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.

29 April 2021

Checkit plc

("Checkit" or the "Group")

Preliminary results for the Year Ended 31 January 2021

Checkit plc (AIM: CKT) announces its unaudited preliminary results for the year ended 31 January 2021 (FY21) ahead of the release of the full annual report to shareholders, which will be published ahead of the Annual General Meeting, which is expected to take place on 3 June 2021.

The Group's management team will present a live webinar including an opportunity for questions at 13:00 (BST) on 29 April 2021. The webinar can be accessed via the news area of the website at https://www.checkit.net/news/ or by using this link: https://us02web.zoom.us/webinar/register/6016188249930/WN_vu9Av2ekRTyxGJ9nfxHErw

FY21 HIGHLIGHTS

Overview

·    The Board was able to upgrade its expectations during FY21 and these results represent a further upgrade on the expectations set at the time of the trading update issued on 11 February 2021.

Financial

·    Annual recurring revenue (ARR) run rate closed at £5.7m (+46%) (2020: £3.9m)

·    Non-recurring revenue £8.1m (-9%) (2020: £8.9m normalised) *

·    Total revenue from continuing operations £13.2m; (+3%) (2020: £12.8m normalised) *

·    Operating loss before non-recurring or special items** £3.1m (2020: loss of £6.5m)

·    Operating loss £5.3m (2020: loss of £9.2m)

·    Cash at year end £11.5m; (2020: £14.3m)

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

** Non-recurring or special items include such items as restructuring, acquisition costs, impairments and amortisation of acquired intangibles and other non‑recurring items incurred outside the normal course of business.

Outlook

·    FY22 has started well. The post COVID-19 acceleration of the digital workplace offers strong growth prospects for Checkit. A further update on FY22 performance will be provided as part of the Q1 trading update.

·    Increased investment in sales, marketing and product in FY22 will enable Checkit to take advantage of the significant market opportunity offered by a digitally underserved deskless workforce.

·    Tutela LLC, which was acquired in February 2021, is showing early signs of promise.

CHAIRMAN'S STATEMENT

We were able to make progress on many fronts in FY21.

Significant events

Checkit is in the business of digital transformation. The Company embarked on a transformation of its own during FY21, adapting to the conditions of the COVID-19 pandemic and preparing for the opportunity to support new ways of working.

Facing the uncertainties arising in the first half of the year, the Company adopted a short‑term cash and business protection plan. Checkit made initial use of the government furlough scheme and employees took voluntary pay cuts to minimise business losses. The Company is extremely grateful for the loyalty shown by its staff. We were able to stop use of the furlough scheme completely by late summer 2020.

Employees seamlessly transitioned to homeworking and the business continued to deliver for its customers. 

In July 2020, the assets of Elektron Eye Technology, the final element of the legacy Elektron business, were sold for a consideration of £0.9m.

In September 2020, Checkit finalised the separation of the Bulgin business following the disposal in 2019, and two new business units were created:

·    Checkit Connect - the intelligent operations management platform for the deskless workforce

·    Checkit BEMS - a building energy management services business

Both fulfil valuable roles within the Checkit business. Connect is the growth engine of the company and receives the majority of product, sales and marketing investment, whilst BEMS provides valuable cashflow to support the Group's growth ambitions.

Growth

Despite the COVID-19 headwinds that affected Checkit's customers during FY21, it was possible to grow annual recurring revenue (ARR) significantly through a combination of new customer wins in the UK NHS and the food retail sector, as well as contract renewals with existing customers on enhanced terms. Checkit has segmented its target market into five tiers by size and core industry verticals: Healthcare, Food/Retail, Facilities Management, Pharmaceutical and Franchised Quick Service Restaurants (QSR).

Several of our customers were forced to close during the year and we were pleased to agree contract suspensions to help them pending their re-opening.

Non-recurring revenue declined by -9%, partly as a result of COVID-19, but also as a result of the conversion of maintenance contracts to subscription income, a change in our business model in favour of ARR.

The accelerated pace of digital transformation in the market brought on by COVID-19 validates Checkit's core value proposition around harnessing digital and data capabilities for the deskless workforce, positioning Checkit well for the age of agile working.

Shortly after the year end, Checkit acquired US-based Tutela Monitoring Systems and hired Steve Peck, an experienced SaaS executive (previously at Oracle NetSuite), to drive revenue generation across enterprise food/retail and healthcare markets based in the Americas.

