REG - Checkit PLC - Preliminary Results
28/04/2022 07:00
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RNS Number : 6141J Checkit PLC 28 April 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.
28 April 2022
Checkit plc
("Checkit", the "Company" or the "Group")
Preliminary results for the Year Ended 31 January 2022
Checkit plc (AIM: CKT) announces its unaudited preliminary results for the
year ended 31 January 2022 ("FY22") ahead of the release of the audited
accounts and annual report, which will be published ahead of the Annual
General Meeting, which is expected to take place on 9 June 2022.
The Group's management team will host a live webinar which will include an
opportunity for questions at 12:00 (BST) on 28 April 2022. The webinar can be
accessed via the news area of the website at https://www.checkit.net/news/
(https://www.checkit.net/news/) or by using this link:
https://us02web.zoom.us/webinar/register/1216475075630/WN_eTaq6R5SQIGkVnk-6ZbLpg
(https://us02web.zoom.us/webinar/register/1216475075630/WN_eTaq6R5SQIGkVnk-6ZbLpg)
FY22 HIGHLIGHTS
· Pipeline at year end £15.4m
· Annual recurring revenue ("ARR") run rate at year end of £8.2m
(+43%) ahead of market expectations (FY21: £5.8m normalised*)
· Annualised sales bookings at year end of £3.5m
· Recurring revenue (+31% to £6.8m) supported by new customer wins and
expansion within existing accounts (FY21: £5.2m)
· Total Group revenue from continuing operations £13.3m (-7%) (FY21:
£14.4m normalised)*
· Non-recurring revenue declined by 29% primarily driven by the
planned transition of BEMS activity to a SaaS (Software as a Service) offering
as outlined at the time of the fundraise
· Operating loss before non-recurring or special items** £4.7m (FY21:
loss of £3.1m) reflecting the ongoing investment to accelerate Checkit's
strategic plan
· Operating loss of £7.1m (FY21: loss of £5.3m)
· Cash at year end of £24.2m (FY21: £11.5m) following receipt of
proceeds from the placing, which raised £21m (gross) to accelerate the
Group's growth strategy
· Appointment of Kit Kyte, Chief Executive Officer, bringing a renewed
focus on the go-to-market strategy, value-driven sales, and leading the
transition of Checkit towards a pure SaaS business.
· Strengthened US presence with the acquisition of Tutela Monitoring
Systems LLC ("Tutela"), establishing a US base in Florida.
* Normalised revenue refers to revenue that would have been included in the
Group's financial results had Tutela LLC, which was acquired on 4 February
2021, been owned by the Group throughout both periods.
** Non-recurring or special items include such items as restructuring,
acquisition and fundraising costs and amortisation of acquired intangibles and
other non‑recurring items incurred outside the normal course of business.
Outlook
· Trading since the start of the new financial year has progressed
well, in line with the Board's expectations. We have secured new customers,
expanded within existing accounts, and continued to progress our investment
plans to support our growth strategy.
Checkit plc +44 (0) 1223 371 000
www.checkit.net
Kit Kyte (Chief Executive Officer)
Greg Price (Chief Financial Officer)
Singer Capital Markets (Nominated Adviser and Broker) +44 (0) 207 496 3000
Shaun Dobson / Harry Gooden / George Tzimas
CHAIRMAN'S STATEMENT
Dear Shareholder
I am pleased to present the Checkit 2022 preliminary results.
At the end of the 2022 financial year, I completed 17 years as a director of
the Group and for much of the period, this was in an executive capacity. It
was time for me to step back from an operational role and to that end, I
became non-executive with effect from 1 February. In recent years what was
originally a mini-conglomerate has been increasingly concentrated on the high
growth technology business of Checkit. That transformation is complete, giving
management a single focus.
During the year, leadership of the Group was transferred to Kit Kyte and both
as shareholder and director, I am excited by his vision. You will read more
about this in the Annual Report. My other board colleagues, namely Greg Price
(CFO), John Wilson (Senior Independent Director) and Simon Greenman
(Non-Executive Director) have provided immense support. We continue to examine
board composition, particularly with a view to improving diversity.
I want to personally welcome the new shareholders that joined us in the recent
placing and thank all of our investors for their support over the past
year.
Finally and most importantly, I should like to thank all past and present
employees of Checkit (and Elektron Technology plc in its former incarnation)
for their energy and dedication in creating value for shareholders. Although
we live in an uncertain world, I believe that the future for Checkit is
bright.
Keith Daley
Chair
CEO'S STATEMENT
The growth of our customer base since the beginning of the last financial
year, transitioning towards a pure SaaS business model, releasing the next
generation of our Connect platform and the successful capital raise were all
major milestones for Checkit. It is a huge testament to the hard work of our
team that these achievements were delivered against the backdrop of the
COVID-19 pandemic.
As with so many businesses, our standard form of interaction with newly
onboarded customers and prospects was restricted by the continuation of
lock-down measures. Checkit has continued to respond with ingenuity and
commitment and adapted our implementation and installation programmes to be
delivered remotely and we are proud to have demonstrated the same benefits to
our customers versus traditional methods of delivery. We also extended our
offering by building self-install features, digital adoption technology and
enhanced AI/ML capabilities into the platform. We continue to see
significant global engagement with our core value offering through key
expansion and new deals in Australia, New Zealand and North America.
Strong financial performance
Checkit has produced a strong set of financial results in FY22, delivering a
second consecutive year of high quality recurring revenue growth by continuing
to focus on attracting new customers, while expanding our footprint and
implementing price initiatives with existing customers.
