DJ Tern PLC: Unaudited Interim Results for the six months to 30 June 2019
Tern PLC (TERN)
Tern PLC: Unaudited Interim Results for the six months to 30 June 2019
25-Sep-2019 / 07:00 GMT/BST
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The issuer is solely responsible for the content of this announcement.
25 September 2019
Tern Plc
(AIM: TERN)
Unaudited Interim Results for the six months to 30 June 2019
Tern Plc ("Tern" or the "Company"), the AIM quoted investment company
specialising in the Internet of Things ("IoT") market, is pleased to
announce its interim results for the six months to 30 June 2019.
Key Highlights
30 June 2019 30 June 31
2018 December
2018
GBP
GBP
GBP
Net assets 17,478,283 13,942,75 16,751,7
7 73
Current assets 2,153,071 2,671,784 2,152,98
1
Total assets 17,946,668 14,221,70 17,009,2
4 20
Loss for the period (62 3,340) (221,252) (312,564
)
Net asset value per share 6.9p 6.2p 7.1p
· The increased loss for the period compared to the six months to June
2018 was primarily due to a GBP0.1m increase in operating costs and a GBP0.3
million lower fair value increase. In the six months to 30 June 2019,
there was no exchange rate revaluation required compared to 2018 where the
fair value increase was primarily due to exchange rate movements.
· Cost management continues to be a central focus. The increase in
administrative costs in the period compared to the monthly burn rate in
the year ended 31 December 2018 was due to additional advisory costs in
the UK and the USA, along with an increase in Directors' salaries to begin
to bring them closer to more conventional market levels.
· The Company raised GBP1.5 million during the period, strengthening the
balance sheet and improving Tern's investment options. As at 30 June 2019,
Tern had GBP1.4 million cash on the balance sheet.
· Year-on-year increase in turnover of principal portfolio companies1 from
calendar year 2018 to 2019 is expected to be of the order of 50%.
· Year-on-year increase in employees within principal portfolio
companies1, a key growth measurement, increased by 9% in the six months to
June 2019.
· Net asset value per share remained comparable across the period.
Al Sisto, CEO of Tern Plc, said:
"During the first half of 2019, Tern has actively focused on developing
opportunities to expand its portfolio and to increase the fair valuation of
its existing portfolio companies. We have also built our portfolio value
through some follow-on investment activities, all the while maintaining our
focus on adding value to our investment companies through advice,
introductions and capital.
"Our involvement has enabled the technology entrepreneurs in our portfolio
to grow their businesses and has provided our investors with a portfolio of
exciting early and growth-stage technology companies. Positive progress was
also achieved on our marketing objective to position Tern as a leading
investor in UK IoT technology companies and we will be doing more to
progress this in the next 12 months.
We are committed to supporting our portfolio and investing in the very best
IoT technology companies in the UK in order to grow our NAV per share. We
are grateful for the ongoing support of our shareholders and look forward to
providing updates to the market as we deliver on our strategy."
Note 1: Principal portfolio company growth excludes Seal and Push, in which
Tern has a <1% holding and minimal influence.
Enquiries:
Tern Plc via Newgate
Albert Sisto/Sarah Payne
Allenby Capital Limited Tel: 020 3 328 5656
(Nomad and joint broker)
David Worlidge/Alex Brearley
Whitman Howard Tel: 020 7659 1234
(Joint broker)
Nick Lovering/Christopher Furness
Newgate Communications Tel: 020 7382 4730
Elisabeth Cowell/Fiona Norman
Chief Executive's Statement
Tern is focused on delivering NAV growth per share by providing its
shareholders with investments into an exciting array of early-stage IoT
companies, which provide best-in-class solutions for the healthcare and
industrial IoT markets. These markets present sizable opportunities for
generating returns, as they have a large underlying population of IoT
devices and use cases in existence today. For example, the "all in" IoT
healthcare market [1] size is projected to reach US$534.3 billion by 2025
expanding at a CAGR of 20% between 2019 and 2025, according to a report by
Grand View Research, Inc. (March 2019). The global Industrial Internet of
Things (IIoT) market is expected to reach a value of US$922.62 billion by
2025, according to a Million Insights report (March 2019).
