REG - Checkit PLC - Interim Results
15/09/2022 07:00
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RNS Number : 5130Z Checkit PLC 15 September 2022
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF UK MARKET
ABUSE REGULATION. UPON THE PUBLICATION OF THIS ANNOUNCEMENT THIS INSIDE
INFORMATION IS NOW CONSIDERED TO BE WITHIN THE PUBLIC DOMAIN.
15 September 2022
Checkit plc
("Checkit" or the "Group")
Interim results for the six months ended 31 July 2022
Checkit plc (AIM: CKT) announces its unaudited results for the six months
ended 31 July 2022 (the "Period" or "H1 FY23").
Highlights
· Annual recurring revenue ("ARR") increased year on year by 48% to
£10.2m at period end (H1 FY22: £6.9m), reflecting upsell and customer wins.
· H1 recurring revenue increased by 44% to £4.4m (H1 FY22: £3.1m),
representing 82% of total revenue (H1 FY22: 39%).
· Total revenue from continuing operations declined by 31% to £5.4m
(H1 FY22: £7.9m), as a result of the previously announced discontinuance of
one-off BEMS projects with minimal software input.
· Losses from continuing operations increased by £2m to £4.6m (H1
FY22: £2.6m) reflecting the planned winding down of the BEMS business and
increased investment in the growth of the subscription business.
· Cash at 31 July 2022 was £19.5m (31 January 2022: £24.2m)
· Management is accelerating its plan to achieve profitability and
believes that monthly cash burn peaked in the period.
Checkit plc +44 (0) 1223 643 313
www.checkit.net
Kit Kyte (Chief Executive Officer)
Greg Price (Chief Financial Officer)
Singer Capital Markets (Nominated Adviser & Broker) +44 (0) 207 496 3000
Shaun Dobson / Harry Gooden / George Tzimas
Chief Executive Officer's Statement
Amidst a turbulent economic and political backdrop, Checkit has achieved a set
of financial results in the first half of FY23 in line with Board
expectations, generating an overall increase in ARR of 48% to £10.2m (FY22:
£6.9m). Checkit has continued to deliver against its strategy to transition
the business exclusively to higher quality and higher value recurring
revenues.
Sales bookings were in line with last year and we established our first $1m+
ARR US customer. Although the sales cycle has lengthened as a result of
customer caution in the current environment, our pipeline remains strong. We
continue to develop new customer relationships globally with a focus on large
multinational enterprise accounts and look for complementary partnerships to
accelerate our expansion.
The growing inflationary pressures have been successfully navigated to date
through the application of price increases and extending the length of
customer contractual terms. In response to uncertain market conditions,
Checkit will continue to execute against its growth strategy and develop its
technology, whilst also applying increased focus on reducing operating costs,
preserving cash and accelerating its path to profitability.
The deskless opportunity - the revenue, cost and risk prospects of effective
operations
Most large organisations today are still using manual, paper-based and other
outdated processes to drive the performance and activity of their frontline
workers, which significantly impedes their efficiency goals. Frontline work
goes unmeasured and hidden leading to inconsistent work, increased wastage and
unnecessary risk. Checkit calls this "Dark Operations". Dark Operations occur
when the activities of frontline operations are concealed from view, making it
impossible for leaders to understand the true efficiency of the business, and
difficult for managers to measure and improve productivity, identify risks and
deliver cost savings to the business. We believe organisations must digitise
their frontline processes if they are committed to tracking and optimising
performance, reducing costs and wastage and increasing efficiency and that the
Checkit platform offers the solution.
Growth strategy and ambitions
Checkit continues to believe that this growth opportunity is significant and
that Checkit is well placed to capitalise on its key strengths and
differentiation from its competitors. It offers:
· A single end-to-end solution across people, assets and buildings
efficiency. The Checkit platform possesses powerful AI, data and analytics
capabilities to provide meaningful insights and enable data driven decisions
· Fully automated processes between client assets (IoT) and the Checkit
platform
· Simple and scalable no-code implementation
· Extensive domain knowledge of the industries it serves
· Credibility and customer trust due to its status as a mature, listed,
and regulated entity
Revenue growth
Our pipeline continues to grow across retail, healthcare, facilities
management, franchise and pharmaceutical verticals. We have continued to
create targeted account entry points, leading to wider expansion across mid
and large enterprise accounts. The split of the sales pipeline by target
organisation size at the end of the first half between tier one (Large
enterprise), tier two (Enterprise) and tier three (Midsize) targets was 67%,
13% and 14% respectively. While new opportunities continue to be developed, we
have seen a lengthening of the sales cycle, which has impacted conversion
rates. ARR momentum in the second half of the year will be dependent on our
ability to accelerate pipeline progression against continuing economic
pressures.
