Checkit plc

 

("Checkit" or the "Group")

 

Preliminary results for the Year Ended 31 January 2020

 

Checkit plc (AIM: CKT) announces its unaudited preliminary results for the year ended 31 January 2020.

 

HIGHLIGHTS

 

 Financial 

·    Revenue from continuing operations of £9.8m (2019: £1.0m)

·    Checkit UK, which was acquired in May 2019, contributed £8.5m (up 7% on an annualised basis), whilst Checkit Europe contributed £1.3m (up 30%) of revenue

·    Recurring business (including SaaS) via Connected Workflow Management ("CWM") and Connected Automated Monitoring ("CAM") currently provides significantly more attractive margins than Connected Building Management ("CBM")

·    Trading results (before non-recurring or special items) for the period were as expected

·    Reported results impacted by non-recurring or special items resulting from the corporate restructuring during the year (£0.7m), amortisation of acquired intangibles and impairments of intangible assets (£10.6m) as a result of the COVID-19 crisis

·    Operating loss for continuing operations (after non-recurring or special items of £11.3m (2019: £nil)) was £16.5m (2019: £4.5m). Of the £11.3m, £10.6 m related to impairment of intangible assets

·      Operating loss before the non-recurring or special items was £5.2m (2019: £4.5m)

·      Loss before Interest and non-recurring and special items, Tax, Depreciation and Amortisation ("LBITDA") was £3.6m (2019 £2.8m)

·      Gain of £85.3m generated from sale of Bulgin contributed to the £89.4m profit from discontinued operations

The cost base has grown in line with expectations during the year as a result of investment in technical and marketing spend, as well as the expanded leadership team in Checkit and absorption of plc costs which were previously shared with the now disposed Bulgin business

·      Elektron Eye Technology ("EET") treated as a discontinued activity and assets impaired

·      Cash at 31 January 2020 was £14.3m (2019: £10.1m) leaving Checkit well-funded to enable it to survive the current economic uncertainty created by COVID-19 whilst continuing to pursue its new product development programme. Cash at 31 May 2020 was £13.1m

 

Corporate 

·      Group re-positioned to focus on Software as a Service ("SaaS")

·      Elektron Technology plc renamed Checkit plc following the disposal of the Bulgin business ("Bulgin") for a headline price of £105m (£93.7m net of adjustments and expenses) on 24 September 2019 

·      £81m cash returned to shareholders on 5 December 2020 by way of a tender offer at 65p per share, resulting in issued share capital reducing by two-thirds 

·    Next Control Systems Limited acquired on 14 May 2019 for £8.8m (net of cash in the business) and renamed Checkit UK Limited ("Checkit UK"), with existing Checkit business renamed Checkit Europe Limited

·      EET, the ophthalmic instruments business, designated as non-core and remains for sale 

 

Board, management and headcount 

·      John Wilson transitioned from the role of Chief Executive Officer to Non-executive Director following the disposal of Bulgin

·      Non-executive Director Gio Ciuccio stepped down from the Board at the end of the financial year and was replaced by Rachel Neaman who brings valuable technology and healthcare experience

·    As previously announced, Chief Financial Officer Andy Weatherstone is to step down in September 2020 and the search for his replacement is well advanced

·      Checkit senior management team strengthened by important new hires 

·      The Group currently has approximately 170 staff on a full time equivalent (FTE) basis

 

 

 

Product delivery 

·      Roll-out of a fully mobile, next-generation Connected Workflow Management app with full off-line capabilities 

·      Addition of a data pipeline and Business Intelligence capability to our platform to track and interpret business and process activity

·      Development of market-leading self-contained wireless temperature sensor able to work in elevated temperatures needed by "food to go" market 

·      Other developments initiated include the ability to enable teams to collaborate on checklists and processes in real time

 

Trading 

·      Following the disposal of Bulgin, complete focus on Checkit as enlarged by Checkit UK

·      Targeting larger enterprise customers 

·      Focus on SaaS/recurring income (currently 30% of revenue) 

·      Several important contract wins, including BP 

·      Focus on NHS was prescient given the subsequent COVID-19 crisis

·      The COVID-19 impact creates uncertainty in the near term 

·      Mitigating actions being taken to ensure that the fundamentals of the business remain strong

 

Outlook 

The Group will continue to be significantly affected by the COVID-19 crisis for at least the remainder of FY21 (to 31 January 2021). This unprecedented situation (covered in further detail below) makes forecasting impossible and the Board has therefore withdrawn guidance for the time being. However, given the significant level of opportunities available in the medium to long term, the Board maintains its positive view for the future.

 

During the current financial year, the focus is on completing the integration of Checkit UK (expected by the end of the current financial year) and a successful separation of Bulgin during the period of its Transitional Services Agreement which ends in September 2020. Encouragingly, several opportunities have been identified for margin improvement and many opportunities have been identified for cross selling and accelerating overall group sales  

 

 

Keith Daley, Executive Chair of Checkit plc said:

 

"In the financial year to 31 January 2020, the Group experienced by far its most successful year and underwent a significant change since admission to the London Stock Exchange in 1948, over 70 years ago. The sale of Bulgin, the original bedrock of the Group, allows Checkit to concentrate on the business of digital transformation through a connected suite of cloud-based products. We are excited by the opportunities that we have identified and begun to capitalise upon." 

 

 

 

Checkit plc		+44 (0) 1223 371 000
www.checkit.net
Keith Daley (Executive Chairman)
Andrew Weatherstone (Chief Financial Officer)
N+1 Singer (Nominated Adviser & Broker)
Shaun Dobson / George Tzimas (Corporate Finance)		+44 (0) 20 7496 3000
Rachel Hayes (Corporate Broking)
Yellowstone Advisory
Alex Schlich		+44 (0) 7710 164 120

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014

 

 

 

 

 

 

Introduction

Checkit is a leading provider of a new generation of cloud-based services, supporting human work and automated monitoring (Connected Workflow Management and IoT for people/infrastructure/data).  

 

We have made significant progress in integrating Checkit UK and aligning the organisation around a unified operating model. Operations, Sales and Marketing now operate across sectors and products and are moving to a set of common processes and management systems capable of underpinning a global growth plan. In managing the transformation process we are maintaining a balance between rapid change and short-term business performance. 