In February 2021, the sales and marketing function was strengthened by the appointment of Kit Kyte (previously at Genpact) as Chief Commercial Officer, tasked with building a sales and marketing organisation, which matches our ambitions for growth.

Product

The Checkit platform is constantly evolving to provide further functionality and support increased adoption of its technology offering. Areas of development during the year include:

•             Teamworking: Major upgrade to Connected Workflow Management (CWM) to support several people being able to work on the same workflow at the same time.

•             Business intelligence and recommendations: Interpreting and deriving insights from sensor and CWM user activities.

•             Providing contextual information to CWM users: App users now have one click access to documentation and illustrations (for example, standards and procedural guides), so they can refer to instructions and training material from within their work.

•             Checkpoint extension: Extension to our Checkpoints feature, which links workflows with assets or locations, to add more flexibility. This means we can better support work that is triggered by asset and location type.

•             Label printing: A first implementation of label printing from the CWM application. 

•             Simplified sensor network installation: Simplified wizard-driven sensor network installation allows customer installation and service activities to be performed by customers themselves or third party installers.  This is essential for international deployments, especially during the COVID-19 pandemic where we have been able to continue to roll out overseas pilots in various territories, despite the travel restrictions in place.

•             Internationalisation: We now have the capability of providing multiple language functionality to users, enabling the potential for increased global adoption.

Looking forward, key development areas for delivery are:

·    Linking our building management and automated monitoring products to our workflow management:  When an alarm is raised by an issue detected by one of our systems, a new workflow will be created for the appropriate team, so they can deal with the issue in a targeted fashion.  This provides mobile workforces with the ability to respond faster, more consistently and more conveniently and will give better process control and visibility in real time to managers.

·    Allowing processes to be shared across company boundaries: This will enable organisations that wish to share processes with partners, for example franchisors and franchisees, to do so in a flexible and controlled manner.  This results in the ability to create and distribute digital operations manuals - key elements of many relationships which rely on process and operational consistency for brand protection and quality management.

Operations and Digital Transformation

Throughout FY21 Checkit continued to provide a full service. 

We delivered a rapid response to urgent requests for installations of temperature monitoring equipment in vaccination hubs, hospital trusts and mortuaries during the COVID-19 pandemic (including Nightingale hospitals).  Our team worked hard in challenging conditions and at a rapid pace, often re-scheduling work at short notice to accommodate the NHS's urgent needs. 

We look forward to integrating the Salesforce platform into Operations in H2 FY22, enabling us to improve our operations' efficiency with the addition of a Customer Excellence function.

Employees and Cultural Transformation

During FY21 we welcomed many new people into Checkit. These new hires have brought with them different experiences, backgrounds and despite the unusual circumstances of joining virtually, are already having an impact on the business.

We consider a diverse and inclusive workforce as critical to nurturing innovative thinking and personal as well as business growth. In our business, diversity of thinking, cultural background, education and gender not only contribute to an enriched and inclusive environment, but are expected to drive shareholder value as some studies have demonstrated.

The launch of a new EMI share option scheme provides all qualifying employees with the opportunity to share in the Group's success and has already had a positive impact on engagement.

A vision to lead the future of intelligent operations and to rapidly grow the business on a global scale brings excitement together with a need for focus and unity. Despite the current challenges, we were able to share this vision with all employees at a virtual kick-off event in January 2021.

OUTLOOK

FY22 has started well. The post COVID-19 acceleration of the digital workplace presents a dynamic opportunity of growth for Checkit. The planned increased investment in sales, marketing and product during FY22 will enable Checkit to accelerate its growth programme and ensure it becomes a leader in this underserved space.  

The acquisition of Tutela LLC has established an immediate presence in North America and already shows promise as a key growth market. This has been a critical move as Checkit prepares itself to operate as a global SaaS provider.

FINANCIAL REVIEW

The Group delivered a strong set of financial results in FY21. Financial performance exceeded the expectations of the Board, which were set at the beginning of the year.

During the first half of the year, the Group faced the uncertainty caused by the COVID-19 pandemic and a decline in non-recurring revenue meant there was an immediate focus on cash preservation.

