THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF UK MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THIS ANNOUNCEMENT THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE WITHIN THE PUBLIC DOMAIN.

28 April 2022

Checkit plc

("Checkit", the "Company" or the "Group")

Preliminary results for the Year Ended 31 January 2022

 Checkit plc (AIM: CKT) announces its unaudited preliminary results for the year ended 31 January 2022 ("FY22") ahead of the release of the audited accounts and annual report, which will be published ahead of the Annual General Meeting, which is expected to take place on 9 June 2022.

The Group's management team will host a live webinar which will include an opportunity for questions at 12:00 (BST) on 28 April 2022. The webinar can be accessed via the news area of the website at https://www.checkit.net/news/ or by using this link:

https://us02web.zoom.us/webinar/register/1216475075630/WN_eTaq6R5SQIGkVnk-6ZbLpg

FY22 HIGHLIGHTS

·    Pipeline at year end £15.4m

·    Annual recurring revenue ("ARR") run rate at year end of £8.2m (+43%) ahead of market expectations (FY21: £5.8m normalised*)

·    Annualised sales bookings at year end of £3.5m

·    Recurring revenue (+31% to £6.8m) supported by new customer wins and expansion within existing accounts (FY21: £5.2m)

·    Total Group revenue from continuing operations £13.3m (-7%) (FY21: £14.4m normalised)*

·      Non-recurring revenue declined by 29% primarily driven by the planned transition of BEMS activity to a SaaS (Software as a Service) offering as outlined at the time of the fundraise

·    Operating loss before non-recurring or special items** £4.7m (FY21: loss of £3.1m) reflecting the ongoing investment to accelerate Checkit's strategic plan

·    Operating loss of £7.1m (FY21: loss of £5.3m)

·    Cash at year end of £24.2m (FY21: £11.5m) following receipt of proceeds from the placing, which raised £21m (gross) to accelerate the Group's growth strategy

·    Appointment of Kit Kyte, Chief Executive Officer, bringing a renewed focus on the go-to-market strategy, value-driven sales, and leading the transition of Checkit towards a pure SaaS business.

·    Strengthened US presence with the acquisition of Tutela Monitoring Systems LLC ("Tutela"), establishing a US base in Florida.

* Normalised revenue refers to revenue that would have been included in the Group's financial results had Tutela LLC, which was acquired on 4 February 2021, been owned by the Group throughout both periods.

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

Outlook

·    Trading since the start of the new financial year has progressed well, in line with the Board's expectations. We have secured new customers, expanded within existing accounts, and continued to progress our investment plans to support our growth strategy.

CHAIRMAN'S STATEMENT

Dear Shareholder

I am pleased to present the Checkit 2022 preliminary results.

At the end of the 2022 financial year, I completed 17 years as a director of the Group and for much of the period, this was in an executive capacity. It was time for me to step back from an operational role and to that end, I became non-executive with effect from 1 February. In recent years what was originally a mini-conglomerate has been increasingly concentrated on the high growth technology business of Checkit. That transformation is complete, giving management a single focus.

During the year, leadership of the Group was transferred to Kit Kyte and both as shareholder and director, I am excited by his vision. You will read more about this in the Annual Report. My other board colleagues, namely Greg Price (CFO), John Wilson (Senior Independent Director) and Simon Greenman (Non-Executive Director) have provided immense support. We continue to examine board composition, particularly with a view to improving diversity.

I want to personally welcome the new shareholders that joined us in the recent placing and thank all of our investors for their support over the past year.  

Finally and most importantly, I should like to thank all past and present employees of Checkit (and Elektron Technology plc in its former incarnation) for their energy and dedication in creating value for shareholders. Although we live in an uncertain world, I believe that the future for Checkit is bright.

Keith Daley

Chair

CEO'S STATEMENT

The growth of our customer base since the beginning of the last financial year, transitioning towards a pure SaaS business model, releasing the next generation of our Connect platform and the successful capital raise were all major milestones for Checkit. It is a huge testament to the hard work of our team that these achievements were delivered against the backdrop of the COVID-19 pandemic.

