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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 2020
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We partner with entrepreneurial
management teams with disruptive
ideas and accelerate their success to
create value for our shareholders.
We work with and invest in entrepreneurs who are passionate about creating
ground-breaking IoT technologies which transform the healthcare, manufacturing
and security sectors whilst bene昀ting business, the environment and society.
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 falls between £0.5 million and £2 million.
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Leadership
Founded in 2013, Tern plc is an AIM quoted investment company based in London
and Silicon Valley, which backs bold entrepreneurs who have a vision to drive
change through IoT technology.
Our team includes former founders, CEOs and CTOs of successful technology
companies who have domain expertise covering a range of di昀erent areas including
cryptography, 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
The Tern team 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.
Key performance indicators
• Continued growth in NAV per share
• Third party (syndicated) investment in the portfolio companies
• A liquidity event for at least one portfolio company covering
at least part of Tern’s holding
• Instill ESG into our portfolio and new investments
• Growth in portfolio company performance: growth in aggregated
turnover of portfolio companies
• Growth in portfolio company performance: growth in employee
numbers, coupled with growth in turnover by employee
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
REGISTRARS
BANKERS
CORPORATE LAWYERS
Nexia Smith & Williamson
25 Moorgate
London
EC2R 6AY
Allenby Capital Limited
5 St. Helen’s Place
London
EC3A 6AB
Share Registrars Limited
The Courtyard
17 West Street
Farnham
Surrey
GU9 7DR
Handelsbanken plc
3rd Floor
86 Jermyn Street
London
SW1Y 6JD
Reed Smith
The Broadgate Tower
20 Primrose Street
London
EC2A 2RS
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1
Highlights of 2020
• Robust reaction to the COVID-19 pandemic by Tern and its portfolio companies, safeguarding
employees, investments and carefully managing liquidity
• Despite a challenging environment due to the global pandemic, there were notable commercial
successes in each of the portfolio companies, particularly during the last quarter of the year
•
Initiated a portfolio CEO round table twice a month, attended by Tern board members, to share
experiences, initially in relation to COVID-19 and this has developed into ongoing strategy sessions to
share vision and best practice
• Net asset growth of 27% and increase in net asset per share to 7.3p (2019: 7.0p)
• Even during a year of uncertainty, portfolio companies continued to deliver with aggregate year-over-year
turnover growth of 18%
• Further validation of business model through a net £2 million fair value uplift, £2.6 million achieved for
Wyld Networks, partially offset by £0.4 million foreign exchange loss on translation of Device Authority
investment
• New investment in data technology company, Talking Medicines, in November 2020
• Additional capital raised of £4.5 million before expenses with £2.0 million of this invested in 2020 in
portfolio companies including the £0.86 million investment in Talking Medicines, to enable growth and
generate third-party interest.
31 December
Net Assets
Investments
Profit/(Loss) after tax
Net asset value (NAV) per share
2020
£’000
24,001
21,905
804
7.3p
2019
£’000
18,913
17,883
(781)
7.0p
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2
Contents
In this report
Strategic Report:
Highlights of 2020
Chairman’s Introduction
CEO’s Statement
1
3
4
10 Our Markets
12 Investment Strategy
17 Financial Review
19 Business Risks
22 Investment Report
Report &
Accounts
For the year ended
31 December 2019
Governance:
26 Board of Directors
28 Directors’ Report
32 Corporate Governance and
Compliance
38 Report on Directors’
Remuneration
Financials:
41 Independent Auditor’s Report
46 Income Statement and
Statement of Comprehensive
Income
47 Statement of Financial Position
48 Statement of Changes in
Equity
49 Statement of Cash Flows
50 Notes to the Financial
Statements
68 Notice of 2021 Annual General
Meeting
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3
Chairman’s Introduction
For the year ended 31 December 2020
companies have continued to win new business
“Productivity has been maintained and all our portfolio
despite the difficult economic climate”
I am pleased to report that our portfolio of companies in the Internet of Things (IoT) sector continue to perform well
despite the challenges thrown up by the global pandemic.
Our mission remains to identify, invest in and support entrepreneurial companies to develop IoT solutions which improve
productivity, connectivity and security and within that objective we are increasingly embracing the strongly growing
industrial and medical fields (IIoT and IoMT).
As with all other companies, our businesses activities have been affected by the COVID-19 pandemic and since the
pandemic began, almost all work for the last year has been performed by staff working from their homes. I am pleased
to report, however, that productivity has been maintained and that all our portfolio companies have continued to win
new business despite the difficult economic climate.
The strength of our management teams has helped our businesses to progress and cope with the uncertainty that has
arisen and the Tern team has taken an active role in helping our portfolio companies, particularly through the difficult
first half of the year when most adjustments had to be made quickly. As part of these support mechanisms, we instituted
a regular video call attended by all the company CEOs where they have an opportunity to share their progress and
challenges with their peers and share practical advice, support and identify opportunities to partner on projects.
I was particularly pleased that we were able to add to our portfolio this year with our new investment in Talking
Medicines, a company that promises to revolutionise the ability of the world’s pharmaceutical companies to engage
more effectively with their customers. With much of their technology already in place, our investment is aimed at
enabling them to productise and grow their market substantially. I would also like to highlight the exciting developments
at Wyld Networks, which through its Wyld Connect Satellite IoT solution it has developed, and is now undertaking, a
key part of the delivery of communications technology via emerging constellations of low earth orbit satellites.
As a board, we have been examining our portfolio with a view to the ESG (environmental, social and governance)
criteria they exhibit. These standards measure the ethical impact and sustainability of investment in a company. I am
pleased to say that our portfolio’s activities score well in this regard. It was particularly welcome that our latest
investment, Talking Medicines, is a female-led business.
I would like to take this opportunity to thank all of our Tern executives for their hard work over the year as, along with
most other enterprises, we have been unable this year to meet together in person. Their determination to manage
‘business as usual’ in these circumstances has been admirable.
We remain proud to enable access for our shareholders to share in the opportunities and value offered by exciting
high-growth IoT companies, and we look forward to the further development of our portfolio companies and identifying
new attractive investment opportunities in the future.
Ian Ritchie
Chairman
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CEO’s Statement
For the year ended 31 December 2020
“In 2021 we accelerated our
transformation to becoming a leader in
IoT investments by pooling our
expertise and networks to help our
companies adapt to an ever-changing
world”
Performance
I am very pleased with the performance of the Company
and how the portfolio performed in the year. Early in the
year, we were pleased to see Seal Software acquired by
DocuSign, providing an almost two times return on
investment. We set aggressive targets for our KPIs at the
start of the year in the areas we believe demonstrate
business growth and expansion, prior to the pandemic
impacting every aspect of business and society. Despite
the market backdrop, the Tern portfolio still delivered critical
growth. During the year, we recorded a net asset growth
of 27% and increased our net asset per share to 7.3p from
7.0p. Gross year-over-year turnover of the portfolio
companies grew by 18%, a key metric, while maintaining
a cautious eye towards expenses. During the year the
employee base of the portfolio companies was unchanged,
reflecting the quality and 31% expansion of the employee
base in 2019. All of these metrics exclude the incremental
growth in Talking Medicines since investment.
At the year end, Tern’s assets under management were
£21.9 million, up from £17.9 million at the end of 2019,
following investments in portfolio companies amounting
to £2 million. Our total operating costs for 2020 were
£1.5 million compared to £1.3 million in 2019, driven by
an increase in administration costs. The majority of this
cost increase compared to 2019 was due to a new
investment director, Matthew Scherba, joining the
Company in December 2019.
Income from our portfolio companies was comparable to
the previous year at £151,159 (2019: £124,766). As an
operating principle, the Company does not charge high
fees for access to our expertise or as invested capital is
put to work within our portfolio companies to drive growth
and value creation. Total investment income increased by
£1.7 million, or 412%, from £0.4 million in 2019 to
£2.1 million in 2020. The fair value increase was driven
primarily by the Wyld Networks fair value uplift recognised
of £2.6 million after an offset of foreign exchange losses.
Specifically, Device Authority is valued in US dollars and
because of the pound strengthening during 2020 this
resulted in a £0.4 million non-cash exchange rate loss as
compared to a £0.6 million non-cash exchange rate loss
in 2019.
that
Introduction
2020 was an important year strategically for Tern. Our
portfolio companies demonstrated increased traction as
we accelerated our transformation to becoming a leader
in IoT investments by pooling our expertise and networks
to help our companies adapt to an ever-changing world.
We accomplished this without compromising on results,
to generate value for our shareholders. In these
unprecedented times our portfolio companies have
demonstrated resilience and their teams the proven agility
to maintain the momentum needed to grow and build
great companies. We continued to progress the honing of
our business model to create a portfolio of synergistic
companies
leverage each other’s resources,
experiences and technologies to facilitate growth, reduce
risk to our shareholders and attract new investment
opportunities. We remain committed to providing UK
entrepreneurs with more than just the capital they need
to become global leaders. With our hands-on approach,
the benefit of our experience, our network of industry
specialists and access to the resources they require to
become global leaders, we believe that we can facilitate
significant value creation. At the same time, we provide
investors in Tern with exposure to a diversified range of
investments in the fast-growing IoT markets of healthcare
and industrial 4.0, by giving them access to high growth,
privately owned
technology companies, while still
providing liquidity to this generally unavailable class of
assets.
During the year we maintained our emphasis on building
on this momentum, despite the hardships created by the
pandemic. In 2020, we have assisted our companies to
recruit the best talent in their segments to ensure that they
have the infrastructure to support growth. We achieved
success in finding the best resources available across the
portfolio, including the addition of Peter Stephens as the
new CEO of InVMA, while maintaining our dedication to
the founding teams. We also remained committed to
building best-in-class practices and processes at Tern, to
strengthen the integrity and agility of our investment
methodology. A methodology that is built upon sharing our
know-how with our exciting businesses to help them
successfully navigate through the very challenging current
environment and prepare to operate in the ‘new normal’.
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5
CEO’s Statement
For the year ended 31 December 2020
Other expenses include costs relating to share based
payment charges and recharged legal costs to the
portfolio companies which increased in the year primarily
due to our investment into Talking Medicines.
As a result, the Company is pleased to recognise a profit
of £803,891 in 2020 compared to a loss of £780,643 in
2019, resulting in an earnings per share of 0.3p.
Early in the year and of critical importance, the Company
was able to strengthen its balance sheet with a capital
raise of £0.8 million, before expenses, despite the
challenging environment created by the global pandemic.
This, along with the £1.5 million fundraise in July 2020,
the business
helped protect
uncertainties as a result of the pandemic.
the portfolio
from
Additionally, we were delighted to successfully complete
an oversubscribed fundraise via our broker and a
PrimaryBid retail offer, raising a total of £2.2 million, before
expenses, in November 2020. We were very pleased by
the broad interest in this fundraise and we appreciated the
strong interest by retail investors who participated. We are
humbled by their support and look forward to continuing
to put our expertise to work for our shareholders by
generating significant value from our unique assets.
We are in a strong financial position entering 2021 with
total capital raised during 2020 of £4.5 million, before
expenses, with £2.0 million of this invested during 2020
to enable growth, generate outside interest and to take
advantage of disruptive opportunities in the fast-growing
IoT environments of Healthcare and Industry 4.0.
COVID-19
COVID-19 became world news in January 2020 and it has
since grown to affect nearly every country on earth,
becoming a global pandemic. We have all experienced
the impact personally in the ways we live and work.
Governments around the world implemented lock downs
and controls in attempts to limit the spread of the disease.
These necessary actions by governments, however,
dramatically upended the operations of many businesses
across the globe, creating the necessity to rapidly adapt,
use new working methods and constantly innovate to
achieve their business ambitions.
Tern was quick to react to this challenge of COVID-19 and
leveraged the synergies of our portfolio by creating a
round table of our portfolio CEOs and Tern's Board to
share ideas, measure employee welfare and respond to
what has become the ‘new normal’. We established a
solidarity between our portfolio company leaders and
quickly created safe and productive working environments
to maintain momentum. In particular, we focused our
ecosystem’s customers and partners on the new
opportunities created by the accelerated adoption of
digital IoT technology due to the pandemic.
As is often attributed to Albert Einstein, “in the midst of
every crisis, lies great opportunity” and we endeavoured
with the management of our portfolio companies to
address the changing needs and reflect the opportunities
available. Participating with our companies individually
and at our round table has enabled Tern to solidify its
important advisory role by helping our CEOs maintain
their core teams and to rapidly create new solutions for
their customers to address the digital transformation and
contactless requirements.
The CEO round tables continue to be held in 2021 and
have helped produce an opportunity rich environment in
our targeted IoT markets with new and existing customers
and partners, resulting in a new investment for the
Company, new business wins and a healthy pipeline of
future opportunities for our portfolio. One example of this
is where a portfolio company CEO has made an
introduction to their customer which has resulted in a
potential opportunity for another portfolio company.
The Tern Board see the results from the round table going
beyond the original objective of maintaining momentum
and they are now an integral part of generating value and
synergies across the portfolio.
I am delighted by the developments by our portfolio
companies in 2020 and this momentum has continued
into 2021. I believe that we are well positioned to benefit
from the continuing long-term trends and this will generate
significant value for Tern's shareholders.
I am especially grateful to all those who have worked from
home to continue to deliver support and services to their
customers, colleagues and business partners, while
observing the strict guidelines imposed and maintaining
their family life.
