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RNS

Final Results 2017

Released 07:00 19-Mar-2018

RNS Number : 0588I
Learning Technologies Group PLC
19 March 2018
 


19 March 2018

 

Learning Technologies Group plc

 (AIM: LTG)

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

 

"Another excellent year of growth; creation of a market leader"

 

Learning Technologies Group plc ("LTG" or the "Company"), the leading integrated corporate e-learning services and technologies provider, is pleased to announce its audited results for the year ended 31 December 2017.

 

Financial highlights:

 


FY17

FY16

change

Revenue

£52.1m

£28.3m

+84%

Recurring Revenue %

39%

27%


Revenues Outside UK %

46%

36%


Adjusted EBIT

£14.0m

£7.0m

+102%

Statutory PBT

£0.7m

(£1.2m)


Adj. Diluted EPS

2.064p

1.184p

+74%

Proposed Full Year Dividend per share

0.30p

0.21p

+43%

Net Cash / (Debt)

£1.0m

(£8.5m)


 

 

Operational highlights:

 

Content & Services (59% of Group revenues in 2017)

·      Successful account management approach has resulted in broadening and deepening of client relationships, increasing average revenue per client and driving strong organic growth

·      LEO Learning's sales were 40% up on 2016 (excluding CSL) resulting in a record order book for 2018

·      Preloaded wins accolades for its virtual reality learning experiences at the Science Museum and Tate Modern

 

Platforms (41% of Group revenues in 2017)

·      Acquisition of NetDimensions brings to the Group a leading global proprietary Learning Management System to complement LEO's open-source Moodle offering

·      Successful integration of NetDimensions into the Group realises synergies on time and to budget; considerable success in renewing contracts and winning new customers

·      High retention rates in gomo and Rustici combined with new sales wins drive strong organic growth; Watershed is successfully developing its analytics platform

 

Outlook:

·      Current trading ahead of management expectations

·      Healthy order book, together with increased sales from compelling blended learning capability and strong margins, provide confidence for the financial year ahead

·      Strong pipeline of strategic acquisition opportunities being actively pursued

 

Commenting, Jonathan Satchell, CEO of LTG, said:

"Learning Technologies Group enjoyed a very strong year in 2017, as we create a market leader in the fast-growing digital learning industry. We continue to diversify our revenue streams across a range of technical and service capabilities, geographies, and market sectors.  The growth in recurring revenue provides us with greater visibility and supports our investment for long-term shareholder value as we scale the Group globally, broaden our capabilities and deepen our client relationships."

 

Commenting, Andrew Brode, Chairman of LTG, said:

"I am delighted by the achievements in 2017 and excited that the success of our NetDimensions transaction has transformed the scale and range of our acquisition opportunities."

 

 

Enquiries:

 

Learning Technologies Group plc

Jonathan Satchell, Chief Executive

Neil Elton, Group Finance Director

 

+44 (0)20 7402 1554



Numis Securities Limited (NOMAD and Joint Corporate Broker)

Stuart Skinner

Michael Wharton

Ben Stoop

 

+44 (0)20 7260 1000



Goldman Sachs International (Joint Corporate Broker)

James A Kelly

Adam Laikin

 

+44 (0)20 7774 1000



FTI Consulting (Public Relations Adviser)

Rob Mindell / Jamie Ricketts

+44 (0)20 3727 1000

 

A meeting for analysts will be held today at 9:30am at the offices of Goldman Sachs, Peterborough Court, 133 Fleet Street, London EC4A 2BB. Please contact FTI Consulting by emailing ltg@fticonsulting.com if you would like to attend.

Forward looking statements:

This announcement contains certain statements that are forward-looking statements.  They appear in a number of places through this announcement and include statements regarding our intentions, beliefs or current expectations and those of our officers, Directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the business we operate.  By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated.  The forward-looking statements reflect knowledge and information available at the date of preparation of this document and, unless otherwise required by applicable law, the Company undertakes no obligation to update or review these forward-looking statements.  Nothing in this announcement should be construed as a profit forecast.  The Company and its Directors accept no liability to third parties in respect of this document save as would arise under English law.

 

 



 


Chairman's Statement

 

Learning Technologies Group plc ("LTG"), a market-leader in the fast-growing workplace e-learning market, has made excellent progress during 2017. The Group offers truly end-to-end learning solutions ranging from strategic consultancy, through a range of content and platform solutions to analytical insights that enable corporate and government clients to meet their performance objectives. 

 

In addition to the acquisition in March 2017 and strong subsequent performance of NetDimensions Holdings Limited ('NetDimensions'), LTG's other businesses delivered robust results with strong organic revenue growth and improved adjusted EBIT margins.

 

As a result, revenues increased by 84% to £52.1 million (2016: £28.3 million), adjusted EBIT by 102% to £14.0 million (2016: £7.0 million) and adjusted diluted EPS by 74% to 2.064 pence (2016: 1.184 pence).  Adjusted EBIT margins have improved from 24.6% in 2016 to 27.0% in 2017 and we expect sustainable adjusted EBIT margins in the mid-to-high twenties in future periods. Statutory profit before tax for the year was £0.7 million compared with a loss before tax of £1.2 million for 2016, after accounting for acquisition-related deferred consideration as deemed remuneration. 

 

The acquisition of NetDimensions, successful development of new learning technology solutions, and expansion into new geographical markets has seen the Group increase its recurring revenues from software licences and support contracts to 39% (2016: 27%).  Recurring revenues relate to contracts that are ordinarily renewed on a regular basis (e.g. annual or multi-year software licences and support contracts).  Over the same period revenues generated outside of the UK have risen from 36% in 2016 to 46% in 2017.

 

Market opportunity

 

In an increasingly fast moving global service-based economy, organisations are becoming more aware of the significant impact that incremental improvements in staff performance can have on their businesses, particularly in efficiency, customer service and profitability.

 

The global corporate training market is estimated to be worth $200-$300 billion and includes many product and service offerings ranging from traditional formats such as classroom training through various types of learning content and delivery platforms.  LTG is focused on the digital learning segment of this market which is estimated to be worth $90-$110 billion in 2017 and growing at not less than 10% per annum. Organisations are now looking to more precisely measure which learning interventions are most effective, using adaptive models which draw data from multiple sources to establish returns on e-learning investment, by identifying and increasing the opportunities and 'touchpoints' at which they can understand, intervene and improve the performance of their employees and other stakeholders in their 'extended enterprises' such as suppliers, partners and customers.  Learners are also becoming more demanding in requiring immediate support contextualised to their precise requirements at any time, in any location and on any device.

 

The e-learning industry is highly fragmented, comprising a multitude of small operators with each offering a limited range of services.  There are few providers that are able to offer clients truly comprehensive services, which meet their evolving requirements for data-driven solutions, and have the scale and in-depth experience to service large corporations and government organisations.  We believe LTG is the only player to provide such a broad service offering.