Our financial priorities continue to be accelerating the progress of our
portfolio companies' commercial success; value creation; robust realisations
and the addition of new investments by:
· Investing in and creating businesses which have market validation and
competitive advantages;
· Providing hands-on support to achieve value creation and making
introductions which help our companies achieve scale and a presence in the
USA;
· Strengthening management and boards where appropriate;
· Syndication of post-seed round investments in our companies, focusing on
relevant strategic and financial investors, to provide validation, and
additional growth capital that de-risks the path to commercial success and
monetisation; and
· Exploring innovative ways to expand the synergistic benefits of our
portfolio.
During the six months to 30 June 2019, the fair value per share of our
portfolio remained broadly stable at 6.2p (FY18: 6.3p; HY18: 5.1p) which
included a 6% increase in the absolute portfolio value. Our operating costs
during the period increased compared to the six months to 30 June 2018 by
GBP0.1 million to GBP0.7 million (HY18 costs: GBP0.6 million; FY18 costs: GBP1.3
million). The majority of this increase was due to an increase in Directors'
fees and professional fees, alongside one off legal and professional
advisory fees. The one-off costs were incurred due to the Company exploring
an opportunity to rapidly expand its portfolio through a strategic
initiative. This transaction would have added a significant number of
companies to the Company's portfolio, increased our NAV and broadened our
resources to support and manage the larger portfolio. However, after careful
due diligence and with the support of our advisers the Board decided not to
pursue the opportunity any further.
Providing a greater opportunity to create and return value to our
shareholders is our primary objective and we remain committed to expanding
our portfolio to at least twelve companies, leveraging our unique
positioning in the IoT space. The timeline for sourcing, structuring and
executing new investments in market leading UK IoT companies that fit within
Tern's investment strategy will sometimes be beyond Tern's direct control.
As a result, the Board does not now expect to have at least twelve companies
within the portfolio by 31 December 2019. However, our deal flow remains
strong and this critical goal will be our focus for the remainder of 2019
and beyond to fuel the growth of our NAV per share.
During the first six months of 2019 we raised GBP1.5 million to strengthen our
financial position for upcoming investment opportunities and to provide
additional financing support to our existing portfolio companies to enable
their continued growth. During the period we delivered follow-on investment
and support amounting to GBP1.4 million. In particular, Wyld Networks, which
holds a 90% interest in Wyld Technologies, acquired the assets of Amiho
Technology Ltd. As a result of this transaction, we added assets costing
only GBP42,910 to the existing business of Wyld Networks and supported the
business with additional operating capital of GBP373,292, via a short-term
loan. This activity resulted in a new direction for Wyld Networks, which
started as flexiOPS, a grant-based business. Wyld Technologies is now
focused on the rapidly growing low power IoT mesh connectivity space.
We, along with Alsop Louie Partners and the Samenuk Family Trust, continued
with our convertible loan note support of Device Authority. During the
period Tern provided loan note support to Device Authority amounting to
GBP622,634 which included a small bridge loan, repaid on receipt of the R&D
tax credit. This capital enabled Device Authority to continue its partner
and customer development activities, which now includes an expanded list of
new customers, as it pursues a strategic partner to help leverage its market
successes.
Lastly, the Company provided InVMA with a small convertible loan of GBP50,000
and FundamentalVR with a bridge loan advance to a next round of investment
of GBP325,000. This bridge loan was at favourable terms, with Tern receiving a
20% discount upon equity conversion of the bridge at the next round of
investment capital into FundamentalVR.