Portfolio Highlights
Most of our companies spent much of the first half of 2020
focused on re-engineering how they do business, so it is
pleasing to see just how fully they recovered by the end
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6
CEO’s Statement
For the year ended 31 December 2020
of the year. In our portfolio update announcements, we
have highlighted the recent performance of Tern's portfolio
companies. We believe that as a result of our early work
to create cohesion between our CEOs to manage the
turbulence created by the COVID-19 pandemic and the
emphasis we placed on our portfolio company leadership
to create a solidarity with their customers and ecosystems
partners, our aggregate portfolio sales momentum that
began during Q3 2020 only strengthened in Q4.
For the fourth quarter most of our portfolio companies
exceeded their quarterly targets, reflecting both their
accelerating development and signalling that enterprise
customers are back in buying mode.
Device Authority
At Device Authority we saw the further expansion and
development of its relationship with Microsoft. Adding some
key integration and complimentary value to the Microsoft
Azure platform in the Azure Marketplace has resulted in
securing joint customers using these new capabilities.
Device Authority showed year-over-year turnover growth
with some key sales wins in the healthcare, industrial and
automotive markets, working with Microsoft Azure, Wipro
and nCipher (now EnTrust) as key technology partners.
Device Authority also continued to build its brand and
platform recognition, via commentary in a number of
important analyst and industry reports from firms like
Forrester and the SPARK matrix report from Quadrant.
We expect Device Authority to continue to accelerate its
annual recurring revenue growth with its subscription base
and its new modularised license platform, KeyScaler. As
we return to the new normal, Device Authority plans to
expand and grow its resources in North America and the
EMEA markets during 2021. Healthcare and industrial,
with a focus on automotive, continue to be the primary
areas for investment and growth, whilst continuing to build
and expand its Microsoft Azure partnership and providing
additional value to its customers with new KeyScaler
Azure innovations during the year.
InVMA
InVMA strengthened its senior management team in mid-
2020 with the addition of Peter Stephens, an experienced
leader of applications software companies, as CEO. We
believe Peter is the right person to lead InVMA’s evolution
to a product centric business. During 2020, InVMA began
to scale up its Industrial IoT connected asset SaaS
product, AssetMinder®, from several initial pilot customers
to create product adoption momentum moving into 2021.
InVMA is now experiencing expanded interest from much
larger industrial customers who are looking to connect
large numbers of assets to AssetMinder®, particularly as
the COVID-19 crisis accelerated the need for contactless
monitoring of factory and remote assets.
InVMA has also expanded its go-to-market capabilities. It
began the year selling through one channel partner and
expanded through 2020 to sales now via four channel
partners across Europe and the USA. Entering 2021, its
sales pipeline is an order of magnitude greater than it was
at the beginning of 2020, creating the opportunity for the
expansion of revenues and the global deployment of
AssetMinder®, through both new and existing users.
FundamentalVR
At our portfolio company FundamentalVR, we
experienced the most impact from the global pandemic,
as it changed the priorities of care, but also impacted the
delivery and adoption of new procedures and medical
devices. Traditional methods no longer worked in a
contactless world and we believe will not in the ‘new
normal’ as the crisis dramatically accelerated the plans for
an adoption of digital methods. In the second half of 2020
FundamentalVR experienced expanded interest in its
platform from new customers and repeat sales to its
existing customer base. The most significant use for
FundamentalVR was to provide pharma and medical
companies’ customers continued and active engagement
with their medical user base. Showing great agility,
FundamentalVR launched its unlimited multiuser remote
collaboration capability 'Multiuser VR' to train the
customers’ sales forces and create master class
capabilities, activities that were previously done face to
face. FundamentalVR has experienced strong interest
and adoption of its platform as a result, having had a
record
the year,
FundamentalVR also launched into the ophthalmology
marketplace utilising its precision HapticVR capability,
showcasing this breakthrough simulation technology with
Novartis and Orbis. We believe this very specialised area
of surgery, requiring unique instruments that need a high
degree of feel by a surgeon, is an important proof point
for the haptics capability developed by FundamentalVR
and a potential game changer for the precision procedure
healthcare markets.
in 2020. During
fourth quarter
We believe the adoption by the market will accelerate in
2021 as FundamentalVR’s customers and its competitors
need to quickly replace the traditional methods of
distribution and training. FundamentalVR was also
successful in expanding the recognition of its brand and
relevance to the market. During 2020 FundamentalVR
became the first and only Haptics VR simulation business
to achieve full centre accreditation with the Royal College
of Surgeons as well as procedure accreditation (for its
orthopaedic procedures) from the American Academy of
Orthopaedic Surgeons. The recognition of the quality of
FundamentalVR’s simulation and education content from
these two groups are significant proof points of its platform
and its importance to the business of medicine and the
opportunity to generate better patient outcomes.
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CEO’s Statement
For the year ended 31 December 2020
IoT module, securing
Wyld Networks
Wyld Networks made important progress in 2020 with the
continued commercialisation of Wyld Connect,
its
terrestrial LPWAN
further
commercial deals with existing and new customers,
specifically addressing one of the issues hampering the
growth and roll out of IoT applications, notably a lack of
affordable global wireless connectivity. As a result, Tern
recognised an increase in fair value of £2.6 million at
31 December 2020 to take its holding valuation to
£4 million, which was supported by an external fundraise
valuation post year end. During the year, Wyld signed a
contract with a large global satellite operator to jointly
develop a hybrid satellite and terrestrial LPWAN IoT
Module with the ambition to create an affordable, easy to
implement, commercial solution for deployment in 2021
connecting IoT devices and sensors directly to a Low
Earth Orbiting (LEO) satellite constellation.
Wyld also launched Wyld Mesh and Fusion in 2020, which
is a unique solution for delivering location aware, relevant
and actionable content over 4G, WiFi and mesh networks
for a range of applications in retail, venues, hospitality,
transportation and smart factories. In light of the COVID-
19 pandemic, Wyld pivoted the deployment of Wyld Mesh
and Fusion during the year to also provide a solution to
manage, monitor and alert social distance practices in
healthcare and education. We believe this to be a critical
benefit for governments and healthcare and we remain
steady in our belief that the traditional market application
for Wyld Mesh and Fusion will be realised as retail, large
venues and hospitality emerge back to business in the
‘new normal’ during 2021.
the globe
During the second half of 2020, Wyld Networks
successfully adopted a go-to-market strategy of using
resellers across
to help promote and
commercialise Wyld solutions. Wyld signed reseller
agreements with multiple parties including ASCOM, a
global ICT solution vendor, Alliance Corporation based in
North America and Wezen in LATAM. These are
significant proof points of the global appeal and relevance
of their products and create a large force for their revenue
generation efforts.
recent
Talking Medicines
investment
Talking Medicines, our most
undertaken in November 2020, embarked on the pivotal
final developments to create proprietary AI, ML and NLP
models to capture and translate what people post about
their medicines on social media into medical speak. This
work has been completed, market tested and has also
resulted in filing a patent for its breakthrough IP.
Based on feedback from paying pharmaceutical customers
in 2020, the data offering from Talking Medicines, including
AI capabilities, has now been launched as the new
PatientMetRx service providing AI driven social intelligence
by medicine. Talking Medicines has enhanced its branding
and is phasing a global launch to commercial marketeers
in pharmaceutical companies.
Following investment by Tern in November 2020, I have
joined the Talking Medicines board as non-executive
chairman and with our early capital the employee base
has been strengthened with key hires in product
management, engineering and data quality.
Talking Medicines’ ambition in 2021 is to establish the
PatientMetRx data service as the gold service standard
provider of intelligence on patient experience by medicine.
Driven by its specialised AI, it has the goal of driving better
patient outcomes and a better understanding of the use of
the specific medicines by the prescribers and distributors.
-
for
Investing
Strategy and opportunity
future growth
Our goal remains to become the leading investment
company specialising in the IoT sector by unlocking
disruptive opportunities others overlooked or did not have
the expertise to develop to deliver significant returns for
their stakeholders and Tern shareholders. These private
companies are generally investments not available to
public company investors. We also bring our years of
experience and our network of contacts, including our
direct access to the Silicon Valley ecosystem. We provide
more than money and work to become trusted mentors
for our entrepreneurs to help stimulate ideas that can
prove to be the difference between a company flourishing
or crashing. As a key pillar of our strategy, we provide
battle-tested knowledge of how to tackle startup issues
and work constructively with our entrepreneurs to help
focus or pivot their business to achieve repeatable growth
and category leadership.
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8
CEO’s Statement
For the year ended 31 December 2020
An important element of our investment strategy focuses on
creating deal flow from the entrepreneur community, the
wider IoT ecosystem and other investors with similar
interests. We aim to find the most innovative private IoT
technology companies in the UK with the potential to
become global leaders. The Tern team reviews hundreds of
companies’ business plans a year and takes a more in
depth look at about ten to fifteen with enterprise values less
than £10 million. We generally seek to invest in product
proven UK IoT technology companies with customer
validation to mitigate the product development risks. As part
of our strategy to build value, we start with a small initial
investment at the seed or late seed stage round with
typically
mutually agreed performance
participate in follow-on A series round, where we target
bringing in new investors. Investment in this manner
enables the Tern team to utilise its experience to help
professionalise the management team with key hires at an
early stage, provide access to potential customers, partners,
future sources of capital and potential acquisitions.
targets. We
How we decide on which companies pass through our
filter process centres on leveraging the deep technological
knowledge of the Tern team and its advisors to identify
those companies we believe to have and use market
disruptive technologies that will create value over a time
horizon of the next five years or more.
Our approach takes a market sector view and then rather
than researching industries or specific products, we focus
on understanding the game changing technologies that will
create sustainable growth by the start-ups that deploy them.
We are focussed on two broad market categories,
healthcare and industrial IoT, because of their strategic
importance to governments and society. The significance
of which was highlighted by the pandemic and high profile
cyber security breaches.
These two sectors also represent fast growing markets
with the greatest total available market of installed devices
and the critical applications that use them. For example:
Healthcare:
• The IoT healthcare market size is projected to reach
US$534.3 billion by 2025, expanding at a CAGR of
20% between 2019 and 20251
Industrial:
•
The global Industrial Internet of Things (IIoT) market is
expected to reach a value of US$110.6 billion by 20252
Tern divides its analysis of these by technology, not sector,
as both are leading the way in digital transformation. This
transformation is led by the key market drivers of society’s
desire for a better environment, governments’ desire to
recapture control of strategic industries and large
their customers’
enterprises’ desire
improve
to
1. Grand View Research, Inc, March 2019
2. Marketsandmarkets, Industrial IoT (IIoT) Market by Device & Technology
(Sensor, RFID, Industrial Robotics, DCS, Condition Monitoring, Networking
Technology), Connectivity (Wired, Wireless, Field Technology), Software
(PLM, MES, SCADA), Vertical, Region - Global Forecast to 2025
experience. At Tern we are seeking out entrepreneurs who
share our passion for change and who lead businesses
that use technology to create differentiated positioning.
Using our experience, advisors, and network of contacts
we centre our interest in the following areas of technology
that we believe will help shape the future of healthcare
and the modern industrial world.
Tern’s current five areas of primary interest are:
1) Cryptographic innovations in credential management
and blockchain;
2) Next generation internet access and distribution of
data and services;
3) Autonomous action from machine learning (ML),
natural language processing (NLP) and artificial
intelligence (AI);
4) Autonomous process
control and
condition
management/monitoring; and
5)
Innovations in haptic and human sensory applications
and devices that measure (collect data), instruct and
improve targeted outcomes.
Each area is abounding with companies that are seeking
to develop paradigm-changing technologies. At Tern, we
are looking at and investing in the very few who we believe
have passionate leadership, a clear market changing
ambition and position, with global aspirations. Keeping to
our broad five-year horizon, we believe the Tern portfolio
today is diversified across sectors and geographies, using
technologies in novel and ground-breaking ways that are
relevant and will be attractive to much larger enterprises
who need new sources of revenue from state-of-the-art
products and services.
We remain one of a small number of companies with the
resources to provide support to early-stage businesses to
help them succeed and benefit from the key technology
trends, particularly as part of the post COVID-19 recovery.
We are continuing to see a strong pipeline of exciting
opportunities and look forward to maintaining our patient
and targeted investment process.
Our portfolio holdings are held at fair value, with the value
created unlocked in time through third-party investments
and ultimately the exit from our holdings.
Sustainability
Central to our business philosophy is to do the right thing
in every facet of our business. We are committed to
further
social and
governance best practice into our own operations and
those of our investee companies, building on our existing
business culture.
incorporating environmental,
We enter the new financial year with a resilient and tested
portfolio and remain optimistic to carry the positive
momentum generated in the second half of 2020 across
the portfolio into the new year.
The Tern team, further strengthened during the year with
the appointment of Matthew Scherba as an investment
director, remains committed to building a portfolio of
exceptional companies to deliver above average value
creation to our shareholders.
Key to our progress was and will be the stewardship of
the Tern team to help mobilise our investee companies to
leverage their synergies alongside their customers and
partners to face the crisis and to become more relevant.
The Board remains confident about the long-term
prospects for the company and our portfolio and would
like to thank both our new shareholders and long-term
holders for their support and confidence in our business
model and our companies.
Albert Sisto
CEO
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CEO’s Statement
For the year ended 31 December 2020
The Board is committed to the importance of ESG and
has made ESG a standing agenda item at our Board
meetings with the goal of emphasising ESG best practices
in our portfolio and new investments. The Board is
to generating positive change and
committed
sustainability both in our own business and within our
approach to new investments and our existing portfolio
companies. With a focus on IoT, specifically healthcare
and industry 4.0, our portfolio companies continue to
address some of the world's biggest challenges by
contributing to a healthier, more environmentally friendly
and energy efficient society. As an investing company
focused on the innovative uses of the key elements of IoT,
AI, ML, VR-haptics and security in the healthcare and
industrial markets, ESG is a critical consideration to
meeting our objective to outperform the traditional venture
capital models by achieving above market-rate financial
returns. By extending our ‘hands on’ model to ESG
management, we believe we will achieve an added
synergy to our portfolio resulting in improved productivity
and better customer outcomes for our target segments.