As with so many businesses, our standard form of interaction with newly onboarded customers and prospects was restricted by the continuation of lock-down measures. Checkit has continued to respond with ingenuity and commitment and adapted our implementation and installation programmes to be delivered remotely and we are proud to have demonstrated the same benefits to our customers versus traditional methods of delivery. We also extended our offering by building self-install features, digital adoption technology and enhanced AI/ML capabilities into the platform.  We continue to see significant global engagement with our core value offering through key expansion and new deals in Australia, New Zealand and North America.

Strong financial performance

Checkit has produced a strong set of financial results in FY22, delivering a second consecutive year of high quality recurring revenue growth by continuing to focus on attracting new customers, while expanding our footprint and implementing price initiatives with existing customers.

Annual recurring revenue grew by 43% to £8.2m (FY21: £5.7m), driven by strong sales during H2. New business contributed to £0.8m of this growth, driven by transformed market positioning and through demonstrating measurable value to customers. The increase in ARR resulted in 31% growth in reported recurring revenue of £6.8m (FY21: £5.1m). The lag in Group recurring revenue percentage growth, compared to the growth rate of ARR reflects the acceleration of contracts signed during the second half of the financial year.

Reflecting ongoing investment to drive strategic execution, operating losses for the year (before non-recurring or special items) in FY22 increased to £4.7m (2021: £3.1m loss). The Group invested in its product, sales and marketing functions to support its expansion, increasing new product development spend to £3.4m (FY21: £2.5m) as the Group invested in new enhanced functionality, including mobile alerting, shared libraries and job-sharing capabilities, in addition to doubling sales and marketing investment to £2.7m (FY21: £1.4m) with an expanded sales and marketing team in both the UK and US to fuel growth.  This latter investment allowed the Group to deliver new sales bookings of £3.5m.

This strong performance is underpinned by the Group's transformation into a scale up SaaS business. The Group is now wholly focused on delivering recurring revenue from its technology solutions. As a result, recurring revenue accounted for 51% of total revenue for the full year and in the last three months of the year, it contributed 75% of total revenue for that period as Checkit continues its transition into a pure SaaS business.

Building a sustainable, software-driven growth business

We are entering the most exciting period in Checkit's history. Let me explain why.

Through the evolution of our go-to-market strategy, the Group has increased its sales pipeline to £15.4 million during the financial year and by year end we had secured more than £3.5m of annualised new bookings.

Alongside this, the Company has also improved the quality of the sales pipeline by achieving a higher mix of opportunities from tier one and two enterprise targets. The split of the sales pipeline by FY22 year-end between tier one, tier two and tier three targets was 54%, 37% and 9% respectively, compared to 21%, 72%, and 6% respectively in January 2021.

Checkit's new customer pipeline in the US, a key growth market for the Company, now includes a number of multi-site organisations across the healthcare, food and hospitality sectors.  The recent award, before year end, of the Grifols contract in the US at a minimum value of £2.7m over three years is further evidence of the size of the opportunity in this market.

A rapidly evolving industry

Surprisingly, 73% of frontline employees are still using manual and paper-based processes to conduct their work. The knowledge of how to perform those processes is kept in their heads, and the outputs stored on paper which results in: knowledge "walking out of the door" when such workers move jobs or retire, inconsistent work being performed, and a lack of visibility (particularly in real time) of the state of the business - leading to the creation of what Checkit refers to as "dark operations". Dark operations occur when a large proportion of operations are hidden from view, making it difficult for managers to measure productivity and identify risks and opportunities within their business.

We believe that there is a compelling need to digitise the deskless workforce to enable organisations to: (i) track and optimise performance, (ii) reduce costs and wastage; and (iii) increase efficiency, especially against a backdrop of rising labour costs and supply chain challenges, which are significantly impacting service delivery.

