REG - Checkit PLC - Preliminary Results
24/04/2023 07:00
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RNS Number : 1285X Checkit PLC 24 April 2023
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.
24 April 2023
Checkit plc
("Checkit", the "Company" or the "Group")
Preliminary results for the Year Ended 31 January 2023
Checkit plc (AIM: CKT), the intelligent operations platform for the deskless
worker, is pleased to report its audited preliminary results for the year
ended 31 January 2023 ("FY23"). The audited accounts and annual report for
FY23 will be published ahead of the Company's Annual General Meeting, which is
expected to take place on 8 June 2023.
The Group's management team will host a live webinar which will include an
opportunity for questions at 12:00 (BST) today. 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://www.investormeetcompany.com/checkit-plc/register-investor
(https://gbr01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.investormeetcompany.com%2Fcheckit-plc%2Fregister-investor&data=05%7C01%7CHugh.Wooster%40checkit.net%7Cdd2fb3d65ff9412a06c708dae1a815bb%7Cc766b9048fbf43bea8450cab82a691e9%7C1%7C0%7C638070409271004915%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=utsFc9ht3y2TWaqsmaiiF6tmf%2F2JUOBjGHoyFJy0O1A%3D&reserved=0)
FY23 HIGHLIGHTS
· FY23 results ahead of market expectations, with annual recurring
revenue ("ARR") increasing 28% to £11.5m* (FY22: £9.0m)
· ARR has doubled over the last two years, reflecting the Group's
strategy to focus solely on subscription based sales, with recurring revenue
accounting for 93% of total FY23 revenues
· US footprint expansion, with 91% year-on-year growth in US ARR to
£2.8m (FY22: £1.5m)
· Continued success in retaining and growing the existing customer
base, with net revenue retention ("NRR") of 116%**
· Closure of Building Energy Management Systems ("BEMS") division
completed as planned
· Path to profitability accelerated, with increased focus on cost
efficiency, resulting in improving gross margins of 63% (FY22: 54%***)
· Recurring revenue increased +41% to £9.6m (FY22: £6.8m)
· Total Group revenue from continuing operations of £10.3m (+22%)
(FY22: £8.4m***)
· Adjusted LBITDA **** from continuing operations of £6.4m (FY22: loss
of £5.6m***)
· Net cash at year end of £15.6m (FY22: £24.2m), with the emphasis in
H2 on operational efficiency resulting in a 17% reduction in net cash outflows
during H2 compared to H1
NOTES
* Annual Recurring Revenue ("ARR") is defined as the annualised value of
contracted recurring revenue from subscription services as at the period end,
including committed annual recurring revenue from new wins. This has been
restated from the prior year (reported ARR of £8.2m), where it related only
to contracts that were installed.
** Net retention revenue ("NRR") is defined as the amount of recurring revenue
from existing customers retained over the year, excluding new wins in the last
12 months
*** Continuing operations only
**** Adjusted LBITDA is the loss on operating activities before depreciation
and amortisation, share based payment charges and non-recurring or special
items
Outlook
· FY24 has started well, with continued sales momentum in line with the
Board's expectations. We continue to execute against our growth strategy and
develop our technology, while progressing further operating efficiencies and
accelerating our path to profitability.
· The Board expects to meet market expectations for FY24 and remains
confident that the Group is well positioned to deliver strong, sustainable
organic growth in the years ahead.
Checkit plc +44 (0) 1223 643 313
www.checkit.net
Kit Kyte (Chief Executive Officer)
Greg Price (Chief Financial and Operations Officer)
Singer Capital Markets (Nominated Adviser and Broker) +44 (0) 207 496 3000
Shaun Dobson / Harry Gooden / George Tzimas
CHAIRMAN'S STATEMENT
Dear Shareholders
Despite the economic uncertainty that has characterised the financial year
ending 31 January 2023, Checkit has delivered a strong set of results ahead of
Board and market expectations. I am particularly pleased that recurring
revenues now account for more than 90% of total revenues. Following our
successful transformation into a pure subscription business, we are focused on
growing revenues within our core markets of Western Europe and North America.