We believe our strategy of finding and developing the
best-in-class entrepreneurial
IoT companies and
technologies, enhanced by our commitment to ESG will
enable Tern to deliver positive economic, social and
environmental impacts, through our investments, that help
transform our societies for the better.
Summary
We are pleased with progress made by our portfolio
companies during these very difficult and uncertain times.
The Board believes the pragmatism developed early on
during the pandemic to sharpen the focus and resources
on key markets and customers will accelerate the trend
to the cloud and contactless solutions for healthcare and
industry which our portfolio businesses focus on.
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Our Markets
The pace of IoT adoption is accelerating,
requiring scalable solutions which
enhance service delivery, increase
security and facilitate the delivery of
real-time data.
Investing in the future
We are focused on the market opportunities created by
the enablement of the Internet of Things (IoT), particularly
in the healthcare and industry 4.0 segments. These are
market segments where our team’s years of experience,
specific domain expertise and involvement as technology
entrepreneurs can be leveraged and where the vast
majority of installed devices and applications are in use
as a subset of the ‘all in’ IoT market described below.
Key Market Drivers
Hardware Advancements
• The devices that power IoT solutions are growing
more affordable each year, allowing solutions to
proliferate. The average price of an IoT sensor could
fall below US$0.25 by 2025 according to data from
Goldman Sachs and Business Insider Intelligence
(March 2020). These devices benefit from efficiencies
of scale and improved procedures as the IoT has
matured and gone from niche use cases to a widely
adopted business practice.
• The continued development of lower-powered IoT
devices with minimal or no battery requirements which
do not need to be replaced or updated, make it simpler
to deploy and manage IoT systems in the field.
Our focus on healthcare and medical is driven by the
opportunity size. The global internet of medical things
(IoMT) market is expected to grow to US$142.45 billion in
2026, up from US$18.75 billion in 20183 and the industrial
IoT
from
US$77.3 billion in 2020 to US$110.6 billion by 20252, a
CAGR of 7.4% over the period.
(“IIoT”) market
is expected
to grow
Our Definition of the IoT
IoT is the combination of hardware and software with the
internet to create a more technically driven environment to
improve outcomes, reduce costs, increase safety, and
provide for better operating environment insights and
decision making. IoT is a network of internet-connected
digital devices and the applications that employ them. These
devices’ purposes are to collect and exchange data using
the various sensing technologies embedded within them.
IoT Market Overview
The global IoT market is expected to reach a value of
US$1,386 billion by 2026 from US$761 billion in 2020 at
a CAGR of 10.53%, during the period 2021-20264. IoT
systems and solutions are iterating rapidly, and providers
are meeting more and more companies' and consumers'
needs. Business Insider Intelligence expects there to be
more than 41 billion IoT devices in use worldwide by 2027,
up from an estimated 8 billion at the end of 2019.
This growth is due to the advances in new technologies
in various wireless networking products, the refinement of
artificial intelligence (AI) and machine learning (ML)
technologies, the application of augmented and virtual
reality, the emergence of advanced data analytics, an
increase in cloud platform adoption and the adoption of
new cyber security technologies. As a result, we believe
the market will continue to grow for many years.
2. Marketsandmarkets, Industrial IoT (IIoT) Market by Device & Technology
(Sensor, RFID, Industrial Robotics, DCS, Condition Monitoring, Networking
Technology), Connectivity (Wired, Wireless, Field Technology), Software
(PLM, MES, SCADA), Vertical, Region - Global Forecast to 2025
3. Fortune Business Insights, 2019
Networks Advancements
• There has been a proliferation of mesh networks where
multiple devices are connected to one another on a
mesh network. Each device acts like a router, spreading
data around for transmission to create multiple
pathways to move data from device to server. This
makes the network resilient even if some devices fail.
• The rollout of low power wide area networks
(LPWANs) continues. These IoT-specific networks will
enable more efficient devices to be employed in
accelerating numbers. These networks will support the
growth of the cellular IoT, with Ericsson forecasting
that LPWAN technologies NB-IoT and LTE-M alone
will account for 52% of the estimated 5 billion global
cellular IoT connections by 2025.
Platform Advances
• Keeping solutions secure is one of the top challenges
facing all IoT providers of devices, networking, and
applications. Companies using large-scale enterprise
solutions need to know that their operations will
continue unhindered, that the integrity of their devices
remain unaltered and their data will stay where it is
supposed to remain. Consumers likewise want
devices to maintain their privacy and only share
information with those they authorise.
4. Mordor Intelligence 2019
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Our Markets
Summary
Tern continues to seek out new investment opportunities
and help guide our existing portfolio within the backdrop
of adoption of IoT technology across the industry 4.0 and
healthcare segments. These are driving market growth
and by applying this market focus, develop a fast-growing
portfolio of investments. Both segments are at the
forefront of a digital transformation resulting from IoT
advancements and their response to COVID-19 that are
fuelling the next industrial and medical revolution centered
around intelligent connectivity.
IoT for Industry 4.0 is at the apex of new technological
approaches and products for development, production,
and plant management. Entrepreneur led companies are
leveraging these massive shifts in manufacturing and are
helping large enterprises adopt agile, smarter, and more
innovative ways to advance, with technologies changing
the way industries approach increasingly complex
processes to improve efficiency and reduce downtime.
Moreover, owing to the outbreak of COVID-19, IoT
in
investment and deployments are accelerating
healthcare. The major disruptions in global healthcare and
supply chains, governments, hospitals, insurers and
logistics providers have accelerated
the digital
transformation as they react quickly to a more connected
world in the new contactless normal. Every aspect of the
healthcare industry has had to find new ways to develop
and deliver products to providers of medical services and
in kind, provide the care givers new ways to maintain and
improve their level of services, creating new opportunities
for entrepreneurs.
IoT technology helps connect smart devices together to
ease the operation and sharing of data. The increasing
number of smart devices, such as sensors, smartphones,
and wearables, which collect necessary data from
the devices are
to enhance
patients’ experiences.
further utilised
We remain steadfast in our goal to become the
pre-eminent UK-based choice for access to smart capital
to help and guide these companies on the journey to
success. Our success will be driven by our years of
experience, broad network of contacts and our hands-on
approach, coupled with the synergies existing within our
portfolio. Our specific IoT market focus enables Tern to
harness the value created to provide our shareholders
access to great companies and returns.
Technology Advances
• Artificial
Intelligence
(AI), Natural Language
Processing (NLP) and Machine Learning (ML) are
critical systems technologies that are rapidly evolving
to provide IoT users with the tools they need to
analyse mountains of data and quickly discern usable
insights, while edge computing solutions are growing
more central to IoT discussions and increasingly
sophisticated as companies seek to reduce data
transmission costs and lower latency.
Venture Capital Market
UK and European Investment Ecosystem
UK and European investments have continued to gain
interest from a global perspective, as the number and size
of deals continues to increase. There has also been an
increase of high-growth businesses, with 2020 creating
18 new US$1 billion companies in Europe5. Although exit
numbers still trail those of US-based companies, the UK
and Europe is now producing unicorns as quickly as the
US, with seed funded companies across both regions
having ~1% chance of reaching these valuations.
The UK and Europe continues to gain technological
presence on the global stage, where historically the
fintech and insurtech sectors were the primary focus.
Companies developing AI, Big Data and NLP solutions are
seeing increased investment, in addition to remote
monitoring and intelligence driven solutions in the
healthcare sector. Early-stage valuations are also lower
in Europe compared to their US counterparts, however
this gap continues to close as more capital invests in
these sectors.
Following a dramatic slowdown in the first half of 2020,
UK and European venture investments picked up again
in Q3 and Q4, putting 2020 only 4 percent lower6 in
aggregate, and at comparative levels to 2019 for
early-stage investments. The fourth quarter last year,
which is typically a slower funding period due to the
holiday season, was the strongest quarter over the past
two years. It was also the second highest funding amount
by year into European startups over the past decade.
Seed funding amounts in European startups have been
fairly consistent over the past five quarters, with the value
per investment increasing as the number of deals has
declined.
5. Dealroom.co
6. Crunchbase news
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12
Investment Strategy
For the year ended 31 December 2020
Investment
Technology
Early-Stage
Opportunities
Tern provides individual and institutional investors with
early access to emerging IoT technology businesses
through our growing portfolio of visionary technology
entrepreneurs that we back with capital and support,
helping them to realise their goals of revolutionising some
of the most important challenges across the biggest
industries in the world.
We offer an alternative approach to venture capital,
typically leading late seed, early series-A stage equity
rounds where we are often the first professional
investment that companies receive, combined with active
operational and board-level support from our decades of
experience in growing businesses that improves their
chances of success. We make a small number of
investments, so that our collaborative model of applying
experience and expertise empowers entrepreneurs to
connect the dots between vision, strategy, product and
commercial market growth. We inspire the development
acceleration of their products, propositions and entry into
the UK, European and US markets, combined with
increasing access to further global capital to facilitate
scale. Tern’s alternative support model extends from our
initial investment through to exit.
We source deals across the UK and Europe, as the
European technology ecosystem continues to grow in
global influence. We proactively identify technology that
solve the big challenges of shaping the future from across
our expanding network of start-ups, strategic corporates,
investors, institutions and universities. Breakthrough
technologies have no borders, and we leverage our global
networks to accelerate our portfolio’s market entry across
the UK, Europe and the US.
We embrace the diversity, skills and capabilities of
entrepreneurs, adapting our support to suit each
company’s specific requirements for achieving their
ambitious goals. Our strategy is dynamic, enabling the
agile transformation that companies will experience as
they evolve and expand. The ability to rapidly adapt in
unfamiliar markets
leadership
opportunities, as 2020 has reinforced.
creates market
Our early-stage strategy enables Tern to take meaningful
positions, incrementally invest and become strategically
and operationally involved to catalyse the growth. This
balanced approach is designed to invest in technology
businesses at the stage of minimum viable product with
customer validation to help reduce technology and market
risk, while still enabling Tern to acquire meaningful equity
positions. The typical investment horizon for early-stage
investments in our sectors is 5-7 years for companies to
reach their full potential, unlocking their value in the form
of an IPO or trade sale. While realising exits is seldom
linear, the maturity of our portfolio is well balanced across
these investment horizons.
We continued to identify and investigate exceptional new technology companies, as our investment funnel shows.
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Investment Strategy
For the year ended 31 December 2020
To identify possible investments, Tern reviews hundreds
of propositions to discover those with the best potential.
While Tern made only one investment with Talking
Medicines in 2020, it was not a normal year, and the
impact had a number of
exogenous Covid-19
unprecedented effects:
1.
Investments in Q2 and into Q3 were significantly
curtailed across venture capital
2. The UK and EU Governments created significant
access to easy capital in the form of grants and loans
3. Sector valuations rapidly and widely shifted
The companies that Tern has reviewed in 2020 proved
incredibly varied across geographies and sectors. We
received opportunities from 30 countries, with the UK and
EU (including
for nearly 80%.
Healthcare and IIOT were the top sectors, with a number
of companies converging across sectors, as with our
investment in Talking Medicines. Many of the companies
were globally topical, and of relevant interest to Tern.
Israel) accounting
that
technologies
IoT, including deep tech sectors
Tern’s investments are focused on IoT including deep tech
enablement
leverage Artificial
Intelligence (AI), Machine Learning (ML), haptics, virtual
reality and Natural Language Processing (NLP). It is our
belief that these are the strategic sectors at the forefront
of innovation, where technology can have the biggest
global impact. These sectors have also experienced some
of the most significant growth during the global pandemic,
where sensing, remote monitoring and intelligence has
proven more relevant than ever before. Tern’s directors
have decades of professional experience across their
sectors, providing portfolio companies with the industry
expertise, insights and global networks to fuel their
growth.
2020
2020 changed the way we live and work beyond
recognition. It was a year of extremes, completely halting
some sectors, while unimaginably accelerating other
technologies and sectors in unanticipated ways. As with
most venture capital firms, our primary focus during the
first half of 2020 transitioned to supporting existing
portfolio companies in an unknown environment, with
indeterminate timelines and a new dynamic of working
and collaborating. We increased our efforts to:
• Support existing portfolio companies and strengthen
their market position
•
•
Facilitate
communication between portfolio companies
knowledge
broader
sharing
and
Further develop our strategic model, and network, to
support our ability to scale
• Maintain
investment valuation discipline, and
strengthen our methodologies and due diligence
process
Although the impact of COVID-19 affected Tern’s 2020
planned
to our
engagement with disruptive early-stage technology
companies continued unabated.
investment strategy,
impact
the
2021 Opportunity Landscape
It has already been an encouraging start to 2021, as Tern
continues to see healthy deal flow of innovative
companies across our key investment sectors, that will
continue to drive shareholder value and are thematically
complimentary to our existing portfolio.
We continue to unearth progressive entrepreneurs with
the creativity, global vision and determination to solve big
challenges differently. Those with the vision and grit to roll
up their sleeves and do what it takes to succeed, yet with
the humility to know they cannot get there alone.