Annual recurring revenue grew by 43% to £8.2m (FY21: £5.7m), driven by
strong sales during H2. New business contributed to £0.8m of this growth,
driven by transformed market positioning and through demonstrating measurable
value to customers. The increase in ARR resulted in 31% growth in reported
recurring revenue of £6.8m (FY21: £5.1m). The lag in Group recurring revenue
percentage growth, compared to the growth rate of ARR reflects the
acceleration of contracts signed during the second half of the financial year.
Reflecting ongoing investment to drive strategic execution, operating losses
for the year (before non-recurring or special items) in FY22 increased to
£4.7m (2021: £3.1m loss). The Group invested in its product, sales and
marketing functions to support its expansion, increasing new product
development spend to £3.4m (FY21: £2.5m) as the Group invested in new
enhanced functionality, including mobile alerting, shared libraries and
job-sharing capabilities, in addition to doubling sales and marketing
investment to £2.7m (FY21: £1.4m) with an expanded sales and marketing team
in both the UK and US to fuel growth. This latter investment allowed the
Group to deliver new sales bookings of £3.5m.
This strong performance is underpinned by the Group's transformation into a
scale up SaaS business. The Group is now wholly focused on delivering
recurring revenue from its technology solutions. As a result, recurring
revenue accounted for 51% of total revenue for the full year and in the last
three months of the year, it contributed 75% of total revenue for that period
as Checkit continues its transition into a pure SaaS business.
Building a sustainable, software-driven growth business
We are entering the most exciting period in Checkit's history. Let me explain
why.
Through the evolution of our go-to-market strategy, the Group has increased
its sales pipeline to £15.4 million during the financial year and by year end
we had secured more than £3.5m of annualised new bookings.
Alongside this, the Company has also improved the quality of the sales
pipeline by achieving a higher mix of opportunities from tier one and two
enterprise targets. The split of the sales pipeline by FY22 year-end between
tier one, tier two and tier three targets was 54%, 37% and 9% respectively,
compared to 21%, 72%, and 6% respectively in January 2021.
Checkit's new customer pipeline in the US, a key growth market for the
Company, now includes a number of multi-site organisations across the
healthcare, food and hospitality sectors. The recent award, before year end,
of the Grifols contract in the US at a minimum value of £2.7m over three
years is further evidence of the size of the opportunity in this market.
A rapidly evolving industry
Surprisingly, 73% of frontline employees are still using manual and
paper-based processes to conduct their work. The knowledge of how to perform
those processes is kept in their heads, and the outputs stored on paper which
results in: knowledge "walking out of the door" when such workers move jobs or
retire, inconsistent work being performed, and a lack of visibility
(particularly in real time) of the state of the business - leading to the
creation of what Checkit refers to as "dark operations". Dark operations occur
when a large proportion of operations are hidden from view, making it
difficult for managers to measure productivity and identify risks and
opportunities within their business.
We believe that there is a compelling need to digitise the deskless workforce
to enable organisations to: (i) track and optimise performance, (ii) reduce
costs and wastage; and (iii) increase efficiency, especially against a
backdrop of rising labour costs and supply chain challenges, which are
significantly impacting service delivery.
Growth strategy and ambitions
Checkit is well positioned to capitalise on this growth opportunity due to the
following key strengths which differentiate its offering from that of its
competitors:
· Checkit is meeting market demand with what we believe to be an
unrivalled end-to-end solution. The Checkit platform possesses powerful AI,
data and analytics capabilities to provide meaningful insights and enable data
driven decisions;
· providing fully automated connectivity between client assets (IoT)
and the Checkit platform
· the Company has built up considerable domain knowledge of the
industries it serves, which will help the Company to adapt to an evolving
business landscape; and
· enhanced credibility and customer trust due to its status as a
mature, listed and regulated entity.
The Company intends to significantly expand into the US market, with on the
aim of growing it to become the leading contributor of ARR to the business by
the end of FY24. In order to capitalise on the opportunity presented by
expanding into the US and also the rest of the world, the Company intends to
scale up the headcount of sales and marketing in both regions.
Checkit's longer term objectives include becoming the market leader in
workflow management for the deskless worker industry and growing the US to
become the leading contributor of ARR to the business.
In order to achieve our growth objectives and deliver shareholder value, the
Company's strategy will focus on:
1. Converting Checkit into a pure SaaS business - with the aim to create
a fully integrated AI platform with the ability to integrate third party IoT
within its ecosystem. The improved Checkit platform will also be the
foundation of the Smart Building SaaS offering once the transition from
Building and Energy Management Systems (BEMS) is complete
2. Accelerating scale and global growth - the Company will invest
significantly into sales and marketing efforts to drive top line growth
coupled with further development of the Checkit AI platform to create a market
leading product. ARR growth will be further accelerated through investment in
a separate sales function to focus on increasing opportunities via
partnerships. The Company will also consider compelling M&A opportunities
as an additional scale opportunity.
3. Transform the operating model and culture of the business - in order
to improve the prospects of achieving our growth objectives, we will seek to
optimise the Company's existing processes across its business and continuously
assess potential cost efficiencies with the aim of improving margins. Of
paramount importance will be our ability to maintain and grow a high achieving
mentality across the Checkit workforce.
Positive Outlook
Our purpose is to simplify and digitise the running of operations for the
deskless industry - and never has that been more important. We know that
simplifying how organisations manage operational performance has a
transformative impact on organisational success, the wellbeing of employees
and the outcomes for customers.