 

Corporate

In May 2019 Checkit acquired Checkit UK for a cash consideration of £10.5m, inclusive of £1.7m of cash in Checkit UK as at the date of completion. The price represented a multiple of 6.6 times 2018 earnings before interest, taxation, depreciation and amortisation ("EBITDA").

 

Checkit UK is an excellent strategic fit for Checkit, providing technology and software that enables management teams to monitor, control and optimise business processes. This was a transformational deal for Checkit, immediately adding scale and taking the company into a new vertical, Connected Building Management.

 

As a result of the acquisition, Checkit is now a leader in high-end service-based temperature monitoring for healthcare and life sciences within the UK. It also provides energy efficiency data-related Connected Building Management ("CBM") services. The acquisition provides opportunities for further sales growth and improvements to operational capabilities by: 

 

·      Cross-selling Connected Workflow Management to Checkit UK's customers 

·      Diversifying that customer base and extending the offering across additional sectors alongside the food service sector (which was previously the predominant sector in Checkit's customer base) 

·      Enhancing Checkit's existing range of sensors

·      Improving operational capability 

·      Adding domain knowledge of the CBM market

 

Checkit UK has performed in line with expectations in the year and we are pleased with the progress made in integrating the business and in the opportunities for cross selling.  In addition, after an in depth review of the acquisition we have identified a number of opportunities for margin improvement. Since acquisition, business managers are now provided with improved information on the profitability of contracts (including when tendering bids), resulting in the opportunity to improve profitability. 

 

In July 2019 we announced the disposal of Bulgin, our then largest business, for the sum of £105 million (£93.7 million net of expenses). As a result of the development of Checkit, the Board had concluded that it was no longer appropriate to maintain a Group consisting of two businesses with different activities, namely manufacturing and SaaS. It had already received an approach from a third party, as announced in February 2019, which valued Bulgin at a substantial premium to the then market capitalisation for the whole Group.

 

The transaction leaves EET as the last remaining asset for disposal.

 

Following the disposal of Bulgin, the Group changed its name from Elektron Technology Plc to Checkit plc and returned to shareholders £81 million in cash via a tender offer for two out of every three shares currently held at a price of 65p. This left, at that time, approximately £14 million cash in the business. 

 

Board, management and team 

All Board members remained in place during the period.

 

At the end of the financial year Gio Ciuccio, one of our non-executive directors, stepped down from the Board and was replaced by Rachel Neaman who brings valuable technology and healthcare-related expertise. I should like to thank Gio for his valuable contribution, including on the disposal of Bulgin. He leaves us with our thanks and best wishes. 

 

Following the disposal of Bulgin in September 2019 John Wilson transitioned from the role of CEO, remaining on the Board as a Non-executive Director in order to allow the Group to benefit from his commercial and engineering expertise.  It has been a pleasure to work with John in his executive roles over the past 12 years. During that time he has been a major contributor in transforming the Group into an engine for the creation of substantial shareholder value.

 

Since the year end, in May 2020 Andy Weatherstone informed the Board that he wished to step down in September 2020. Andy has made a significant contribution over the past six years, not least in the value creation and realisation from the sale of Bulgin. He too will leave with our thanks and best wishes. The Board is well advanced in the recruitment of Andy's replacement and expects to confirm the appointment in due course.

 

I continue to have overall responsibility for running Checkit along with the Checkit Executive Leadership 

Team ("ELT").  

 

As a result of the disposal and the consequent departure of a number of senior managers with Bulgin, it has been necessary to engage in an intense period of recruitment to ensure that the ELT is of a calibre to ensure that the Group is able to take advantage of the many opportunities in front of it. That recruitment process is nearing completion, and we now have high-quality leaders specialising in Operations, Sales, Product Management and Marketing, Product Development and HR. As noted above our search for a new CFO is well advanced.

 

At the time of writing there are around 170 employees in the Group (including EET) of which around 100 are involved in providing the Checkit service to customers from our Operations Centre in Fleet, Hampshire, 30 are involved in Checkit software and new product development and 16 are in Checkit sales and marketing with the  balance in administration and support functions. The business is well equipped to scale up successfully. 

 

Product roadmap

Checkit's products make organisations smart, safe, compliant  and efficient. We use IoT, mobile, sensor and cloud technologies to ensure our customers get the best out of their mobile teams, processes and buildings. We continue to invest in product development, innovating to solve our customers' needs  while improving customer service and efficiency.

 

Key developments in the period include: 

 

People/processes 

Our new Connected Workflow Management app for Android devices, developed during the last year, is now in use by key customers. This expands the potential use of Checkit from its starting point within buildings to mobile and distributed workforces. It represents a significant technical achievement. In comparison with many competitor products it can operate fully when not connected to the Internet - essential for many real-world applications. The new app gives access to an increasing range of functions. It enables users to capture additional data needed to automate and simplify their work such as bar codes and photographs and introduces the concept of delivering work to users based on their physical location. We have also introduced the ability to distribute work instructions and documentation to workers through the app to provide easy access to relevant information as work is done. We are now testing a further step change in functionality, allowing users to work collaboratively in real-time on checklists and processes. 

 

With the acquisition of Checkit UK, we have increased access to knowledge and customers in a wider range of industries, allowing us to build checklists and applications for use in healthcare, scientific and building management applications as part of a broader cross-selling initiative. We have developed functionality that allows these new checklists to be treated as reusable libraries and templates to speed up the build of future solutions. 

 

Monitoring and connecting real world "things"

We have significantly increased the scope of our ability to monitor convenience retail and food service operations by creating what we believe to be a market leading, self-contained, wireless temperature sensor for the hot shelves used to keep ready-to-go food warm and safe. This is an example of collaborating with a major multinational organisation to develop and prove functionality that is unavailable elsewhere. We have added a new layer of system monitoring and alarm raising to our cloud platform to allow customers and Checkit service teams to view and analyse network or service issues, improving visibility and service quality assurance. 

 

Analysing and leveraging data

We have worked with market leaders to turn data from routine worker operations into valuable commercial insights. We have created analysis and dashboards to give insights into capacity planning and product availability in retail operations, delivered through a new release of business intelligence that is ready to be embedded in our web application. This will mean Checkit is not only enforcing and guiding routine compliance processes to reduce risk and cost, it is also providing direct information to support revenue generation. Elsewhere we are developing rules-based analytics to apply to sensor and building energy/operational information designed to help managers find and act on problems quickly and automatically. 