In September 2020, the Group completed its separation from the Bulgin business following the disposal in 2019. The business was split into two newly created business units: Checkit BEMS and Checkit Connect. This enables each business unit to focus on relevant financial KPIs as the Group continued its transformation into a growing Software as a Service recurring revenue business.

Throughout FY21 the Group maintained a focus on cash and was able to successfully balance short-term prudence with its longer-term vision. This is reflected in the significant growth in ARR, continued investment in new product development and the improvement in the Group's margins.

Following on from a qualified audit opinion in FY20, the Board was able to reach agreement with the external auditors regarding the treatment of its intangible assets. This resulted in a restatement of FY20 financial results and addresses the matters which led to the qualified audit opinion in FY20. The restatement had no impact on underlying business performance or cash flow in the year.

Continuing Operations: Revenue and ARR

The table below shows revenue by business unit for the year ended 31 January 2021 and includes comparisons with reported and normalised* prior year values.

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

Total revenue for FY21 was £13.2m +3% compared to the prior year on a normalised basis (FY20 £12.8m normalised).

39% of revenue was recurring (>1 year contracted), up +8ppts compared to the prior year.

Checkit Connect

Checkit Connect is the business unit providing recurring Workflow Management and Automated Monitoring software and services to customers. It is a predominantly recurring subscription revenue business with some non-recurring or repeatable income from maintenance or service work.

During the year to 31 January 2021, the Group embarked on a successful programme of transferring healthcare customers onto a new contract structure. This involved combining recurring services with once-off activities into a new subscription based agreement in line with the "peace of mind" SaaS pricing and contractual model now adopted across Checkit Connect.

As a result of this pricing initiative, the business unit saw a significant conversion from non-recurring to recurring revenue during the year, contributing approximately £0.6m to ARR.

Checkit Connect revenue grew 13% in FY21 on a normalised basis* and reflects the in-year impact of growth in ARR, partially offset by a decline in non-recurring revenues.

Recurring Revenue

The Group has introduced ARR as its most important measure of sustainable revenue and business growth.

ARR grew by 46% to close at £5.7m (FY20 £3.9m) reflecting:

·    £0.7m - New business

·    £0.6m - Conversion of Healthcare contracts

·    £0.5m - Pricing

The increase in ARR resulted in 33% growth in reported recurring revenue compared to prior year on a normalised basis.

Non-recurring and repeatable revenue

Checkit Connect non-recurring revenue declined by 23% compared to FY20 on a normalised basis* due to the following:

·    Conversion of maintenance contracts to subscription income (£0.3m)

·    Timing differences due to the UK roll out of the COVID-19 vaccine programme (£0.1m)

·    H1 COVID-19 related challenges (£0.1m)

Included within Checkit Connect non-recurring revenue is £0.5m considered repeatable revenue from annual calibration activities. This is reducing as more of these contracts are charged on an ARR basis.

Checkit BEMS

Checkit BEMS is the business unit involved in installation and servicing of Building and Energy Management Systems. Non-recurring income is generated through large project installations, small remediation or maintenance works. The reported revenue includes £1.3m repeatable revenue from annual maintenance contracts.

The business unit was impacted significantly with the closure of construction in the first lockdown in H1 and saw revenues decline as a result. Revenue stabilised during the second half of the year as construction activity returned.

The business unit saw a decline in revenue of 5% compared to FY20 on a normalised basis* due to the COVID-19 pandemic related challenges in the first half of the year.

Continuing Operations: EBIT

The Group reports an operating loss before non-recurring or special items in FY21 of £(3.1)m. This reflects an improvement of 52% (£3.4m) compared to the restated prior period.

New product development (NPD) spend of £2.5m (FY20 £2.5m) has been fully expensed in the year.

The total investment in product increased overall in the second half of the year, as operational savings were re-appropriated into an expanded product management function and certain key NPD projects were accelerated. The ability to invest in the core product at these levels is crucial to ensuring Checkit maintains a competitive advantage and exits the year with a product solution for the new accelerating digital world.

Spend on sales and marketing was scaled back in FY21 (£1.4m, compared to FY20 £3.2m). Ability to drive new business was impacted by the COVID-19 pandemic and the Group's growth plans were put on hold to preserve cash. During H2, the Group made plans to reinvigorate and accelerate growth efforts in light of the growing market opportunity. This has started by rebuilding an expanded sales and marketing team in both the UK and US in FY22. 