When we look back at what was a tumultuous year for us all, we are excited at
the progress we have made as a business and proud of the support we have given
our customers, providing them with the insight, tools and methodology to
thrive in these challenging times. I join our Chairman and the rest of the
management team in thanking our entire team around the world for their support
through what has been a tough year for so many. I am incredibly proud of
everything the team has achieved to date, building a market leading offering
as well as a long-term, international, blue-chip customer base. However, we
are very much still at the start of our journey. Global supply chain
challenges, the rising cost of labour and increased compliance requirements
mean that the premium on simplifying deskless operations has never been more
relevant.
The Board continues to expect to meet FY23 market expectations and remains
confident that we are well positioned to deliver strong, sustainable organic
growth.
Whilst the conflict in Ukraine has no direct impact on the Group's activities,
the Board remains cautious about its indirect impact together with the
potential for general inflationary cost pressures.
Kit Kyte
CEO
FINANCIAL REVIEW
Delivering smart growth
The financial results for FY22 represent another year of strong progress for
Checkit. The Group's strategy to invest to support its expansion, with a focus
on delivering recurring revenue from its technology solutions, has resulted in
a second consecutive year of significant ARR growth.
Investment in the business has resulted in operating losses for the year
(before non-recurring or special items) increasing to £4.7m (2021: £3.1m
loss). Investment has centered on new product development and an enlarged
sales and marketing presence both in the UK and the US. The Group's
acquisition of Tutela in February 2021 has provided a platform for Checkit,
allowing the Group to accelerate its geographical expansion.
In November 2021, the Group successfully raised £20.0m (net of expenses)
through the placing of 45.6m new shares. The placing was significantly
oversubscribed as investors recognised the growth potential and market
opportunity presented by the Group.
The Group intends to use the proceeds raised to accelerate its growth
strategy, investing further in sales and marketing to drive top line growth,
transforming its operating model to enable future cost efficiencies and
continuing to develop the Checkit platform to create a market leading product.
This cycle of sales execution and phased investment will allow Checkit to
deliver smart growth.
ARR and Revenue
The table below shows ARR and revenue for the year ended 31 January 2022 and
includes comparisons with reported and normalised* prior year values.
ARR grew by 43% to close at £8.2m (FY21: 5.8m normalised), driven by strong
H2 sales bookings.
Total revenue for FY22 was £13.3m, a reduction of 7% compared to the prior
year on a normalised basis (FY21: £14.4m normalised). While recurring revenue
grew by 31%, non-recurring revenue declined in line with management's
expectations.
(£'m) Twelve months to
31 January 2022 31 January 2021 31 January 2021 % Change
Actual Actual Normalised (1) Normalised
ARR 8.2 5.7 5.8 +43%
Revenue
Recurring 6.8 5.1 5.2 +31%
Non-recurring 6.5 8.1 9.2 (29) %
Total Group 13.3 13.2 14.4 (7) %
*Prior year revenue has been normalised to illustrate revenue that would have
been included in the Group's financial results had Tutela LLC (acquired 4
February 2021) been fully owned by the Group throughout both periods.
ARR growth was driven by sales to new customers, as well as through pricing
initiatives and upselling to existing customers.
New business was driven by transformed market positioning and through
demonstrating measurable value to customers.
The acquisition of Tutela enhanced Checkit's reach within the Healthcare
sector, making this the fastest growing industry vertical. Together with NHS
trusts in the UK, Healthcare now represents 57% of Checkit's ARR and offers
significant growth potential, both in terms of further customer acquisition
and cross sell within existing customers.
The Group also extended its successful programme of transferring customers to
new subscription-based agreements to the US, combining recurring services with
one-off activities in line with the "peace of mind" SaaS pricing and
contractual model now adopted across Checkit.
As a result of this pricing initiative, the business unit saw further
conversion from non-recurring to recurring revenue during the year,
contributing approximately £0.3m to ARR.
The increase in ARR resulted in 31% growth in reported recurring revenue
compared to prior year on a normalised basis.
Recurring revenue includes like-for-like US recurring revenue growth of 82%,
driven by the strong bookings performance noted above. The lag in Group
recurring revenue percentage growth, compared to the growth rate of ARR
reflects the acceleration of contracts signed during the second half of the
financial year.
Recurring revenue accounted for 51% of total revenue for the full year. In the
last three months of the year, recurring revenue contributed 75% of total
revenue as Checkit continued its transformation into a pure SaaS business.
Non-recurring revenue declined in line with management's expectations and as
planned. The Group is now wholly focused on delivering recurring revenue from
its technology solutions (including those relating to smart buildings), rather
than traditional BEMS one-off projects with minimal software input.
EBIT
The Group operating loss before non-recurring or special items in FY22 was
£4.7m (2021: £3.1m loss).
In line with the Group's strategy, operating expenses (excluding any
non-recurring or special items) increased to £10.9m (2021: £9.6m), as the
Group invested in its product, sales and marketing to support its expansion.
New product development (NPD) spend totalled £3.4m (FY21: £2.5m), of which
£1.5m was capitalised (FY21: £nil), as the Group invested in new enhanced
functionality, including mobile alerting, shared libraries and job sharing
capabilities.
Investment in sales and marketing almost doubled to £2.7m (FY21: £1.4m), as
the Group invested in an expanded sales and marketing team in both the UK and
US to fuel growth, with a strategic focus on creating enterprise level
relationships with large multi-national and highly distributed customers.