 

To support the needs of our largest customers, we are also readying products and services for operation in multiple markets outside the UK - in terms of languages, support services, partners and hardware product approvals.  

 

Trading

Checkit segments the market by sector and size of participating businesses. It views the market as being divided into four tiers by size (T1, T2, T3 and T4). During the period it adjusted its approach to the targeted customer base by: 

 

·    Refocusing our efforts over the last 12 months on the largest national and multinational customers (T1). Our initial efforts have met with a positive response and we are working with these global customers and broadening our networks to serve them internationally. We estimate that T1 customers will account for 50% of market revenues and will be our biggest source of revenue growth. Our experience is that creating strong relationships with these types of customers provides excellent reference points and develops additional incoming enquiries and aids future growth.

 

·    Targeting only those T2 customers that are willing and able to pay for the solution. This has inevitably led to a reduction in activity amongst the distressed casual dining sector in the UK (our initial market entry point selected as a result of previous experience in this sector). We expect that this will be balanced by opportunities in other sectors such as outsourcing and healthcare. 

 

·    Ceasing to market actively to "hard-to-reach" T3 and T4 customers (generally single-site Small and Medium-sized Enterprises ("SMEs") 

 

Although senior management was inevitably preoccupied with the sale of Bulgin during much of the period there were several notable contract wins including those involving: 

 

·    A multi-branch leisure business using work management for front- and back-of-house activities 

 

·    A global framework agreement with the retail business of an energy major (BP) 

 

·    A building management system on a university campus as part of a carbon footprint reduction project 

 

In view of the current economic situation in the United States we have wound down our operation there, whilst continuing to believe that there will be good growth opportunities in the medium term.

 

Financial

 

The significant change in the shape of the Group has led to a restatement of the financial statements to show Checkit as the sole continuing operation, although this is also distorted by the acquisition of Checkit UK part way through the year.

 

Both Checkit Europe and Checkit UK performed well with sales increasing by 30% and 7% respectively on an annualised basis. Reported sales for the year were £9.8m (2019 £1.0m), generating an operating loss before non-recurring or special items totalling £11.3m of £5.2m (£2019: £4.5m), in line with expectations. As expected, given Checkit Europe's prospects, investment in the product roadmap and sales and marketing effort increased to drive growth. In addition, the new leadership team and Checkit absorbing the full cost of the plc, previously shared with Bulgin, have added to the cost base.

 

Recurring revenues from SaaS type contracts accounted for 30% of annualised revenues with a further 17% of revenues from repeatable annual calibration contracts and the remaining 53% being contract-based installation, with small works having some of the least attractive margins. Our focus is firmly on growing the SaaS element and driving margin improvement in the installation project work by a combination of adjusting pricing and reducing costs.

 

As highlighted at the time of the sale of Bulgin, we expected to incur additional costs associated with the purchase and integration of Checkit UK and the separation from Bulgin. These costs amounted to £0.7m in the year and included the transaction costs for Checkit UK, the cost of recruitment of the new leadership team and the implementation of a new IT system.

 

Additionally, a number of non-cash costs were charged to the income statement comprising the impact of reducing the amortisation period of development costs from three years to two years (£0.3m), an amortisation charge of £1.0m in respect of separately identifiable acquired intangibles arising on the acquisition of Checkit UK  and the impairment of all of the Group's remaining carrying value of intangibles of £9.3m in view of the impossibility of valuing these assets in the current economic climate.

 

The decision to impair the intangible assets was based on the economic uncertainty created by COVID-19 making the preparation of reliable long-term value in use cash forecasts impossible. As set out in their Independent Auditor's Report to shareholders, Grant Thornton did not agree with this approach as they concluded that the impact of COVID-19 on Checkit's business was not sufficiently known at 31 January to justify it as an adjusting event. The Board maintains that the net asset position (after the impairment) as presented in the financial statements sets out a realistic view of the business as at that date.

 

Further information on the Board's response to COVID-19 is reported below.

 

The Board remains committed to selling EET and it was therefore classified as a discontinued operation taking an impairment of assets charge of £1.1m.

 

Profit on the sale of Bulgin amounted to £85.3m and Bulgin contributed £5.6m of operating profits up to its sale on 24 September 2020.

 

Following the return of cash to shareholders the Group's cash position at 31 January 2020 was £14.3m. At 31 May 2020 the cash position remained strong at £13.1m

 

Response to COVID-19 crisis

 

Effect of the current lockdown on trading

COVID-19 did not have any discernible impact on the Group's trading in the year ended 31 January 2020.

 

The Board recognises that these are unprecedented times and that the necessary actions (including the lockdown) which the Government is taking to control the outbreak of COVID-19 have inevitably caused disruption to the Group's business. During the period of lockdown, it has been difficult, if not impossible, to fulfil most existing projects or commence new projects because customers have temporarily ceased operations, or our field engineers have been prevented from entering sites. Post lockdown the Board believes that progress towards normality will be slow.

 

With most of our services delivered via cloud applications and internet connectivity, our teams are well placed to work remotely. Our focus has been to continue supporting customers through these dire circumstances and helping them prepare for a period of recovery when efficient and carefully coordinated operations will be a higher priority than ever. In some cases, we have been able to assist customers remotely. We have also maintained good supplies of key replacement components in the event of urgent needs.

 

We are proud to have also donated our technology to the NHS Nightingale hospitals set up to provide additional care capacity for patients during the crisis. The public sector has a big role to play in the resumption of activity for the "new normal". The effective management of people, processes and places is an area where Checkit is providing tangible support to these organisations.

Checkit has also received several requests from customers to be granted contract payment holidays. Therefore the Board believes that in the interests of prudence, for business planning purposes, it should model its current worst-case scenario on only being able to rely on its committed recurring revenue from high-quality customers undertaking essential services, such as the NHS, BP petrol stations and Waitrose.

Under this scenario much of the business projected to be lost or deferred is generally of low and sometimes negative margins based on quotes issued by Checkit UK prior to the initiation of the Group's margin improvement project. This business utilises a significant proportion of the Groups cost base. So long as our cost base is reduced proportionately as outlined below, it will be possible to limit the negative effect on the Group.

 

COVID-19 and Pay reduction schemes 

The Board considers that Checkit's most valuable asset is its people and wishes to demonstrate its commitment to do its utmost to save as many jobs as possible by implementing the schemes outlined below. The Group has utilised the Government Job Retention Scheme for furloughed employees and in addition, has asked employees who continue to work to agree to a pay reduction.