The Group continues to benefit from a strong balance sheet which will allow it
to continue to execute against its growth strategy and develop its technology,
whilst driving further operating efficiencies and accelerating the path to
profitability.
We have continued to examine board composition particularly with a view to
improving diversity and focus and recently announced the appointment of Alex
Curran as a Non-Executive Director. Alex brings a wealth of experience from
growing and scaling software businesses in North America, a primary growth
region for us, where she is currently regional chief executive officer for
Aptitude Software. At the same time, John Wilson, previously Senior
Independent Non-Executive Director made the decision to step down from the
Board. I should like to pay tribute to the significant contribution that John
has made to Checkit. In 2019 he led the disposal of Bulgin from the Group
which enabled the return of £81 million to shareholders. Since that time he
remained as a Non-Executive Director and Chair of the Remuneration and Audit
Committees. Shareholders have benefited greatly from the value he has created
and I am personally grateful for his wise counsel over a long period.
Finally, and importantly, I should like to thank all past and present
employees of Checkit for their energy and dedication in creating value for
shareholders, which will ensure that the future for Checkit is bright.
Keith Daley
Chair
CEO'S STATEMENT
Checkit's financial results for FY23 were ahead of Board and market
expectations, generating an overall increase in ARR of 28% to £11.5m (FY22:
£9.0m). The results are reflective of the continuing success of the Group's
strategy to transition the business exclusively to higher quality and higher
value recurring revenues.
The results are all the more impressive in the context of a turbulent economic
and political backdrop in addition to growing inflationary pressures. These
challenges have, so far, been navigated successfully with a focus on driving
operational efficiencies and preserving cash. Together with the ongoing
development of its technology, Checkit continues to accelerate its path to
profitability.
Financial performance
Checkit has delivered a third consecutive year of high quality recurring
revenue growth. ARR has doubled over the last two years, from £5.7m in FY21
to £11.5m in FY23 and now accounts for over 90% of total revenue. The
increase in ARR resulted in 41% growth in reported recurring revenues of
£9.6m (FY22: £6.8m). Pleasingly, the Company continues to expand into the US
market, achieving 91% year-on-year growth in US ARR contribution from £1.5m
in FY22 to £2.8m in FY23.
This consistent growth reflects the quantifiable value we provide to customers
through operational insight, increased staff retention, cost efficiencies and
improved compliance. Through our 'land and expand' customer strategy, we win
new business in a discreet customer location or function and form close
customer bonds that allow us to expand the services we offer over time. We do
this by building trust through valuable insights and enhancing our customers'
own operational performance. Our ability to grow with our customers is
demonstrated by a net retention rate of 116% and provides great visibility
over future ARR growth.
Our transition into a subscription-only business, with an emphasis on
technology solutions, led to the planned closure of the BEMS business unit,
which is now reported as a discontinued operation.
Adjusted LBITDA for the year increased to £6.4m (FY22: £5.6m), reflecting
the ongoing investment in product development and sales and marketing
capabilities to support the strong revenue growth. New product development
spend increased to £4.2m (FY22: £3.4m), of which £1.8m was capitalised
(FY22: £1.5m), with investments in the evolution of the platform and new
analytics dashboards. Sales and marketing investment increased by 13% to
£3.0m to maintain growth rates.
The economic environment has become more challenging and whilst the on-going
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. As a result, we have weighed our growth
ambitions with an increased emphasis on cost efficiency, as we execute an
accelerated path to profitability. This is demonstrated by an increased gross
margin of 63% (FY22: 54%), as well as operational cost savings across the
business. Our cash burn peaked in H1 and has reduced by 17% in H2.
The net cash position of £15.6m as at 31 January 2023 means we are well
positioned to continue on our growth trajectory, and develop our technology at
the same time as achieving further cost efficiencies.