Non-recurring or special items
Non-recurring or special items in the year of £2.4m related to amortisation
of acquired intangible assets, costs relating to the fundraise, and
restructuring and other one-off unusual costs related to the organisational
transformation programme:
FY22
£m
Restructuring and transformation costs 0.7
Costs relating to fundraise 0.1
Disposal costs of India operations 0.2
Amortisation of acquired intangible assets 1.4
Total non-recurring or special items 2.4
Taxation
The Group is currently loss making and therefore no corporate tax charge is
reported for the year FY22. A deferred tax credit of £0.3m arises from the
amortisation of intangible assets arising on the acquisition of Checkit UK
Limited. There remains over £22m in group carried forward taxable losses and
therefore there is no expectation of tax payments in the short to medium term.
EPS - continuing operations
The weighted average number of shares in issue in FY22 was 68.1m. Loss per
share (basic & diluted) was 10.0 pence (2021: 8.3 pence)
Acquisition
The acquisition of Tutela took place in February 2021 and cost £0.4m, net of
£0.2m of cash acquired with the business. The acquisition enables the Group
to accelerate its US expansion plans, providing a footprint and an opportunity
to add further scale.
Cash
The group cash position at 31 January 2022 was £24.2m (31 January 2021:
£11.5m), reflecting the oversubscribed placing in November 2021, when the
Group raised net proceeds of approximately £20.0m. As a result, Checkit is
well capitalised and strongly positioned to accelerate its programme of
investment, with the intention of achieving further ARR growth in FY23.
Consolidated statement of comprehensive income
year ended 31 January 2022
Notes 2022 Restated 2021
£m £m
Revenue 2 13.3 13.2
Cost of sales (7.1) (6.7)
Gross profit 6.2 6.5
Operating expenses
Operating expenses (excluding non-recurring or special items) (10.9) (9.6)
Operating loss before non-recurring or special items (4.7) (3.1)
Non-recurring or special items 3 (2.4) (2.2)
Total operating expenses (13.3) (11.8)
Operating loss 3 (7.1) (5.3)
Finance income - -
Loss before taxation (7.1) (5.3)
Taxation 5 0.3 0.3
Loss from continuing operations (6.8) (5.0)
Profit from discontinued operations 8 - 0.6
Loss for the year attributable to equity shareholders (6.8) (4.4)
Other comprehensive income/(expense)
Exchange differences on translation of foreign operations - -
Reclassification of exchange differences to income statement for discontinued - -
items
Total comprehensive income for the financial year attributable to equity (6.8) (4.4)
shareholders
Loss per share from continuing operations
Basic EPS 6 (10.0)p (8.3)p
Diluted EPS 6 (10.0)p (8.3)p
Consolidated balance sheet
as at 31 January 2022
Notes 2022 2021
£m £m
Assets
Non-current assets
Goodwill arising on acquisition 7 4.5 4.3
Other intangible assets 7 2.8 1.7
Property, plant and equipment 1.0 0.8
Total non-current assets 8.3 6.8
Current assets
Inventories 1.8 1.1
Trade and other receivables 3.0 4.9
Cash and cash equivalents 24.2 11.5
Total current assets 29.0 17.5
Total assets 37.3 24.3
Current liabilities
Trade and other payables 5.2 5.6
Contract lease liabilities 0.5 0.3
Total current liabilities 5.7 5.9
Non-current liabilities
Deferred tax liabilities 0.1 0.3
Long-term contract lease liabilities 0.2 0.2
Long-term provisions 0.3 0.3
Total non-current liabilities 0.6 0.8
Total liabilities 6.3 6.7
Net assets 31.0 17.6
Equity attributable to the owners of the Company
Called up share capital 5.4 3.1
Share premium 23.3 5.4
Capital redemption reserve 6.4 6.4
Own shares - -
Other reserves 0.1 0.1
Retained earnings (4.2) 2.6
Total equity 31.0 17.6
Consolidated statement of changes in equity
year ended 31 January 2022
Share Share Capital Own Other Translation Retained Total
capital premium redemption shares( 1 ) reserves reserve earnings £m
£m £m reserve £m £m £m £m
£m
At 31 January 2020 3.1 5.4 6.4 (0.7) - - 7.2 21.4
Loss for the year - - - - - - (4.4) (4.4)
Total comprehensive income for the year - - - - - - (4.4) (4.4)
Correction of reserve classification - - - 0.2 - - (0.2) -
Own shares sold - - - 0.5 - - - 0.5
Share based payments - - - - 0.1 - - 0.1
Transaction with owners - - - 0.7 0.1 - (0.2) 0.6
At 31 January 2021 3.1 5.4 6.4 - 0.1 - 2.6 17.6
Loss for the year - - - - - - (6.8) (6.8)
Total comprehensive income for the year - - - - - - (6.8) (6.8)
Issue of new shares 2.3 17.9 - - - - - 20.2
Share based payments - - - - - - - -
Transaction with owners 2.3 17.9 - - - - - 20.2
At 31 January 2022 5.4 23.3 6.4 - 0.1 - (4.2) 31.0
1 Shares held by the Elektron Technology 2012 EBT were treated as
treasury shares. All of the own shares were sold by the trust during the prior
year, resulting in a gain.