Through the first half of the year, we expanded through upsell revenue from
existing customers including brands such as Compass, Sodexo and Grifols whilst
gaining initial entry points with new customers such as Just Eat and Biolife,
as we continue to benefit from our land and expand strategy. ARR growth of 48%
resulted in a consequent 44% growth in reported recurring revenue of £4.4m
(FY22 £3.1m).
Overall Group revenue reduced by 31% as our plan to close the BEMS function
was concluded. Checkit now focuses exclusively on higher margin recurring
revenues through our technology platform. A breakdown of H1 FY23 revenue from
continued operations is shown below.
Reported Revenue (£'m): Six months to
31 July 2022 31 July 2021 % Change
Actual Actual
ARR 10.2 6.9 +48%
Revenue
Recurring 4.4 3.1 +44%
Non-recurring 1.0 4.8 (79) %
Total Group 5.4 7.9 (31) %
Recurring revenue accounted for 82% of total revenue for the first six months
of the year. This is a significant change from H1 FY22, where recurring
revenue only accounted for 39%, demonstrating Checkit's transformation into a
subscription business. Recurring revenue is expected to account for a higher
proportion of total revenue in the second half.
Operating performance
Gross profit decreased from £4.1m to £3.0m, driven by the closure of the
BEMS business unit, as the Group focused wholly on its recurring revenue
streams from its technology solutions. Gross margins improved from 51% to 56%,
reflecting the higher margin nature of software sales. Looking forward,
further gross margin expansion is expected, as the Group benefits from product
led efficiency gains, reducing both hardware and platform costs.
Operating costs (excluding non-recurring or special items) increased by £1.4m
to £7.2m. This was the result of increased investment across the business to
support its expansion. We are balancing our growth strategy with an increased
focus on operational efficiency, as we pursue a clear path to profitability.
Investment in the Group's sales, marketing and product has identified new
solution areas and use cases across several industries, particularly in
hospitality, facilities management and senior living. Following our successful
contract win with Grifols during the close of FY22, the US market continues to
demonstrate growth, particularly in the healthcare sector. ARR from US
customers now amounts to £2.2m (£0.5m at 31 July 2021).
The business remains committed to investing in product development. In total,
£2.0m was invested in the product in H1 FY23 (H1 FY22: £1.5m), of which
£0.9m was capitalised (H1 FY22: £0.6m).
While inflationary pressures have been growing, these have been successfully
navigated to date through price increases to customers.
Overall, operating losses before non-recurring or special items for H1 FY23
were £4.2m, an increase of £2.5m compared to H1 FY22 (loss of £1.7m).
Cash
Cash at 31 July 2022 was £19.5m (£24.2m at 31 January 2022).
The Group continues to benefit from a strong balance sheet and in light of
market conditions, management is accelerating its plan to achieve
profitability and reduce cash burn. Management believes that monthly cash burn
has peaked and will reduce in H2.
Non-recurring or special items
Non-recurring or special items in the six months to 31 July 2022 related to
the amortisation of acquired intangible assets.
Product
Checkit's focus is on the nexus of IoT and workflow software for increasing
operational efficiency in safety and compliance use cases. One example is
helping businesses such as care homes, hotels and schools achieve Legionella
compliance by means of pipe monitoring sensors. Checkit's new offering in this
area also helps businesses achieve sustainability targets by reducing water
and energy consumption and reducing travel to remote sites. Compliance can be
demonstrated rapidly at any time using online dashboards and reports.
We have increased investment in our data platform, as we look to generate
predictive insights for customers from the billions of data points generated
each year. As we broaden the range of sensors we integrate with by working
with third parties, customers are also asking us to combine our data with
other sources, increasing the value and stickiness of our platform.
We continue to invest in the resilience, performance and scalability of our
platform, in order to drive down unit costs by optimising our use of cloud
services. We have also increased our internal innovation capacity by replacing
outsourced software development resources with in-house staff.
Operations and people
We are continually evolving our people agenda to enhance the Group's growth
and transformation as a business. Our agenda is focused on fuelling
performance with a clear alignment to our Group objectives, as we rely on the
talent and expertise of our people for the business to succeed.
Our evolving operational model is built upon our increasing focus on customer
success. Through automation initiatives we continue to create innovative
self-service customer support for education and issue triage. Automation in
our call centre function is one of these initiatives. Automated calls,
historically performed by staff, now directly alert our customers to known
sensor escalations in real-time. Customers can acknowledge these alarms
creating a complete audit trail (voice recording) or choose to speak directly
to a support representative. This increased operational efficiency facilitates
the redeployment of staff to value-add support functions and customer service.