New business pipeline
The Group's focus is around building sustainable and higher conversion rate
pipeline across retail, healthcare, facilities management, franchise and
biopharma verticals. Meanwhile, our 'land and expand' sales strategy is
focused on the quality of our pipeline with increased traction into mid- and
large-enterprise accounts.
The split of the sales pipeline by target organisation size at the end of the
year between tier one (large enterprise), tier two (enterprise) and tier three
(midsize) targets was 67%, 13% and 14% respectively. Checkit's new customer
pipeline in the US - a key growth market - now includes a number of multi-site
organisations across the healthcare, food retail and hospitality sectors. The
US remains on course to be the largest contributor to Group revenues.
Growth strategy and ambitions
Our growth strategy is proving effective. We are meeting market demand with an
unrivalled end-to-end solution, with powerful data and analytics capabilities
which provide meaningful insights and enable our customers to make data driven
decisions.
We are on track to deliver our longer-term objective: to become the market
leader in augmented workflow management for the deskless industry. We have had
considerable success in converting Checkit into a pure-subscription business -
with non-recurring revenues now representing less than 10% of total revenue.
This transition provides us with visibility over future revenue, enabling us
to deepen customer relationships and opportunities to enhance contract values.
We are facilitating our customer 'stickiness' through continued investment in
our platform, which has the ability to integrate third-party technology, to
create a market leading platform. Our sales and marketing strategy is focused
around developing higher quality, higher conversion rate sales pipelines
across our target sectors as well as further expansion into the US. In the
meantime we remain focused on optimising our operating costs so that we can
pivot into profitability and deliver value to our investors.
Going forward, we will consider compelling partner opportunities as an
additional scale opportunity. Of paramount importance will be our ability to
balance cost and growth initiatives in order to cultivate and maintain a high
achieving mentality across the Checkit workforce.
Positive outlook
Our purpose is to simplify and digitise operational activity for the deskless
workforce - 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.
We are very much still at the start of our journey, but the opportunities
ahead of us are immense. 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 expects to meet FY24 market expectations and remains confident that
the Group is well positioned to deliver strong, sustainable organic growth.
Kit Kyte
CEO
FINANCIAL REVIEW
Executing on our Strategy
FY23 saw another year of strong performance for Checkit, continuing to deliver
strong top line growth, while making operational efficiencies to accelerate
the path to profitability.
ARR has doubled over the last two years to £11.5m, reflecting the Group's
decision to focus solely on recurring revenues from our technology solutions
and to invest in its growth. The success of this strategy can be seen through
recurring revenue, which now represents 93% of total revenue, and in the US
where ARR grew by 91% year-on-year.
Adjusted LBITDA of £6.4m (FY22: £5.6m) reflects ongoing investment in the
Group's product development and sales and marketing capabilities. At the same
time, the Group has recognised the changing and challenging economic
environment it is operating within and so has sought to balance its longer
term vision with a focus on cash preservation, delivering cost savings which
have resulted in gross margin expansion to 63% (FY22: 54%).
The Group continues to benefit from a strong balance sheet and in light of
market conditions, will continue to execute against its growth strategy and
develop its technology, whilst also driving further operating efficiencies and
accelerating its path to profitability.
ARR and Revenue
ARR grew by 28% to £11.5m (FY22 £9.0m), driven by consistent sales momentum,
despite a challenging economic and political environment.
Revenue from continuing operations for FY23 was £10.3m, an increase of 22%
compared to the prior year.
(£'m) Reported Twelve months to
31 January 2023 31 January 2022 % Change
Actual Actual
ARR(1) 11.5 9.0 28%
Revenue from continuing operations
Recurring 9.6 6.8 +41%
Non-recurring 0.7 1.6 (58) %
Total Group 10.3 8.4 22%
ARR growth benefited from both sales to new customers, as well as upsell with
existing customers and improved pricing.
New business reflects the attractiveness of our technology with new customers,
where we look to secure an initial relationship and then build over time. This
land and expand strategy has allowed us to grow with our customers,
identifying additional use cases and extending our footprint, resulting in a
net retention rate of 116%.