Consolidated statement of cash flows
year ended 31 January 2022
Notes 2022 2021
£m £m
Net cash outflow from operating activities 4 (4.9) (2.9)
Investing activities
Interest received on bank deposits - -
Purchase of property, plant and equipment (0.1) (0.3)
Investment in product development projects (1.5) -
Investment in other intangibles (0.7) -
Purchase of business (net of £0.2m cash acquired) (0.4) -
Sale of businesses (net of cash sold) 8 0.4 0.3
Net cash used in investing activities (2.3) -
Financing activities
Issue of new shares 20.2 -
Sale of own shares - 0.5
Repayment of contract lease liabilities (0.3) (0.4)
Net cash generated by financing activities 19.9 0.1
Net increase / (decrease) in cash and cash equivalents 12.7 (2.8)
Cash and cash equivalents at the beginning of the year 11.5 14.3
Cash and cash equivalents at the end of the year 24.2 11.5
1. Basis of Preparation
The unaudited preliminary consolidated financial statements comply with the
recognition and measurement criteria of UK-adopted International Accounting
Standards (IFRS) and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards and with the
accounting policies of the Group which were set out on pages 62 to 69 of the
2021 Annual Report and Accounts.
There were no new standards or amendments or interpretations to existing
standards that became effective during the year that were material to the
Group.
No new standards, amendments or interpretations to existing standards having
an impact on the financial statements that have been published and that are
mandatory for the Group's accounting periods beginning on or before 1 February
2022, or later periods, have been adopted early.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with international accounting standards, this
announcement does not itself contain sufficient information to comply with all
IFRS disclosure requirements. The Company's 2022 Annual Report and Accounts
will be prepared in compliance with UK-adopted International Accounting
Standards (IFRS).
The unaudited preliminary announcement does not constitute a dissemination of
the annual financial report and does not therefore need to meet the
dissemination requirements for annual financial reports. A separate
dissemination announcement in accordance with Disclosure and Transparency
Rules (DTR) 6.3 will be made when the annual report and audited financial
statements are available on the Company's website.
Statutory Information
The financial information included in this preliminary announcement does not
constitute statutory accounts. The statutory accounts for the year ended 31
January 2021 have been delivered to the Registrar of Companies and received
an unqualified auditors' report, did not draw attention to any matters by way
of emphasis and did not contain statements under s498 (2) or (3) of the
Companies Act 2006.
The statutory accounts for the year ended 31 January 2022 will be finalised on
the basis of the financial information presented by the directors in this
unaudited preliminary announcement and will be delivered to the Registrar of
Companies following the Company's General Meeting. The announcement of the
preliminary results was approved on behalf of the Board of directors on 27
April 2022.
Restatement of prior year
The Group has changed its accounting policy for Cost of Sales to better
reflect the management of the business and only include costs directly
incremental to delivering revenue. Cost of sales now includes the cost of
materials and hardware, the direct labour costs relating to delivery, external
systems and associated direct hosting costs for cloud platform products. All
other operating expenses incurred in the ordinary course of business are
recorded in selling and administrative expenses.
The prior year consolidated statement of comprehensive income and related
notes have been restated for the reclassification of certain costs between
cost of sales and administrative expenses. Consequently, 2021 results have
been restated in these financial statements to reflect a reduction in cost of
sales of £1.8m, with a corresponding increase in operating expenses. The
overall operating loss for the year for the Group remains unchanged.
Quantitative impact of restatement on financial results
Year ended 31 January 2021 As originally Reclassification of costs As restated
reported £m £m
£m
Consolidated statement of comprehensive income
Revenue 13.2 - 13.2
Cost of sales (8.5) 1.8 (6.7)
Gross profit 4.7 1.8 6.5
Operating expenses (excluding non-recurring or special items) (7.8) (1.8) (9.6)
Operating loss before non-recurring or special items (3.1) - (3.1)
Non-recurring or special items (2.2) - (2.2)
Total operating expenses (10.0) (1.8) (11.8)
Operating loss (5.3) - (5.3)
2. Segmental reporting
Management provides information reported to the Chief Operating Decision Maker
("CODM") as a single operating segment for the purpose of assessing
performance and allocating resources. The CODM is the Chief Executive Officer.
The Group's main activities are the supply of Connected Workflow Management,
automated monitoring and building management, Internet of Things ("IoT"), and
operational insight-based products and services.
Revenue by type of the continuing operations
The following table presents the different revenue streams of Checkit:
2022 2021
£m £m
Recurring revenues from subscription services 6.8 5.1
Installation maintenance and support 6.5 8.1
Total 13.3 13.2
Geographical information
The Group considers its operations to be in the following geographical
regions:
Revenue from external customers
2022 2021
£m £m
United Kingdom 11.7 12.7
The Americas 1.6 0.5
Total 13.3 13.2
Information about major customers of the continuing operations
During FY22, the Group had one customer who generated revenues of 29% of total
revenue (FY21: 29%).
Revenue expected to be recognised
The Group expects to recognise revenue amounting to £2.3m (2021: £2.1m) in
FY23 relating to performance obligations from existing contracts that are
unsatisfied or partially satisfied as at 31 January 2022.