 

The market opportunity for LTG is to build the leading end-to-end workplace digital learning solutions provider, which partners its global clients through the creation, implementation and maintenance of their integrated e-learning strategies.

 

Strategic progress

 

On 20 March 2017, LTG declared its all-cash offer for NetDimensions, the integrated enterprise learning management software platform provider, unconditional in all respects.  NetDimensions is a leading global enterprise solutions provider, headquartered in Hong Kong, with operations in the US, Europe and APAC.  The business is a strategic fit with LTG and is complementary to its other companies which allows LTG to offer a full suite of services to its customers. The company has approximately 70% recurring revenues through its SaaS and on-premise licence solutions, reseller programs and support services, and has a particular focus on highly regulated industries where compliance and operational requirements are especially complex.

 

At the time of the offer LTG set out an ambitious integration plan to realise substantial synergies and improve working practices to increase efficiencies and the Board is pleased to report that the integration of NetDimensions into the Group was successfully completed on time, on budget and realised synergies ahead of expectations. 

 

When LTG came to AIM in November 2013 the Board set the ambitious target of achieving run-rate revenues of £50 million and EBITDA margins of 20% by the end of 2018.  I am delighted that the Board was able to announce that it had achieved these objectives more than one year ahead of plan.  In October the Board announced LTG's new strategic objectives; to double run-rate revenues to £100 million and for run-rate adjusted EBIT to exceed £25 million by the end of 2020. The Board will seek to meet these objectives through a combination of strong organic growth as well as strategic acquisitions that complement the current business. It is the intention of the Board to finance any acquisitions and research & development through the use of internally generated operating cash flows and prudent debt financing, and to minimise dilution for shareholders, notwithstanding that the Company may use its equity to accelerate growth ahead of these 2020 goals.

 


People

 

The Group has enjoyed another transformational year with the Group delivering strong organic revenue growth and improved margins, whilst at the same time delivering great customer service and truly leading the learning revolution in the workplace.  This could not have been achieved without the skill, passion and dedication of all our staff across the globe.  On behalf of the Board, I would like to thank them for their efforts during the year.

 

Dividend and Annual General Meeting

 

In light of the results for 2017 and to demonstrate our confidence in the prospects for the Group in 2018, the Board is recommending an increased final dividend of 0.21 pence per share (2016: 0.14 pence per share), giving a total dividend for the year of 0.30 pence per share (2016: 0.21 pence per share) representing a 42.9% annual increase.  This final dividend is subject to shareholder approval at the forthcoming Annual General Meeting to be held on 24 May 2018.

 

If approved, the final dividend will be paid on 6 July 2018 to all shareholders on the register at 8 June 2018.

 

Current trading and outlook

 

The Group has enjoyed a strong start to 2018 and is trading ahead of management's expectations.  We expect the current financial year to benefit from our record order book, increased sales resulting from our compelling blended learning capability and continuing strong margins.  LTG has substantially diversified its geographical reach and recurring revenue base in the past year and has developed a broad client portfolio both across corporate and government sectors.  Management is also actively pursuing acquisition opportunities in line with its strategic objectives.

 

The Board is therefore confident in the Group's prospects and expects to report enhanced progress during 2018.

 

 

Andrew Brode

Chairman

16 March 2018

 

 

 

 


Strategic Report for the year ended 31 December 2017

 

Financial results

 

In the year ended 31 December 2017, the Group generated revenue of £52.1 million (2016: £28.3 million), delivering an 84% year-on-year increase.  Excluding the acquisition of NetDimensions and adjusting revenues as if all businesses that were part of the Group in 2016 reported on a full year basis, organic revenue growth in 2017 was 36%.  On a constant currency basis organic revenue growth was 35% and after excluding the impact of the Civil Service Learning ('CSL') project organic revenue growth was 20%.

 

Adjusted EBIT increased by 102% to £14.0 million (2016: £7.0 million). The Group measures adjusted EBIT to provide a better understanding of the underlying operating business performance.  Adjusted EBIT is defined as the Group profit or loss before tax, excluding share-based payment charges, acquisition-related deferred consideration and earn-outs, finance expenses, the Group's share of profits or losses in associates and joint ventures and other specific items. Integration, amortisation of acquired intangibles, acquisition-related deferred consideration and earn-outs are primarily driven by acquisition activity rather than by the underlying performance of the business, therefore they are excluded from adjusted EBIT to provide a more accurate reflection of the business performance. The share-based payment charge is calculated based on a set of circumstances that existed at the point of issue of the share option. The expense is therefore not seen as a reliable indicator of the underlying performance of the business and is excluded from adjusted EBIT.  On a constant currency basis there would only have been a trivial impact on adjusted EBIT in 2017.

 

The implementation of operational best practice across the Group, increased economies of scale and a change in the revenue mix of the Group towards higher margin recurring licence sales, contributed towards a significant improvement in adjusted EBIT margins in the year to 27.0% (2016: 24.6%).  These improved margins were achieved despite the post-acquisition loss incurred by NetDimensions in the second quarter, prior to the benefits of the integration program being realised during the second half of the year. 

 

On a like-for-like basis, as if the businesses that LTG owned at the end of 2017 had been owned at the end of 2016, the order book is substantially ahead of prior year, bolstered by the increased proportion of multi-year licence sales and strong sales performance in Q4 2017.  The order book is defined as the value of contracts won but not yet delivered. 

 

The amortisation charge for acquisition-related intangible assets was £7.8 million (2016: £3.2 million) and is discussed further in Note 8. The amortisation charge for internally generated development costs was £0.6 million (2016: £0.4 million) and relates to the development of the NetDimensions Talent Platform, 'gomo', the Group's award-winning multi-device authoring tool, various software tools used within the Eukleia business including an internally generated library of governance, risk and compliance ('GRC') materials used to service clients, and internally developed software in Rustici including SCORM and xAPI tools. The share-based payment charge increased marginally from £0.6 million in 2016 to £0.7 million in 2017.

 

Integration costs of £1.2 million (2016: £0.1 million) relate to various restructuring charges including redundancy costs, an onerous lease charge and senior management travel during the integration of NetDimensions.  The Group successfully completed this ambitious program between April and July as a result of which annualised cost synergies of more than £5.7 million have been realised. 

 

Statutory profit before tax was £0.7 million compared with a loss before tax of £1.2 million and unadjusted operating profit was £2.6 million compared to an unadjusted operating loss of £0.1 million in 2016. These are stated after acquisition-related deferred consideration and earn-out charges of £1.9 million (2016: £3.2 million) relating to the acquisition of Rustici and reflect the strong incremental revenue growth of the business post acquisition. Costs of acquisitions in 2017 were £0.9 million (2016: £0.1 million) and a net credit related to contingent consideration on the acquisition of Preloaded, was £11,000 (2016: charge of £57,000).  Interest charges on the debt facility were £0.6 million (2016: £0.4 million) and net foreign exchange losses were £0.2 million (2016: £0.3 million).  Adjusted profit before tax (see Note 5) increased by 109% to £13.4 million in 2017 (2016: £6.4 million).