The Group has continued to grow in the US market, achieving 91% year-on-year
ARR growth to £2.8m as a result of a number of contract wins, including
continued growth in its footprint with its biopharma customers and a new
contract with a large resort and casino operator. These new contract wins have
the potential to grow significantly over time. Our US business is on track to
be the largest revenue contributor of the Group.
Checkit has also renewed one of its largest existing enterprise contracts with
an integrated energy company in the UK to provide real time operations
management capability to over 300 sites, which evidences the value and
stickiness of the platform and IoT offering. This stickiness is reflected in
the low churn experienced by the Group, with a gross retention rate of 99%.
Recurring revenue growth has exceeded 30% for the third consecutive year and
now accounts for 93% of total revenue, demonstrating Checkit's successful
transition into a subscription-based model.
While recurring revenue grew by 41%, non-recurring revenue declined in line
with management's expectations, driven by the ongoing conversion of US
customers from maintenance contracts to subscription income during the year.
Following the decision to close the BEMS business unit, this is now reported
as a discontinued operation. Revenue from discontinued operations in the year
amounted to £0.6m (FY22: £4.9m). The Group is now wholly focused on
delivering recurring revenue from its technology solutions.
LBITDA
Checkit's adjusted LBITDA for the year was £6.4m (FY22: £5.6m), reflecting
the strong growth in revenue in the year, alongside continuing investment
behind this growth.
Investment in sales and marketing has identified new solution areas and use
cases across several industries, including hospitality, facilities management
and senior living. Investment in sales and marketing grew by 13% in the year
to £3.0m (FY22: £2.6m).
New product development (NPD) spend totaled £4.2m (FY22: £3.4m), of which
£1.8m was capitalised (FY22: £1.5m), as the Group invested in the evolution
of the platform and new analytics dashboards.
At the same time, the Group has balanced its growth strategy with an increased
focus on operational efficiency, as it pursues a clear path to profitability.
This has resulted in gross margin improvement to 63% (FY22: 54%), as the Group
was able to reduce the cost of delivery and secure procurement savings in its
platform costs.
The Group was also able to deliver efficiencies in operating costs, especially
in H2 where operating costs reduced by £0.5m from H1, as the Group undertook
targeted headcount reductions of 10% in its operations and ceased to use
outsourced software development capacity for NPD, bringing all work in-house.
Non-recurring or special items
Non-recurring or special items in the year of £4.8m related to the impairment
of goodwill and amortisation of acquired intangible assets. These are non-cash
items:
FY23
£m
Impairment of goodwill 4.3
Amortisation of acquired intangible assets 0.5
Total non-recurring or special items 4.8
Following the decision to close the BEMS business unit, the Group carried out
a thorough impairment review of the goodwill relating to the acquisition of
Checkit UK Limited (formerly Next Control Systems Limited) and concluded that
this goodwill should be fully impaired. This business unit is now reported as
a discontinued operation.
Taxation
The Group is currently loss making and therefore no corporate tax charge is
reported for the year FY23. A tax credit of £0.3m arises from R&D tax
credits claimed and the amortisation of intangible assets arising on the
acquisition of Checkit UK Limited. There remains over £25m in Group carried
forward taxable losses and therefore there is no expectation of tax payments
in the short to medium term.
EPS - continuing operations
Following the successful placing in November 2021, where the Group raised net
proceeds of approximately £20.0m, the weighted average number of shares in
issue in FY23 increased to 108.0m (FY22: 68.1m). Loss per share (basic &
diluted) was 11.2 pence (FY22: 12.0 pence).
Cash
The Group cash position at 31 January 2023 was £15.6m (31 January 2022:
£24.2m; 31 July 2022: £19.5m). As a result of the strong revenue growth and
increased focus on operational efficiency seen in FY23, the average cash burn
per month peaked in H1 and reduced by 17% in H2. The Group is consequently
well placed to execute against its growth strategy and develop its technology,
whilst also driving further operating efficiencies and accelerating its path
to profitability.