 

The Board has received agreement from employees for two temporary pay reduction schemes aimed at a saving of over £4 million (inclusive of Coronavirus Job Retention Scheme grants) were the scheme to last for one year, which equates to around 40% of total people costs. As a part of this approach, the Chairman has agreed to waive his entire salary, with remaining Board members agreeing to reduce their salaries by up to 36%. These pay reduction schemes are currently scheduled to end on 30 June 2020.

 

Whilst there is currently no provision for an extension of the schemes, the Board will determine whether it should request employees to agree to an extension closer to expiry. The Board is extremely grateful for the sacrifices made by employees in the current crisis and greatly appreciates the positive attitude shown by all staff. 

 

Current focus

The current focus is on:

 

·      Integrating Checkit UK and a successful separation of Bulgin during the 12-month transitional services 

period to September 2020. Whilst this is a complex task, we have made a good start

 

·      Increasing the profitability of Checkit UK. As mentioned above, management are now provided with improved margin information, allowing better analysis, including the identification and elimination of unprofitable activities and improved pricing on all new contract bids

 

·    Continuing the investment in new product development with a view to increasing our competitive advantage and growing revenue with T1 customers 

 

·      Increasing focus on the Healthcare sector

 

·      Targeting EBITDA profitability in the medium term. Whilst the COVID-19 crisis will undoubtedly have an effect in the short term, the Board maintains its positive view of Checkit's medium and longer-term prospects. 

 

 

 

 

FINANCIAL REVIEW

Introduction

The financial results for 2020 reflect a year of substantial change with the acquisition of Checkit UK in May 2019 and the disposal of the Group's Bulgin business in September 2019 which resulted in a return of cash of £81m to shareholders via a tender offer.

These transactions have all but completed the transformation of the Group away from a manufacturing Group to one that is focussed on Software as a Service.

EET remains for sales and has been classified as a discontinued operation. Comparative figures have been restated where appropriate.

Continuing operations

On a restated basis Group revenue grew from £1m to £9.8m, most of which was attributable to the acquisition.

To better understand revenue performance a proforma summary is set out below on the basis that Checkit UK was part of the Group for a full year.

 

£'m	FY20 Actual £m	FY20 normalised* £m	FY19 actual £m	FY19 normalised* £m	Change %	Change normalised* %
Sales
Checkit Europe	1.3	1.3	1.0	1.0	30%	30%
Checkit UK	8.5	11.5	-	10.8	-	7%
Sales total	9.8	12.8	1.0	11.8	880%	8%
Operating loss before non-recurring or special items	(5.2)	(4.8)	(4.5)	(3.4)	-	-

*Normalised results illustrate results that would have been included in the Group's financial results had Checkit UK Limited ("CUK"), which was acquired on 14 May 2019, been owned by the Group throughout both periods.

 

It is pleasing to report that year-on-year sales grew on a normalised basis* in both Checkit Europe and the newly acquired Checkit UK by 30% and 7% respectively. Checkit UK achieved close to its sales budget for the year.

The Group's recurring revenues provide some resilience for the Group. One of the key areas of synergy with Checkit UK is to grow and convert its sales where possible to a recurring revenue model.

Based on FY20 normalised revenue, the composition by revenue type was made up of 30% recurring revenues, 17% repeatable income and 53% of project-based installation work.

Repeatable business comprises regular service and calibration carried out by Checkit UK, which are currently covered by annually placed orders. Work is well under way to amalgamate these into the overall service contract on a 'Peace of Mind' subscription model similar to that of Checkit Europe. Whilst this may result in revenues reducing in the short term as one-off sales are spread into monthly revenue recognition it increases the ability to improve margins and the quality of our revenue base.

 

The Group operating loss was £5.2m (2019: £4.5m loss).

The sale of Bulgin meant that most of the Group's infrastructure and support functions had to be re-established and a new management team brought in to spearhead the next stages of growth. In line with our planning model, this has in the short term led to a number of restructuring costs and an increased cost base as Checkit Europe and Checkit UK are brought together. The separation from support provided by Bulgin is expected to be completed in September 2020 when all finance and operating systems are transferred to Checkit UK's operations in Fleet

Product development continues to progress. Checkit spent £2.3m (2019: £1.9m) on product development and sustaining engineering in the financial year in respect of continuing operations, of which £1.1m was capitalised (2019: £1.3m).

As the product offering evolves, the Board regularly reviews the appropriateness of the amortisation period being applied to the capitalised development costs. Over recent years it reduced the period from four to three years. In light of the nature of current development projects and the planned roadmap, the Board has concluded that the period should be further shortened to two years. This has had the impact of accelerating amortisation by £0.3m in FY20 and has been treated as a non-recurring and special item.

The impact of COVID-19 has predictably disrupted growth and put a brake on the progress planned for FY21. The Board has taken the decision to fully impair its intangible assets in light of the uncertainty caused by COVID-19.

During the financial year the total of non-recurring and special items incurred was as follows:

 

		£m
Restructuring and integration costs of Checkit UK		0.5
Professional fees for the acquisition of Checkit UK		0.2
		0.7
Revision to development costs amortisation period		0.3
Amortisation of acquired intangible assets		1.0
Impairment of goodwill, development costs and acquired intangibles		9.3
		10.6
Total non-recurring or special items		11.3

 

The resultant Group operating loss amounted to £16.5m (2019: £4.5m loss).

 

Discontinued operations

 

Discontinued operations in FY20 related to Bulgin and Elektron Eye Technology generated an operating profit after taxation of £5.1m (2019: £8.3m) before a remeasurement loss of £1.0m.

 

Profits realised from Bulgin's disposal were £85.3m, analysed as follows:

 

	£m
Gross proceeds	105.0
Director LTIP shares	(4.1)
Adjustments in respect of net debt and working capital	(1.0)
Consideration received	99.9
Carrying value of assets sold, including cash of £0.9m)	(6.9)
Transaction costs incurred	(2.5)
Transaction and retention bonuses	(3.7)
Gain on disposal before foreign currency reserve reclassification	86.8
Foreign currency reserve reclassification	(1.5)
Gain on disposal	85.3

 

Tender offer

In December 2019, shareholders received £80.6m, being the bulk of proceeds from the sale of Bulgin by way of a 2 for 3 tender offer at a price of 65p per share. 124 million shares were cancelled, leaving 62 million shares in issue.