Founders who can develop defensible proprietary
technology, and build progressive team cultures that are
collaborative, purposeful and inclusive. Those that know
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Investment Strategy
For the year ended 31 December 2020
technology will fundamentally change the world, but
understand that succeeding is a marathon not a race, so
come prepared with
intellect, resiliency and
resourcefulness to endure.
the
Strategic Areas of Investment
The last year has reinforced Tern’s market positioning with
investing in early-stage IoT innovation, including deep
tech, that is addressing the needs of the sustainable future
economy in vital sectors such as healthcare and industrial
4.0. Global behaviours are shifting, and as the focus on a
more sustainable economy and carbon neutrality
continues to gain momentum, it will be increasingly driven
by technological innovation.
Proactive Sourcing
Over the past year, Tern has proactively increased its deal
sourcing capability, by strategically identifying new market
opportunities, growing referral networks and participating
in innovative new programmes that align with global
themes, such as Tern’s acceptance on Innovate UK’s
Transforming Food Production Partnership Programme.
We are working with Innovate UK, as part of UK Research
and Innovation, in an innovative matched funding
programme specifically designed for start-ups developing
technologies that are working towards net zero emission
productive food systems addressing one of the United
Nation’s Sustainable Development Goals of transforming
food production.
Healthcare has also been a sector of focus for Tern’s
proactive sourcing activity, as COVID-19 has dramatically
accelerated this sectors transition. Digital transition
creates a continuous stream of new opportunities, and the
pandemic has only accelerated this trend which from our
view is a permanent shift to the way healthcare will be
delivered in the future.
Funding Ambitious UK and EU Companies
We review hundreds of companies to invest in the most
ambitious entrepreneurs reimagining innovation, offering
Tern’s shareholders with early access to the next
generation of global leaders. Our investments provide the
necessary capital for rapid early development, and
combined with our operational model,
the
necessary structure, capital controls, and processes that
are foundational to building scalable businesses. Seed-
stage investments require patient capital, as companies
and markets mature, they will invariably require further
capital to fuel their next stage of growth. Tern aims to
follow our investments on subsequent rounds, led by other
syndicated investors. This strategy aims to mitigate the
risks of early stage investing, while maximising the value
of our investments for shareholders and enabling our
portfolio companies to realise their full growth potential
through to acquisition or IPO.
instils
Operational Support
Tern invests more than just capital, we bring decades of
deep sector strategic and operational expertise in
providing the connections, guidance and support that
early-stage companies require. We typically take a board
seat to guide strategy, structure and financial controls, and
then provide the hands-on support to help them tactically
execute. Our model
leverages our decades of
entrepreneurial domain experience to accelerate the
development of disruptive products and services to create
market advantage that fuels rapid adoption across the UK,
European and US markets.
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Investment Strategy
For the year ended 31 December 2020
Global Network
Our global network extends from our careers in IoT and
deep tech sectors and includes engagement from sector
leaders who challenge conventional thinking and offer
early insights that shape global trends. By maintaining
these strong links with strategic corporates, partners and
investors across Europe, the USA and into Asia, we help
our portfolio companies accelerate their international
growth and reducing the time, effort and risk into
understanding product market fit, growth channels and
next round funding. Our cross pollination of knowledge
and expertise internally between our portfolio companies
has continued to increase collaboration, collective-thinking
and leadership, which has been even more relevant over
the past year.
Investment Criteria
We invest in visionary seed-stage founders, as these are
the sectors of our domain expertise and where we believe
the most significant future opportunities will emerge. We
invest in:
•
IoT,
including deep
pre/at-revenue stage;
tech, companies at
the
• who have the innate drive to create imaginative
technology solutions that solve meaningful global
challenges;
•
•
that can build motivated teams that are able to
tactically execute on a global scale; and
understand the value of our support model that
extends from initial investment through to exit.
Our investment focus is on B2B companies in the IoT
sector using advance technologies to create disruptive
opportunities, particularly in the areas of healthcare
and industrial.
regions. The breadth of our connections across the UK,
Europe and the USA, form robust community to develop
rewarding, responsible and sustainable global companies.
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 technology as having considerable
growth potential for the foreseeable future and many of
the prospects they have identified are in this sector. The
Company holds investments in six investee companies,
five of which comprise the portfolio companies and the
directors believe there are further opportunities to invest
in and acquire established technology 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 technology businesses, which the
directors intend to continue; this will not preclude the
Company from considering investment in suitable projects
in other sectors where the directors believe that there are
high-growth opportunities.
The directors believe the main driver of success for the
Company is the expertise that can be provided by the
directors to the management involved in its investee
companies and the value creation that the team of people
is capable of realising. The Company is, and intends to
continue to be, an active investor. Accordingly, it has
sought and may seek
investments,
representation on the board of investee companies.
future
in
Geography
We invest in the UK and Pan-European, operating from
both London and Silicon Valley, with a focused investment
thesis that supports portfolio growth primarily across these
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 portfolio
companies and take up these opportunities. It is the
intention of the directors to undertake further fundraising,
if such an opportunity should arise. The Company’s
investments may take the form of equity, debt or
convertible instruments. Investments may be made in all
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16
Investment Strategy
For the year ended 31 December 2020
types of assets falling within the remit of the Investing
Policy and there will be no investment restrictions.
•
The directors may consider it appropriate to take an equity
interest in any proposed investment which may range
from a minority position to 100 percent ownership.
Proposed investments may be made in either quoted or
unquoted companies and structured as a direct
acquisition, joint venture or as a direct interest in a project.
The Company has made investments and will seek further
investment opportunities which can be developed through
the investment of capital or where part of or all of the
consideration could be satisfied by the issue of new
Ordinary Shares or other securities in the Company. The
investments the Company has made and any new
opportunities have, or would generally have, some or all
of the following characteristics, namely:
•
a majority of their revenue derived from technology or
the use of technology, 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
further
investment
investigation is required, intends to appoint appropriately
qualified advisers to assist.
targets and where
it believes
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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Financial Review
For the year ended 31 December 2020
During the year ended 31 December 2020, Tern has
continued to build on the strategy of providing investors
with access to some of the best private IoT technology
focused companies in the UK. The year was impacted by
COVID-19 related uncertainty and an increased risk level,
particularly early in the year. However, the Company and
its portfolio companies acted prudently to preserve cash
reserves and finished the year with a strong final quarter
as strong traction emerged across the portfolio. During the
year the Company successfully completed three equity
fundraises, including a PrimaryBid offering and our
portfolio companies continued to progress, including an
external fundraise and significant value uplift for one.
New equity capital of £0.8 million was raised in March
2020 to strengthen the balance sheet and was fortuitously
timed just before the beginning of the lockdown in the UK,
providing a strong balance sheet to manage the
uncertainty faced by the Company and its portfolio
companies. The portfolio companies weathered the worst
of the uncertainty well and emergency funding was not
required. In July 2020, a further £1.5 million was raised
which enabled a £0.9 million investment in Talking
Medicines in early November 2020. In November 2020 a
further £2.2 million was raised, £0.5 million of this via
PrimaryBid, enabling all shareholders to participate in the
fundraise. With a strong balance sheet, the Company has
been able to maintain its influential holding at its existing
portfolio companies and invest in a new portfolio company
in a key area of focus for the Company as well as continue
to progress pipeline opportunities with credibility.
As an investment company, Tern does not consolidate the
results of its portfolio companies and instead holds the
companies on the balance sheet as assets. The fair value
of these assets is assessed at the balance sheet date with
reference to previous fundraises or investment valuation,
a comparison to transaction multiples in comparable
market sectors and an evaluation of the 2021 sales
pipeline.
The value of the Company’s investment holdings has
increased from £17.9 million at 31 December 2019 to
£21.9 million at 31 December 2020. The investment
valuation includes additional investments of £2.0 million,
“The Company and its portfolio
companies acted prudently to preserve
cash reserves and finished the year
with a strong final quarter as strong
traction emerged across the
portfolio”
including the addition of Talking Medicines and fair value
growth of £2.0 million. This primarily comprises a £2.6
million fair value gain for Wyld Networks offset by a £0.4
million exchange rate loss on the Device Authority
investment. Device Authority is valued in US dollars and
the pound strengthened during 2020 resulting in a £0.4
million exchange rate loss. This compared to a £0.6
million exchange rate loss in 2019.
Net assets increased by 27% to £24.0 million at
31 December 2020 (31 December 2019: £18.9 million)
and include a strong cash balance of £2.1 million. There
is no debt on the balance sheet.
Cash and cash equivalents increased by £1.1 million in
the year, ending the year at £2.1 million (2019:
£1.0 million). This was after £1.2 million cash used in
operations, £2.0 million invested in the existing portfolio
companies, £0.1 million from the sale of Seal Software
and a net £4.2 million raised through three equity
fundraisings.
of
and Statement
Income Statement
Comprehensive Income
Revenue from the portfolio companies remained fairly
stable at £151,159 (2019: £124,766). 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 increased to £2.1 million (2019:
£0.4 million) a £1.7 million increase compared to 2019.
This has been driven primarily by the fair value uplift for
Wyld Networks offset by foreign exchange losses on the
revaluation of the investment portfolio.
Overheads overall were fairly stable at £1.5 million in 2020
(2019: £1.3 million). This consisted of administration costs
of £1.3 million and other expenses of £0.2 million. The
administration costs included a £0.25 million increase in
directors’ fees compared to 2019. Matthew Scherba joined
in December 2019 and pension contributions and a
performance related bonus were paid to directors for the
first time. These increases were partly offset by the 20%
reduction in fees taken by all directors for six months of
260871 Tern AR pp12-pp21.qxp 07/04/2021 18:13 Page 18
18
Financial Review
For the year ended 31 December 2020
the year. This action was taken to ensure a strong balance
sheet was maintained during a period of heightened
uncertainty.
•
FundamentalVR: £3 million valuation (2019: £3
million): The investment value remains unchanged
and is held at fair value where the price of the most
recent valuation in October 2019 has been taken into
account;
• Push Technology: £34,205 valuation (2019: £34,205):
The investment is unchanged and valued at fair value
with the price of the most recent valuation taken into
account;
• Talking Medicines: £0.9 million valuation (2019: n/a):
This is a new investment in the year and is held at fair
value with the purchase value in November 2020
taken into account; and
• These investee companies are early stage businesses
in evolving 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 which
includes 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 2021 sales forecast. This valuation
has been supported by an independent valuation
undertaken this year.
The net assets of the Company at 31 December 2020
were £24.0 million (2019: £18.9 million). The net asset
value per ordinary share as at 31 December 2020 was
7.3p (2019: 7.0p).
Investee company turnover growth: the year-over-year
growth in the aggregate revenue of our portfolio
companies increased by 18% from 2019 to 2020 (27%
from 2018 to 2019) which provides an indication of growth
in the overall portfolio. This growth was achieved against
a backdrop of extreme uncertainty caused by the global
pandemic.
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:
Portfolio company employee number growth remained
unchanged from 2019 to 2020 (31% from 2018 to 2019),
highlighting a prudence in managing costs during a period
of risk and uncertainty.
Sarah Payne
CFO
Other expenses include costs relating to a share based
payment charge for options issued in 2019 and 2020 and
recharged legal costs to the portfolio companies which
increased in the year due to the acquisition of Talking
Medicines.
Events after the end of the reporting period
On 28 January 2021, it was announced that Wyld
Networks had completed a £0.75 million fundraise at an
increased valuation. The Company’s investment in Wyld
Networks is now valued at £4.1 million, which included an
additional investment of £0.15 million by Tern in this
round.
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 Tern Board and the details of performance
against these are given below.
The return on investments:
Unrealised fair value:
• Device Authority:
investment
£12.8 million
valuation
(2019:12.7 million): The valuation has increased due
to additional
the Company via
convertible loans, offset by a foreign exchange loss
when converting the investment to sterling. The fair
value has taken into consideration the most recent
fundraise in April 2016 and the valuation has been
independently verified this year;
in
•
InVMA: £1.2 million valuation (2019: £1 million): The
equity value of InVMA increased due to additional
investment in the company via convertible loans. The
investment is valued at a fair value which has been
based upon the most recent equity fundraise in
September 2017. This valuation has been assessed
as reasonable, taking into consideration the current
performance of the company;
• Wyld Networks Limited: £4.0 million valuation (2019:
£0.9 million): The equity valuation has increased due
to additional
the company via
convertible loans and a fair value uplift based on the
recent equity fundraise in January 2021;
investment
in
260871 Tern AR pp12-pp21.qxp 07/04/2021 18:13 Page 19
19
Business Risks
For the year ended 31 December 2020
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 weekly 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
rapid
technological change.
with
There may be a difficulty in creating
maximum value in a timely fashion
or difficulty
the
in
investment.
realising
The value of the Company’s holding
may fall.
Investee companies may be
in early stages of commercial
and
development
so
generation of
significant
revenues is difficult to predict
or guarantee.
Portfolio company management
is performing under par.
is unable
The Company
to
maintain its holding when the
investee
requires
company
significant additional funding.
The Company is unable to maintain
influential position and has
an
reduced influence over the strategic
direction and
timing of any
realisation event.
The portfolio is dominated by one
or two investments.
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
the strategic
in
direction of its investments and
regularly monitors performance. A
Company
a
director
non-executive board position on all
investment company boards where
the Company has a significant
(>10%) holding.
holds
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.
260871 Tern AR pp12-pp21.qxp 07/04/2021 18:13 Page 20
20
Business Risks
For the year ended 31 December 2020
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
and
requirements.
strategy
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.
Liquidity
The Company is unable to raise
new funds due to a reduction in
investor confidence or access to
capital.
The timing of portfolio company
realisations is uncertain and cash
returns
the Company are
therefore not predictable.
to
Reduction in ability to invest in new
opportunities or ability to maintain
holdings in existing investments.