 

The income tax credit of £1.2 million in 2017 (2016: charge of £133,000) is stated after adjusting for the effect of the release of deferred tax on the amortisation of acquired intangibles and a deferred tax asset related to the anticipated vesting of share options. Further details are provided in Note 4.

 

Based on the average number of shares in issue, weighted average number of shares outstanding and adjusted operating profit during the year, adjusted diluted EPS increased by 74.3% to 2.064 pence (2016: 1.184 pence).  On a statutory basis, basic earnings per share ('EPS') increased from a loss of 0.317 pence in 2016 to a profit of 0.379 pence in 2017.  Further details are provided in Note 5.

 

The Group has a strong balance sheet with shareholders' equity at 31 December 2017 of £76.8 million, equivalent to 13.4 pence per share (2016: shareholders' equity of £30.7 million, equivalent to 7.3 pence per share).

 

At the time of the acquisition of NetDimensions, LTG entered into a new debt facility with Silicon Valley Bank ('SVB') for £30 million. The facility comprises a £10.0 million term loan repayable in quarterly instalments of £0.5 million, a £10.0 million revolving credit facility, and a £10.0 million accordion facility all available for five years.  The new SVB debt facility replaced LTG's previous $20 million debt facility with Barclays Bank PLC.  The term loan and majority of the revolving credit facility were drawn down in USD.  The facility is subject to various financial covenants and interest is charged at between 160 and 210 basis points above LIBOR based on the covenant results. See Note 14 for further details. 

 

Net USD cash receipts to the business have operated as a partial internal hedge against movements in the exchange rates between Sterling and the USD.  Management regularly review the foreign exchange exposure of the Group.

 

The gross cash position at 31 December 2017 was £15.7 million (2016: £5.3 million).  The Group's net cash at 31 December 2017 was £1.0 million (2016: net debt of £8.5 million). Net cash is defined by gross cash less borrowings.

 

Net cash generated from operating activities was £10.8 million (2016: £2.0 million) equivalent to an adjusted operating cash flow conversion rate of 95% (2016: 100%). Adjusted operating cashflow conversion is defined by net operating cashflows after adjusting for acquisition-related deferred consideration and earn-out payments, transaction costs, interest and tax paid and the movement of deferred upfront investment outflows relating to the CSL project as a proportion of adjusted EBIT.  Operating cash flows in 2017 include receipts from the CSL project whereas the upfront investment outflows were paid in 2016.  Debtor days were 57 days (2016: 54 days), and combined debtor and WIP days were 22 days (2016: 29 days), reflecting the Group's implementation of accelerated invoicing and effective credit control.

 

Corporation tax payments were £0.7 million (2016: £0.6 million).  Cash outflows from investing activities were £47.5 million (2016: £15.7 million) and comprised the acquisition of NetDimensions for £53.6 million (£45.7 million net of cash acquired) and investment in internally generated IP and property, plant and equipment.  Cash inflows from financing activities were £47.6 million (2016: £11.6 million) and include net proceeds from a share placing (£45.4 million) and net debt finance raised of £1.8 million pertaining to the NetDimensions acquisition, proceeds from the exercise of employee share options (£1.7 million) and dividend payments which increased to £1.3 million from £0.7 million in 2016.

 

Acquisition of NetDimensions

 

On 20 March 2017, LTG declared its all-cash offer for NetDimensions, the integrated enterprise learning management software platform provider, unconditional in all respects.  Of the total consideration of £53.6 million for NetDimensions, as at 31 December 2017 £53.5 million had been paid to shareholders in NetDimensions who had accepted the offer with the balance held in trust by NetDimensions Holdings Limited. With effect from July 2017 the non-controlling shareholders' interests in NetDimensions have been acquired by LTG.  There are no deferred consideration obligations.

 

The offer was financed by way of a placing of 124 million LTG shares issued at 37.5 pence per share and a new debt finance facility, details of which are set out in Note 14.  Transaction costs charged to the income statement totalled £0.9 million.  Goodwill on acquisition has been calculated at £21.9 million with acquisition-related intangibles of £34.3 million represented mainly by customer relationships and the acquired IP.  NetDimensions delivered revenue of £12.9 million and £3.5 million profit before tax to the Group for the following nine months.  Further details are provided in Note 7.

 

LTG undertook an ambitious integration program during the second quarter of the year resulting in substantial and sustainable cost savings.  Amongst the measures taken, NetDimensions Interactive, the company's US based e-learning content operation was merged with LEO Learning Inc, NetDimensions' customer support teams have been relocated to the geographical territories that they serve, hosting services have been migrated to a more flexible environment managed out of our Nashville office, and we are investing in our core technology team to continue to be at the forefront of innovation in the learning technology sector.  We appointed a new Global Head of Sales in April who has been instrumental in achieving retention rates of almost 100% since acquisition as well as an impressive new contract win rate.  LTG is also investing in the development of the NetDimensions' reseller network, as well as leveraging Group central services such as marketing, HR and IT support.

 

Our strategy

 

LTG's aim is to create a group of market-leading businesses providing complementary services in the fast growing learning technologies sector to form an international business of size and scale that is able to meet the demanding expectations of corporate and government customers.  This strategy is being delivered through a mixture of 'best in class' acquisitions that will help us create a comprehensive e-learning solution for our customers, strategic partnerships to deliver 'blended' learning solutions combining digital and more traditional forms of learning, as well as through targeted investment in internally generated intellectual property and the extension of best working practices to deliver strong organic growth.

 

We continue to pursue our strategy of helping organisations adopt learning at a strategic level. 'Moving learning to the heart of business strategy' is achieved through our end-to-end service offering which enables us to partner with global clients throughout the creation, implementation and maintenance of their learning strategies. We deliver transformational results through learning innovation and the effective use of learning. 

 

Each of our Group businesses brings a range of capability or sector specialisms that allow us to build on this strategic vision.  The Group's offering comprises two principal divisions: Content & Services and Platforms. 

 

Content & Services

 

The Content & Services division comprises strategic consulting, content creation, and platform development services.  In 2017 it accounted for £30.5 million or 59% of Group revenues (2016: £19.4 million / 69%). 

 

LEO Learning ('LEO') is the Group's strategic consultancy that works with clients to understand their requirements, build strategic roadmaps and then help them implement the delivery.  Born out of the merger of Epic and LINE Communications in 2014, LEO now has offices in London, Brighton and Sheffield in the UK, New York and Bloomington, Indiana in the US, and through its Brazilian joint venture, in Rio de Janeiro and Sao Paulo.