Following this the Electron Technology Employment Benefit Trust which participated in this offer was able to repay £2.7m to the Group.

 

Acquisition

The acquisition of Checkit UK took place in May 2019 and cost £8.8m, net of £1.7m of cash acquired with the business. £0.2m of professional fees were incurred.

 

Taxation

 

The Group is currently loss making and the current tax charge for continuing operation is nil. It has over £6.0m of tax losses and there is no expectation of tax payments in the near future.

 

The deferred tax credit of £0.7m resulted from the full release of the deferred tax associated with the full impairment of the separately identifiable acquired intangible arising on the purchase of Checkit UK.

 

Earnings per share

The average number of ordinary shares in issue during the year was 161.0m (2019: 177.7m) (excluding shares held by the Employee Benefit Trust). Basic and diluted loss per share in respect of continuing operations was 9.8p (2019: 2.5pence).

 

Cash

 

The Group generated £0.2m from operations in FY20 (FY19: £5.8m) with capital investment of £1.6m (£2.2m).

The Group spent £8.8m acquiring Checkit UK and received £15.1m net proceeds from the sale of businesses after return of £80.6m to shareholders. The overall net cash improved by £4.2m resulting in a net cash position of £14.3m (2019: £10.1m).

 

COVID-19 and going concern

 

The Board has considered 12 months cash flow forecasts from the date of signing the accounts and considers the assumptions used therein to be reasonable and reflective of its long-term SaaS contracts and contracted recurring revenue. The Group meets its day-to-day working capital requirements through its cash balance. It does not have a bank loan or overdraft.

 

The Board has also considered the impact of the ongoing COVID-19 impact. Impact to date on trading has seen revenues in the short-term fall by approximately 36% in April and May 2020 compared with expectations, with minimal impact on debtor recoverability.

 

The impact of COVID-19 has created a high level of uncertainty as to the outlook for the remainder of the financial year and it is still too early to ascertain the full impact this may have on revenue and profitability for FY21 and beyond. The Board has therefore performed a number of stress tests to assess the Group's ability to continue as a going concern. The Directors have prepared cash flow forecasts ("base case") for the Group for a review period of 12 months from the date of approval of the 2020 financial statements. These forecasts reflect an assessment of current and future market conditions and their impact on the Group's future cash flow performance. The Group has also assessed an extreme-worst case 'reverse stress tested' scenario which has indicated that Group revenue would have to be fall to a negligible level with no action to reduce costs before the Group would require additional cash to continue to operate.

 

The base case has also been sensitised for a reduction in revenue to that of recurring revenue and calibration income for the remainder of 2020 to the end of the review period. In the sensitised scenario the forecasts indicate the Group would still have enough cash to continue. However, should sales reduce further than the sensitised case the Group has a number of mitigation actions such as reducing discretionary spend, delaying capital expenditure and research and development costs to ensure the Group would have enough cash.

 

Notwithstanding this, the Group has already taken several actions to help mitigate both the short-term financial pressure on the business. These include:

 

·    A moratorium on uncommitted, non-essential expenditure

·    A restriction on recruitment to only essential roles

·    Deferment of April 2020 VAT payment to March 2021 in line with Government 'Deferral of VAT payments due to coronavirus' guidance

·    Government support for employees furloughed as a result of reduced commercial activity

·    Introduction of reduced pay scheme (currently for April to June 2020) for those employees that continue to work

·    Limited staff reductions through redundancy

 

Should it become apparent that sales orders, revenue and/or cash collections are being affected for a prolonged period by a global slowdown, the Directors will undertake a further review on discretionary expenditure, staffing levels and capital investment to protect the Group's cash position.

 

The assessment is based on the Board's best estimate at the date of this report which may be subject to change as the situation evolves further. As at the date of this report, having considered all the above, including the Group's current strong cash position, the Directors remain confident in the long-term future prospects for the Group and therefore the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

Dividend

Having considered the resources needed to invest in new product development and marketing with the aim of increasing future shareholder value and the impact of COVID-19, the Board believes that it is in the Group's best interests not to pay a dividend for the year.

 

Consolidated statement of comprehensive income

year ended 31 January 2020

 

 

	Notes	2020 £m	2019 £m
Revenue	2	9.8	1.0
Cost of sales		(7.2)	(1.0)
Gross profit		2.6	-
Operating expenses
Operating expenses (excluding non-recurring or special items)		(7.8)	(4.5)
Operating loss before non-recurring or special items	3	(5.2)	(4.5)
Non-recurring or special items	3	(11.3)	-
Total operating expenses		(19.1)	(4.5)
Operating loss		(16.5)	(4.5)
Finance income		0.1	-
Loss before taxation		(16.4)	(4.5)
Taxation	6	0.7	-
Loss from continuing operations		(15.7)	(4.5)
Profit from discontinued operations	7	89.4	8.6
Profit for the year attributable to equity shareholders		73.7	4.1
Other comprehensive income/(expense)
Exchange differences on translation of foreign operations		0.7	(0.7)
Reclassification of exchange differences to income statement for discontinued items		1.5	-
Total comprehensive income for the financial year attributable to equity shareholders		75.9	3.4
Loss per share from continuing operations
Basic EPS	5	(9.8)p	(2.5)p
Diluted EPS	5	(9.8)p	(2.5)p

 

Consolidated balance sheet

as at 31 January 2020

 

	Notes	2020 £m	Restated 2019 £m
Assets
Non-current assets
Capitalised development costs		-	2.6
Other intangible assets		-	0.3
Property, plant and equipment		1.2	1.7
Deferred tax asset		-	0.4
Total non-current assets		1.2	5.0
Current assets
Inventories		1.7	4.3
Trade and other receivables		3.4	5.1
Cash and cash equivalents		14.3	10.1
Total current assets		19.4	19.5
Total assets		20.6	24.5
Current liabilities
Trade and other payables		5.1	6.6
Current tax payable		-	0.3
Contract lease liabilities		0.5	-
Provisions		-	1.0
Total current liabilities		5.6	7.9
Non-current liabilities
Long-term contract lease liabilities		0.4	-
Long-term provisions		0.3	0.3
Total non-current liabilities		0.7	0.3
Total liabilities		6.3	8.2
Net assets		14.3	16.3
Equity attributable to the owners of the Company
Called up share capital		3.1	9.3
Share premium		5.4	5.4
Merger reserve		-	1.1
Capital redemption reserve		6.4	0.2
Own shares		(0.7)	(1.9)
Other reserves		-	0.8
Translation reserve		-	(2.2)
Retained earnings		0.1	3.6
Total equity		14.3	16.3