May have detrimental impact on
fund
ability
Company’s
operational costs.
to
The Company will maintain a
sufficient cash balance to finance
itself for a prudent period or ensure
it has access to funds.
The financial performance of the
Company is a standing agenda item
at the Board and regular working
capital reviews are undertaken.
Legal and
regulatory
risk
UK exit from European Union and
ongoing trade negotiation.
New trade agreements 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
could fall.
Increased
competition
As the IoT sector becomes more
mature, it will attract increased
interest from entities competing
with the Company for investment
opportunities.
This may have a detrimental impact
on the Company’s ability to execute
investments at an acceptable cost.
The Company may lose investment
opportunities if it does not match
investment prices and terms offered
by competitors but equally it may
experience decreased rates of
return if it matches unfavourable
terms.
The Company monitors its working
capital to ensure it has sufficient
funds to maintain operations during
any economic slow down.
The Board has taken legal advice
on the Company’s exposure to
Brexit-related risks and continues to
monitor the impact of the trade
discussions.
The Company actively reviews the
value of
investments and will
consider action on foreign exchange
risk where relevant, following advice
from advisors.
The Company does not currently
operate hedging arrangements to
to currency
mitigate exposure
fluctuations, but relationships are in
place with foreign exchange service
providers in the event the Board
decides
such
to
arrangements.
make
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.
of
record
The management team has a strong
track
providing
opportunities in the USA for UK
technology companies which should
remain attractive
to potential
investors.
260871 Tern AR pp12-pp21.qxp 07/04/2021 18:13 Page 21
21
Business Risks
For the year ended 31 December 2020
Risk
Potential Impact
Mitigation Strategy
Shareholder
impact
As a public company listed on
AIM, anyone can acquire shares
in the Company.
The actions of shareholders are
outside of
the
Company but can impact on the
Company by association.
the control of
COVID-19
Economic impact of COVID-19
affects performance of
the
Company and
its portfolio
companies.
in
sickness
the
Widespread
workforce of the Company and/or
portfolio companies may reduce the
operational effectiveness of the
business.
Future lockdowns may cause the
closure or delay of customer
business and revenue streams
which
impacts on operational
activities of the Company and its
portfolio companies.
there
is an
the change
in ways of
Given
working
increased
reliance on IT availability, capability
and resilience for both the Company
and
companies.
Maintaining systems and having the
ability to resolve issues remotely is
critical.
portfolio
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.
The Company will maintain a
sufficient cash balance to finance
itself for a prudent period, or ensure
it has access to funds. Ongoing
close cooperation with the portfolio
companies ensures any impact on
operational effectiveness can be
mitigated by additional operational
support if required.
Due to the sectors of focus for the
Company operations, the impact of
COVID-19 is likely to be less acute
than for other sectors more directly
affected.
As a technology focused business,
the Company and its staff can
operate effectively from home for a
reasonable period of time. The
Company has a cloud-based IT
infrastructure and access to virtual
meeting facilities.
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 and a fortnightly roundtable with the Board and all the portfolio CEO’s;
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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22
Investment Report
For the year ended 31 December 2020
The Company’s current investment portfolio consists of the following investments, all of which are unquoted and
unaudited:
Portfolio Companies
Device Authority Limited (“Device Authority”)
Market segment: Internet of Things (IoT)
Fair value:
Consists of:
Cost: £7.4 million
Valuation: £12.8 million
Equity ownership: 56.8% ‘A’ shares, 12,406 ‘B’ shares
Convertible loan with a balance outstanding of £2.9 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 2021
trading forecast. The valuation has also been independently prepared and the value held falls within the range
provided in the independent report.
Device Authority is a global leader in Identity and Access Management (IAM) for the Internet of Things (“IoT”); focused
on the automotive, medical device (IoMT) and industrial (IIoT) sectors. Device Authority's KeyScalerTM platform provides
zero touch provisioning and complete automated lifecycle management for securing IoT devices and data at scale.
Their patented KeyScalerTM platform delivers unrivalled simplicity, flexibility and trust to secure IoT devices at scale,
with frictionless deployment across device provisioning, authentication, credential management, policy based end-to-
end data security/encryption and secure OTA and HSM updates. KeyScalerTM is system agnostic, and protects their
customers’ global IoT deployments at the edge, in the cloud and integrating into complex policy-driven requirements,
independent of the customers’ proprietary hardware and software environments. KeyScalerTM is deployed both direct,
and through key platform and system integrator partners such as Microsoft, Wipro, EPS Global/Intrinsic ID.
“Tern continues to be a supportive investor to Device Authority, leveraging industry contacts across our
focus sectors of automotive, industrial IoT and healthcare, spurring further growth opportunities. Over
the past 12 months as we all navigated the impact of COVID-19, the collaboration across Tern’s portfolio
of companies has also been insightful. With direct leadership from the Tern team, and the interaction
with the other senior leaders, the strategic discussions around the market uncertainties has helped to
clarify and progress into a ‘new normal’, and one focused on market relevance, growth and success.”
Darron Antill
CEO, Device Authority
For more information visit: www.deviceauthority.com
260871 Tern AR pp22-pp27.qxp 07/04/2021 18:14 Page 23
23
Investment Report
For the year ended 31 December 2020
InVMA Limited (“InVMA”)
Market segment: Sensor based applications
Fair value:
Consists of:
Equity ownership: 50%
Cost: £1.2 million
Valuation: £1.2 million
Convertible loan with a balance outstanding of £0.2 million
Valuation is based on a combination of factors including an assessment of sales pipeline and 2021 trading forecast.
InVMA helps industrial and manufacturing companies prosper by converging their physical assets with new
transformational digital insights. InVMA’s AssetMinder® is a modular, industry 4.0, IoT SaaS platform, using a wide
range of analytical tools and AI and machine learning algorithms to connect up whole factory floors and processes as
well as managing resources into and out of the factory. AssetMinder® assesses the effectiveness and efficiencies of
entire operations, putting customers in control of their assets and therefore directly impacting productivity, efficiency
and business outcomes.
“Tern continues to be a valued partner and trusted advisor to InVMA as we launch and expand our
AssetMinder® SaaS Industrial product into new verticals and into new international markets. Tern has
been with us every step of the way with sound advice, drawing on very relevant experience and helping
InVMA to professionalise our business further and to deliver a robust B2B SaaS offering. We have
been pleased with Tern’s valuable contributions on our board as well as the input from the greater Tern
team on a range of commercial, strategic, technical, fundraising and operating considerations in various
portfolio working sessions and fortnightly Tern and portfolio CEO meetings. Tern has a very good
foundation when advising companies at our stage of development and they have provided tangible
value to us on a consistent basis. We believe our future is bright with the support of Tern.”
Peter Stephens
CEO, InVMA
For more information visit: www.invma.co.uk.
260871 Tern AR pp22-pp27.qxp 07/04/2021 18:14 Page 24
24
Investment Report
For the year ended 31 December 2020
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. Their proprietary HapticVRTM platform replaces wet labs and cadaveric training with remote,
collaborative training to accelerate life science product adoption.
“Tern’s decision to provide seed finance and series A support provided FundamentalVR the funding to
enhance our platform and create a market leading solution for Life Science companies. Whilst
COVID-19 initially impacted the medical marketplace, FundamentalVR has seen strong demand in
2020 and this momentum has carried forward into 2021.
We are making significant progress in our mission to deliver highly effective HapticVR solutions for our
clients to aid in their faster deployment of cutting edge surgical and pharma medical procedures.”
Richard Vincent
CEO, FundamentalVR
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: 97%
Cost: £1.3 million
Valuation: £4.0 million
Convertible loan with balance outstanding of £1.3 million:
Valuation is based on a combination of factors including an assessment of sales pipeline, 2021 trading forecast
and 2021 fundraise.
Wyld Networks mission is to develop and market innovative solutions to create global and affordable wireless
connectivity for people and things, from connecting IoT devices in hard-to-reach areas with satellite IoT solutions to
connecting smartphones together in mesh networks without the need for WiFi or 4G.
“Tern brings not only the funding that allowed us to focus unhindered on executing and successfully
delivering on our strategy; but also a wealth of real world experience in building companies from start-up
through to scale-up, providing operational support and access to a unrivalled rolodex of industry contacts.”
Alastair Williamson
CEO, Wyld Networks
For more information visit: www.wyldnetworks.com
260871 Tern AR pp22-pp27.qxp 07/04/2021 18:14 Page 25
25
Investment Report
For the year ended 31 December 2020
Talking Medicines Limited (“Talking Medicines”)
Market segment: Data distribution software
Equity ownership: 23.4%
Cost: £860,000
Valuation: £860,000
Valuation is based on fair value, which has been assessed as the price of shares in the most recent fundraise in
November 2020.
Talking Medicines is a social intelligence company designed specifically for the pharmaceutical industry. By structuring
and translating the patient's voice on social media into actionable intelligence, it focuses on assisting pharmaceutical
companies in delivering a greater return on investment for marketing and delivering better health outcomes for patients.
It’s platform, PatientMetRx, is an artificial intelligence ("AI") and natural language processing ("NLP") powered social
intelligence service, to provide pharmaceutical companies with insights on patient experience on a scale and depth
not previously possible.
“We were delighted to secure investment from Tern Plc in Q4 2020. Given that a global pandemic was
raging in the background gaining investment could have become difficult, but Tern adapted to an online
approach to onboarding. The due diligence process was thorough and straightforward with working
meetings to explore specific topics. The investment itself is significant for Talking Medicines but
alongside that the advice, mentoring and Tern network has also added significant value for the team.
Al Sisto joined the Talking Medicines Board as Chair, and we are looking forward to growing together
in 2021.”
Jo Halliday
CEO, Talking Medicines
For more information visit: www.talkingmedicines.com
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 taking into consideration the price of shares in the most
recent fundraise in April 2020.
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.
For more information visit: www.pushtechnology.com.
260871 Tern AR pp22-pp27.qxp 07/04/2021 18:14 Page 26
26
Board of Directors
Ian Ritchie
Chairman
Ian was appointed as Chairman of the Company in June 2017,
he also acts as non-executive Chairman for Wyld Networks, one
of the Company’s portfolio companies. Ian is also 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 650,000 times.
Committee membership: Member of Audit Committee and
Remuneration Committee
Albert Sisto
Chief Executive Officer
Albert is one of the original founders of the Company and was
appointed as CEO in September 2016. He chairs the
Investment Committee and also acts as non-executive
Chairman and non-executive director for selected portfolio
companies. Albert is a technology 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 (NASDQ:PTEC)
and Chairman and CEO of HiFn (NASDAQ:HIFN). He also
served as a Venture Partner for Nauta Capital designer
Transmeta and was involved in spinning off Silicon Corporation.
Sarah Payne
Chief Financial Officer
Sarah was appointed to the Board in September 2015 and is
responsible for the Company’s financial and compliance
functions as well as being a member of the Investment
Committee and acting as a non-executive director for selected
portfolio companies. 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 was one of the original founders of the Company with
Albert in 2013. He is a member of the Investment Committee
and a non-executive director for selected portfolio companies.
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 joined the Board in March 2020 and is a member of
the Investment Committee and a non-executive director and
Chairman for selected portfolio companies. He 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 the
Internet of Things (IoT), including software, hardware, mobile,
AI, machine learning, and blockchain.
Alan Howarth
Non-Executive Director
Alan was appointed to the Board in November 2015 and acts
as a non-executive director for FVRVS, one of the Company’s
portfolio companies. 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 2020
The directors present their annual report and the audited financial statements of Tern plc (the “Company”) for the year
ended 31 December 2020.
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 46.
The profit for the year was £803,891 (2019: loss of £780,643).
The directors do not recommend payment of a dividend.
Political and charitable contributions
Recognising the difficulties suffered by many in our local communities during the year due to the pandemic, the Board
approved a £10,000 charitable donation to The Childhood Trust, who support vulnerable children living in poverty in
London (2019 – nil).
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.
COVID-19
Companies around the world have been faced with unprecedented challenges to keep essential operations moving
forward amid the coronavirus pandemic. At Tern we focused on the safety of our employees and the employees of our
portfolio companies. We did not need to furlough Tern staff but as a precautionary measure the Board took a 20%
salary reduction for six months during the year to protect our balance sheet. This reduction was not repaid. The team
is also set up to work effectively from home. We established a fortnightly situation video conference with our portfolio
company CEOs, originally to provide support, advice and share recent experiences however over time this has now
developed into a valuable strategy session where wider ideas are shared.
As we now look forward to a reduction in restrictions as the vaccine program rolls out and a return to a different normal,
the team and our portfolio companies are in a good position to continue to capitalise on the commercial strength
evidenced in the final quarter of 2020, whilst retaining some of the positives of a flexible, agile business that has been
essential over the last year.
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 ongoing 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.
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29
Directors’ Report
For the year ended 31 December 2020
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:
At 31 December 2020 At 31 December 2019
Ordinary Shares Ordinary Shares
Alan Howarth – –
Bruce Leith 8,857,233 8,857,233
Sarah Payne 100,000 –
Ian Ritchie 1,010,333 677,000
Matthew Scherba 716,666 –
Albert Sisto 10,416,666 9,683,333
Options granted to the directors by the Company are disclosed under the “Report on Directors Remuneration”.
Significant shareholdings
As at 30 March 2021, the company had been notified of the following shareholdings of 3% or more of the share capital.
Albert Sisto
10,416,666
3.2%
Number of
Ordinary
Shares
Percentage of
Issued Shares
Held
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 accounting standards in conformity
with the requirements of the Companies Act 2006. 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 international accounting
standards in conformity with the requirements of the Companies Act 2006 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.