Outlook
We continue to execute against our growth strategy, transitioning our core
business to focus exclusively on high quality, high value subscription
revenues in our key geographies. Whilst we have experienced a slowdown in
bookings in the period due to macro-economic pressures, which will affect ARR
growth in the second half, the picture for the business remains positive, with
an expanding customer base, advanced service offering and continued contract
momentum. With an increased focus on operational efficiency, the Board is
confident in delivering operating losses for FY23 better than expectations set
at the beginning of the year.
Consolidated statement of comprehensive income
unaudited interim results to 31 July 2022
Unaudited Restated* Unaudited Audited
Half year to Half year to Year to
31 July 31 July 31 January
2022 2021 2022
£m £m £m
Revenue (Note 2) 5.4 7.9 13.3
Cost of sales (2.4) (3.8) (7.1)
Gross profit 3.0 4.1 6.2
Operating expenses
Net operating expenses (excluding non-recurring or special items) (7.2) (5.8) (10.9)
Operating loss before non-recurring or special items (4.2) (1.7) (4.7)
Non-recurring or special items (Note 3) (0.5) (1.0) (2.4)
Total operating expenses (7.7) (6.8) (13.3)
Operating loss (4.7) (2.7) (7.1)
Finance income - - -
Loss before taxation (4.7) (2.7) (7.1)
Taxation (Note 4) 0.1 0.1 0.3
Loss from continuing operations (4.6) (2.6) (6.8)
Profit from discontinued operations (Note 5) - - -
Loss for the period attributable to equity shareholders (4.6) (2.6) (6.8)
Other comprehensive expense
Exchange differences on translation of foreign operations - - -
Total other comprehensive income - - -
Total comprehensive expense for the period attributable to equity shareholders (4.6) (2.6) (6.8)
Loss per share (Note 7)
Continuing (4.2)p (4.2)p (10.0)p
Discontinued - - -
The accompanying notes form an integral part of this consolidated interim
financial information.
* See Note 8.
Consolidated balance sheet
unaudited at 31 July 2022
Unaudited Unaudited Audited
31 July 31 July 31 January
2022 2021 2022
£m £m £m
Assets
Non-current assets
Goodwill arising on acquisition 4.5 4.5 4.5
Capitalised development costs 2.3 0.6 1.5
Other intangible assets 0.9 1.7 1.3
Property, plant and equipment 1.0 0.7 1.0
Total non-current assets 8.7 7.5 8.3
Current assets
Inventories 2.0 1.4 1.8
Trade and other receivables 4.1 3.8 3.0
Cash and cash equivalents 19.5 8.5 24.2
Total current assets 25.6 13.7 29.0
Total assets 34.3 21.2 37.3
Current liabilities
Trade and other payables 6.8 5.3 5.2
Lease liabilities 0.3 0.2 0.5
Total current liabilities 7.1 5.5 5.7
Non-current liabilities
Long-term provisions 0.3 0.3 0.3
Lease liabilities 0.4 0.2 0.2
Deferred tax - 0.2 0.1
Total non-current liabilities 0.7 0.7 0.6
Total liabilities 7.8 6.2 6.3
Net assets 26.5 15.0 31.0
Equity attributable to equity holders of the parent
Called-up share capital 5.4 3.1 5.4
Share premium 23.3 5.4 23.3
Capital redemption reserve 6.4 6.4 6.4
Other reserves 0.2 0.1 0.1
Retained earnings (8.8) - (4.2)
Total equity 26.5 15.0 31.0
The accompanying notes form an integral part of this consolidated interim
financial information.
Consolidated statement of changes in equity
unaudited interim results to 31 July 2022
Share Share Capital Other Retained Total
capital premium redemption reserves earnings £m
£m £m reserve £m £m
£m
At 1 February 2021 3.1 5.4 6.4 0.1 2.6 17.6
Loss for the period - - - - (2.6) (2.6)
Total comprehensive income/(expense) for the period - - - - (2.6) (2.6)
At 31 July 2021 3.1 5.4 6.4 0.1 - 15.0
Loss for the period - - - - (4.2) (4.2)
Total comprehensive income/(expense) for the period - - - - (4.2) (4.2)
Issue of new shares 2.3 17.9 - - - 20.2
Transactions with owners 2.3 17.9 - - - 20.2
At 1 February 2022 5.4 23.3 6.4 0.1 (4.2) 31.0
Loss for the period - - - - (4.6) (4.6)
Total comprehensive income/(expense) for the period - - - - (4.6) (4.6)
Share-based payments - - - 0.1 - 0.1
Transactions with owners - - - 0.1 - 0.1
At 31 July 2022 5.4 23.3 6.4 0.2 (8.8) 26.5
The accompanying notes form an integral part of this consolidated interim
financial information.