Consolidated statement of comprehensive income
year ended 31 January 2023
Notes 2023 Restated 2022
£m £m
Revenue 2 10.3 8.4
Cost of sales (3.8) (3.8)
Gross profit 6.5 4.6
Operating expenses (12.9) (10.2)
Adjusted LBITDA* (6.4) (5.6)
Depreciation and amortisation (1.0) (0.5)
Share-based payment charge (0.2) -
Non-recurring or special items 3 (4.8) (2.4)
Operating loss 3 (12.4) (8.5)
Finance income 0.1 -
Loss before taxation (12.3) (8.5)
Taxation 5 0.3 0.3
Loss from continuing operations (12.0) (8.2)
Profit from discontinued operations 8 (0.3) 1.4
Loss for the year attributable to equity shareholders (12.3) (6.8)
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 (12.3) (6.8)
shareholders
Loss per share from continuing operations
Basic EPS 6 (11.2)p (12.0)p
Diluted EPS 6 (11.2)p (12.0)p
*Adjusted loss before interest, tax, depreciation and amortisation ("LBITDA")
is calculated by taking operating profit and adding back depreciation &
amortisation, share-based payment charge and non-recurring or special items
Consolidated balance sheet
as at 31 January 2023
Notes 2023 2022
£m £m
Assets
Non-current assets
Goodwill arising on acquisition 7 0.2 4.5
Other intangible assets 7 3.8 2.8
Property, plant and equipment 0.9 1.0
Total non-current assets 4.9 8.3
Current assets
Inventories 2.4 1.8
Trade and other receivables 4.5 3.0
Cash and cash equivalents 15.6 24.2
Total current assets 22.5 29.0
Total assets 27.4 37.3
Current liabilities
Trade and other payables 7.5 5.2
Contract lease liabilities 0.3 0.5
Total current liabilities 7.8 5.7
Non-current liabilities
Deferred tax liabilities - 0.1
Long-term contract lease liabilities 0.3 0.2
Long-term provisions 0.4 0.3
Total non-current liabilities 0.7 0.6
Total liabilities 8.5 6.3
Net assets 18.9 31.0
Equity attributable to the owners of the Company
Called up share capital 5.4 5.4
Share premium 23.3 23.3
Capital redemption reserve 6.4 6.4
Other reserves 0.3 0.1
Retained earnings (16.5) (4.2)
Total equity 18.9 31.0
Consolidated statement of changes in equity
year ended 31 January 2023
Share Share Capital Other Translation Retained Total
capital premium redemption reserves reserve earnings £m
£m £m reserve £m £m £m
£m
At 31 January 2021 3.1 5.4 6.4 - - 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
Loss for the year - - - - - (12.3) (12.3)
Total comprehensive income for the year - - - - - (12.3) (12.3)
Share based payments - - - 0.2 - - 0.2
Transaction with owners - - - 0.2 - - 0.2
At 31 January 2023 5.4 23.3 6.4 0.3 - (16.5) 18.9
Consolidated statement of cash flows
year ended 31 January 2023
Notes 2023 2022
£m £m
Net cash outflow from operating activities 4 (6.4) (4.9)
Investing activities
Interest received on bank deposits 0.1 -
Purchase of property, plant and equipment (0.2) (0.1)
Investment in product development projects (1.8) (1.5)
Investment in other intangibles (0.2) (0.7)
Purchase of business (net of £0.2m cash acquired) - (0.4)
Sale of businesses (net of cash sold) 8 0.2 0.4
Net cash used in investing activities (1.9) (2.3)
Financing activities
Issue of new shares - 20.2
Repayment of contract lease liabilities (0.3) (0.3)
Net cash generated by financing activities (0.3) 19.9
Net increase / (decrease) in cash and cash equivalents (8.6) 12.7
Cash and cash equivalents at the beginning of the year 24.2 11.5
Cash and cash equivalents at the end of the year 15.6 24.2
1. Basis of Preparation
The consolidated statement of comprehensive income, the consolidated balance
sheet, the consolidated statement of changes in equity, the consolidated cash
flow statement and the associated notes for the year ended 31 January 2023
have been extracted from the Group's financial statements upon which the
auditor's opinion is unqualified and does not include any statement under
section 498 of the Companies Act 2006.