 

Over the years LEO has developed sector expertise particularly in areas such as automotive, retail and luxury brands.  Through its Eukleia business LTG has also acquired a specialist expertise in governance, risk and compliance services particularly in the financial services sector which are delivered from its offices in London and New York.

 

Our expert learning practitioners work with clients to realise their strategic objectives, generate unique and compelling content, develop and support tailored delivery platforms and implement analytic tools that enable clients to quantify the impact of learning on their businesses and further refine and develop their strategic plans.

 

Learning content can take a number of forms from face-to-face training and traditional mediums but increasingly is delivered through mediums such as PCs, tablets and mobile phones.  Content is becoming more interactive and can include videos and animation, branching scenarios, games, and virtual and augmented reality as part of the 'blended offering'.

 

Preloaded, the Group's BAFTA award-winning agency, is at the forefront of the 'gamification' of learning content, or more particularly 'play with purpose'.  In 2017 the company received accolades for its virtual reality learning experiences at the Science Museum and the Modigliani exhibition currently running at Tate Modern.  In early 2018 it partnered with the BBC and Google to produce the 'BBC Earth: Life in VR' experience to coincide with the launch of Google's DayDream View headset.

 

During 2016 LEO, in partnership with KPMG LLP, completed the roll-out of a new core-curriculum to the entire UK Civil Service ('CSL').  This involved the development of 15 core-curriculum areas ranging from leadership and management to EU practices and including 'blended' course design encompassing face-to-face training and e-learning content.  The content was designed, built and launched in less than a year as part of a three-year contract to deliver learning to over 400,000 civil servants.  LTG benefited from substantial revenues in 2017 as the courses were launched and adopted faster than management's expectations. As a result of the revenue sharing structure of the partnership and the accelerated revenue generation during the year the Board anticipates that revenues will continue for the first half of 2018 and then drop significantly in the second half of 2018 and 2019, the last year of the current contract.

 

As part of the Group's services offering LEO is one of the world's leading Moodle platform developers.  Moodle is an open-source Learning Management System ('LMS') platform used by organisations throughout the world and LEO helps clients build new Moodle systems and provides ongoing support and service desk assistance to clients around the world with particular success in the US.

 

The majority of Content & Services projects are delivered on a non-recurring, fixed price basis.  Through its well-tried systems and processes LTG constantly monitors the delivery of projects to ensure that they are delivered on time, to budget, and that they meet or exceed clients' expectations.  As a result the Group achieves consistent gross margins and sees a high level of repeat business.

 

Platforms

 

The Platforms division comprises on-premise and SaaS licences as well as hosting, support and maintenance services for those software licences.  In 2017 it accounted for £21.6 million or 41% of Group revenues, up from £8.9 million (31%) in 2016 aided by strong organic growth and the acquisition of NetDimensions.  The Platforms division contributes a substantial portion of the Group's recurring revenues.

 

Compelling e-learning content needs a platform through which it can be delivered to learners and LTG is building a comprehensive range of delivery solutions.  Learning and talent management platforms can perform a variety of functions that enable companies and governments to direct or empower learners to understand their learning requirements, tailored to the employees and their employers' requirements, and then manage them along their 'learning journey' from recruitment and onboarding through continuous performance improvement during their career.  Learners can record their learning history through a Learning Record Store ('LRS').

 

The acquisition of NetDimensions in March 2017 brought to the Group a leading global proprietary Learning Management System ('LMS') to complement LEO's Moodle service offering, enabling LTG to offer clients a full suite of delivery options.  The NetDimensions platform allows clients to deliver learning to their own employees and extended enterprise, and is particularly suitable to high-consequence industries such as the pharmaceutical and automotive industries.

 

Post-acquisition NetDimensions showed considerable success in renewing contracts and the Board were particularly pleased with the level of conquest sales. The Group is intent on investing in the platform and has set out a comprehensive development roadmap.  Key successes in 2017 were the integration of the gomo and Watershed applications into the NetDimensions system offering.

 

LTG has developed its own cloud-based multi device authoring tool, gomo, which enables clients to create their own e-learning content and to collaborate and publish rich and compelling learning content to a variety of platforms (including PCs, tablets and smartphones) in real-time.  Gomo has won a series of significant contracts during 2017 and through its SaaS based annual licences is achieving retention rates of in excess of 90% and grew sales by 67% during the year. 

 

In order for LMS's to communicate with a multitude of content from various service providers the e-learning industry uses an interoperability standard.  This global standard is referred to as SCORM and this protocol has underpinned the delivery of digital learning content for nearly two decades.  Rustici, the acknowledged global leader in SCORM related solutions has developed a series of software products that allow LMS providers to manage SCORM effectively.  Rustici has consistently exceeded expectations since acquisition.  

 

We believe that the next major disruption in the learning profession will be the ability to measure and analyse the effectiveness of learning interventions.  By enabling management to understand quantitatively and objectively whether a particular learning intervention has had an impact on performance, businesses and governments will be able to target resources effectively.

 

LTG owns a 27.3% stake in Watershed, a start-up SaaS business that focuses on developing learning analytics that provide actionable insights to customers who want to adapt their learning strategy, creating more effective learning experiences and ultimately generating verifiable business results.  Watershed has made good progress during 2017 in developing its suite of analytical tools and working alongside blue-chip clients delivering compelling insights for a number of customers.  We are encouraged that although at an early stage, revenues are growing strongly with an increasing retention rate.

 

Group Services

 

The Board believes that by building a comprehensive offering of scale and with a worldwide footprint that it can better deliver the services and solutions that companies and governments demand and require.  LTG has the scale to deliver large complex projects across numerous geographies, to thousands of learners in a myriad of languages and through many delivery platforms.

 

Although at an early stage, the Group is beginning to see clients adopt an increasing range of the services and solutions that LTG offers and through its account management approach LTG consultants are deepening and broadening their support of clients from HR and product support departments through compliance and C-Suite initiatives to drive performance improvement in the workplace.

 

The Content & Services and Platforms divisions of the Group are supported by 'LTG Central Services' which comprises HR, IT, Finance, Legal, Facilities, Bid, Marketing and Hosting services.  Each department has a centre of excellence, supported by additional regional resources where appropriate.  The provision of LTG Central Services liberates the MDs of the Group's businesses to pursue their sales and delivery strategies without needing to manage the support functions of their operations, and the economies of scale and expertise in the centralised functions ensures the consistent application of best practice and helps delivers cost efficiencies.

Adoption of IFRS15

A new accounting standard, IFRS 15, will be adopted by LTG with effect from 1 January 2018.  Next year the Group will therefore report its 2018 results under the new accounting standard.  After a detailed review of the Group's contracts, management is proposing to make a limited number of adjustments as detailed in Note 2.  The net effect of these adjustments is expected to reduce reported revenue and EBIT in 2017 by £0.7 million to £51.4 million and £13.4 million respectively as revenues that were previously recognised at the commencement of licence periods are now recognised over the licence term of typically 1 to 3 years.  The underlying performance of the business, including project delivery and cash generation is unaffected by these accounting adjustments.