Growth strategy and ambitions

Checkit is well positioned to capitalise on this growth opportunity due to the following key strengths which differentiate its offering from that of its competitors:

·    Checkit is meeting market demand with what we believe to be an unrivalled end-to-end solution. The Checkit platform possesses powerful AI, data and analytics capabilities to provide meaningful insights and enable data driven decisions;

·    providing fully automated connectivity between client assets (IoT) and the Checkit platform

·      the Company has built up considerable domain knowledge of the industries it serves, which will help the Company to adapt to an evolving business landscape; and

·      enhanced credibility and customer trust due to its status as a mature, listed and regulated entity.

The Company intends to significantly expand into the US market, with on the aim of growing it to become the leading contributor of ARR to the business by the end of FY24. In order to capitalise on the opportunity presented by expanding into the US and also the rest of the world, the Company intends to scale up the headcount of sales and marketing in both regions.

Checkit's longer term objectives include becoming the market leader in workflow management for the deskless worker industry and growing the US to become the leading contributor of ARR to the business.

In order to achieve our growth objectives and deliver shareholder value, the Company's strategy will focus on:

1.    Converting Checkit into a pure SaaS business - with the aim to create a fully integrated AI platform with the ability to integrate third party IoT within its ecosystem. The improved Checkit platform will also be the foundation of the Smart Building SaaS offering once the transition from Building and Energy Management Systems (BEMS) is complete

2.    Accelerating scale and global growth - the Company will invest significantly into sales and marketing efforts to drive top line growth coupled with further development of the Checkit AI platform to create a market leading product. ARR growth will be further accelerated through investment in a separate sales function to focus on increasing opportunities via partnerships. The Company will also consider compelling M&A opportunities as an additional scale opportunity.

3.    Transform the operating model and culture of the business - in order to improve the prospects of achieving our growth objectives, we will seek to optimise the Company's existing processes across its business and continuously assess potential cost efficiencies with the aim of improving margins. Of paramount importance will be our ability to maintain and grow a high achieving mentality across the Checkit workforce.

Positive Outlook

Our purpose is to simplify and digitise the running of operations for the deskless industry - and never has that been more important. We know that simplifying how organisations manage operational performance has a transformative impact on organisational success, the wellbeing of employees and the outcomes for customers.

When we look back at what was a tumultuous year for us all, we are excited at the progress we have made as a business and proud of the support we have given our customers, providing them with the insight, tools and methodology to thrive in these challenging times. I join our Chairman and the rest of the management team in thanking our entire team around the world for their support through what has been a tough year for so many. I am incredibly proud of everything the team has achieved to date, building a market leading offering as well as a long-term, international, blue-chip customer base. However, we are very much still at the start of our journey.  Global supply chain challenges, the rising cost of labour and increased compliance requirements mean that the premium on simplifying deskless operations has never been more relevant.

The Board continues to expect to meet FY23 market expectations and remains confident that we are well positioned to deliver strong, sustainable organic growth.

Whilst the conflict in Ukraine has no direct impact on the Group's activities, the Board remains cautious about its indirect impact together with the potential for general inflationary cost pressures.

Kit Kyte

CEO

FINANCIAL REVIEW

Delivering smart growth

The financial results for FY22 represent another year of strong progress for Checkit. The Group's strategy to invest to support its expansion, with a focus on delivering recurring revenue from its technology solutions, has resulted in a second consecutive year of significant ARR growth.

Investment in the business has resulted in operating losses for the year (before non-recurring or special items) increasing to £4.7m (2021: £3.1m loss). Investment has centered on new product development and an enlarged sales and marketing presence both in the UK and the US. The Group's acquisition of Tutela in February 2021 has provided a platform for Checkit, allowing the Group to accelerate its geographical expansion.

In November 2021, the Group successfully raised £20.0m (net of expenses) through the placing of 45.6m new shares. The placing was significantly oversubscribed as investors recognised the growth potential and market opportunity presented by the Group.

The Group intends to use the proceeds raised to accelerate its growth strategy, investing further in sales and marketing to drive top line growth, transforming its operating model to enable future cost efficiencies and continuing to develop the Checkit platform to create a market leading product. This cycle of sales execution and phased investment will allow Checkit to deliver smart growth.