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
2023, 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 2023 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 and is consistent with the accounting policies
of the Group, which were set out on pages 60 to 67 of the 2022 Annual Report
and Accounts.
The statutory accounts for the year ended 31 January 2023 will be finalised on
the basis of the financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Group's Annual General Meeting. The announcement of the
preliminary results was approved on behalf of the Board of directors on 21
April 2023.
Restatement of prior year
During the year, the Group discontinued its activity in Building Energy
Management Systems. Consequently, the results from this revenue stream are
included as discontinued operations.
The prior year consolidated statement of comprehensive income and related
notes have been restated to show continuing activities, allowing for suitable
comparison between periods. The overall operating loss for the year for the
Group remains unchanged.
Quantitative impact of restatement on financial results
Year ended 31 January 2022 As originally Discontinued operations As restated
reported (note 8) £m
£m £m
Consolidated statement of comprehensive income
Revenue 13.3 4.9 8.4
Cost of sales (7.1) (3.3) (3.8)
Gross profit 6.2 1.6 4.6
Operating expenses (10.4) (0.2) (10.2)
Adjusted EBITDA (4.2) 1.4 (5.6)
Depreciation and amortisation 0.5 - 0.5
Share-based payment charge - - -
Non-recurring or special items 2.4 - 2.4
Operating loss (7.1) 1.4 (8.5)
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, 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:
2023 Restated 2022
£m £m
Recurring revenues from subscription services 9.6 6.8
Consultancy and other services 0.7 1.6
Total 10.3 8.4
Geographical information
The Group considers its operations to be in the following geographical
regions:
Revenue from external customers
2023 2022
£m £m
United Kingdom 7.7 6.8
The Americas 2.6 1.6
Total 10.3 8.4
Information about major customers of the continuing operations
During FY22, the Group had one customer who generated revenues of 16% of total
revenue (FY22: 22%).
Revenue expected to be recognised
The Group expects to recognise revenue amounting to £4.1m (2022: £2.3m) in
FY24 relating to performance obligations from existing contracts that are
unsatisfied or partially satisfied as at 31 January 2023.
3. Operating loss - continuing operations
2023 2022
£m £m
Operating loss is after charging:
Product development costs expensed 2.4 1.9
Depreciation on owned property, plant and equipment 0.1 0.2
Depreciation on right-of-use assets 0.4 0.3
Amortisation on development costs 0.3 -
Amortisation on computer software 0.2 -
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 0.1 0.2
subsidiaries pursuant to legislation
Total audit fees for audit services 0.1 0.2
Tax services - -
Total auditor's remuneration 0.1 0.2
Non-recurring or special items:
- Restructuring and integration costs - 0.7
- Costs incurred in issue of new shares - 0.1
- Disposal costs of India operations - 0.2
- Impairment of goodwill 4.3 -
- Amortisation of acquired intangible assets 0.5 1.4
Total non-recurring or special items 4.8 2.4
Included within auditor's remuneration for audit services in FY23 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 Cooper Parry Group Limited.
Cooper Parry Group Limited was paid £nil for tax advisory and compliance
services (2022: Grant Thornton UK LLP: less than £0.1m).