 

 

 

Jonathan Satchell

Chief Executive Officer

16 March 2018



 

Consolidated Statement of Comprehensive Income

Year ended 31 December 2017




Year ended 31 Dec

Year ended 31 Dec




2017

2016


Note


£'000

£'000






Revenue

3


52,056

28,263






Operating expenses (excluding acquisition-related deferred consideration and earn-outs)



(47,605)

(25,194)






Operating profit (before acquisition-related deferred consideration and earn-outs)



4,451

3,069






Acquisition-related deferred consideration and earn-outs



(1,853)

(3,211)






Operating profit/(loss)



2,598

(142)






Adjusted EBIT



14,047

6,952

Amortisation of acquired intangibles

8


(7,756)

(3,205)

Share-based payment costs



(675)

(605)

Integration costs



(1,165)

(73)

Acquisition-related deferred consideration and earn-outs



(1,853)

(3,211)

Operating profit/(loss)



2,598

(142)






Fair value movement on contingent consideration



52

-

Costs of acquisition

7


(920)

(99)

Share of losses on associates/joint ventures



(201)

(205)

Profit/(loss) on disposal of fixed assets



(36)

-

Finance expense:





Charge on contingent consideration



(41)

(57)

Unwinding onerous lease



(11)

-

Interest on borrowings



(605)

(358)

Net foreign exchange difference on borrowings



(151)

(333)

Interest receivable



7

1






Profit/(loss) before taxation



692

(1,193)






Income tax credit/(expense)

4


1,171

(133)






Profit/(loss) for the year



1,863

(1,326)

 

 

 

 

 






Year ended 31 Dec

Year ended 31 Dec




2017

2016




£'000

£'000

Profit/(loss) attributable to owners of the Parent



2,013

(1,326)

Profit/(loss) for the year attributable to non-controlling interests



(150)

-




1,863

(1,326)

Earnings per share attributable to owners of the parent:





Basic (pence)

5


0.379

(0.317)






Diluted (pence)

5


0.363

(0.317)

 

Adjusted earnings per share:

 

Basic (pence)

5


2.156

1.286






Diluted (pence)

5


2.064

1.184

 

 

 





Profit/(loss) for the year


1,863

(1,326)





Other comprehensive (loss)/income:




Items that may be subsequently reclassified to profit or loss




Exchange differences on translating foreign operations


(3,564)

1,183

Total comprehensive (loss)/income for the year attributable to owners of the parent Company


(1,701)

(143)

Attributable to:




The owners of the parent


(1,510)

(143)

Non-controlling interest


(191)

-



(1,701)

(143)

 



 

Consolidated Statement of Financial Position



 

31 Dec

2017

£'000

 

31 Dec

2016

£'000




Note

Non-current assets




Property, plant and equipment

6

842

708

Intangible assets

8

83,409

39,950

Deferred tax assets

11

1,933

1,717

Investments accounted for under the equity method


1,689

1,890

Other receivables, deposits and prepayments

10

-

1,293



87,873

45,558





Current assets




Trade receivables

9

12,067

4,229

Other receivables, deposits




  and prepayments

10

2,363

1,995

Amounts recoverable on contracts


4,242

2,642

Cash and bank balances


15,662

5,348







34,334

14,214





Total assets

 


122,207

59,772





Current liabilities




Trade and other payables

12

23,756

9,215

Borrowings

14

1,849

3,252

Corporation tax


50

546

Amount owing to related parties


20

45



25,675

13,058

Non-current liabilities




Deferred tax liabilities

11

6,477

3,897

Other long-term liabilities

13

192

1,426

Borrowings

14

12,765

10,582

Provisions

15

257

99







19,691

16,004





Total liabilities


45,366

29,062





Net assets


76,841

30,710





Shareholders' equity




Share capital

16

2,145

1,580

Share premium account


64,208

17,044

Merger reserve


31,983

31,983

Reverse acquisition reserve


(22,933)

(22,933)

Share-based payment reserve


1,092

3,245

Foreign exchange translation reserve


(2,290)

1,233

Accumulated profits/(losses)


2,636

(1,442)

Total equity attributable to the owners of the parent


76,841

 

30,710







 


Consolidated Statement of Changes in Equity

Year ended 31 December 2017



   Share

capital

Share

premium

Merger reserve

Reverse acquisition reserve

Share-based

payments

reserve

Translation

reserve

Retained earnings

Non-controlling interest

Total equity

 


    ote

£'000

£'000

£'000

£'000

£'000

£'000

£'000


£'000

Balance at 1 January 2016


1,506

15,988

28,120

(22,933)

2,273

50

140

-

25,144

Loss for the

period


-

-

-

-

-

-

(1,326)

-

(1,326)

Exchange differences on translating

foreign

operations


-

-

-

-

-

1,183

-

-

1,183

Total comprehensive

income for

the period


-

-

-

-

-

1,183

(1,326)

-

(143)

Issue of

shares


74

1,056

3,863

-

-

-

-

-

4,993

Share-based payment

charge

credited to

equity


-

-

-

-

605

-

-

-

605

Deferred tax

credit on share options


-

-

-

-

648

-

-

-

648

Transfer on

exercise and

lapse of

options


-

-

-

-

(281)

-

281

-

-

Tax deduction

on exercise of

share options recognised

directly in

equity


-

-

-

-

-

-

175

-

175

Dividend paid


-

-

-

-

-

-

(712)

-

(712)

Transactions

with owners


74

1,056

3,863

-

972

-

(256)

-

5,709

 

Balance at 31 December

2016


1,580

17,044

31,983

(22,933)

3,245

1,233

(1,442)

-

30,710












Profit for the

period


-

-

-

-

-

-

2,013

(150)

1,863

Exchange differences on translating

foreign

operations


-

-

-

-

-

(3,523)

-

(41)

(3,564)

Total comprehensive 

loss for the period


-

-

-

-

-

(3,523)

2,013

(191)

(1,701)

Issue of

shares


565

48,286

-

-

-

-

-

-

48,851

Costs of

issuing shares


-

(1,122)

-

-

-

-

-

-

(1,122)

Share-based payment

charge

credited to

equity


-

-

-

-

675

-

-

-

675

Tax credit on

share options


-

-

-

-

-

-

1,331

-

1,331

Transfer on

exercise and

lapse of

options


-

-

-

-

(1,462)

-

1,462

-

-

Presentational adjustment regarding deferred tax on share options


-

-

-

-

(1,366)

-

1,366

-

-

Acquisition of subsidiary

7

-

-

-

-

-

-

-

859

859

Acquisition of

non-controlling interest








(815)