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30
Directors’ Report
For the year ended 31 December 2020
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.
During the year, the Board considered the impact of COVID-19 on its stakeholders and took appropriate action to
ensure the mitigation of any impact on the Company, this included ensuring all employees could work effectively from
home and considering but deciding against the use of furlough grants. The Board also instigated roundtable meetings
with the portfolio company CEO’s to provide a support network in the early months of the pandemic which then evolved
into strategic discussions and an opportunity to foster and strengthen business relationships.
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. Examples of
stakeholder considerations in certain key board decisions during the year are provided here.
Board Decision Considerations
The Board considered and approved the
investment into Talking Medicines Limited.
• The Board considered the investment case for this potential new
portfolio company to ensure it fulfilled the Company investment
criteria as outlined to stakeholders.
• Consideration was also given to the long term growth of the
business, with the need for new investments to ensure continued fair
value growth within the portfolio.
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31
Directors’ Report
For the year ended 31 December 2020
Board Decision Considerations
The Board considered and approved a
private placing and
retail offer via
PrimaryBid to raise in total gross proceeds
of £2.4 million.
The Board considered the need for a
reduction in director fees for a period of
time to ensure the business was resilient in
the face of great uncertainty created by the
emergence of the global pandemic.
• Consideration was given to the desire to minimise the dilution to
existing shareholders balanced with ensuring sufficient cash
reserves to place the Company in a strong and credible negotiating
position when discussing investment opportunities with potential new
portfolio companies.
• A discussion was held regarding shareholder requests for a
PrimaryBid offer and this was therefore considered an essential part
of this process.
• Early on in the year as the impact of the global pandemic became
obvious, the Board spent considerable time considering the impact
on the Company and also on the portfolio companies. Many were
conserving cash whilst the levels of uncertainty were high and had
taken salary reductions as a result. It was considered prudent for the
Company directors to do the same to ensure the Company was in a
position to support the cash flow of the portfolio companies if that
was required. This mirrored actions of many of our stakeholders
during a time of high risk and high uncertainty and although this was
not raised directly by stakeholders the Board believed it would be
expected and supported as a sensible course of action.
Stakeholder interests and the matters listed above are factored into all board discussions and decisions. A more detailed
assessment of stakeholder engagement is included in the Corporate Governance and Compliance section on
pages 32-37.
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
30 March 2021
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32
Corporate Governance and Compliance
For the year ended 31 December 2020
achieving our aim of becoming the leading investment
“We rely on our stakeholders for our success in
company specialising in IoT in the UK.”
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.
Composition of the Board
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 three 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 seven years and CEO for over four years. He has over 25 years of experience
at senior executive level and with security software companies.
The Board members are listed on pages 26-27.
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.
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33
Corporate Governance and Compliance
For the year ended 31 December 2020
How the Board operates
The directors are responsible for approving the overall strategy, including investment strategy, of the Company and its
financial performance. The day-to-day management of the Board is the responsibility of the CEO and the executive
directors. The Board ensures appropriate oversight by approving matters reserved for the Board which are set out in
a structure manner and include:
•
•
•
•
•
•
•
Approval of the budget and any material change to it;
Oversight of the Company’s operations, including internal control environment;
Changes made to the Company’s capital structure;
Approval of financial results;
Approval of any new investments or disposals of investments;
Approval of regulatory news releases; and
Changes to board structure or composition.
Board Meetings
The Board met formally eleven times in 2020. Board meetings are also convened throughout the year as required and
the Board met several times in 2020 in addition to the formal meetings to discuss and approve investment opportunities
and fund-raising activities.
The directors are expected to attend all Board meetings and Committee meetings on which they sit. The table below
shows directors’ attendance at formal scheduled Board and Committee meetings during the year.
Board Meetings Audit Committee Committee
(out of 11) (out of 2) (out of 4)
Ian Ritchie 11 2 4
Albert Sisto 11 2 4
Sarah Payne 11 n/a n/a
Bruce Leith 11 n/a n/a
Matthew Scherba 11 n/a n/a
Alan Howarth 11 2 4
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 August 2020. 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.
Board committees
The Board has delegated specific responsibilities to the Audit and Remuneration Committees.
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34
Corporate Governance and Compliance
For the year ended 31 December 2020
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 two Audit Committee meetings in 2020. 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 38-40.
There were four Remuneration Committee meetings in 2020. 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.
External Advisors
The Board seeks advice and guidance as required throughout the year from its Nomad (Allenby Capital), its corporate
lawyers (Reed Smith) and auditors (Nexia Smith & Williamson). External advice is also provided as required on human
resources, corporate policies and financial PR. The Board also receives consultancy advice on investment opportunities,
including technical due diligence.
Conflicts of Interest
Every director has a statutory duty under the CA 2006 to avoid a situation in which they have a direct or indirect interest
that may or does conflict with the interests of the Company and every director is required at the start of any meeting to
disclose any conflicts in the agenda matters to be discussed. The Company’s Articles of Association allow for a director
to vote and form part of the quorum if the conflict arises from a permitted cause.
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35
Corporate Governance and Compliance
For the year ended 31 December 2020
Internal controls
The Board is ultimately responsible for establishing and monitoring internal control systems and reviewing the
effectiveness of these systems. The Board views the effective operation of the internal control environment as critical
to the success of the Company. However, it recognises that such systems can provide reasonable but not absolute
assurance against material misstatement or loss. The key elements of the Company’s internal control system are as
follows:
•
•
•
•
•
Close management of the day-to-day activities by the executive directors;
An annual budgeting process which is approved by the Board, performance against which is reviewed at every
Board meeting;
No single individual has the ability to authorise payments in excess of £2,000;
Monthly management reporting to the Board against agreed KPIs; and
An annual audit of the financial statements
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 Tern 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.
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.
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36
Corporate Governance and Compliance
For the year ended 31 December 2020
We do this via a programme of events which have been adapted in 2020 to allow for the limitations placed on events
by social distancing requirements due to the pandemic:
AGM
The AGM usually 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 prevailing guidance from the UK Government in relation to the COVID-19 pandemic,
the Board has continually monitored the changing situation. The health of our shareholders,
employees and stakeholders remains extremely important to us and accordingly, the Board has
taken into consideration the restrictions on unnecessary travel and large gatherings indoors. As
a result the Annual General Meeting will be convened with the minimum quorum of shareholders
(which will be facilitated by the Company’s management) in order to conduct the business of the
meeting and voting on each resolution at the meeting will be by poll and will include all valid proxy
votes received. Regrettably therefore, shareholders are requested not to attend the AGM to be
held on 4 May 2021 and the Company will be unable to allow entry to anyone seeking to attend
the AGM in person.
The Company plans to host an online meeting after the AGM to present an update for the year
and to provide an opportunity for questions to be asked by shareholders.
Shareholder calls
A minimum of 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. In November 2020 this was hosted on a video link and
will be the preferred format to use for future events.
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. Unfortunately, this was
not possible in 2020 due to government restrictions, however the Company plans to return to
attending these conferences as soon as restrictions allow.
Annual Report
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.
Regulatory and
non-regulatory
news
Website
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.
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.
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37
Corporate Governance and Compliance
For the year ended 31 December 2020
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 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 2021, 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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38
Report on Directors’ Remuneration
For the year ended 31 December 2020
I am pleased to present our Remuneration Committee Report for the year ended 31 December 2020, which summarises
the work of the Remuneration Committee, as well as the remuneration policy, details of the directors’ remuneration
packages and a summary of all remuneration paid to directors during the year.
The members of the Remuneration Committee (the “Committee”) are Alan Howarth (Chair of the Committee) and Ian
Ritchie, both of whom are independent non-executive directors of the Company.
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 on other companies, including
benchmarking exercises carried out for AIM companies and ensures that all requirements on the disclosure of
remuneration are fulfilled.
There were four Remuneration Committee meetings in 2020. These were fully attended by all members. No advice
was sought by the Board or its Committees on any significant matters.
The activity of the Committee during the year was predominately focused on remuneration matters, including approving
the remuneration increase for the executive directors and approving the bonus payments to the executive directors
following the assessment of performance against agreed financial Key Performance Indicators, which are designed to
inspire and measure business progress. The Committee also approved the performance measures for the 2021 annual
bonus. The bonus amounts paid in respect of the year ended 31 December 2020 are set out in the table on page 39.
In response to the impact of COVID-19 on the Company and its portfolio companies, all directors took a 20% salary
reduction for six months. This reduction was not reimbursed.
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 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.
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39
Report on Directors’ Remuneration
For the year ended 31 December 2020
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 2020.
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.
The 2021 annual bonus for executive directors will be assessed against financial KPIs. Challenging targets have been
set. Actual performance targets are not disclosed as they are considered to be commercially sensitive at this time.
Directors’ remuneration
The remuneration of each director, excluding share options awards, during the year ended 31 December 2020 is
detailed in the table below:
Executive Directors
Albert Sisto
Sarah Payne
Bruce Leith
Matthew Scherba
Non-Executive Directors
Ian Ritchie
Alan Howarth
Share based payment charge
Total remuneration
Pension
Basic
salary contributions
£000
£000
Performance
related
bonus
£000
Other
benefits
£000
128.5
110.9
103.8
110.9
32.4
27.0
513.5
513.5
14.5
12.3
12.3
12.3
–
–
51.4
51.4
61.2
26.0
26.0
11.3
–
–
124.5
124.5
8.1
0.4
7.0
2.3
–
–
17.8
17.8
2020
Total
£000
212.3
149.6
149.1
136.8
32.4
27.0
707.2
85.5
792.7
2019
Total
£000
126.3
113.5
108.5
–
33.5
27.5
409.3
–
409.3
Note: Matthew Scherba joined the Company in December 2019 and was appointed to the Board in March 2020. The table shows his 2020 annual remuneration.
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40
Report on Directors’ Remuneration
For the year ended 31 December 2020
Directors’ share options
The director’s outstanding share options as at 31 December 2020 are shown in the table below:
Option
2019 Granted Exercised Expired 2020 Price
Executive Directors
Al Sisto 2,500,000 – – – 2,500,000 8.5p
Sarah Payne 2,500,000 – – – 2,500,000 8.5p
Bruce Leith 2,500,000 – – – 2,500,000 8.5p
Matthew Scherba 2,500,000 – – – 2,500,000 9.15p
Expiry date
18 May 2027
18 May 2027
18 May 2027
1 December 2029
Non-Executive Directors
Ian Ritchie – – – – –
Alan Howarth 250,000 – – – 250,000 13p
22 February 2023
Alan Howarth
Chairman of the Remuneration Committee
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41
Independent auditor’s report to the members of Tern Plc
For the year ended 31 December 2020
Opinion
We have audited the financial statements of Tern Plc (the ‘company’) for the year ended 31 December 2020 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
significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable
law and international accounting standards in conformity with the requirements of the Companies Act 2006.
In our opinion, the financial statements:
• give a true and fair view of the state of the company’s affairs as at 31 December 2020 and of its profit for the year
then ended;
• have been properly prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006; 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
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the
company’s ability to continue to adopt the going concern basis of accounting included:
• Challenging the key assumptions used in the detailed budgets and forecasts prepared by management for the
financial year to 2021 and period to March 2022;
• Assessing the mathematical accuracy of the detailed budgets and forecasts and agreeing to the underlying key
assumptions;
• Comparing the forecast results to those actually achieved in the 2021 financial period so far and management’s
cashflow forecast from 2020 to budget;
• Reviewing bank statements to monitor the cash position of the company post year end;
• Obtaining an understanding of significant expected cash outflows in the forthcoming 12-month period from the
date of signing these financial statements including any cash requirements the company may have to provide to
its investee companies;
• Considering the sensitivity of the assumptions and re-assessing headroom after sensitivity; and
• We have observed that the current cash balance is greater than budgeted fixed costs for a period of 12 months
from the date of signing.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for
a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
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42
Independent auditor’s report to the members of Tern Plc
For the year ended 31 December 2020
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.
Key audit matter Description of risk
How the matter was addressed in the audit
Valuation of
investments
the most significant
Investments are
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 1.8 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 have agreed the valuation of the most
significant investment to the indicative range
suggested by an independent third party valuations
firm.
We utilised our specialist valuations team to review
the validity of the methodology and calculations
used to value the investments. Additionally, in
regard to the most significant investment, our
specialist valuations team prepared a further model
and auditor’s estimate of an acceptable valuation
to compare against the valuation range arrived by
the third party valuations firm and whether
materially close to the fair value valuation estimate
used by management.
For the most significant investment, we selected a
sample of current clients and corroborated
revenues recognised in FY20 and contracted
revenues in FY21 to invoices, purchase orders and
statement of works. We also selected a sample of
potential client’s from the company’s pipeline
analysis and requested information evidencing the
interaction between the entities to support inclusion
within the pipeline.
We tested the mathematical accuracy of the
valuation calculations.
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43
Independent auditor’s report to the members of Tern Plc
For the year ended 31 December 2020
Our application of materiality
The materiality for the financial statements as a whole was set at £1,000,000. 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
of the company in assessing the company’s performance. Given the company is an Investment Company, as defined
under IFRS 10, an earnings-based measure would not be appropriate. Financial Statement materiality represents 4%
of the company’s net assets as presented in the Statement of Financial Position which aligns with the interests of the
users of the financial statements and given the continued growth of the Company we consider using 4% of net assets
to be more suitable and reassessed materiality accordingly. We also applied a specific materiality for all balances other
than those in relation to investments which was set at £145,000. This is based on 10% of total expenditure in the year.