4. Net cash flows from operating activities
Notes 2023 2022
£m £m
(Loss)/profit before taxation
- from continuing operations (12.3) (8.5)
- from discontinued operations (before tax) 8 (0.3) 1.4
Adjustments for:
Depreciation 0.5 0.5
Amortisation 1.0 1.4
Impairment of goodwill 4.3 -
Share-based payments 0.2 -
Operating cash flow before working capital changes (6.6) (5.2)
(Increase)/decrease in trade and other receivables (1.7) 1.6
Increase in inventories (0.6) (0.6)
Increase/(decrease) in trade and other payables 2.3 (0.8)
Operating cash flow after working capital changes (6.6) (5.0)
Increase in provisions 0.1 -
Cash generated by operations (6.5) (5.0)
Tax credit received 0.1 0.1
Net cash outflow from operating activities (6.4) (4.9)
5. Taxation
(a) Analysis of tax (credit)/charge for the year - continuing operations
2023 2022
£m £m
Current taxation:
UK corporation tax charge on loss for the year (0.1) -
Adjustment in respect of prior periods (0.1)
Total current taxation (0.2) -
Deferred tax:
On separately identifiable acquired intangibles (as a result of amortisation) (0.1) (0.3)
Total deferred taxation (0.1) (0.3)
Tax credit on continuing operations (0.3) (0.3)
(b) Analysis of tax charge for the year - discontinued operations
2023 2022
£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%.
2023 2022
Tax rate £m Tax rate £m
Loss on continuing operations before taxation (7.1) (5.3)
Loss on continuing operations multiplied by weighted average standard rate 19.0% (2.3) 19.0% (1.3)
of corporation tax in the UK of 19%
Effects of:
Expenses not deductible for tax purposes (7.5%) 0.9 (1.3)% 0.1
Prior year adjustments 1.0% (0.1)
Temporary differences not recognised (1.6%) 0.2 (2.1)% 0.1
Tax losses not recognised (9.2%) 1.1 (11.3)% 0.8
R&D Tax Credit 1.0% (0.1)
Surrender of losses to discontinued operations 0% - 0% -
(2.5)% (0.3) (4.3)% (0.3)
(d) Factors affecting taxation charge for the year - discontinued operations
2023 2022
Tax rate £m Tax rate £m
Loss on discontinued operations before taxation (0.3) -
Loss 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 19.0% 0.1 - -
Surrender of losses from continuing operations - - - -
Prior year adjustments - - - -
- - - -
(e) Factors that may affect future taxation charges
Deferred taxation assets amounting to £6.5m (2022: £4.1m) have not been
provided in respect of unutilised income tax losses of £25.8m (2022: £22.0m)
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 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 substantively enacted at the
balance sheet date and hence any deferred tax balances have been calculated at
25%.
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 2023 Restated 2022
m m
Weighted average number of shares for the purpose of basic earnings per share A 108.0 68.1
Dilutive effect of employee share options( )*( ) - -
Weighted average number of shares for the purpose of diluted earnings per B 108.0 68.1
share
Key £m £m
Loss for the year (12.3) (6.8)
Profit from discontinued operations, net of tax E 0.3 (1.4)
Continuing loss for the year attributable to equity shareholders C (12.0) (8.2)
Total non-recurring or special items net of tax 4.5 2.1
Loss for adjusted EPS D (7.5) (6.1)
Key 2023 Restated 2022
EPS measures
Basic and diluted( )*( ) continuing EPS C/A (11.2)p (12.0)p
Adjusted EPS measures
Adjusted basic and diluted( )*( ) continuing EPS D/A (6.9)p (9.0)p
The adjusted EPS information is considered to provide a fairer representation
of the Group's trading performance.
Discontinued earnings per share
Key 2023 Restated 2022
EPS measures
Basic EPS E/A (0.3)p 2.1p
Diluted EPS( )*( ) E/B (0.3)p 2.1p
Total earnings per share for the year attributable to equity shareholders
Key 2023 2022
EPS measures
Basic EPS (11.5)p (10.0)p
Diluted EPS( )*( ) (11.5)p (10.0)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 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
Additions 1.8 0.2 - - 2.0
Disposals - - - - -
Disposals - - - - -
At 31 January 2023 9.8 1.0 4.3 4.5 19.6
Amortisation
At 1 February 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
Charge for the year 0.3 0.2 0.5 - 1.0
Impairment - - - 4.3 4.3
Disposals - - - - -
At 31 January 2023 6.8 0.3 4.2 4.3 15.6
Carrying amount
At 1 February 2021 - - 1.7 4.3 6.0
At 31 January 2022 1.5 0.7 0.6 4.5 7.3
At 31 January 2023 3.0 0.7 0.1 0.2 4.0
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 acquired in the year ending 31 January 2022
relates to the acquisition of Tutela LLC in February 2021.