3. Operating loss - continuing operations
2022 2021
£m £m
Operating loss is after charging/(crediting):
Depreciation on owned property, plant and equipment 0.2 0.1
Depreciation on right-of-use assets 0.3 0.5
Product development costs expensed 1.9 2.5
Government job retention scheme - (0.4)
Auditor's remuneration:
- fees payable to the Company's auditor for the audit of the Company's annual - -
accounts
- fees payable to the Company's auditor for the audit of the Company's 0.2 0.1
subsidiaries pursuant to legislation
Total audit fees for audit services 0.2 0.1
Tax services - 0.1
Total auditor's remuneration 0.2 0.2
Non-recurring or special items:
- Restructuring and integration costs 0.7 0.8
- Costs incurred in issue of new shares 0.1 -
- Disposal costs of India operations 0.2 -
- Pre-acquisition costs of Tutela LLC - 0.1
- Amortisation of acquired intangible assets 1.4 1.3
Total non-recurring or special items 2.4 2.2
Included within auditor's remuneration for audit services in FY22 is a sum for
less than £0.1m (2021: less than £0.1m) for the audit of overseas
subsidiaries carried out by an auditor other than Grant Thornton UK LLP.
Grant Thornton UK LLP was paid less than £0.1m for tax advisory and
compliance services (2021: £0.1m).
4. Net cash flows from operating activities
Notes 2022 2021
£m £m
(Loss)/profit before taxation
- from continuing operations (7.1) (5.3)
- from discontinued operations (before tax) 8 - 0.6
Adjustments for:
Depreciation 0.5 0.6
Amortisation 1.4 1.3
Gain on the sale of discontinued businesses 8 - (0.5)
Share-based payments - 0.1
Finance income - -
Operating cash flow before working capital changes (5.2) (3.2)
Decrease/(increase) in trade and other receivables 1.6 (0.9)
(Increase)/decrease in inventories (0.6) 0.6
(Decrease)/increase in trade and other payables (0.8) 0.6
Operating cash flow after working capital changes (5.0) (2.9)
(Increase)/decrease in provisions - -
Cash generated by operations (5.0) (2.9)
Tax credit received 0.1 -
Net cash outflow from operating activities (4.9) (2.9)
5. Taxation
(a) Analysis of tax (credit)/charge for the year - continuing operations
2022 2021
£m £m
Current taxation:
UK corporation tax charge on profit for the year - -
Total current taxation - -
Deferred tax:
On separately identifiable acquired intangibles (as a result of amortisation) (0.3) (0.3)
Total deferred taxation (0.3) (0.3)
Tax charge on continuing operations (0.3) (0.3)
(b) Analysis of tax charge for the year - discontinued operations
2022 2021
£m £m
Current taxation:
UK corporation tax charge on profit for the year - -
Overseas corporation tax charge on profit for the year - -
Overprovision for prior year - UK - -
Total current taxation - -
Deferred tax:
Origination and reversal of temporary differences - -
Under provision in respect of prior years - -
Total deferred taxation - -
Tax charge on discontinued operations - -
(c) Factors affecting taxation charge for the year - continuing operations
The effective tax rate for the year was 19%.
2022 2021
Tax rate £m Tax rate £m
Loss on continuing operations before taxation (7.1) (5.3)
Loss on ordinary activities multiplied by weighted average standard rate 19.0% (1.3) 19.0% (1.0)
of corporation tax in the UK of 19%
Effects of:
Expenses not deductible for tax purposes (1.3)% 0.1 (2.5)% 0.1
Temporary differences not recognised (2.1)% 0.1 2.6% (0.1)
Tax losses not recognised (11.3)% 0.8 (11.3)% 0.6
Surrender of losses to discontinued operations - - (1.9)% 0.1
(4.3)% (0.3) (5.9)% (0.3)
(d) Factors affecting taxation charge for the year - discontinued operations
2022 2021
Tax rate £m Tax rate £m
Profit on discontinued operations before taxation - 0.6
Profit on ordinary activities multiplied by weighted average standard rate of - - 19.0% 0.1
corporation tax in the UK of 19%
Effects of:
Profits not subject to tax - - - -
Temporary differences not recognised - - - -
Surrender of losses from continuing operations - - (19.0)% (0.1)
Prior year adjustments - - - -
- - - -
(e) Factors that may affect future taxation charges
Deferred taxation assets amounting to £4.1m (2021: £2.9m) have not been
provided in respect of unutilised income tax losses of £22.0m (2021: £15.5m)
that can only be carried forward against future taxable income of that same
trade as there is currently insufficient evidence that these assets will be
recovered.
The Finance (No.2) Act 2015 reduced the main rate of UK corporation tax to
19%, effective from 1 April 2017. A further reduction in the UK corporation
tax rate to 17% was expected to come into effect from 1 April 2020 (as enacted
by Finance Act 2016 on 15 September 2016). However, legislation introduced in
the Finance Act 2020 (enacted on 22 July 2020) repealed the reduction of the
corporation tax, thereby maintaining the current rate of 19%. Deferred taxes
on the balance sheet have been measured at 19% which represents the future
corporation tax rate that was enacted at the balance sheet date.
The UK Budget 2021 announcements on 3 March 2021 included measures to support
economic recovery as a result of the ongoing COVID-19 pandemic. These included
an increase to the UK's main corporation tax rate to 25%, which is due to be
effective from 1 April 2023. These changes were not substantively enacted at
the balance sheet date and hence have not been reflected in the measurement of
deferred tax balances at the period end. If the Group's recognised deferred
tax balances at the period end were remeasured at 25% this would result in a
deferred tax charge of £0.1m.
6. Earnings per share
Earnings per share (EPS) is the amount of post-tax profit attributable to each
share (excluding those held in the Employee Benefit Trust or by the Company).
Basic EPS measures are calculated as the Group profit for the year
attributable to equity shareholders divided by the weighted average number of
shares in issue during the year. 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.