The operating result includes income from the Government job retention scheme of £0.4m received during the first half of the year to help offset the revenue reduction seen as a result of COVID-19.

FY20 Restatement

Following the qualified audit opinion in FY20, the Board revisited the assumptions made regarding its decision to fully impair the intangible assets in the FY20 financial statements due to the unforeseen impact of COVID-19. The Board had taken a conservative view on the outlook at the very start of the COVID-19 pandemic and as a result took a decision to impair intangible assets in full.

In light of the resilient business performance, the Group carried out a further impairment review of all balances related to the qualified audit opinion. From the work performed, the Board agreed with its auditors Grant Thornton that an adjustment should be made to restate FY20 financial statements.

The restatement results in an increase in goodwill and intangible assets of £7.3m and a corresponding reduction in the reported operating loss from continued operations.

The impairment of capitalised development costs of £0.4m relating to Elektron Eye Technology Limited (EET) has also been restated. As the assets of Elektron Eye Technology Limited were sold in the year, this is presented as a discontinued operation and FY20 assets are shown as held for resale.

Liabilities have been restated to reflect the deferred tax liability associated with acquired intangible assets. The effect on net assets is an increase of £7.1m.

Discontinued operations

Profit from discontinued operations in FY21 of £0.6m related to Elektron Eye Technology, the final assets of which were sold in January 2021 for a total consideration of £0.9m.

Non-recurring or special items

Non-recurring or special items in the year of £2.2m related to amortisation of acquired intangible assets, pre-acquisition costs of Tutela LLC, restructuring and integration costs arising from the sale of Bulgin in FY20 and other one-off unusual costs related to the organisational transformation programme:

Taxation

The Group is currently loss making and therefore no corporate tax charge is reported for the year FY21. A deferred tax credit of £0.3m arises from the amortisation of intangible assets arising on the acquisition of Checkit UK Limited. There remains over £15m of group carried forward taxable losses and therefore there is no expectation of tax payments in the short to medium term.

EPS - continuing operations

The weighted average number of shares in issue in FY21 was 61.5m (excluding those held by the Employee Benefit Trust). Loss per share (basic and diluted) was 8.3 pence (2020: 5.6 pence as restated)

Cash

The Group cash position at 31 January 2021 was £11.5m (31 January 2020: £14.3m). Cash reduction was driven by operating losses in the year (including £(2.5)m NPD investment), offset by cash received from the sales of shares held by EBT and EET assets.

COVID-19 and Going Concern

This annual report contains details of the Group's strategy, business activities and financial statements and relevant notes relating to the financial year ended 31 January 2021.

In addition, the Board has reviewed a 12-month cash flow outlook from the date of signing to include a variety of scenarios and stress tests considering the continuing uncertainty and global change.

The Board has concluded that the assumptions used were reasonable and a reflection of the growing contractual subscription-based revenues and improving operating margins. The Group has access to sufficient working capital to meet on-going day-to-day business needs.

The Group delivered a better than expected set of financial results in FY21 and the Board remains vigilant concerning any on-going impact of COVID-19 into FY22 and will continue to closely monitor the situation.
 

Consolidated statement of comprehensive income

year ended 31 January 2021

Consolidated balance sheet

as at 31 January 2021

Consolidated statement of changes in equity

year ended 31 January 2021

1       Shares held by the Elektron Technology 2012 EBT were treated as treasury shares. All of the own shares were sold by the trust during the period, resulting in a gain.

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

3       Restated to reverse prior year impairment of intangible assets - refer to note 7.

Consolidated statement of cash flows

year ended 31 January 2021

*       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 Accounting Standards (IFRS) in conformity with the requirements of the Companies Act 2006 and issued by the International Accounting Standards Board (IASB) and with the accounting policies of the Group which were set out on pages 57 to 65 of the 2020 Annual Report and Accounts.

There were no new standards or amendments or interpretations to existing standards that became effective during the year that were material to the Group.

No new standards, amendments or interpretations to existing standards having an impact on the financial statements that have been published and that are mandatory for the Group's accounting periods beginning on or before 1 February 2021, 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 2021 Annual Report and Accounts will be prepared in compliance with International Accounting Standards (IFRS) in conformity with the requirements of the Companies Act 2006.