(668)

(1,483)

Dividends paid


-

-

-

-

-

-

(1,279)

-

(1,279)

Transactions

with owners


565

47,164

-

-

(2,153)

-

2,065

191

47,832

Balance at 31 December

2017


2,145

64,208

31,983

(22,933)

1,092

(2,290)

2,636

-

76,841


Consolidated Statement of Cash Flows

 

 

 


 

 



Year ended

31 Dec

Year ended

31 Dec





2017

2016





£'000

£'000



Cash flows from operating activities






Profit/(loss) before taxation


692

(1,193)



Adjustments for:






Share-based payment charge


675

605



Amortisation of intangible assets


8,404

3,605



Depreciation of plant and equipment


422

320



Share of loss of joint venture/investment


201

205



Finance expense


52

57



Interest on borrowings


605

358



Net foreign exchange difference on borrowings


151

333



Fair value movement on contingent consideration


(52)

-



Acquisition-related deferred consideration and earn-outs


1,853

3,211



Payment of acquisition-related deferred consideration and earn-outs


(2,211)

-



Interest income


(7)

(1)


 

Operating cash flows before working capital changes


10,785

 

7,500



(Increase)/decrease in trade and other
receivables


2,189

 

(2,030)



(Increase) in amount recoverable on contracts


(1,391)

 

(788)



Increase/(decrease) in payables


421

(1,760)


 



12,004

2,922



Interest paid


(474)

(275)



Interest received


7

1



Income tax paid


(743)

(645)


 

Net cash flows from operating activities


10,794

2,003



Cash flows used in investing activities





 

Purchase of property, plant and equipment


(449)

(422)


 

Sales proceeds from disposal of property, plant and equipment


16

-


 

Development of intangible assets


(1,384)

(796)


 

Acquisition of subsidiaries, net of cash acquired


(45,704)

(12,389)


 

Investment in associates/joint ventures


-

(2,095)

 

Net cash flows in investing activities


(47,521)

(15,702)

 

 

 





 






 






 






 






 






 






 




 

Cash flows from financing activities





 

Dividends paid


(1,279)

(712)


 

Proceeds from borrowings


18,000

13,909


 

Issue of ordinary share capital net of share issue costs


47,101

 

647


 

Repayment of bank loans


(16,193)

(2,278)

 

Contingent consideration payments in the period


(59)

-

 

Net cash flows from/(used) in financing





 

activities


47,570

11,566

 





 

Net increase/(decrease) in cash and cash





 

equivalents


10,843

(2,133)


 

Cash and cash equivalents at beginning of the year


5,348

 

7,305


 

Exchange (losses)/gains on cash


(529)

176


 

Cash and cash equivalents at end of the year

 

 

15,662

 

5,348

 

 

  

Significant non-cash transactions

 

During the year, the Group issued 150,588,525 ordinary shares in the Company. 124,000,000 Placing Shares were admitted to trading on AIM on 20 March 2017 to fund the acquisition of NetDimensions (Holdings) Limited. 1,931,911 shares were also issued in payment of the deferred contingent consideration to the vendors of Rustici Software LLC and 24,656,614 in settlement of the exercise of employee share options. 

 

 

Notes to the Consolidated Financial Statements for the year ended 31 December 2017

 

1.       General information

 

Learning Technologies Group plc ('the Company') and its subsidiaries (together, 'the Group') provide a range of e-learning services and technologies to corporate and government clients. The principal activity of the Company is that of a holding company for the Group, as well as performing all administrative, corporate finance, strategic and governance functions of the Group.

 

The Company is a public limited company, which is listed on the AIM Market of the London Stock Exchange and domiciled in England and incorporated and registered in England and Wales. The address of its registered office is Sherborne House, 5th Floor, 119-121 Cannon Street, London, EC4N 5AT. The registered number of the Company is 07176993.

 

2.       Summary of significant accounting policies

 

The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied unless otherwise stated.

 

a)   Basis of preparation

 

The Consolidated Financial Statements of Learning Technologies Group plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), issued by the International Accounting Standards Board (IASB), including interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), and the Companies Act 2006 applicable to companies reporting under IFRS. The Consolidated Financial Statements have been prepared under the historical cost convention, as modified for any financial assets which are stated at fair value through profit or loss. The Consolidated Financial Statements are presented in pounds sterling, the functional currency of Learning Technologies Group plc and figures have been rounded to the nearest thousand.

 

Going concern

 

At 31 December 2017 the Group had £15.7 million of cash and good cash conversion. Having undertaken a detailed budgeting exercise, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis of accounting in preparing the annual Financial Statements.


 

Adoption of new and revised International Financial Reporting Standards

 

A number of new standards and amendments to standards and interpretations have been issued but are not yet effective and in some cases have not yet been adopted by the EU.

IFRS 15, Revenue from Contracts with Customers, will be adopted from 1 January 2018. Management has gone through a process of reviewing contracts within each revenue stream, having regard to the requirements of IFRS 15. If IFRS 15 had been applied to the 2017 results, the Directors estimate that revenue and adjusted EBIT would have been £0.7 million lower. This is as a result of the new standard's application guidance on contracts with multiple components. Under IFRS 15, the Group's initial licence fees do not meet the definition of a distinct performance obligation, therefore they will be combined with the term licence fee and amortised over the full licence contract. It has also been assessed that the support and maintenance aspect of on-premise licence contracts constitutes a separate performance obligation which should be recognised over time. This will create a change for the licence revenue which is recognised on delivery of the software licence to the customer under IAS 18.

 

IFRS 16 is mandatory from 1 January 2019, with earlier application permitted if IFRS 15 has also been applied. The Directors have assessed the recognition of operating leases within the Group and estimate that if IFRS 16 had been applied to the 2017 results the Group's property, plant and equipment would be £3 million higher. 

Other than IFRS 15 and IFRS 16 detailed above, the Directors do not expect that the adoption of these new standards will have a material impact on the financial statements of the company in future periods, except that IFRS 9 will impact both the measurement and disclosures of financial instruments.

 

(b)     Basis of consolidation

 

A subsidiary is defined as an entity over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

 

The share for share acquisition of Epic Performance Improvement Limited and its subsidiary companies by Epic Group Limited on 10 May 1996 was that of a re-organisation of entities which were under common control. As such, that combination also falls outside the scope of IFRS 3 'Business Combinations' (Revised 2008). The Directors have therefore decided that it is appropriate to reflect the combination using the merger basis of accounting in order to give a true and fair view. No fair value adjustments were made as a result of that combination.

 

The basis of consolidation of the acquisition of Epic Group Limited by the Company in November 2013 is described below:

 

The substance of the share for share acquisition of Epic Group Limited and its subsidiary companies by In-Deed Online plc on 8 November 2013 was outside the scope of IFRS 3 'Business Combinations' (Revised 2008) on the basis that the Directors made a judgement that prior to the transaction, In-Deed Online plc was not a business under IFRS 3 Appendix A. The Directors have therefore decided that it is appropriate to reflect the combination using the merger basis of accounting in order to give a true and fair view. No fair value adjustments were made as a result of that combination.