Both of these measures are also presented on an adjusted basis, to remove the
effects of non-recurring or special items, being items of both income and
expense which are sufficiently large, volatile or one-off in nature, to assist
the reader of the financial statements to get a better understanding of the
underlying performance of the Group. The note below demonstrates how this
calculation has been performed.
Key 2022 2021
m m
Weighted average number of shares for the purpose of basic earnings per share A 68.1 61.5
Dilutive effect of employee share options( )*( ) - -
Weighted average number of shares for the purpose of diluted earnings per B 68.1 61.5
share
Key £m £m
Loss for the year (6.8) (4.4)
Profit from discontinued operations, net of tax E - (0.6)
Continuing loss for the year attributable to equity shareholders C (6.8) (5.0)
Total non-recurring or special items net of tax 2.1 1.9
Loss for adjusted EPS D (4.7) (3.1)
Key 2022 2021
EPS measures
Basic and diluted( )*( ) continuing EPS C/A (10.0)p (8.3)p
Adjusted EPS measures
Adjusted basic and diluted( )*( ) continuing EPS D/A (7.0)p (5.2)p
The adjusted EPS information is considered to provide a fairer representation
of the Group's trading performance.
Discontinued earnings per share
Key 2022 2021
EPS measures
Basic EPS (E)/A - 1.0p
Diluted EPS( )*( ) (E)/B - 1.0p
Total earnings per share for the year attributable to equity shareholders
Key 2022 2021
EPS measures
Basic EPS (10.0)p (7.3)p
Diluted EPS( )*( ) (10.0)p (7.3)p
* In the current and prior year, the dilutive impact of employee
share options is ignored since there is no dilutive impact on continuing
operations EPS measures given the continuing loss for the year.
7. Intangible assets
Development Computer Acquired Total
costs software intangible £m
£m £m assets Goodwill
£m £m
Cost
At 1 February 2020 7.1 0.1 4.0 4.3 15.5
Additions - - - - -
Disposals (0.6) - - - (0.6)
At 31 January 2021 6.5 0.1 4.0 4.3 14.9
Additions 1.5 0.7 - - 2.2
Businesses acquired - - 0.3 0.2 0.5
Disposals - - - - -
At 31 January 2022 8.0 0.8 4.3 4.5 17.6
Amortisation
At 1 February 2020 7.1 0.1 1.0 - 8.2
Charge for the year - - 1.3 - 1.3
Disposals (0.6) - - - (0.6)
At 31 January 2021 6.5 0.1 2.3 - 8.9
Charge for the year - - 1.4 - 1.4
Disposals - - - - -
At 31 January 2022 6.5 0.1 3.7 - 10.3
Carrying amount
At 1 February 2020 - - 3.0 4.3 7.3
At 31 January 2021 - - 1.7 4.3 6.0
At 31 January 2022 1.5 0.7 0.6 4.5 7.3
Acquired intangible assets are made up of the separately identified
intangibles acquired with the purchase of Next Control Systems in May 2019 and
those acquired with the purchase of Tutela LLC in February 2021.
Impairment testing for goodwill
The Group identifies cash-generating units (CGUs) at the operating company
level, as this represents the lowest level at which cash inflows are largely
independent of other cash inflows. Goodwill acquired in a business combination
is allocated, at acquisition, to the groups of CGUs that are expected to
benefit from that business combination.
Goodwill at 31 January 2021 all relates to the acquisition of Checkit UK
Limited in May 2019. Goodwill at 31 January 2022 includes the acquisition of
Tutela LLC in February 2021. The CGUs of Checkit UK Limited, Checkit Europe
Limited and Tutela LLC are all expected to benefit from these acquisitions and
the cash flows are grouped for the purpose of the impairment review.
Goodwill values have been tested for impairment by comparing them against the
"value in use" in perpetuity of the relevant CGU group. The value in use
calculations were based on projected cash flows, derived from the latest
forecasts prepared by management and budgets approved by the Board, discounted
at CGU specific, risk adjusted, discount rates to calculate their net present
value.
Key assumptions used in "value in use" calculations
The calculation of "value in use" is most sensitive to the CGU specific
operating and growth assumptions, that are reflected in management forecasts
for the five years to January 2027. CGU specific operating assumptions are
applicable to the forecasted cash flows and relate to revenue forecasts and
forecast operating margins in each of the operating companies and are based on
the strategic plans for the Group. These assumptions include the expected
impact and recovery from COVID-19. Long-term growth rates are capped at 1%.
The revenue growth rates used in the cash flow forecast are based on
management's expectations of the future opportunities for the Checkit platform
and the ability to upsell to existing customers on a global basis, including
the planned US expansion. The forecasts include the costs associated with
delivering the SAAS platforms, which are directly linked to the forecast sales
growth. Given the stage of development of the business, the forecasts assume
significant growth in revenue based on targeted ARR growth of 70% during the 5
year forecast period. A 20% reduction in the terminal value growth does not
result in any impairment at 31 January 2021.
Discount rates are based on estimations of the assumptions that market
participants operating in similar sectors would make, using the Group's
economic profile as a starting point and adjusting appropriately. Sensitivity
to the discount rate has been applied to evaluate impairment testing using
discount rates ranging from 10% to 20%.
Based on the forecasts consistent with the strategic business plan developed,
no impairment sensitivity is identified.
8. Discontinued operations
During the prior year, the Group sold assets relating to its Elektron Eye
Technology business. Consequently, the business has continued to be included
as discontinued operations.