ARR and Revenue

The table below shows ARR and revenue for the year ended 31 January 2022 and includes comparisons with reported and normalised* prior year values.

ARR grew by 43% to close at £8.2m (FY21: 5.8m normalised), driven by strong H2 sales bookings.

Total revenue for FY22 was £13.3m, a reduction of 7% compared to the prior year on a normalised basis (FY21: £14.4m normalised). While recurring revenue grew by 31%, non-recurring revenue declined in line with management's expectations.

*Prior year revenue has been normalised to illustrate revenue that would have been included in the Group's financial results had Tutela LLC (acquired 4 February 2021) been fully owned by the Group throughout both periods.

ARR growth was driven by sales to new customers, as well as through pricing initiatives and upselling to existing customers.

New business was driven by transformed market positioning and through demonstrating measurable value to customers.

The acquisition of Tutela enhanced Checkit's reach within the Healthcare sector, making this the fastest growing industry vertical. Together with NHS trusts in the UK, Healthcare now represents 57% of Checkit's ARR and offers significant growth potential, both in terms of further customer acquisition and cross sell within existing customers.

The Group also extended its successful programme of transferring customers to new subscription-based agreements to the US, combining recurring services with one-off activities in line with the "peace of mind" SaaS pricing and contractual model now adopted across Checkit.

As a result of this pricing initiative, the business unit saw further conversion from non-recurring to recurring revenue during the year, contributing approximately £0.3m to ARR.

The increase in ARR resulted in 31% growth in reported recurring revenue compared to prior year on a normalised basis.

Recurring revenue includes like-for-like US recurring revenue growth of 82%, driven by the strong bookings performance noted above. The lag in Group recurring revenue percentage growth, compared to the growth rate of ARR reflects the acceleration of contracts signed during the second half of the financial year.

Recurring revenue accounted for 51% of total revenue for the full year. In the last three months of the year, recurring revenue contributed 75% of total revenue as Checkit continued its transformation into a pure SaaS business.

Non-recurring revenue declined in line with management's expectations and as planned. The Group is now wholly focused on delivering recurring revenue from its technology solutions (including those relating to smart buildings), rather than traditional BEMS one-off projects with minimal software input.

EBIT

The Group operating loss before non-recurring or special items in FY22 was £4.7m (2021: £3.1m loss).

In line with the Group's strategy, operating expenses (excluding any non-recurring or special items) increased to £10.9m (2021: £9.6m), as the Group invested in its product, sales and marketing to support its expansion.

New product development (NPD) spend totalled £3.4m (FY21: £2.5m), of which £1.5m was capitalised (FY21: £nil), as the Group invested in new enhanced functionality, including mobile alerting, shared libraries and job sharing capabilities.

Investment in sales and marketing almost doubled to £2.7m (FY21: £1.4m), as the Group invested in an expanded sales and marketing team in both the UK and US to fuel growth, with a strategic focus on creating enterprise level relationships with large multi-national and highly distributed customers.

Non-recurring or special items

Non-recurring or special items in the year of £2.4m related to amortisation of acquired intangible assets, costs relating to the fundraise, and restructuring and other one-off unusual costs related to the organisational transformation programme:

Taxation

The Group is currently loss making and therefore no corporate tax charge is reported for the year FY22. A deferred tax credit of £0.3m arises from the amortisation of intangible assets arising on the acquisition of Checkit UK Limited. There remains over £22m in group carried forward taxable losses and therefore there is no expectation of tax payments in the short to medium term.

EPS - continuing operations

The weighted average number of shares in issue in FY22 was 68.1m. Loss per share (basic & diluted) was 10.0 pence (2021: 8.3 pence)

Acquisition

The acquisition of Tutela took place in February 2021 and cost £0.4m, net of £0.2m of cash acquired with the business. The acquisition enables the Group to accelerate its US expansion plans, providing a footprint and an opportunity to add further scale.