 

Business combinations other than noted above are accounted for under the acquisition method and merger relief has been taken on recognising the shares issued on acquisition, where applicable.

 

Under the acquisition method, the results of the subsidiaries acquired or disposed of are included from the date of acquisition or up to the date of disposal. At the date of acquisition, the fair values of the subsidiaries' net assets are determined and these values are reflected in the Consolidated Financial Statements. The cost of acquisition is measured at the aggregate of the fair values at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Any excess of the purchase consideration of the business combination over the fair value of the identifiable assets and liabilities acquired is recognised as goodwill. Goodwill, if any, is not amortised but reviewed for impairment at least annually. If the consideration is less than the fair value of assets and liabilities acquired, the difference is recognised directly in the statement of comprehensive income. Acquisition-related costs are expensed as incurred.

 

Intra-group transactions, balances and unrealised gains on transactions are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the Financial Statements of subsidiaries to ensure consistency of accounting policies with those of the Group.

 



 

 

3.      Segment analysis

 

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker (which takes the form of the Board of Directors of the Company) as defined in IFRS 8, in order to allocate resources to the segment and to assess its performance.

 

The Directors of the Company consider the principal activity of the Group to be the production of interactive multimedia programmes, and to constitute one reportable segment, that of the production of interactive multimedia programmes. A majority of sales were generated by the operations in the United Kingdom in the two years ended 31 December 2016 and 2017.

 

All other segments primarily comprise income and expenses relating to the Group's administrative functions. Interest income and interest expense are not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Group. Accordingly, this information is not separately reported to the Board of Directors.

 

Geographical information

 

All revenues of the Group are derived from its principal activity, the production of interactive multimedia programmes. The Group's revenue from external customers and non-current assets by geographical location are detailed below.

 










UK

Mainland Europe

United States

Canada

Asia Pacific

Rest of the world

Total


£'000    

   £'000

£'000

  £'000

£'000

£'000

     £'000









31 Dec 2017








Revenue

27,998

4,926

15,757

1,367

1,600

408

52,056









Non-current assets

33,155

2

34,527

-

20,189

-

87,873









31 Dec 2016








Revenue

18,205

1,368

7,736

613

253

88

28,263









Non-current assets

22,644

-

22,914

-

-

-

45,558

 



 

 

Revenue by nature

 

The Group's revenue by nature is analysed as follows:

 

 

 


Platforms

Content & Services



On-premise Software Licences

Hosting and SaaS Licences

Support and Mainte-nance

Content

Consul-

ting

Platform develop-ment

Other

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000








 

e-Learning recurring

9,460

441

-

-

-

-

20,074

e-Learning non-recurring

1,006

8

510

23,403

1,362

3,703

924

30,916

Non-  

e-Learning

-

-

-

-

-

-

1,066

1,066


10,466

10,181

951

23,403

1,362

3,703

1,990

52,056








 

e-Learning recurring

3,529

3,790

-

-

-

-

-

7,319

e-Learning non-recurring

949

8

574

14,118

853

1,419

1,147

19,068

Non-

e-Learning

-

-

-

-

-

-

1,876

1,876


4,478

3,798

574

14,118

853

1,419

3,023

28,263

 

 

Information about major customers

           

In the year ended 31 December 2017, one customer accounted for 13.3 per cent of reported revenues. For the year ended 31 December 2016, no customer accounted for more than 10 per cent of reported revenues.



 

4.      Income tax

 





31 Dec

31 Dec


2017

2016


£'000

£'000

Current tax expense:



- UK Current Tax on profits for the year

1,498

565

- Adjustments in respect to prior years

(253)

(35)

- Foreign Current Tax on profits for the year

421

528

Total current tax

1,666

1,058

Deferred tax (Note 11):



- Origination and reversal of temporary differences

(2,032)

 (943)

- Adjustments in respect to prior years

-

2

Change in deferred tax rate

(805)

16

Total deferred tax

(2,837)

(925)




Income tax (credit)/expense

(1,171)

133

 

The change in deferred tax rate of £805,000 credited to the income statement relates wholly to the US corporation tax reform where the expected future tax rate has changed from 35% to 21%.

 

A reconciliation of income tax expense applicable to the loss before taxation at the statutory tax rate to the income tax expense at the effective tax rate of the Group is as follows:



31 Dec

31 Dec



   2017

2016



   £'000

£'000





Profit / (loss) before taxation


692

(1,193)





Tax calculated at the domestic tax rate of 19.25% (2016: 20%):


133

 

(239)





Tax effects of: -




Income not subject to tax


(288)

(157)

Expenses not deductible for tax purposes


521

467

Joint venture/associate results reported net of tax


39

41

 

Tax deductions not recognised as an expense


(350)

(234)

Utilisation of previously unrecognised or acquired tax losses


(486)

-

Tax losses in the year for which no deferred tax is recognised


298

2

Difference of deferred rate and current tax rate


(978)

38

Adjustments in respect to prior years


(252)

(33)

Effect of different international tax rates


192

248



(1,171)

133

 

The aggregate current and deferred tax directly credited to equity amounted to £1,331,000 (2016: £823,000).

 

 

5.      Earnings per share

 







31 Dec

31 Dec



2017

2016



Pence

Pence





Basic profit/loss per share

0.379

(0.317)

 

Diluted profit/loss per share


0.363

 

(0.317)

 

Adjusted basic earnings per share


2.156

 

1.286

 

Adjusted diluted earnings per share


2.064

 

1.184

 

 

 




Basic earnings per share is calculated by dividing the profit/loss after tax attributable to the equity holders of the Group by the weighted average number of shares in issue during the year.

 

Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all potential dilutive shares, namely share options or deferred consideration payable in shares where the contingent conditions have been met.

 

In order to give a better understanding of the underlying operating performance of the Group, an adjusted earnings per share comparative has been included. Adjusted earnings per share is stated after adjusting the profit/(loss) after tax attributable to equity holders of the Group for certain charges as set out in the table below. Adjusted diluted earnings per share has been calculated to also include the contingent shares payable as deferred consideration on acquisitions where the future conditions have not yet been met, as shown below. 

 



 

The calculation of earnings per share is based on the following earnings and number of shares.