Year-over-year growth in the aggregate revenue of our principal portfolio
companies1, a key performance indicator, is forecast to increase by 50% from
calendar year 2018 to calendar year 2019 (2017/2018 increase: 58%). In
addition, year-over-year employee headcount growth, another important
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DJ Tern PLC: Unaudited Interim Results for the six -2-
indicator of the growth and success of our principal portfolio companies1,
increased by 9% in the six months to June 2019 (six months to June 2018
increase: 12%), highlighting a continuing growth in the portfolio overall.
Note 1: Principal portfolio company growth excludes Seal and Push, in which
Tern has a <1% holding and minimal influence
Portfolio Review
Device Authority Limited ("Device Authority"): GBP12.3 million valuation
Holding: 56.8%
Sector: Security
Invested Since: September 2014
Device Authority is a global leader in Identity and Access Management (IAM)
for the IoT, focused on medical / healthcare, industrial and smart connected
devices. Its KeyScaler platform provides trust for IoT devices and the
IoT ecosystem, to address the challenges of securing the Internet of Things.
Since Tern's initial investment, Device Authority has expanded its product
portfolio, world class team and ecosystem of well-established business
partners. The team at Tern has supported this, providing advice and contacts
which have enabled Device Authority to establish a Silicon Valley presence,
create connections with certain strategic partners and customers and
introducing new experience to the Board and adviser network.
During 2019 to date, Device Authority has continued to focus on the
industrial, medical and automotive IoT sectors, which are forecast to grow
substantially over the next five years. Achievements include growing its
partnership base through the formation of alliances with nCipher Security,
IdenTrust and Wipro and developing the Keyscaler platform alongside PTC
Thingworx and Microsoft Azure. Device Authority also strengthened its Board
through the appointment of Dr Nicko van Someren, founder of nCipher, and
Ramesh Kesanupalli, founder of the FIDO Alliance and Nok Nok labs. Both are
recognised leaders in their fields in the USA.
I am pleased to report that Device Authority continued to gain industry
recognition, being ranked as one of the top 20 healthcare technology
providers by MyTechMag, a US technology magazine. It was also recognised by
Quadrant Knowledge Solutions as a technology leader in the SPARK matrix
analysis of the IoT IAM market.
Device Authority's shareholders continue to support the ongoing progress of
the company, having provided a total of US$3.8 million in the form of
convertible loan notes since November 2017, with US$2.4 million of this
being provided by Tern (US$0.7 million in the six months to 30 June 2019).
As at 30 June 2019, the value of Tern's shareholding in Device Authority has
increased to GBP12.3 million (31 December 2018: GBP11.7 million) as a result of
the additional cash invested via convertible loan notes.
The annual report and accounts for Device Authority for the year ended 31
December 2018 are expected to be submitted to Companies House shortly.
FVRVS Limited ('Fundamental VR'): GBP2.2 million valuation
Holding: 34.7%
Sector: Healthcare IoT
Invested Since: May 2018
FundamentalVR is a dynamic technology and data insight business specialising
in the intersection between immersive experiences and haptics, to enhance
medical training and outcomes. It fits with Tern's strategy to invest in
companies targeting the healthcare IoT market.
Our investment in FundamentalVR provides us with exposure to a rapidly
growing healthcare market. A June 2019 report by MarketsandMarkets
highlighted that the medical simulations market is expected to reach US$5.16
billion by 2027 from an estimated US$1.70 million in 2019, at a CAGR of
14.9%.
FundamentalVR's SaaS (software as a service) platform, Fundamental Surgery,
features VR Haptics technology that takes advantage of readily available
virtual reality hardware to create a simulation system that can be easily
used on any modern VR-enabled PC/laptop.
In line with our proactive investment strategy, Tern has worked closely with
FundamentalVR during the period to support growth in the business. Since our
initial investment in May 2018, we have helped the Board to refine its
go-to-market strategy, provided them with access to potential new industry
customers, elevated their profile within the VC market and established new
potential routes to market.
