attend the AGM in person or cast the shareholder’s vote.
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 2019, together
with the Directors’ Report and Auditors’ Report on those accounts.
To re-appoint Nexia Smith & Williamson 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.
Albert Sisto retires by rotation, in accordance with the Articles of Association of the Company and having
consented to be considered for re-appointment, is hereby re-appointed as a director of the Company.
Matthew Scherba, having 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 Articles of Association of the Company
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 £20,000 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.
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Notice of 2020 Annual General Meeting
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 £20,000.
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.
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
2021; 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
4 May 2020
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Notice of 2020 Annual General Meeting
Notes to the AGM notice
1.
2.
3.
4.
5.
6.
7.
Given the current Coronavirus (COVID-19) situation, and to ensure adherence to current Government
requirements, attendance in person at the meeting will not be possible this year. Shareholders are requested to
appoint the Chairman of the meeting as his or her proxy as any other person so appointed will not be permitted
to attend the meeting. The below notes are to be read subject to this COVID-19 related proviso.
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 3pm on 4 June 2020, 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
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 3pm on
4 June 2020, 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.
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 3pm on 4 June 2020.
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.
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
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Notice of 2020 Annual General Meeting
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.
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Perivan 257950
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27/28 Eastcastle Street
London W1W 8DH
e: info@ternplc.com
t: 020 3807 0222
ternplc.com
Report &
Accounts
For the year ended
31 December 2019