Performance materiality for the company’s financial statements was set at £650,000, being 65% of Financial Statement
materiality, for purposes of assessing the risks of material misstatement and determining the nature, timing and extent
of further audit procedures. We have set it at this amount to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds Financial Statement materiality. We judged this level
to be appropriate based on our understanding of the company and its financial statements, as updated by our risk
assessment procedures and our expectation regarding current period misstatements including considering experience
from previous audits. The level of 65% was set due to the uncertainty of estimation in the investments balance.
Performance materiality in respect of all balances other than those in relation to the investments balance has also been
set at 65% of financial statement materiality, being £94,250.
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 contained within
the Report and Accounts. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.
Opinions 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.
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 in relation to which 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.
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44
Independent auditor’s report to the members of Tern Plc
For the year ended 31 December 2020
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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below:
We obtained an understanding of the legal and regulatory framework applicable to the company as well as the laws
and regulations applicable, and considered these throughout our testing. We obtained an understanding of the entity’s
policies and procedures by discussions with management. We also drew on our existing understanding of the
company’s industry and regulation.
We understand the company complies with requirements of these frameworks through:
•
•
The Directors updating operating procedures, manuals and internal controls as legal and regulatory requirements
change.
The Directors’ close involvement in the day-to-day running of the business, meaning that any litigation or claims
would come to their attention directly.
In the context of the audit, we considered those laws and regulations: which determine the form and content of the
financial statements; which are central to the company’s ability to conduct business; and where failure to comply could
result in material penalties. We have identified the following laws and regulations as being of significance in the context
of the company:
•
•
The Companies Act 2006 and IFRS in respect of the preparation and presentation of the financial statements;
and
AIM regulations and Market Abuse Regulations
We performed the following specific procedures to gain evidence about compliance with the significant laws and
regulations above;
• We have reviewed a sample of legal and professional invoices
•
Made enquiries with management as to any legal or regulatory issues during the year
• We have reviewed board minutes for evidence of non compliance
• We have confirmed with management there has been no correspondence with the FRC during the year
• We have obtained representation from management that they have disclosed to us all known instances of non-
compliance or suspected non-compliance with laws and regulations
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45
Independent auditor’s report to the members of Tern Plc
For the year ended 31 December 2020
The senior statutory auditor led a discussion with senior members of the engagement team regarding the susceptibility
of the entity’s financial statements to material misstatement, including how fraud might occur. The key areas identified
as part of the discussion were with regard to the manipulation of the financial statements through manual journals and
inflation of investment values. This was communicated to the other members of the engagement team who were not
present at the discussion.
The procedures carried out to gain evidence in the above areas included;
•
•
Testing of the investments balance as described in the key audit matters section above; and
Testing of manual journal entries, selected based on specific risk assessments applied based on the company’s
processes and controls surrounding manual journals.
The senior statutory auditor was satisfied that the engagement team collectively had the appropriate competence and
capabilities to identify or recognise irregularities. In particular, both the senior statutory auditor and the audit manager
have a number of years’ experience in dealing with companies subject to AIM Regulation.
A further description of our responsibilities is available 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
30 March 2021
260871 Tern AR pp46-pp49.qxp 07/04/2021 18:15 Page 46
46
Income Statement and Statement of Comprehensive Income
For the year ended 31 December 2020
Fee income
Movement in fair value of investments
Total investment income
Administration costs
Other expenses
Operating profit/(loss)
Finance income
Profit/(loss) before tax
Tax
Notes
2020
£
151,159
11
1,992,891
2,144,050
2019
£
124,766
293,756
418,522
(1,341,802)
(206,845)
(1,028,605)
(245,414)
595,403
(855,497)
208,488
803,891
74,854
(780,643)
–
–
6
7
8
9
Profit/(loss) and total comprehensive income/(loss) for the period
803,891
(780,643)
Since there is no other comprehensive income, the profit for the year is the same as the total comprehensive income for
the year.
EARNINGS/(LOSS) PER SHARE:
Basic and diluted earnings/(loss) per share
10
0.3 pence
(0.3) pence
The accompanying accounting policies and notes are an integral part of these financial statements.
260871 Tern AR pp46-pp49.qxp 07/04/2021 18:15 Page 47
47
Statement of Financial Position
As at 31 December 2020
ASSETS
NON-CURRENT 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
2020
£
2019
£
11
21,904,791
17,882,660
21,904,791
17,882,660
12
13
14
14
15
16
261,301
2,130,166
2,391,467
174,486
1,007,965
1,182,451
24,296,258
19,065,111
1,367,635
26,740,789
1,355,571
22,578,619
(4,107,767)
(5,021,113)
24,000,657
18,913,077
295,601
295,601
295,601
152,034
152,034
152,034
24,296,258
19,065,111
The financial statements were approved and authorised for issue by the Board of Directors on 30 March 2021 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.
260871 Tern AR pp46-pp49.qxp 07/04/2021 18:15 Page 48
48
Statement of Changes in Equity
For the year ended 31 December 2020
Balance at 31 December 2018
Total comprehensive income
Transactions with owners
Issue of share capital
Share issue costs
Share based payment charge
Balance at 31 December 2019
Total comprehensive income
Transactions with owners
Issue of share capital
Share issue costs
Share based payment charge
Balance at 31 December 2020
Share
capital
£
Share
premium
£
Retained
earnings
£
Total
equity
£
1,348,903
19,660,434
(4,257,564) 16,751,773
–
–
(780,643)
(780,643)
6,668
3,243,335
–
3,250,003
–
–
(325,150)
–
–
17,094
(325,150)
17,094
1,355,571
22,578,619
(5,021,113) 18,913,077
–
–
803,891
803,891
12,064
4,488,336
–
4,500,400
–
–
(326,166)
–
–
109,455
(326,166)
109,455
1,367,635
26,740,789
(4,107,767) 24,000,657
The accompanying accounting policies and notes are an integral part of these financial statements.
260871 Tern AR pp46-pp49.qxp 07/04/2021 18:15 Page 49
49
Statement of Cash Flows
For the year ended 31 December 2020
OPERATING ACTIVITIES
Net cash used in operations
Purchase of investments
Cash received from sale of investments
Interest received
Notes
20
2020
£
2019
£
(1,189,481)
(1,957,248)
93,421
1,275
(1,337,878)
(2,496,366)
–
3,555
Net cash used in operating activities
(3,052,033)
(3,830,689)
FINANCING ACTIVITIES
Proceeds on issues of shares
Share issue expenses
Net cash from financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
4,500,400
(326,166)
4,174,234
1,122,201
1,007,965
2,130,166
3,250,003
(325,150)
2,924,853
(905,836)
1,913,801
1,007,965
The accompanying accounting policies and notes are an integral part of these financial statements.
260871 Tern AR pp50-end.qxp 07/04/2021 18:16 Page 50
50
Notes to the Financial Statements
For the year ended 31 December 2020
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 accounting
standards in conformity with the requirements of the Companies Act 2006.
The financial statements have been prepared on the basis of the recognition and measurement principles of
the IFRS that were applicable at 31 December 2020.
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, paragraph 4, the directors consider the Company to be an investment company
and have 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 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.
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51
Notes to the Financial Statements
For the year ended 31 December 2020
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 and are expected to relate to the Company:
•
•
IFRS 9 Financial Instruments: amendments resulting from Annual Improvements to IFRS Standards
2018-2020 (fees in the ’10 per cent’ test for derecognition of financial liabilities) (issued in May 2020
and effective for annual periods beginning on or after 1 January 2022).
IAS 1 Presentation of Financial Statements: amendments regarding the classification of liabilities
(issued in July 2020 and effective for annual periods beginning on or after 1 January 2023).
ADOPTION OF NEW AND REVISED STANDARDS
Amendments have been made to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors in relation to the definition of material. The amendments clarify
the definition of what is material to the financial statements and how to apply the definition.
The Company has adopted all revised standards and there was no impact to the financial statements as a
result.
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.
1.7
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.
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52
Notes to the Financial Statements
For the year ended 31 December 2020
1.
1.7
1.8
ACCOUNTING POLICIES (continued)
TAXATION (continued)
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 a
portfolio company. The convertible loan notes are financial assets with multiple embedded derivatives which
can include 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.
1.9
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 is 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 and other short term highly liquid investments with
original maturities of three months or less.
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.
1.10
1.11
1.12
1.13
1.14
LOANS TO PORTFOLIO COMPANIES
Convertible Loans
Convertible loans provided to investee 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.
The convertible loan facility issued to Wyld Networks is a financial asset with multiple embedded derivatives.
IFRS 9 permits the entire contract for all loans to be designated at FVTPL.
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53
Notes to the Financial Statements
For the year ended 31 December 2020
1.
ACCOUNTING POLICIES (continued)
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.
2.1
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
2020
£
2019
£
295,601
152,034
–
–
295,601
152,034
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54
Notes to the Financial Statements
For the year ended 31 December 2020
2.
2.1
FINANCIAL RISK MANAGEMENT (continued)
FINANCIAL RISK FACTORS (continued)
Market price risk
When the Company owns quoted investments, it will be exposed to market price risk as shown by movements
in the value of its equity investments. Any such risk will be regularly monitored by the directors.
The convertible loan notes held in Device Authority, InVMA and Wyld Networks 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.
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.
2.2
2.3
CAPITAL RISK MANAGEMENT
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a
going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital.
The Company monitors capital on the basis of 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.
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55
Notes to the Financial Statements
For the year ended 31 December 2020
2.
2.3
FINANCIAL RISK MANAGEMENT (continued)
FAIR VALUE ESTIMATION (continued)
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 £21.9 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 businesses, 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.
Device Authority has maintained its US dollar valuation compared to 2019 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 2021 trading
forecast. This supported a valuation in line with 2019, 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 notes
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.
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56
Notes to the Financial Statements
For the year ended 31 December 2020
3.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
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.
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
2020
£
690,771
17,500
66,911
56,216
109,455
940,853
2019
£
433,042
27,500
54,593
2,428
17,094
534,657
The average number of people (including non-executive directors) employed by the Company during the year was:
Directors
Employees
Total
2020
No
6
1
7
2019
No
5
1
6
260871 Tern AR pp50-end.qxp 07/04/2021 18:16 Page 57
57
Notes to the Financial Statements
For the year ended 31 December 2020
5.
STAFF COSTS (continued)
DIRECTORS’ REMUNERATION
Other than directors, the Company had one employee as at 31 December 2020. 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
2020
£
638,353
17,500
61,387
51,475
85,468
2019
£
379,411
27,500
42,872
2,376
–
854,183
452,159
Total remuneration of the highest paid director was
212,301
126,287
A summary of remuneration paid to each director, including pension payments, is included in the Report on
Directors’ Remuneration (pages 38-40).
Key management personnel is deemed to consist solely of the statutory directors.
6.
OTHER EXPENSES
Share based payment (options)
Sundry non-recurring expenses
Non-recurring legal and professional costs
Recharged portfolio professional fees
Charitable donations
2020
£
109,455
–
1,613
85,777
10,000
2019
£
17,094
10,697
172,319
45,304
–
206,845
245,414
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58
Notes to the Financial Statements
For the year ended 31 December 2020
7.
OPERATING PROFIT/(LOSS)
Profit(/loss) from operations has been arrived at after charging:
Remuneration of directors
854,183
452,159
Fees payable to the Company’s auditor for services provided to
2020
£
2019
£
the Company:
– Audit services
– Tax compliance services
– Pension services
– Audit related services
8.
FINANCE INCOME
Bank interest
Interest income on loan notes
Interest accrued on convertible loan notes
9.
TAXATION
Taxation attributable to the Company
33,250
4,450
1,662
3,000
2020
£
1,275
–
207,213
208,488
2020
£
–
29,500
4,000
–
–
2019
£
3,259
296
71,299
74,854
2019
£
–
Domestic income tax is calculated at 19% (2019: 19%) of the estimated assessable profit for the year. The
charge for the year can be reconciled to the profit per the Income Statement as follows:
Profit/(loss) before tax
Tax at domestic income tax rate
Expenses not deductible for tax purposes
Income not taxable
Unutilised tax losses
Tax
2020
£
803,891
152,739
21,139
(380,639)
206,761
–
2019
£
(780,643)
(148,322)
4,042
(55,814)
200,094
–
The Company has unutilised losses of approximately £7.3 million (2019: £6.5 million) resulting in a deferred
tax asset not recognised of approximately £1.4 million (2019: £1.2 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).
260871 Tern AR pp50-end.qxp 07/04/2021 18:16 Page 59
59
Notes to the Financial Statements
For the year ended 31 December 2020
10.
EARNINGS/(LOSS) PER SHARE
Profit/(loss) for the purposes of basic and fully diluted profit/(loss) per share
803,891
(780,643)
2020
£
2019
£
Weighted average number of ordinary shares:
For calculation of basic earnings per share
For calculation of fully diluted earnings per share
2020
Number
2019
Number
290,768,708
251,945,498
290,768,708
251,945,498
2020
2019
Earnings/(loss) per share:
Basic and diluted earnings/(loss) per share
0.3 pence (0.3) pence
Note: The fully diluted earnings per share for 2020 is the same as the basic earnings per share as the share
options are underwater which would have an anti-dilutive effect on earnings per share. In 2019 the fully diluted
loss per share was the same as the basic loss per share as the loss had an anti-dilutive effect on earnings per
share.
11.