 

 

Consolidated statement of changes in equity

year ended 31 January 2020

 

 

	Share capital £m	Share premium £m	Merger reserve £m	Capital redemption reserve £m	Own shares[1] £m	Other reserves £m	Translation reserve £m	Retained earnings £m	Total £m
At 31 January 2018	9.3	5.4	1.1	0.2	(1.9)	0.8	(1.5)	(0.5)	12.9
Profit for the year	-	-	-	-	-	-	-	4.1	4.1
Currency translation differences on foreign currency net investments	-	-	-	-	-	-	(0.7)	-	(0.7)
Total comprehensive income for the year	-	-	-	-	-	-	(0.7)	4.1	3.4
At 31 January 2019	9.3	5.4	1.1	0.2	(1.9)	0.8	(2.2)	3.6	16.3
Profit for the year	-	-	-	-	-	-	-	73.7	73.7
Recycled translation reserve	-	-	-	-	-	-	1.5	-	1.5
Currency translation differences on foreign currency net investments	-	-	-	-	-	-	0.7	-	0.7
Total comprehensive income for the year	-	-	-	-	-	-	2.2	73.7	75.9
Correction to classification [2]	-	-	-	-	(1.5)	1.5	-	-	-
Merger reserve realised			(1.1)					1.1	-
Own shares sold	-	-	-	-	2.7	-	-	-	2.7
Share options and incentives exercised	-	-	-	-	-	(2.3)	-	2.3	-
Repurchase and cancellation of shares	(6.2)	-	-	6.2	-	-	-	(80.6)	(80.6)
Transaction with owners	(6.2)	-	(1.1)	6.2	1.2	(0.8)	-	(77.2)	(77.9)
At 31 January 2020	3.1	5.4	-	6.4	(0.7)	-	-	0.1	14.3

 

1       The shares held by the Elektron Technology 2012 EBT are treated as treasury shares.

2      The correction to own shares reserves relates to a share-based payment adjustment that was incorrectly classified within own shares

 

 

Consolidated statement of cash flows

year ended 31 January 2020

 

	Notes	2020 £m	2019 £m
Net cash inflow from operating activities	4	0.2	5.8
Investing activities
Interest received on bank deposits		0.1	-
Purchase of property, plant and equipment		(0.3)	(0.7)
Investment in product development projects		(1.3)	(1.5)
Purchase of business (net of cash acquired)	8	(8.8)
Sale of businesses (net of cash sold)	7	93.0	1.3
Net cash generated by investing activities		82.7	(0.9)
Financing activities
Repurchase and cancellation of shares*		(77.9)	-
Repayment of contract lease liabilities		(0.8)	-
Net cash used in financing activities		(78.7)	-
Net increase in cash and cash equivalents		4.2	4.9
Cash and cash equivalents at the beginning of the year		10.1	5.2
Cash and cash equivalents at the end of the year		14.3	10.1

*Net of £2.7m repaid by Elektron Technology Employment Benefit Trust from proceeds of the tender offer

 

 

 

 

 

 

1.     Basis of Preparation 

The unaudited preliminary consolidated financial statements comply with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union and issued by the International Accounting Standards Board (IASB) and with the accounting policies of the Group which were set out on pages 51 to 57 of the 2019 Annual Report and Accounts.

With the exception of the implementation of IFRS 16 'Leases' became mandatory for adoption on 1 January 2019. There were no other 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 2020, or later periods, have been adopted early.

Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with all IFRS disclosure requirements. The Company's 2020 Annual Report and Accounts will be prepared in compliance with 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 2019 have been delivered to the Registrar of Companies and received an unqualified auditors' report and 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 2020 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 audit report for the year ended 31 January 2020 has yet to be signed but as explained above will contain a qualification in respect of the Directors' decision to fully impair the Group's intangible assets. The announcement of the preliminary results was approved on behalf of the board of directors on 16 June 2020. While the financial information included in this audited preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards, as adopted by the EU (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Group will publish full financial statements that comply with IFRS by the time of the Annual General Meeting. 

 

 

2.     Segmental reporting

The Group has continued to adopt the provisions of IFRS 8 "Operating Segments" and historically shown summary information in respect of these segments. This segmentation is consistent with internal reports to the chief operating decision maker for use in assessing business performance and allocating Group resources. The chief operating decision maker is the Executive Chairman of the Group.

 

During the year Bulgin was sold and EET has been classified as a discontinued operation, leaving the Group with Checkit as its sole operating segment.

 

Currently the Group's main activities are the supply of Connected Workflow Management, Connected Automated Monitoring and Connected Building Management together with operational insight-based products and services. The Board is integrating the business of Checkit UK into the Group and intends to introduce more detailed segmentation of its business in due course.

 

Revenue by type of the continuing operations

The following table presents the different revenue streams of Checkit:

 

	2020 £m	2019 £m
Recurring revenues from subscription services	3.1	0.9
Installation maintenance and support	6.7	0.1
Total	9.8	1.0

 

 

Geographical information

The Group considers its operations to be in the following geographical regions:

	Revenue from external customers
	2020 £m	2019 £m
United Kingdom	9.4	1.0
The Americas	0.4	-
Total	9.8	1.0

 

 

3.     Operating loss- continuing operations and non-recurring or special items

 

(a)   Operating loss-continuing operations

	2020 £m	2019 £m
Operating loss is after charging/(crediting):
Depreciation on owned property, plant and equipment	0.2	0.1
Depreciation on right-of-use assets	0.5	-
Amortisation of intangible assets (excluding amounts charged as special items below)	0.9	1.6
Product development costs expensed	1.2	0.6

 

(b)  Non-recurring or special items

 

	2020 £m	2019 £m
Non-recurring or special items:
-Revision to development costs amortisation period	0.3	-
-Impairment of development costs	2.0	-
-Restructuring and integration costs of Checkit UK	0.5	-
-Acquisition costs of Checkit UK	0.2	-
-Amortisation of acquired intangible assets	1.0	-
-Impairment of goodwill and acquired intangible assets	7.3	-
Total non-recurring or special items	11.3	-

 

 

 