Cash

The group cash position at 31 January 2022 was £24.2m (31 January 2021: £11.5m), reflecting the oversubscribed placing in November 2021, when the Group raised net proceeds of approximately £20.0m. As a result, Checkit is well capitalised and strongly positioned to accelerate its programme of investment, with the intention of achieving further ARR growth in FY23.

Consolidated statement of comprehensive income

year ended 31 January 2022

Consolidated balance sheet

as at 31 January 2022

Consolidated statement of changes in equity

year ended 31 January 2022

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

Consolidated statement of cash flows

year ended 31 January 2022

1.     Basis of Preparation 

The unaudited preliminary consolidated financial statements comply with the recognition and measurement criteria of UK-adopted International Accounting Standards (IFRS) and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards and with the accounting policies of the Group which were set out on pages 62 to 69 of the 2021 Annual Report and Accounts.

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

No new standards, amendments or interpretations to existing standards having an impact on the financial statements that have been published and that are mandatory for the Group's accounting periods beginning on or before 1 February 2022, or later periods, have been adopted early.

Whilst the financial information included in this preliminary announcement has been computed in accordance with international accounting standards, this announcement does not itself contain sufficient information to comply with all IFRS disclosure requirements. The Company's 2022 Annual Report and Accounts will be prepared in compliance with UK-adopted International Accounting Standards (IFRS).

The unaudited preliminary announcement does not constitute a dissemination of the annual financial report and does not therefore need to meet the dissemination requirements for annual financial reports. A separate dissemination announcement in accordance with Disclosure and Transparency Rules (DTR) 6.3 will be made when the annual report and audited financial statements are available on the Company's website.

Statutory Information

The financial information included in this preliminary announcement does not constitute statutory accounts. The statutory accounts for the year ended 31 January 2021 have been delivered to the Registrar of Companies and received an unqualified auditors' report, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 January 2022 will be finalised on the basis of the financial information presented by the directors in this unaudited preliminary announcement and will be delivered to the Registrar of Companies following the Company's General Meeting. The announcement of the preliminary results was approved on behalf of the Board of directors on 27 April 2022. 

Restatement of prior year

The Group has changed its accounting policy for Cost of Sales to better reflect the management of the business and only include costs directly incremental to delivering revenue. Cost of sales now includes the cost of materials and hardware, the direct labour costs relating to delivery, external systems and associated direct hosting costs for cloud platform products. All other operating expenses incurred in the ordinary course of business are recorded in selling and administrative expenses.

The prior year consolidated statement of comprehensive income and related notes have been restated for the reclassification of certain costs between cost of sales and administrative expenses. Consequently, 2021 results have been restated in these financial statements to reflect a reduction in cost of sales of £1.8m, with a corresponding increase in operating expenses. The overall operating loss for the year for the Group remains unchanged.

Quantitative impact of restatement on financial results

2. Segmental reporting

Management provides information reported to the Chief Operating Decision Maker ("CODM") as a single operating segment for the purpose of assessing performance and allocating resources. The CODM is the Chief Executive Officer.

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

Revenue by type of the continuing operations

The following table presents the different revenue streams of Checkit:

Geographical information

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

Information about major customers of the continuing operations

During FY22, the Group had one customer who generated revenues of 29% of total revenue (FY21: 29%).

Revenue expected to be recognised

The Group expects to recognise revenue amounting to £2.3m (2021: £2.1m)  in FY23 relating to performance obligations from existing contracts that are unsatisfied or partially satisfied as at 31 January 2022.

3. Operating loss - continuing operations

Included within auditor's remuneration for audit services in FY22 is a sum for less than £0.1m (2021: less than £0.1m) for the audit of overseas subsidiaries carried out by an auditor other than Grant Thornton UK LLP.

Grant Thornton UK LLP was paid less than £0.1m for tax advisory and compliance services (2021: £0.1m).

4. Net cash flows from operating activities

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 £4.1m (2021: £2.9m) have not been provided in respect of unutilised income tax losses of £22.0m (2021: £15.5m) that can only be carried forward against future taxable income of that same trade as there is currently insufficient evidence that these assets will be recovered.