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 2020 have been delivered to the Registrar of Companies and included a qualified auditors' report, did not draw attention to any matters by way of emphasis and contained a statement under s498 (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 January 2021 will be finalised on the basis of the financial information presented by the directors in this unaudited preliminary announcement and will be delivered to the Registrar of Companies following the Company's General Meeting. The announcement of the preliminary results was approved on behalf of the Board of directors on 28 April 2021. 

Restatement of prior year

The prior year consolidated statement of comprehensive income, consolidated statement of financial position and related notes have been restated for the treatment and valuation of intangible assets and associated deferred tax liability. Consequently, 2020 results have been restated in these financial statements to reflect an increase in goodwill and other intangible assets of £7.3m and an increase in reported profit of £7.1m.

Quantitative impact of restatement on financial results

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 Executive Chairman.

The Group's main activities are the supply of Connected Workflow Management, automated monitoring and building management, Internet of Things ("IoT"), and operational insight-based products and services.

Revenue by type of the continuing operations

The following table presents the different revenue streams of Checkit:

Geographical information

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

Information about major customers of the continuing operations

During FY21, the Group had one customer who generated revenues of greater than 29% of total revenue (FY20: 39%).

Revenue expected to be recognised

The Group expects to recognise revenue amounting to £2.1m (2020: £1.0m) in FY22 relating to performance obligations from existing contracts that are unsatisfied or partially satisfied as at 31 January 2021.

3. Operating loss - continuing operations

Included within auditor's remuneration for audit services in FY21 is a sum for less than £0.1m (2020: less than £0.1m) for the audit of overseas subsidiaries carried out by an auditor other than Grant Thornton UK LLP.

Grant Thornton UK LLP was paid £0.1m for tax advisory and compliance services (2020: £0.1m).

Further details on the changes to impairment charges are set out in note 7. 

4. Net cash flows from operating activities

5. Taxation

(a) Analysis of tax (credit)/charge for the year - continuing operations

(b) Analysis of tax charge for the year - discontinued operations

(c) Factors affecting taxation charge for the year - continuing operations

The effective tax rate for the year was 19%.

(d) Factors affecting taxation charge for the year - discontinued operations

(e) Factors that may affect future taxation charges

Deferred taxation assets amounting to £2.9m (2020: £2.4m) have not been provided in respect of unutilised income tax losses of £15.5m (2020: £13.3m) that can only be carried forward against future taxable income of that same trade as there is currently insufficient evidence that these assets will be recovered.

The Finance (No.2) Act 2015 reduced the main rate of UK corporation tax to 19%, effective from 1 April 2017. A further reduction in the UK corporation tax rate to 17% was expected to come into effect from 1 April 2020 (as enacted by Finance Act 2016 on 15 September 2016). However, legislation introduced in the Finance Act 2020 (enacted on 22 July 2020) repealed the reduction of the corporation tax, thereby maintaining the current rate of 19%. Deferred taxes on the balance sheet have been measured at 19% which represents the future corporation tax rate that was enacted at the balance sheet date. 

The UK Budget 2021 announcements on 3 March 2021 included measures to support economic recovery as a result of the ongoing COVID-19 pandemic. These included an increase to the UK's main corporation tax rate to 25%, which is due to be effective from 1 April 2023. These changes were not substantively enacted at the balance sheet date and hence have not been reflected in the measurement of deferred tax balances at the period end. If the Group's recognised deferred tax balances at the period end were remeasured at 25% this would result in a deferred tax charge of £0.1m. 

6. Earnings per share

Earnings per share (EPS) is the amount of post-tax profit attributable to each share (excluding those held in the Employee Benefit Trust or by the Company). Basic EPS measures are calculated as the Group profit for the year attributable to equity shareholders divided by the weighted average number of shares in issue during the year. Diluted EPS takes into account the dilutive effect of all outstanding share options priced below the market price, in arriving at the number of shares used in its calculation.

Both of these measures are also presented on an adjusted basis, to remove the effects of non-recurring or special items, being items of both income and expense which are sufficiently large, volatile or one-off in nature, to assist the reader of the financial statements to get a better understanding of the underlying performance of the Group. The note below demonstrates how this calculation has been performed.

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

Discontinued earnings per share

Total earnings per share for the year attributable to equity shareholders

*       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

As at 31 January 2021, acquired intangible assets are the separately identified intangibles acquired with the purchase of Next Control Systems.