Total discontinued operations comprise:
2022 2021
£m £m
Revenue 0.2 0.3
Cost of sales (0.2) (0.2)
Gross profit - 0.1
Operating expenses - -
Profit before tax - 0.1
Attributable tax - -
Profit from discontinued operations before gain on disposal - 0.1
Gain on disposal and loss on remeasurement - 0.5
Attributable tax to gain - -
Profit from discontinued operations attributable to equity shareholders - 0.6
Foreign currency reserve reclassification - -
Other comprehensive income from discontinued operations - -
Elektron Eye Technology
The results of the Elektron Eye Technology discontinued operation, which have
been included in the consolidated statement of comprehensive income, were as
follows:
2022 2021
£m £m
Revenue 0.2 0.3
Cost of sales (0.2) (0.2)
Gross profit - 0.1
Operating expenses - -
Profit before tax - 0.1
Attributable tax - -
Profit from Elektron Eye Technology - 0.6
Gain on Sale and loss on remeasurement to fair value - 0.5
Profit from Elektron Eye Technology discontinued operation attributable to 0.6
equity shareholders
-
Cash flows from Elektron Eye Technology
2022 2021
£m £m
Net cash inflow from operating activities - 0.1
Net cash inflow / (outflow) from investing activities
Cash received on sale of assets 0.4 0.3
Expenditure on intangible assets - -
Total net cash inflow/ (outflow) from investing activities 0.4 0.3
Interest payable - -
Total net cash outflow from financing activities - -
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, with
£0.2m payable as deferred consideration at the end of the year.
The gain on disposal in FY21 is summarised as follows:
£m
Intangible assets 0.4
Total assets sold 0.4
Gain on Disposal 0.5
Total Consideration 0.9
Satisfied by:
Deferred Consideration 0.9
Total Consideration 0.9
9. Businesses acquired - Tutela Monitoring Systems LLC
On 4 February 2021, the Group acquired 100% of the equity of Tutela Monitoring
Systems LLC ("Tutela"), a US-based business.
Tutela was previously owned by Next Control Systems Limited (now Checkit UK
Limited, a subsidiary of the Group), before Next Control Systems Limited was
acquired by the Group in May 2019. It was sold to the US management team of
Tutela in August 2018.
Tutela, which is based in Florida, provides wireless temperature monitoring
systems for all applications and facilities which store sensitive inventory
for businesses within the healthcare sector. The Group intends to utilise
Tutela as a platform to pursue all industries and verticals targeted by
Checkit.
The acquisition serves to accelerate the Group's US expansion plans, providing
a footprint and an opportunity to add further scale. The Directors believe
that, based on relative population sizes, the US represents an addressable
market around five times larger than the UK, and therefore believe the
acquisition represents a significant milestone in its growth strategy.
The details of the business combination are as follows:
Fair value of consideration transferred £m
Amount settled in cash 0.6
Deferred consideration outstanding from 2018 sale 0.1
Recognised amounts of identifiable net assets
Other Intangibles 0.3
Total non-current assets 0.3
Inventories 0.1
Trade and other receivables 0.1
Cash and cash equivalents 0.2
Total current assets 0.4
Trade and other payables (0.2)
Total current liabilities (0.2)
Total non-current liabilities -
Identifiable net assets 0.5
Goodwill on acquisition 0.2
Consideration settled in cash 0.6
Cash and cash equivalents acquired 0.2
Net cash outflow on acquisition 0.4
Consideration transferred
The acquisition of Tutela was settled in cash amounting to £0.6m. Acquisition
related costs amounting to £0.1m were expensed and treated as a non-recurring
item. Deferred consideration of £0.1m outstanding from the 2018 sale was
discharged on acquisition.
Identifiable net assets
The fair value of the trade and other receivables acquired as part of the
business combination amounted to £0.2m, with a gross contractual amount also
being £0.2m. As of the acquisition date, the Group expected to collect the
full balance of the contractual cashflow.
Separable intangible assets
Two separable intangible assets were identified at acquisition, being the sole
distributorship agreement and the acquired customer list.
The sole distributorship agreement represents a re-acquired asset from the
2018 sale, for which a price of $300K was paid at the time. The asset has been
valued on the basis of the remaining term of the agreement. The useful life
has been set as 1.9 years.
The acquired customer list was valued by assessing a discounted cashflow based
on expected customer attrition rates and using a discount factor of 28.8%. The
useful life has been estimated at 3 years.
Goodwill
Goodwill is primarily related to the core growth expectations, expected future
profitability and expected business synergies. Goodwill has been allocated to
the Checkit segment and is not expected to be deductible for tax purposes.
Tutela's contribution to the Group
results
Tutela US LLC generated a loss of £0.2m for the period from 4 February
2021 to the reporting date. Revenue for the period to 31 January 2022 was
£1.6m.
In its financial year ending 31 December 2020, Tutela's sales were
approximately $2m (£1.46m) with profit before tax of $0.27m (£0.20m) and net
assets (including cash) amounting to $0.16m (£0.12m). If the businesses had
been consolidated during that period, approximately £1 million would have
been added to Group sales per annum after eliminating intercompany sales on
consolidation.
10. Non-GAAP performance measures
A reconciliation of non-GAAP performance measures to reported results is set
out below:
Profit measures - LBITDA - continuing operations
2022 2021
£m £m
LBITDA (4.2) (2.5)
Depreciation and amortisation (0.5) (0.6)
Reported operating loss for the year before non-recurring and special items (4.7) (3.1)
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