FundamentalVR has gone from strength to strength since Tern's initial
investment, having secured partnerships, significant new contracts, and
industry-wide awards and accreditations. It has increased its penetration
within the medical industry, with its Total Hip Replacement (Posterior
Approach) simulation gaining Continuing Professional Development
accreditation from the Royal College of Surgeons and inclusion on the
orthopaedic registrar training programme at St George's Hospital.
FundamentalVR also won the SXSW 2019 Interactive Innovation Award, 2019 Red
Herring 100 Europe Awards, and was chosen as one of the top 40 healthcare
transformers in MM&M's 2019 class.
The technology has continued to evolve in 2019, including integration with a
haptic glove and the inclusion of eye-tracking capability within the
simulation programme. FundamentalVR also announced a significant commercial
contract (worth approximately GBP0.5 million) with a leading pharmaceutical
company to create an additional virtual reality simulation, adding to the
Company's continued technological improvements.
The annual report and accounts for Fundamental VR for the year ended 31
December 2018 are expected to be submitted to Companies House shortly.
Wyld Networks Limited ("Wyld Networks"): GBP78,000 valuation, plus GBP0.5
million short term loan
Holding: 100%
Sector: IoT enablement
Invested Since: June 2016
During the period, this company rebranded from flexiOPS, following the
acquisition of the AMIHO product portfolio, from fellow Tern portfolio
company InVMA Limited.
By combining Wyld Network's product portfolio, a compelling proposition in
the IoT embedded communications industry, which currently operates in over
250,000 smart meters, with Wyld Technologies' Mesh solutions (90% owned); we
have now established a unique and value enhanced product suite delivering
secure intelligent mesh solutions empowering resilient IoT and 5G networks
to create value for people, places and things.
Networks have traditionally been centralised. This means that everything
connects to a central point, such as a base station or router which has to
handle all the network's traffic. However, decentralised networks, where
devices are linked to each other, are also possible. Decentralised networks
create an interlaced 'mesh' and can communicate through direct device to
device connections using multiple wireless technologies such as Bluetooth,
Wi-Fi Direct/P2P Wi-Fi and 5G.
Wyld's technology is unique in that it creates a wireless network which
connects people to people directly from smartphone to smartphone or device
to device, as well as device to people. It establishes a resilient and
low-latency mesh network without the need to route all the traffic through
the traditional hierarchical mobile infrastructure. This creates multiple
revenue generating and cost reducing use cases in areas of high population
density and also where there is no mobile coverage.
In 2018, Wyld Networks signed smart-device delivery contracts and license
agreements for its wireless sensor technology in the smart energy (Cadis,
RCD, Develco) and smart agritech (Delta-T) sectors.
Wyld Networks was also awarded a GBP121,000 grant by Innovate UK to
collaborate on a new mass production technology, SmartDrop, for Archipelago
Technology Group Ltd.
Wyld Technologies launched its Intelligent Device Mesh Agent software
development kit (SDK) after completing technical trials with a large
underground metro system, and in 2019 participated in a large rail operator
accelerator, which launched Wyld Fusion, an Intelligent Content Management
System and Integration Platform.
The annual report and accounts for Wyld Networks for the year ended 31
December 2018 are expected to be submitted to Companies House shortly.
InVMA Limited ("InVMA"): GBP1 million valuation
Holding: 50%
Sector: IoT enablement
Invested Since: September 2017
InVMA is an end-to-end IoT and 'Industry 4.0' solution provider of IoT
products. It combines world-class management consulting expertise along with
hardware, software, IT and operational technology (OT) capabilities. This
allows it to build bespoke solutions that enable customers to disrupt their
market, create new revenue streams and reduce their operating costs quickly
with low risk. Tern has supported InVMA's management through this process in
line with our investment approach.