NONCURRENT ASSETS
INVESTMENTS
2020
£
2019
£
Fair value of investments brought forward
17,882,660
14,856,239
Reclassification of cash flow loans from other debtors
Interest accrued on convertible loan note
Additions
Disposals
Fair value of investments carried forward
Fair value adjustment to investments
Fair value of investments carried forward
–
171,473
1,957,248
(99,481)
165,000
71,299
2,496,366
–
19,911,900
17,588,904
1,992,891
293,756
21,904,791 17,882,660
The convertible loan facility issued to Device Authority is a financial asset 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. As at 31 December 2020 the principal of the convertible loan outstanding was £2,925,900 (2019:
£2,527,848). The convertible loan note has been secured with a charge over Device Authority’s intellectual
property.
The convertible loan facility issued to InVMA 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
2020 the value of the convertible loan outstanding was £175,000 (2019: £50,000).
260871 Tern AR pp50-end.qxp 07/04/2021 18:16 Page 60
60
Notes to the Financial Statements
For the year ended 31 December 2020
11.
NONCURRENT ASSETS (continued)
The cashflow loan issued to Wyld Networks was converted into a secured convertible loan note in May 2020.
It 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. As at 31 December 2020, the investment was
adjusted in line with fair value and resulted in a fair value increase of £2.6m. As at 31 December 2020 the
value of the convertible loan outstanding was £1,298,332 (2019: £853,332). The convertible loan note has
been secured with a charge over Wyld Networks’ intellectual property. Since the balance sheet date, this loan
was converted into equity in Wyld Networks.
12.
TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments and accrued income
Interest receivable on convertible loan note
Other receivables
Total
2020
£
166,564
36,753
35,740
22,244
261,301
2019
£
112,648
52,531
–
9,307
174,486
The directors consider that the carrying amount of trade and other receivables approximates to its 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 which all
relate to receivables from investee companies. These receivables are secured on the assets of the relevant
companies.
13.
CASH AND CASH EQUIVALENTS
Cash at bank
2020
£
2019
£
2,130,166
1,007,965
The directors consider that the carrying amount of cash at bank is a reasonable approximation to its fair value.
260871 Tern AR pp50-end.qxp 07/04/2021 18:16 Page 61
61
Notes to the Financial Statements
For the year ended 31 December 2020
14.
ISSUED SHARE CAPITAL
ISSUED AND FULLY PAID:
At 31 December 2019
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 2020
Ordinary shares of £0.0002
Deferred shares of £29.999
Deferred shares of £0.00099
Number
of shares
No.
Nominal
value
£
Share
premium
£
270,019,045
54,003
42,247
1,267,368
34,545,072
34,200
304,606,364
1,355,571
22,578,619
60,319,056
–
12,064
–
4,488,336
(326,166)
364,925,420
1,367,635
26,740,789
330,338,101
66,067
42,247
1,267,368
34,545,072
34,200
364,925,420
1,367,635
26,740,789
Ordinary Shares
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 23 March 2020, 13,333,331 ordinary shares were issued at 6p per share for cash as the result of a private
placing raising £800,000 before expenses.
On 24 July 2020, 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 27 November 2020, 29,338,667 ordinary shares were issued at 7.5p per share for cash as a result of a
private placing, raising £2,200,400 before expenses.
260871 Tern AR pp50-end.qxp 07/04/2021 18:16 Page 62
62
Notes to the Financial Statements
For the year ended 31 December 2020
14.
ISSUED SHARE CAPITAL (continued)
In May 2020, Wyld Networks issued a £400,000 convertible loan note to an external party which included a
put option on Tern shares. Under the terms of the convertible loan note, and following a conversion event, any
amount of the convertible loan note not converted into Wyld shares was automatically converted into fully paid
ordinary shares of 0.02p each in the capital of Tern at a 15% discount to the market price of Tern shares on
AIM at market close on the date of the conversion event. If a conversion event did not occur by 6 May 2021,
then the convertible loan note holder had the option to elect to convert all of the convertible loan notes into
Tern Shares at a 15% discount to the five-day average closing price of Tern shares on AIM immediately prior
to the maturity date, or failing such election, the maturity date of the convertible loan note is to be extended
for one further year. If a conversion event had not taken place by the extended maturity date, the convertible
loan note would automatically convert into fully paid Tern shares at a 15% discount to the five-day average
closing price of Tern shares on AIM immediately prior to the extended maturity date.
Subsequent to the year end, on 28 January 2021, it was announced that all the convertible loan notes in Wyld
Networks had been converted to Wyld Networks shares and therefore this option has now lapsed.
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.
Retained earnings
Cumulative loss of the Company.
16.
TRADE AND OTHER PAYABLES
Trade payables
Accruals and deferred income
Other taxes and social security
Total
2020
£
104,066
138,726
52,809
295,601
2019
£
84,523
51,535
15,976
152,034
The directors consider that the carrying amount of trade payables approximates to its fair value.
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63
Notes to the Financial Statements
For the year ended 31 December 2020
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.
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. 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 22-25.
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 2020 and 31 December 2019:
31 December 2020
Level 1
Level 2
Level 3
Total
Investments held for trading
–
–
21,904,791
21,904,791
31 December 2019
Level 1
Level 2
Level 3
Total
Investments held for trading
–
–
17,882,660
17,882,660
See note 11 for more detail.
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64
Notes to the Financial Statements
For the year ended 31 December 2020
17.
FAIR VALUE MEASUREMENT (continued)
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. The
most sensitive unobservable input is the probability attached to the three most likely scenarios for realisation
of value. The most likely scenario is attributed a 73% likelihood. If the probability of the most sensitive variable
varies by 10% the impact on the overall valuation is approximately £0.9 million. In addition, if the share price
assumed in Device Authority, including conversion of all outstanding convertible loan notes on a fundraise or
exit, varies by 10% then the impact on the overall valuation is approximately £1 million.
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.
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.
Share options were issued to Matthew Scherba in 2019 as an employee of the Company. Subsequently
Matthew was appointed as a director in March 2020 resulting in share options previously issued now accounted
for as share options held by directors.
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.
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 and the 2015 options have now lapsed.
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.
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65
Notes to the Financial Statements
For the year ended 31 December 2020
18.
SHARE BASED PAYMENTS (continued)
The table below lists the inputs to the model used for the options granted in 2020:
Weighted average share price at date of grant
Weighted average exercise price
Expected volatility
Vesting period
Contractual life
Risk free rate
Employees
8.15 pence
8.15 pence
100%
3
10
1.94%
A total share based payment charge of £109,455 was recognised in 2020 (2019: £17,094) in respect of the
options granted in 2019 and 2020, of this £23,987 (2019: £17,094) related to equity settled options issued to
employees.
The share options held as at 31 December 2020 are set out in the table below:
Outstanding at
Granted Exercised
31 December during the during the during the
year
2019
year
year
Lapsed Outstanding at Option Exercisable
on or
before
31 December
2020
Price
Directors
7,500,000
250,000
2,500,000
Total directors
10,250,000
–
–
–
–
Employees
Other
–
500,000
900,000
100,000
250,000
–
–
–
Total Options
11,500,000
500,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,500,000
8.5p 18 May 2027
250,000
13p 22 Feb 2023
2,500,000
9.15p
1 Dec 2029
10,250,000
500,000
8.15p 22 July 2030
900,000
9p 15 Feb 2022
100,000
8.5p 18 May 2027
250,000
–
15p 16 Dec 2020
250,000
11,750,000
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 £32,000 in respect of management services and
recharged professional services (2019: £39,844). At the year-end Tern was owed £83,844 in trade receivables
by Device Authority Limited (2019: £75,844). Tern has also provided a convertible loan note to Device Authority
Limited. As at 31 December 2020, the principal of the convertible loan outstanding was £2,925,900 (2019:
£2,527,848).
Wyld Networks Limited, a company in which Tern has a 97% shareholding, is also considered a related party.
During the year, Tern invoiced Wyld Networks £31,025 in respect of management services and recharged
professional services (2019: £15,914). There were no trade amounts outstanding to or from the Company at
31 December 2020 (2019: £9,120). Tern has also provided a convertible loan note to Wyld Networks Limited.
As at 31 December 2020, the convertible loan outstanding was £1,298,332 (2019: £853,332). Post year-end
this balance was converted in full into Wyld Networks Limited equity.
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66
Notes to the Financial Statements
For the year ended 31 December 2020
19.
RELATED PARTY TRANSACTIONS (continued)
Wyld Technologies Limited, a company 100% owned by Wyld Networks Limited, is also considered a related
party. During the year, Tern invoiced Wyld Technologies Limited £13,350 in respect of management services
(2019: 13,680). As at 31 December 2020 Tern was owed nil in trade receivables by Wyld Technologies Limited
(2019: £720).
InVMA Limited, a company in which Tern has a 50% shareholding, is also considered a related party. During
the year, Tern invoiced InVMA Limited £48,156 in respect of management services and recharged professional
services (2019: £33,097). As at 31 December 2020, Tern was owed £82,720 in trade receivables by InVMA
Limited (2019: £26,963).
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 £16,938 in respect of management services and recharged legal
services (2019: £16,328). There were no amounts outstanding to or from the Company at 31 December 2020
(2019: nil).
Talking Medicines Limited, a company in which Tern has a 23.4% shareholding, is also considered a related
party. During the year, Tern invoiced Talking Medicines Limited £30,000 in respect of management services
and recharged legal services. There were no amounts outstanding to or from the Company at 31 December
2020.
During the year, Alan Howarth & Associates Limited, a company in which Alan Howarth has a controlling
shareholding, invoiced the Company £17,500 for management services (2019: £27,500). There were no
amounts outstanding to or from the Company at 31 December 2020.
20.
CASH FLOW FROM OPERATIONS
Profit/(loss) for the year
Adjustments for items not included in cash flow:
Movement in fair value of investments
Share based payment charge
Deferred cash on sale of investment
Finance income
2020
£
2019
£
803,891
(780,643)
(1,992,891)
109,455
6,060
(208,488)
(293,756)
17,094
–
(74,854)
Operating cash flows before movements in working capital
(1,281,973)
(1,132,159)
Adjustments for changes in working capital:
Increase in trade and other receivables1
Increase/(decrease) in trade and other payables
Cash used in operations
1 Excludes interest receivable from investee companies
(51,075)
143,567
(100,306)
(105,413)
(1,189,481)
(1,337,878)
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67
Notes to the Financial Statements
For the year ended 31 December 2020
21.
FINANCIAL INSTRUMENTS
The Company uses financial instruments, other than derivatives, comprising cash to provide funding for the
Company’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:
FINANCIAL ASSETS:
Cash at bank
Financial instruments at amortised cost
Trade receivables
Other receivables
Fair value through profit or loss (FVTPL)
Investments
2020
£
2019
£
2,130,166
1,007,965
166,564
22,244
112,648
9,307
21,904,791
17,882,660
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
22.
EVENTS AFTER THE REPORTING PERIOD
2020
£
104,066
125,809
2019
£
84,523
51,535
On 28 January 2021, it was announced that Wyld Networks Limited had secured a £750,000 equity fundraise
at a valuation which resulted in a significant valuation uplift of Tern’s investment of £2.6m. As part of the
fundraise, Tern invested £0.15 million and all outstanding secured convertible loan notes held by Tern converted
into equity. As a result, Tern hold a 79% investment in Wyld Networks.
At the time of an investment by an external party in May 2020, an option was given to convert the convertible
loan notes in Wyld Networks into ordinary shares in Tern at a 15% discount to the five-day average closing
price of Tern shares on AIM immediately prior to 7 May 2021 if a conversion event had not occurred before
that date. As a result of the equity fundraise announced in January 2021 and the conversion of all the
convertible loan notes in Wyld Networks, this option has now lapsed.
23.
ULTIMATE CONTROLLING PARTY
The directors do not consider there to be a single ultimate controlling party.
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Notice of 2021 Annual General Meeting
NOTICE IS HEREBY GIVEN that the 2021 Annual General Meeting of Tern plc (“the Company”) will be held at 3pm on
Tuesday 4 May 2021 at the Company’s offices at Gridiron, One Pancras Square, London N1C 4AG.
IMPORTANT INFORMATION – IMPACT OF THE COVID19 PANDEMIC ON THE AGM
In light of the prevailing guidance from the UK Government in relation to the COVID-19 pandemic and specifically the
restrictions on unnecessary travel and large gatherings, the Annual General Meeting will be convened with the minimum
quorum of shareholders (which will be facilitated by the Company’s management) in order to conduct the business of
the meeting and voting on each resolution at the meeting will be by poll and will include all valid proxy votes received.
Accordingly, the Company strongly encourages all shareholders to submit their Form of Proxy in advance of the meeting,
appointing the Chairman of the Annual General Meeting as proxy rather than a named person. In the interests of safety
and in accordance with applicable UK Government guidance, entry to the Annual General Meeting will be refused to
any shareholder, proxy or corporate representative (other than those required for a quorum to exist) who attempt to
attend the Annual General Meeting in person. The Company will continue to closely monitor the developing impact of
COVID-19, including the latest UK Government guidance. Should it become appropriate to revise the current
arrangements for the General Meeting, any such changes will be notified to shareholders through the Company’s
website at www.ternplc.com and, where appropriate, by announcement made by the Company to a Regulatory
Information Service.
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 2020, 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.
Ian Ritchie 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.
Bruce Leith 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.
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.
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.
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Notice of 2021 Annual General Meeting
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
9 April 2021
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Notice of 2021 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 29 April 2021, 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
29 April 2021, 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 29 April 2021.
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.
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Notice of 2021 Annual General Meeting
CREST members and, where applicable, their CREST sponsors or voting service providers should note that
CRESTCo does not make available special procedures in CREST for any particular messages. Normal system
timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member
or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means
of the CREST system by any particular time. In this connection, CREST members and, where applicable, their
CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and timings.
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Perivan 260871
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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 2020