Tern Plc : Half-yearly report

26 July 2016

Tern Plc

Chairman's statement for the half year to 30 June 2016

Tern Plc ("Tern" or the "Company"), the AIM quoted investment company specialising in the cloud and mobile sectors of the software market, is pleased to announce its interim results for the six months to 30 June 2016.

Group Highlights

                                                                30 June 2016                      30 June 2015

• Net Assets                          £7,281,023                           £862,502
• Current Assets                     £140,069                           £421,580
• Total Assets                        £7,493,313                           £1,204,068
• Device Authority Inc acquired by Cryptosoft Ltd
• Acquisition of two Flexiant business units Flexiant Research and Concerto

I am pleased to report that in the first six months of 2016 Tern has continued to make good progress in line with the business plan and against our stated objectives.

Device Authority

Tern has been a shareholder in Device Authority Limited ("Device Authority"), formerly known as Cryptosoft, for 20 months. When it was acquired in September 2014, Device Authority consisted of a piece of advanced software and a team of three engineers.  In the 12 months since the new management team was installed, it has grown into an international business with bases in the UK and the USA, it has established strategic partnerships with world renowned software and hardware businesses, created a growing sales pipeline and expanded the team to more than 15 very talented employees.

Device Authority Highlights

• New team recruited and in place
• New products
• Awareness in the market created by:
  • Three Award mentions: CIO Review, Gartner Cool Vendor and Infosecurity Europe 2016
  • New Website
  • Regular webinars often in tandem with strategic partners
  • Events at conferences and shows
  • New product offerings
• Strategic Alliances - with 10 major players, 5 since 1 Jan 2016 including Intel and Dell

In April 2015, Device Authority Inc. was acquired.  The transaction had the following effects:

• The value of Tern's shareholding in Device Authority increased to £7,144,288
• New institutional investor, Alsop Louie Partnership, in Device Authority Limited
• Patent portfolio acquired: 9 granted with a further 12 applied for

Following the acquisition trading has progressed with:

• Integration of the two organisations with approximately 20% reduction in overheads
• Commercial contracts increasing in number and size
• Integrated sales pipeline growing

In June 2016, in line with its stated objectives to acquire controlling interests in businesses; Tern bought two business units of Flexiant Limited.

• The first, "Concerto multi cloud and container management software", is in a fast growing market sector, which offers significant opportunity.   It is expected to take several months before the benefits of Tern's ownership becomes apparent, as the opportunities are with larger organisations.
• Flexiant Research unit - an established software research and development unit which regularly participates in EU consortia.  We believe it will be a key technology contributor to our other portfolio companies.

Financial

The total assets of Tern increased significantly from £1.8 million at 1 January 2016 to £7.5 million at 30 June 2016 principally as a result of the following events:

• Re-valuation of investments:
  • The carrying value of Device Authority Limited was increased based on investments by a new third party investor when Device Authority acquired Californian authentication specialist, Device Authority Inc. 
  • The revaluation above has been partially offset by write-downs of the investments in Flexiant Ltd and Push Technologies Ltd.
• Placing of 9,166,666 new ordinary shares at a price of 12p which raised £1.1 million in February 2016
• Two of Flexiant's business units, Flexiant Research and Concerto, were acquired at a cost of £75,000
• Tern's overheads include one-off costs of approximately £76,000 relating to the acquisition of Device Authority Inc, and the recently acquired Flexiant business units.

Post balance sheet events

• A further placing of 6,562,500 ordinary shares at a price of 8p raising £525,000 was completed in July 2016 which has strengthened the current asset position of the Company.

• The business units acquired from Flexiant Limited collected over £90,000 from debtors in July 2016

Shareholder Communication

Shareholders are welcome to submit comments and queries through the contact section of the Tern website www.ternplc.com.  Whilst all are considered it is not always possible to reply individually.

Use of Distributable Profits

In line with the previously stated investment policy; it is the intention of the Board to utilise the realised profits after tax, subject to there being sufficient funds and distributable reserves, as follows: dividends, reinvestment and up to 10% to incentivise and reward management.

Outlook

We are confident of further progress in the second half and look forward to making announcements about new developments and improvements for each of our companies and investments.

Finally, I wish to thank all shareholders for their support and acknowledge the hard work of the directors and our advisors.

Enquiries:

About Tern:

Tern Plc acquires and invests in privately owned companies with established products incorporating their own IP and an established customer base. Its investment strategy is focused on taking an active role in its investee companies in order to improve the business model, accelerate growth, expand the business globally, and identify exit opportunities.

Unaudited Statement of Comprehensive Income
for the 6 months ended 30 June 2016

Unaudited Statement of Financial Position
as at 30 June 2016

Unaudited Statement of Cash flows

for the 6 months ended 30 June 2016

Notes to the unaudited interim statement
for the 6 months ended 30 June 2016

1. General information

The Company is a public limited company listed on AIM and is incorporated in England and Wales.

The address of its registered office is 9 Catherine Place, London SW1E 6DX. Items included in the financial statements of the Company are measured in Pound Sterling which is the currency of the primary economic environment in which the entity operates. The financial statements are also presented in Pound Sterling which is the Company's presentational currency.

2. Basis of preparation

The interim financial statements of Tern Plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and on the historical cost basis using the accounting policies which are consistent with those set out in the Company's Annual Report and Accounts for the year ended 31 December 2015.

This interim financial information for the six months to 30 June 2016 was approved by the board on [25 July 2016].

The unaudited interim financial information for the period ended 30 June 2016 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the year ended 31 December 2015 are extracted from the audited statutory financial statements for that period.

3. Earnings per share

Earnings per share is calculated by reference to the weighted average shares in issue as follows:

The same number of shares is used for the calculation of the diluted loss per share as for the basic loss per share for the 6 months to 30 June 2015 as the loss in this period has an anti-dilutive effect.

4. Share capital

The deferred shares have negligible value, being subject to restrictions as to voting, participation and redemption according to the new Articles of Association then adopted, nor are they quoted on the Stock Exchange.

5. Note to the cash flow statement

6.         Availability of Interim results

Copies of the report will be available from the Company's website www.ternplc.com.