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 2028. 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. 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 Checkit platforms, which are directly linked to the forecast
sales growth.
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%.
Following the decision to close the BEMS business unit, management has
assessed that the carrying value of the goodwill associated with the
acquisition of Checkit UK should be fully impaired.
The carrying value in relation to the acquisition of Checkit LLC has not
identified any impairment.
8. Discontinued operations
During the year the Group discontinued its activity in Building Energy
Management Systems, consequently the results from this revenue stream are
included as discontinued operations.
During the year ending 31 January 2021, 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:
2023 Restated 2022
£m £m
Revenue 0.6 5.1
Cost of sales (0.7) (3.5)
Gross profit (0.1) 1.6
Operating expenses (0.2) (0.2)
Profit before tax (0.3) 1.4
Attributable tax - -
Profit from discontinued operations before gain on disposal (0.3) 1.4
Gain on disposal and loss on remeasurement - -
Attributable tax to gain - -
Profit from discontinued operations attributable to equity shareholders (0.3) 1.4
Foreign currency reserve reclassification - -
Other comprehensive income from discontinued operations (0.3) 1.4
Building Energy Management Systems
The results of ceasing operations of Building Energy Management Systems, which
have been included in the consolidated statement of comprehensive income, were
as follows:
2023 2022
£m £m
Revenue 0.6 4.9
Cost of sales (0.7) (3.3)
Gross (Loss)/Profit (0.1) 1.6
Operating expenses (0.2) (0.2)
(Loss)/Profit before tax (0.3) 1.4
Attributable tax - -
(Loss)/Profit from Building Energy Management Systems (0.3) 1.4
Gain on sale and loss on re-measurement to fair value - -
(Loss)/Profit from Building Energy Management Systems discontinued operation (0.3) 1.4
attributable to equity shareholders
Cash flows from Building Energy Management Systems
2023 2022
£m £m
Net cash inflow from operating activities (0.3) 1.4
Net cash inflow/(outflow) from investing activities
Cash received on sale of assets - -
Expenditure on intangible assets - -
Total net cash inflow/(outflow) from investing activities - -
Interest payable - -
Total net cash outflow from financing activities - -
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:
2023 2022
£m £m
Revenue - 0.2
Cost of sales - (0.2)
Gross profit - -
Operating expenses - -
Profit before tax - -
Attributable tax - -
Profit from Elektron Eye Technology - -
Gain on Sale and loss on remeasurement to fair value - -
Profit from Elektron Eye Technology discontinued operation attributable to - -
equity shareholders
Cash flows from Elektron Eye Technology
2023 2022
£m £m
Net cash inflow from operating activities - -
Net cash inflow / (outflow) from investing activities
Cash received on sale of assets 0.2 0.4
Expenditure on intangible assets - -
Total net cash inflow/ (outflow) from investing activities 0.2 0.4
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
£nil (2022: £0.2m) payable as deferred consideration at the end of the year.
9. Businesses acquired - Checkit LLC
In the prior financial year, the Group acquired 100% of the equity of Checkit
LLC (formerly Tutela Monitoring Systems LLC), a US-based business. The results
for the comparative year ended 31 January 2022 incorporate results from the
date of acquisition, being 4 February 2021.
Checkit LLC generated a loss of £0.2m on sales of £1.6m for the period from
4 February 2021 to 31 January 2022. If Checkit LLC had been acquired on 1
February 2021, revenues and profits would have been unchanged for the
comparative period.
10. Non-GAAP performance measures
A reconciliation of non-GAAP performance measures to reported results is set
out below:
Profit measures - LBITDA - continuing operations
2023 Restated 2022
£m £m
LBITDA (6.4) (5.6)
Depreciation and amortisation (1.0) (0.5)
Share based payment charge (0.2) -
Non-recurring or special items (4.8) (2.4)
Operating loss for the year (12.4) (8.5)
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