Its innovative product 'AssetMinder', which also integrates with Device
Authority's KeyScaler, enables management of all of an IoT client's assets
through one application, and has been the focus of growth during 2019. It
facilitates real-time monitoring, which is critical to fuelling IoT growth,
particularly in the Industrial IoT market, which is a key area of focus for
all our portfolio companies.
During the first half of 2019, InVMA increased its strategic partner base by
securing agreements with XL Group, Solid State Supplies, Robustel and ECA
Services.
InVMA has collaborated on 'Industry 4.0' contracts with ECA Services for
several of the UK's largest manufacturers. InVMA also secured an initial
GBP0.25m contract with a leading aerospace and defence organisation, to enable
an innovative Smart Factory implementation.
The annual report and accounts for InVMA for the year ended 31 December 2018
show net assets of GBP0.2 million and a loss of GBP0.5 million.
Seal Software Group Limited ("Seal Software"): GBP115,145 valuation
Holding: <1%
Sector: Database Analytics
Invested since: July 2014
During the first half of 2019 Seal Software, a leader in contract discovery
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and analytics, in which Tern holds less than 1%, has continued to grow and
develop its business with numerous new contracts and strategic partnerships
announced. Specifically:
· The company announced that Airbus will further expand its use of Seal
Software's artificial intelligence-driven technology in support of its
Digital Transformation Procurement.
· TPR, a leading German legal-tech provider, has selected Seal Software's
AI-driven contract analytics and extraction software as the basis for its
contract analysis business.
· Seal Software announced a partnership with AI Innovation of Sweden.
· Kevin Gidney, co-founder and chief technology officer at Seal Software
[2], was named one of the world's most influential voices in artificial
intelligence (AI). The list was based on a global analysis [3] by
AIBusinessCase.ai, a specialist research organisation focused on reporting
the competitive, cultural, and financial benefits of AI as a catalyst to
speeding its adoption.
Push Technology Limited ("Push Technology"): GBP61,161 valuation
Holding: <1%
Sector: Data distribution
Invested since: July 2014
We have been informed by management that Push Technology, a company in which
Tern holds less than 1%, has expanded both its international footprint and
the breadth of industries served by the company's 'Diffusion(R)' Real-Time
API Management platform during the first half of 2019.
For organisations worldwide, Diffusion powers the real-time applications and
systems critical to their business expansion, revenue growth, and optimal
ongoing business operations, by solving their real-time data management and
distribution challenges.
Financial
During the six months ended 30 June 2019, Tern provided ongoing support to
its underlying portfolio base, investing GBP1.4 million via loan note
facilities to provide capital for these entrepreneurial companies to enable
them to continue to grow and develop within their focused markets. The fair
value of the portfolio remained stable across the period with no movement
due to exchange rate fluctuations, which had impacted the previous
comparable periods. Cost management continues to be a focus for the Company.
The increase in administration costs during the six months compared to the
six months to 20 June 2018, was principally due to additional advisory costs
in the UK and the USA, along with an increase in Directors' salaries to
begin to bring them closer to more conventional market levels. Other
expenses in the period included costs associated with Tern exploring an
expansion to its portfolio through a strategic initiative with synergistic
value.
The net asset value per share of 6.9p as at 30 June 2019 remained broadly
comparable across the periods, compared to 7.1p at 31 December 2018 and 6.2p
at 30 June 2018.
Outlook
The Company remains committed to the areas of the IoT market outlined
earlier by expanding our participation in this start-up ecosystem in the UK,
through direct investments and innovative partnerships. We firmly believe
that the current entrepreneurial environment is spawning opportunities at a
rapid pace that are creating solutions to global problems, using a
combination of new and existing technologies that can benefit from our
investment thesis. We also believe that the model that we have transitioned
to lends itself to working with late seed and early stage series 'A'
partners in Europe to further syndicate our investments at reasonable
values, to reduce risk and accelerate portfolio company growth and value.