Consolidated statement of cash flows
unaudited interim results to 31 July 2022
Unaudited Unaudited Audited
Half year to Half year to Year to
31 July 31 July 31 January
2022 2021 2022
£m £m £m
Net cash flows from operating activities
Loss before taxation
- From continuing operations (4.7) (2.7) (7.1)
- From discontinued operations - - -
Adjustments for:
Depreciation charge 0.2 0.3 0.5
Amortisation of other intangibles 0.6 0.8 1.4
Share based payments 0.1 - -
Operating cash flows before working capital changes (3.8) (1.6) (5.2)
(Increase)/decrease in trade and other receivables (1.2) 0.9 1.6
Increase in inventories (0.2) (0.2) (0.6)
Increase/(decrease) in trade and other payables 1.6 (0.7) (0.8)
Operating cash flows after working capital changes (3.6) (1.6) (5.0)
Increase in provisions - - -
Cash used in operations (3.6) (1.6) (5.0)
Tax credit received - - 0.1
Net cash outflows from operating activities (3.6) (1.6) (4.9)
Investing activities
Interest received on bank deposits - - -
Purchase of property, plant and equipment - (0.2) (0.1)
Investment in product development projects (0.9) (0.6) (1.5)
Investment in other intangibles (0.2) (0.3) (0.7)
Purchase of business (net of cash acquired) - (0.4) (0.4)
Disposal of businesses (net of cash sold) 0.2 0.2 0.4
Net cash used in investing activities (0.9) (1.3) (2.3)
Financing activities
Issue of new shares - - 20.2
Repayment of contract lease liabilities (0.2) (0.1) (0.3)
Net cash (used in)/generated by financing activities (0.2) (0.1) 19.9
Net (decrease)/increase in cash and cash equivalents (4.7) (3.0) 12.7
Cash and cash equivalents at the beginning of the period 24.2 11.5 11.5
Cash and cash equivalents at the end of the period 19.5 8.5 24.2
The accompanying notes form an integral part of this consolidated interim
financial information.
Notes to the unaudited interim results
to 31 July 2022
1. Accounting policies
The interim financial information has been prepared in accordance with
UK-adopted International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards.
Full details of accounting policies are included in the annual report for the
year ended 31 January 2022. Fixed annual charges are apportioned to the
interim period on the basis of time elapsed. Other expenses unless disclosed
otherwise are accrued in accordance with the same principles used in the
preparation of the annual accounts.
2. Segmental reporting - continuing operations
Revenues
The following table presents the different revenue streams of Checkit:
Half year to Half year to Year to
31 July 31 July 31 January
2022 2021 2022
£m £m £m
Recurring revenues from subscription services 4.4 3.1 6.8
Installation, maintenance and support 1.0 4.8 6.5
Total 5.4 7.9 13.3
The Group considers its operations to be in the following geographical
regions:
Geographic Half year to Half year to Year to
31 July 31 July 31 January
2022 2021 2022
£m £m £m
United Kingdom 4.3 7.0 11.7
Rest of Europe 0.1 - -
The Americas 1.0 0.9 1.6
Total 5.4 7.9 13.3
3. Non-recurring or special items
Non-recurring or special items are disclosed separately to improve visibility
of the underlying business performance.
Management has defined such items as costs associated with the acquisition or
disposal of businesses, restructuring, amortisation of acquired intangible
assets and other non-recurring items incurred outside the normal course of
business.
Half year to Half year to Year to
31 July 31 July 31 January
2022 2021 2022
£m £m £m
Cash items
Costs incurred in issue of new shares - - 0.1
Disposal costs of India operations - - 0.2
Restructuring and integration costs - 0.3 0.7
- 0.3 1.0
Non-cash items
Amortisation of acquired intangible assets 0.5 0.7 1.4
0.5 0.7 1.4
Total non-recurring or special items 0.5 1.0 2.4
4. Taxation
The tax credit on the loss from continuing operations before taxation has been
estimated at £0.1m (H1 FY22: £0.1m; FY22: £0.3m). The Group has in excess
of £28m of tax losses carried forward.
5. Discontinued operations
During the year ended 31 January 2021, the Group sold assets relating to its
Elektron Eye Technology business. Consequently, the business continued to be
included as discontinued operations.