4.     Net cash flows from operating activities

	Note	2020 £m	2019 £m
(Loss)/profit before taxation
- from continuing operations		(16.4)	(4.5)
- from discontinued operations (before tax)	7	89.9	9.5
Adjustments for:
Depreciation		1.3	0.4
Amortisation of development costs and computer software		2.3	1.8
Impairment of intangible assets and goodwill		9.9	-
Loss on disposal of tangible fixed assets		0.1	-
Gain on the sale of discontinued businesses	7	(85.3)	(0.4)
Finance income		(0.1)	-
Operating cash flow before working capital changes		1.7	6.8
Increase in trade and other receivables		(0.9)	(0.2)
Decrease/(increase) in inventories		0.1	(0.6)
(Increase)/decrease in trade and other payables		(0.1)	-
Operating cash flow after working capital changes		0.8	6.0
(Increase)/decrease in provisions		(0.1)	0.3
Cash generated by operations		0.7	6.3
Tax paid		(0.5)	(0.5)
Net cash inflow from operating activities		0.2	5.8

 

5.     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 take 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	2020 m	2019 m
Weighted average number of shares for the purpose of basic earnings per share	A	161.0	177.7
Dilutive effect of employee share options		-	10.4
Weighted average number of shares for the purpose of diluted earnings per share	B	161.0	188.1

 

	Key	£m	£m
Profit for the year		73.7	4.1
Profit from discontinued operations, net of tax	E	(89.4)	(8.6)
Continuing loss for the year attributable to equity shareholders	C	(15.7)	(4.5)
Total non-recurring or special items net of tax		10.6	-
Loss for adjusted EPS	D	(5.1)	(4.5)

 

	Key	2020	2019
EPS measures
Basic and diluted continuing EPS*	C/A	(9.8)p	(2.5)p
Adjusted EPS measures
Adjusted basic and diluted continuing EPS*	D/A	(3.2)p	(2.5)p

 

The adjusted EPS information is considered to provide a fairer representation of the Group's trading performance.

Discontinued earnings per share

EPS measures
Basic EPS	(E)/A	55.6p	4.8p
Diluted  EPS*	(E)/B	55.6p	4.5p

 

Total earnings per share for the year attributable to equity shareholders

EPS measures
Basic EPS	(E)/A	45.8p	2.3p
Diluted  EPS*	(E)/B	45.8p	2.0p

*In the current 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.

6.   Taxation

The tax credit of £0.7m (2019: nil) relates to deferred tax on the amortisation and impairment separately identifiable acquired intangibles arsing on the acquisition of Checkit UK.

7.     Discontinued operations

 

During the year the Group sold its Bulgin operations and was committed to selling its Elektron Eye Technology business. Consequently, both businesses have been classed as discontinued operations and accordingly comparatives have been restated. In 2019 the Group sold its Queensgate Nano business for a profit of £0.4m less attributable tax of £0.1m.

 

	2020 £m	2019 £m
Revenue	21.3	32.7
Cost of sales	(10.2)	(16.4)
Gross profit	11.1	16.3
Operating expenses	(5.5)	(7.2)
Operating profit	5.6	9.1
Finance costs	-	-
Profit before tax	5.6	9.1
Attributable tax	(0.5)	(0.8)
Profit from discontinued operations before gain on disposal	5.1	8.3
Gain on disposal and loss on remeasurement	84.3	0.4
Attributable tax to gain	-	(0.1)
Profit from discontinued operations attributable to equity shareholders	89.4	8.6
Foreign currency reserve reclassification	1.5	-
Other comprehensive income from discontinued operations	1.5	-

 

 

 

 

 

 

 

 

Sale of Bulgin

On 24 September 2019 the Group disposed of its Bulgin business for net proceeds of £93.7m paid in cash. The gain on disposal is summarised as follows:

	£m
Gross proceeds	105.0
Director LTIP shares	(4.1)
Adjustments in respect of net debt and working capital	(1.0)
Consideration received	99.9
Carrying value of assets sold	(6.9)
Transaction costs incurred	(2.5)
Transaction and retention bonuses	(3.7)
Gain on disposal before foreign currency reserve reclassification	86.8
Foreign currency reserve reclassification	(1.5)
Gain on disposal	85.3

 

Within the assets sold was £0.9m of cash balances.

 

The results of the Bulgin discontinued operation, which have been included in the consolidated statement of comprehensive income, were as follows:

	2020 £m	2019 £m
Revenue	19.4	30.1
Cost of sales	(9.2)	(15.1)
Gross profit	10.2	15.0
Operating expenses	(4.6)	(6.0)
Operating profit	5.6	9.0
Finance costs	-	-
Profit before tax	5.6	9.0
Attributable tax	(0.5)	(0.8)
Profit from Bulgin discontinued operations before gain on disposal	5.1	8.2
Gain on disposal	85.3	-
Profit from Bulgin discontinued operations	90.4	8.2
Foreign currency reserve reclassification	1.5	-
Other comprehensive income from Bulgin discontinued operations	1.5	-

 

 

Cash flows from Bulgin

	2020 £m	2019 £m
Net cash inflow from operating activities	5.6	8.2
Net cash (outflow)/inflow from investing activities
Purchase of tangible fixed assets	(0.1)	(0.7)
Expenditure on intangible assets	-	(0.1)
Cash received from the sale of Bulgin	99.9	-
Disposal costs	(6.2)	-
Total net cash inflow/(outflow) from investing activities	93.6	(0.8)
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:

	2020 £m	2019 £m
Revenue	1.9	2.6
Cost of sales	(1.0)	(1.3)
Gross profit	0.9	1.3
Operating expenses	(0.9)	(1.2)
Operating profit	-	0.1
Finance costs	-	-
Profit before tax	-	0.1
Attributable tax	-	-
Profit from Elektron Eye Technology	-	0.1
Loss on remeasurement to fair value	(1.0)	-
(Loss)/profit from Elektron Eye Technology discontinued operation attributable to equity shareholders	(1.0)	-

 

Cash flows from Elektron Eye Technology

	2020 £m	2019 £m
Net cash inflow from operating activities	(0.1)	0.2
Net cash outflow from investing activities
Purchase of tangible fixed assets	-	-
Expenditure on intangible assets	(0.1)	(0.1)
Total net cash outflow from investing activities	(0.1)	(0.1)
Interest payable	-	-
Total net cash outflow from financing activities	-	-

 

 

Sale of Queensgate

 

	2020 £m	2019 £m
Gain on disposal	-	0.4
Attributable tax to gain	-	(0.1)
Profit from discontinued operations attributable to equity shareholders	-	0.3

 

The Group received £0.2m of deferred consideration during the year.