We are aiming to achieve US Venture Capital valuations for our UK
investments in later series 'B' rounds and beyond, to create shareholder
value and premium exit opportunities. We have set a target for our portfolio
activities to achieve an average of 20% year-on-year growth in portfolio
value by year end 2019 and beyond. We have achieved a modest 6% growth
during this reporting period within the portfolio and the Directors will be
seeking to achieve the target growth over the remainder of the financial
year.
We feel confident of making further progress during the second half of 2019
and look forward to making more announcements about business performance,
new developments and improvements for each of our portfolio companies and
reporting exciting new additions to the Tern portfolio. The timeline for
sourcing, structuring and executing new investments in market leading UK IoT
companies that fit within Tern's investment strategy will sometimes be
beyond Tern's direct control and although we now do not expect to reach our
objective of 12 investments by 31 December 2019, this remains a key strategy
for the Company at the earliest opportunity.
I would also like to extend our thanks to the management teams of our
portfolio companies who remain central to our whole investment business
model. We enter the second half of the year well positioned to capitalise on
opportunities in 2019 and remain focused on executing our strategy driving
long-term, sustainable NAV growth for our shareholders.
Al Sisto
Chief Executive Officer
25 September 2019
Unaudited Statement of Comprehensive Income
for the six months ended 30 June 2019
Notes 6 months to 6 months to 12 months
30 June 30 June to 31
2019 2018 December
2018
(Unaudited) (Unaudited) (Audited)
GBP GBP GBP
Turnover 51,965 64,245 106,117
Movement in fair value 11,724 282,987 775,910
of investments
Gross Profit 63,689 347,232 882,027
Administration costs (494,028) (393,212) (792,534)
Other Expenses (192,718) (178,740) (476,716)
Operating loss (623,057) (224,720) (387,223)
Finance 1,943 4,376 74,659
income
Finance costs (2,226) (908) -
Loss before tax (623,340) (221,252) (312,564)
Tax - - -
Loss and total (623,340) (221,252) (312,564)
comprehensive income for
the period
Earnings per share 9
Basic (0.25)p (0.1)p (0.1)p
Diluted (0.25)p (0.1)p (0.1)p
Unaudited Statement of Financial Position
as at 30 June 2019
30 June 30 June 31
December
2018
2019 2018
(Unaudited) (Unaudited) (Audited)
Note GBP GBP GBP
Assets
Investments 15,793,597 11,549,920 14,856,23
9
Non-current 15,793,597 11,549,920 14,856,23
assets 9
Current
assets
Trade and 780,347 1,133,132 239,180
other
receivables
Cash and 1,372,724 1,538,652 1,913,801
cash
equivalents
2,153,071 2,671,784 2,152,981
Total assets 17,946,668 14,221,704 17,009,22
0
Equity
attributable
to the
Company's
equity
holders
Share 10 1,352,433 1,346,665 1,348,903
capital
Share 21,006,754 16,833,172 19,660,43
premium 4
Loan note - - -
equity
reserve
Share option and - - -
warrant reserve
Retained (4,880,904) (4,237,080) (4,257,56
earnings 4)
17,478,283 13,942,757 16,751,77
3
Current
liabilities
Trade 405,760 34,024 64,370
payables
Accruals and 62,625 244,923 193,077
other
payables
468,385 278,947 257,447
Non-current
liabilities
Borrowings - - -
Total 468,385 278,947 257,447
liabilities
Total equity 17,946,668 14,221,704 17,009,22
and 0
liabilities
Unaudited Changes in Equity
as at 30 June 2019
Share Share Loan Option Retained Total
note and
warrant
equity
capital premium reserve reserve earnings equity
GBP GBP GBP GBP GBP GBP
Balance at 1,330,22 13,237,36 123,482 175,982 (4,286,2 10,580,
1 January 5 2 49) 802
2018
Total - - - - (221,252 (221,25
comprehensi ) 2)
ve income
Issue of 16,440 3,953,310 - - - 3,969,7
share 50
capital
Share and - (357,500) (357,50
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