Half year to Half year to Year to
31 July 31 July 31 January
2022 2021 2022
£m £m £m
Revenues - 0.2 0.2
Expenses - (0.2) (0.2)
Profit before tax - - -
Attributable tax - - -
Profit after tax - - -
Gain on disposal on remeasurement to fair value - - -
Attributable tax to gain on disposal - - -
Profit from discontinued operation attributable to equity shareholders - - -
Foreign currency reserve reclassification - - -
Other comprehensive income from discontinued operations - - -
On 1 July 2020 and 13 January 2021, the Group disposed of assets relating to
its Elektron Eye Technology business for a total net proceeds of £0.9m,
payable in 24 monthly instalments. £nil remains payable as deferred
consideration at the end of the half year to 31 July 2022 (£0.4m at 31 July
2021).
£m
Consideration 0.9
Assets sold 0.4
Gain on sale 0.5
6. Businesses acquired - Tutela Monitoring Systems LLC
In the prior financial year, the Group acquired 100% of the equity of Tutela
Monitoring Systems LLC ("Tutela"), a US-based business. The results for the
comparative periods of the six months ended 31 July 2021 and year ended 31
January 2022 incorporate results from the date of acquisition, being 4
February 2021.
Tutela generated a profit of less than £0.1m on sales of £0.9m for the
period from 4 February 2021 to 31 July 2021 and a loss of £0.2m on sales of
£1.6m for the period from 4 February 2021 to 31 January 2022. If Tutela had
been acquired on 1 February 2021, revenues and profits would have been
unchanged for both comparative periods.
7. Earnings per share
Earnings per share (EPS) is the amount of post-tax profit attributable to each
share (excluding those held by the Company).
Basic EPS measures are calculated as the Group profit for the period
attributable to equity shareholders divided by the weighted average number of
shares in issue during the period.
Diluted EPS takes into account the dilutive effect of all outstanding share
options priced below the market price, in arriving at the number of shares
used in its calculation. However, in this case, as set out in IAS 33, the
potential ordinary shares cannot be treated as dilutive as their conversion to
ordinary shares would decrease loss per share from continuing operations,
resulting in basic and diluted measures being the same.
Key 31 July 31 July 31 January
2022 2021 2022
Million Million Million
Weighted average number of ordinary shares for the purposes of basic earnings A 108.0 62.4 68.1
per share
(Loss)/earnings for the period Key 31 July 31 July 31 January
2022 2021 2022
Million Million Million
(Loss) for the period B (4.6) (2.6) (6.8)
Profit from discontinued operations, net of tax C - - -
Continuing loss for the period D (4.6) (2.6) (6.8)
Total non-recurring or special items net of tax 0.4 0.9 2.1
Continuing loss adjusted for EPS E (4.2) (1.7) (4.7)
Key 31 July 31 July 31 January
2022 2021 2022
Continuing EPS measures
Basic and diluted D/A (4.2)p (4.2)p (10.0)p
Adjusted continuing EPS measures
Basic and diluted E/A (3.9)p (2.7)p (7.0)p
Discontinued EPS measures
Basic and diluted (C)/A - - -
Total EPS measures
Basic and diluted B/A (4.2)p (4.2)p (10.0)p
8. Restatement
To align the consolidated statement of comprehensive income as at 31 July 2021
with the treatment in the audited accounts as at 31 January 2022, cost of
sales has been reduced by £0.6m, with a corresponding increase in operating
expenses. The overall operating loss for the period for the Group remains
unchanged as a result of this reclassification.
9. Cautionary statement
This interim financial information has been prepared only for the shareholders
of Checkit plc as a whole and its sole purpose and use is to assist
shareholders to exercise their governance rights. Checkit plc and its
Directors and employees are not responsible for any other purpose or use or to
any other person in relation to this report.
The report contains indications of likely future developments and other
forward-looking statements that are subject to risk factors associated with,
among other things, the economic and business circumstances occurring from
time to time in the countries, sectors and business segments in which the
Group operates. Key risks and their mitigation have not changed materially in
the period from those disclosed on pages 29 to 31 of the annual financial
statements for the year ended 31 January 2022.
These and other factors could adversely affect the Group's results, strategy
and prospects. Forward-looking statements involve risks, uncertainties and
assumptions. They relate to events and/or depend on circumstances in the
future which could cause actual results and outcomes to differ materially from
those currently anticipated. No obligation is assumed to update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
10. Other information
The financial information in this statement does not constitute statutory
accounts within the meaning of Section 434 of the Companies Act 2006. The
financial information in respect of the year ended 31 January 2022 has been
extracted from the statutory accounts, which have been filed with the
Registrar of Companies. The independent auditor's report on those accounts was
unqualified and did not contain a statement under Sections 498(2) or 498(3) of
the Companies Act 2006.
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