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

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

6. Earnings per share

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

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

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

Acquired intangible assets are made up of the separately identified intangibles acquired with the purchase of Next Control Systems in May 2019 and those acquired with the purchase of Tutela LLC in February 2021.

Impairment testing for goodwill

The Group identifies cash-generating units (CGUs) at the operating company level, as this represents the lowest level at which cash inflows are largely independent of other cash inflows. Goodwill acquired in a business combination is allocated, at acquisition, to the groups of CGUs that are expected to benefit from that business combination.

Goodwill at 31 January 2021 all relates to the acquisition of Checkit UK Limited in May 2019. Goodwill at 31 January 2022 includes  the acquisition of Tutela LLC in February 2021. The CGUs of Checkit UK Limited, Checkit Europe Limited and Tutela LLC are all expected to benefit from these acquisitions and the cash flows are grouped for the purpose of the impairment review.

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

Key assumptions used in "value in use" calculations

The calculation of "value in use" is most sensitive to the CGU specific operating and growth assumptions, that are reflected in management forecasts for the five years to January 2027. CGU specific operating assumptions are applicable to the forecasted cash flows and relate to revenue forecasts and forecast operating margins in each of the operating companies and are based on the strategic plans for the Group. These assumptions include the expected impact and recovery from COVID-19. Long-term growth rates are capped at 1%.

The revenue growth rates used in the cash flow forecast are based on management's expectations of the future opportunities for the Checkit platform and the ability to upsell to existing customers on a global basis, including the planned US expansion. The forecasts include the costs associated with delivering the SAAS platforms, which are directly linked to the forecast sales growth. Given the stage of development of the business, the forecasts assume significant growth in revenue based on targeted ARR growth of 70% during the 5 year forecast period. A 20% reduction in the terminal value growth does not result in any impairment at 31 January 2021.

Discount rates are based on estimations of the assumptions that market participants operating in similar sectors would make, using the Group's economic profile as a starting point and adjusting appropriately. Sensitivity to the discount rate has been applied to evaluate impairment testing using discount rates ranging from 10% to 20%.

Based on the forecasts consistent with the strategic business plan developed, no impairment sensitivity is identified.

8. Discontinued operations

During the prior year, the Group sold assets relating to its Elektron Eye Technology business. Consequently, the business has continued to be included as discontinued operations.

Total discontinued operations comprise:

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 £0.2m payable as deferred consideration at the end of the year.

The gain on disposal in FY21 is summarised as follows:

9. Businesses acquired - Tutela Monitoring Systems LLC

On 4 February 2021, the Group acquired 100% of the equity of Tutela Monitoring Systems LLC ("Tutela"), a US-based business.

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

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

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

The details of the business combination are as follows:

Consideration transferred

The acquisition of Tutela was settled in cash amounting to £0.6m. Acquisition related costs amounting to £0.1m were expensed and treated as a non-recurring item. Deferred consideration of £0.1m outstanding from the 2018 sale was discharged on acquisition.

Identifiable net assets

The fair value of the trade and other receivables acquired as part of the business combination amounted to £0.2m, with a gross contractual amount also being £0.2m. As of the acquisition date, the Group expected to collect the full balance of the contractual cashflow.

Separable intangible assets

Two separable intangible assets were identified at acquisition, being the sole distributorship agreement and the acquired customer list.    

The sole distributorship agreement represents a re-acquired asset from the 2018 sale, for which a price of $300K was paid at the time. The asset has been valued on the basis of the remaining term of the agreement. The useful life has been set as 1.9 years.

The acquired customer list was valued by assessing a discounted cashflow based on expected customer attrition rates and using a discount factor of 28.8%. The useful life has been estimated at 3 years.

Goodwill                                                                                                            

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

Tutela's contribution to the Group results                                                                                                          

Tutela US LLC generated a loss of £0.2m for the period from 4 February 2021 to the reporting date. Revenue for the period to 31 January 2022 was £1.6m.  

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

10. Non-GAAP performance measures

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

Profit measures - LBITDA - continuing operations