 

8.     Acquisition of Next Control Systems Limited

 

On 14 May 2019 the Group acquired 100% of the equity of Next Control Systems Limited (r Checkit UK Limited "Checkit UK") a UK-based business.

Checkit UK is an excellent strategic fit for Checkit, providing technology and software that enable management teams to monitor, control and optimise business processes. It is l being combined with Checkit Europe to create a global leader in the field of real-time operations management. It adds scale and is one which the Board believes will significantly accelerate the path to profitability of Checkit.

Checkit UK is a leader in high-end service-based temperature monitoring for healthcare and life sciences and provides data-related Building Energy Management System (CBM) services. It has a major relationship with a leading UK retailer covering smart building and plant technologies.

 

The details of the business combination are as follows:

 

Fair value of consideration transferred		£m
Amount settled in cash		10.5
Recognised amounts of identifiable net assets
Property, plant and equipment		0.4
Development costs capitalised		0.1
Other intangibles		4.0
Total non-current assets		4.5
Inventories		0.9
Trade and other receivables		2.5
Cash and cash equivalents		1.7
Total current assets		5.1
Trade and other payables		(2.3)
Lease liabilities		(0.2)
Total current liabilities		(2.5)
Lease liabilities		(0.1)
Deferred tax liabilities		(0.8)
Total non-current liabilities		(0.9)
Identifiable net assets		6.2
Goodwill on acquisition		4.3
Consideration settled in cash		10.5
Cash and cash equivalents acquired		(1.7)
Net cash outflow on acquisition		8.8

 

Consideration transferred

The acquisition of Checkit UK was settled in cash amounting to £10.5m. Acquisition-related costs amounting to £0.2m were expensed and treated as a non-recurring item.

Identifiable net assets

The fair value of the trade and other receivables acquired as part of the business combination amounted to £2.1m, with a gross contractual amount of £2.1m. As of the acquisition date, the Group's best estimate of the contractual cash flow not expected to be collected amounted to less than £0.1m.

Separable intangible assets

Specific recurring revenue streams from specific customers and the medical sector was valued by assessing a discounted cash flow for the acquired customer list, based on customer attrition rates and using a discount factor of 12.5%. The useful life has been estimated at three years.

Goodwill

Goodwill is primarily related to the core growth expectations, expected future profitability and expected cost synergies. Goodwill has been allocated to the Checkit segment and is not expected to be deductible for tax purposes.

Checkit UK's contribution to the Group results

Checkit UK generated a profit of £0.7m for the period from 14 May 2019 to the reporting date. Revenue for the period to 31 January 2020 was £8.5m.

If Checkit UK had been acquired on 1 February 2019, revenue of the Group for the year ended 31 January 2020 would have been £3.0m higher, and loss for the period would have reduced by £0.4m.

 

9.     Post balance sheet events

The Directors have considered the impact of COVID-19 on its businesses and concluded in their judgement that it should treated as an adjusting event as at 31 January2020.  Accordingly, they have made adjustments to the carrying value of its intangible assets on the grounds of the significant uncertainty created, making long term forecasts of business performance impossible. The Group's auditors did not concur with this view and intend to qualify the Group's audit report.

10. Non-GAAP performance measures

A reconciliation of non-GAAP performance measures to reported results is set out below:

Profit measures - EBITDA - continuing operations

	2020 Total £m	2019   £m
EBITDA	(3.6)	(2.8)
Depreciation and amortisation	(1.6)	(1.7)
Reported operating loss for the year before non-recurring and special items	(5.2)	(4.5)

 

 

11.  Transition to IFRS16

The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets and lease liabilities. Provisions for onerous lease contracts have been derecognised and operating lease incentives previously recognised as liabilities have been derecognised and factored into the measurement of the right-of-use assets and lease liabilities. The Group has chosen to use the table below to set out the adjustments recognised at the date of initial application of IFRS 16.

	As previously reported at 1 February 2019 £m	Impact of IFRS16 £m	As restated at 1 February 2019 £m
Non-current assets	3.3	-	3.3
Property, plant & equipment	1.7	2.7	4.4
Current assets	19.5	-	19.5
Impact on assets	24.5	2.7	27.2
Current liabilities	(7.9)	-	(7.9)
Lease liabilities	-	(0.7)	(0.7)
Non-current liabilities	(0.3)	-	(0.3)
Lease liabilities	-	(2.0)	(2.0)
Impact on liabilities	(8.2)	(2.7)	(10.9)
Impact on net assets	16.3	-	16.3
Equity and other reserves	12.7	-	12.7
Retained earnings	3.6	-	3.6
Impact on net assets	16.3	-	16.3

 

 

The table below presents a reconciliation from operating lease commitments disclosed at 31 January 2019 to lease liabilities recognised at 1 February 2019.

		£m
Operating lease commitments disclosed under IAS 17 at 31 January 2019		3.1
Effect of discounting		(0.4)
Lease liabilities recognised at 1 February 2019		2.7

The operating lease commitment disclosed in last year's financial statements of £5.1m has been restated to £3.1m due to a translation error of £2.0m.

 

In terms of the income statement impact, the application of IFRS 16 resulted in a decrease in other operating expenses and an increase in depreciation and interest expense compared to IAS 17. During the year ended 31 January 2020, in relation to leases under IFRS 16, the Group recognised the following amounts in the consolidated income statement (including the impact of new right-of-use assets recognised on acquisition of Checkit UK):

 

	2020 £m
Depreciation	0.8
Interest expense	0.1

 

Of the above £0.3m of depreciation and less than £0.1m of interest expense related to discontinued operations.

 

12.  Cautionary statement

This preliminary financial information has been prepared only for the shareholders of Checkit as a whole and its sole purpose and use is to assist shareholders to exercise their governance rights. Checkit 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.  Several key risks and have changed materially given the sales of Bulgin transforming the Group into a SaaS focussed business in the period from those disclosed on pages 21 to 24 of the annual financial statements for the year ended 31 January 2019. Risks previously associated with a cash generative manufacturing orientated business with overseas operations have diminished whilst risks associated with early phase technology business requiring continued investment have increased. In addition, the most significant new challenge and uncertainty is that posed by the COVID-19 pandemic

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.