Following the qualified Audit opinion in FY20, the Group has revisited the assumptions made regarding its decision to fully impair the intangible assets in the FY20 financial statements due to the unforeseen impact of COVID-19.

In light of the resilient business performance, the Group carried out a thorough impairment review of all balances related to the qualified audit opinion. From the work performed, the Group agreed that an adjustment should be made to restate FY20 financial statements.

The adjustment results in an increase in intangible assets carried forward at 31 January 2020 of £7.3m and a corresponding reduction in the reported operating loss from continued operations. This reverses the impairment of goodwill of £4.3m and customer relationships of £3.0m related to the acquisition of Checkit UK Limited (formerly Next Control Systems Limited).

The impairment of certain intangible assets of £0.4m relating to Elektron Eye Technology Limited has also been restated. As Elektron Eye Technology Limited was presented as a discontinued operation, these assets are now reported as assets for resale and have subsequently been realised as part of the company's sale of assets.

Management has reviewed the impairment of capitalised development costs relating to continuing operations of £2.0m and determined that £1.3m of assets capitalised in FY20 should be expensed. The carrying value of remaining assets continues to be impaired.

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 and 31 January 2020 all relates to the acquisition of Checkit UK Limited in May 2019. Further to the Group reorganisation post acquisition, the CGUs of both Checkit UK Limited and Checkit Europe Limited are expected to benefit and the cash flows are grouped for the purpose of the impairment review.

Goodwill values have been tested for impairment by comparing them against the 'value in use' in perpetuity of the relevant CGU group. The value in use calculations were based on projected cash flows, derived from the latest forecasts prepared by management and budgets approved by the Board, discounted at CGU specific, risk adjusted, discount rates to calculate their net present value.

Key assumptions used in 'value in use' calculations

The calculation of 'value in use' is most sensitive to the CGU specific operating and growth assumptions, that are reflected in management forecasts for the five years to January 2026. CGU specific operating assumptions are applicable to the forecasted cash flows and relate to revenue forecasts and forecast operating margins in each of the operating companies and are based on the strategic plans for the Group. These assumptions include the expected impact and recovery from COVID-19. Long-term growth rates are capped at 1%.

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 25%.

8. Discontinued operations

During the year, the Group sold assets relating to its Elektron Eye technology business. Consequently, the business has continued to be included as discontinued operations. In 2020 the Group sold its Bulgin business for a profit of £85.3m.

Total discontinued operations comprise:

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:

Cash flows from Elektron Eye Technology

On 1 July 2020 and 13 January 2021, the Group disposed of assets relating to its Elektron Eye Technology business for a total net proceeds of £0.9m, with £0.6m payable as deferred consideration at the end of the year.

The gain on disposal is summarised as follows:

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:

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

9. Post balance sheet events

The Group completed the acquisition of Tutela Monitoring Systems LLC ("Tutela") on 4 February 2021 for a cash consideration of $0.85m (£0.62m).

Tutela was previously owned by Next Control Systems Limited (now Checkit UK Limited, a subsidiary of the Group), before Next Control Systems Limited was acquired by the Group in May 2019. It was sold to the US management team of Tutela in August 2018.

Tutela, which is based in Florida, provides wireless temperature monitoring systems for all applications and facilities which store sensitive inventory for businesses within the healthcare sector. The Group intends to utilise Tutela as a platform to pursue all industries and verticals targeted by Checkit.

In the year ending 31 December 2020, Tutela's sales were approximately $2m (£1.46m) with profit before tax of $0.27m (£0.20m) and net assets (including cash) amounting to $0.16m (£0.12m). If the businesses had been consolidated during that period, approximately £1 million would have been added to Group sales per annum after eliminating intercompany sales on consolidation.

The acquisition serves to accelerate the Group's US expansion plans, providing a footprint and an opportunity to add further scale. The Directors believe that, based on relative population sizes, the US represents an addressable market around five times larger than the UK, and therefore believe the acquisition represents a significant milestone in its growth strategy.

The acquisition has been funded from the Group's existing cash resources. Given the timing of the acquisition, initial accounting for the business combination is yet to be completed.

10. Non-GAAP performance measures

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

Profit measures - LBITDA - continuing operations