2017

2016


Profit after tax

Weighted average number of shares

Pence per share

(Loss) after tax

Weighted average number of shares

Pence per share


£'000

'000


£'000

'000









Basic earnings per ordinary share attributable to the owners of the parent

2,013

530,444

0.379

(1,326)

418,619

(0.317)








Effect of adjustments:







Amortisation of acquired intangibles

7,756



3,200



Share-based payment costs

675



605



Integration costs

1,165



73



Cost of acquisitions

920



99



Fair value movement on contingent consideration

(52)



-



Deferred consideration and earn-outs from acquisitions

 

1,853



3,211



Net foreign exchange differences on borrowings

151



333



Interest receivable

(7)



(1)



Finance expense

52



57



Income tax expense

(1,171)



133



Effect of adjustments

11,342

-

2.138

7,710

-

1.842

Adjusted profit before tax

13,355

-

-

6,384

-

-

Tax impact after adjustments

(1,921)

-

(0.361)

(1,000)

-

(0.239)

Adjusted basic earnings per ordinary share

11,434

530,444

2.156

5,384

418,619

1.286








Effect of dilutive potential ordinary shares:







Share options

-

21,789

(0.085)

-

30,031

(0.086)

Deferred consideration payable (conditions met)

-

888

(0.004)

-

1,819

(0.005)

Deferred consideration payable (contingent)

-

818

(0.003)

-

4,412

(0.011)

Adjusted diluted earnings per ordinary share

11,434

553,939

2.064

5,384

454,881

1.184








 

 

 

 

 

6.      Property, plant and equipment

 


Computer equipment

Fixtures and

fittings

 

Motor

vehicles

 

Leasehold

im-provements

Total


£'000

£'000

£'000

£'000

£'000

Cost






 

 

At 1 January 2016

1,296

305

-

 

 

235

1,836

Additions on acquisitions

9

8

-

-

17

Additions

206

211

-

5

422

Foreign exchange differences

15

31

-

-

46







 

At 31 December 2016

1,526

555

-

 

240

2,321

Additions on acquisitions

104

18

10

66

198

Additions

392

57

-

-

449

Foreign exchange differences

(19)

(13)

(1)

(5)

(38)

Disposals

(6)

(6)

(1)

(40)

(53)







At 31 December 2017

1,997

611

8

261

2,877

 

Accumulated Depreciation





 

 

At 1 January 2016

 

955

 

227

-

 

111

1,293

Charge for the year

168

116

-

36

320







At 31 December 2016

1,123

343

-

147

1,613

Charge for the year

236

117

8

61

422







At 31 December 2017

1,359

460

8

208

2,035







Net book value






At 31 December 2016

403

212

-

93

708







At 31 December 2017

638

151

-

53

842







 

 

7.         Acquisitions

 

NetDimensions (Holdings) Limited

 

On 3 February 2017 LTG announced an all cash Offer for the issued and to be issued share capital of

NetDimensions (Holdings) Limited ('NetDimensions') for £53.6 million (£1 per share and share

option).

 

NetDimensions is a leading global enterprise solutions provider of talent and learning management

systems, headquartered in Hong Kong and with operations in the USA, UK, Germany, Australia and

the Philippines.

 

On 9 February 2017, the Group announced the purchase of 1,000,000 ordinary shares in

NetDimensions (representing 1.95%) for total consideration of £0.984 million. On 20 March 2017, the

Offer was declared unconditional in all respects; this is the date that the Group obtained control and is

the date used for the acquisition accounting. At this date the Group had a 97.2% holding of NetDimensions.

 

The non-controlling interest has been measured on the proportionate basis of net assets acquired.

 

On 23 July 2017 the compulsory acquisition of the non-controlling shareholders' interests was completed, for £1.48 million in cash; this represents the reconciling difference between the £52.1 million total consideration shown in the table below and the £53.6 million cash Offer disclosed above. The £0.82 million difference between the cash paid to acquire the non-controlling interest (£1.48 million) and the carrying value of the non-controlling interest (£0.67 million) was recognised directly in equity as it related to the repurchase of an equity interest.

 

None of the goodwill recognised is expected to be deductible for income tax purposes.

 

The following table summarises the consideration paid for NetDimensions, the fair value of assets

acquired and liabilities assumed at the acquisition date.


Fair value

Consideration

£'000

Cash paid to NetDimensions shareholders

49,793

Cash paid to NetDimensions share options holders

2,311

Total consideration

52,104

Non-controlling interest on acquisition

859


52,963



Recognised amounts of identifiable assets acquired and liabilities assumed


Cash and cash equivalents

7,881

Property, plant and equipment

198

Internally generated intangible assets - software


Gross trade and other receivables

8,825

Trade and other payables

(14,435)

Deferred tax liabilities on acquisition

(5,733)

Intangible assets identified on acquisition

34,312

Total identifiable net assets

31,048



Goodwill

21,915



Total

52,963

 

 

The goodwill arising is attributable to the acquired workforce, anticipated future profit from expansion opportunities and synergies of the business. The goodwill arising from the acquisition has been allocated to the NetDimensions CGU. Fair value adjustments have been recognised for acquisition-related intangible assets and related deferred tax as well as future liabilities which are in alignment with accounting policies.

 

Acquisition-related intangible assets of £31.8 million relate to the valuation of the customer relationships which are amortised over a period of five years, and £1.1 million which relates to the value of the NetDimensions brand which is amortised over five years, and £1.4 million which relates to the value of the acquired intellectual property which is amortised over 3 years.

 

Acquisition costs of £920,000 have been charged to the statement of comprehensive income in the year relating to the acquisition of NetDimensions.

 

A deferred tax liability of £5.7 million in respect of the acquisition-related intangible assets was established on acquisition (refer to Note 11).

 

NetDimensions contributed £12.9 million of revenue for the period between the date of acquisition and the balance sheet date and £3.5 million of profit before tax. If the acquisition of NetDimensions had been completed on the first day of the financial year, Group revenues would have been £4.5 million higher and Group profit attributable to equity holders of the parent would have been £0.2 million higher.

 

Details regarding the strategic decision to acquire NetDimensions can be found in the Chairman's statement and Strategic report.

 

8.      Intangible assets

 



 

 

Goodwill

Customer contracts and  relationships

 

 

Branding

 

IP and Software development

 

 

Total



£'000

£'000

£'000

£'000

£'000








Cost







At 1 January 2016


12,379

6,291

428

1,127

20,225

Additions on acquisitions


12,233

8,584

256

249

21,322

Additions


-

-

-

796

796

Foreign exchange differences


1,996

1,317

125

69

3,507

At 31 December 2016


26,608

16,192

809

2,241

45,850

Additions on acquisition


21,915

31,811

1,069

1,432

56,227

Additions


-

-

-

1,384

1,384

Foreign exchange differences


(2,473)

(2,983)

(90)

(202)

(5,748)

At 31 December 2017


46,050

45,020

1,788

4,855

97,713








Accumulated amortisation







At 1 January 2016


-

1,609

164

522

2,295

Amortisation charged in year


 

-

 

3,060

 

140

 

405

 

3,605

At 31 December 2016


-

4,669

304

927

5,900

Amortisation charged in year


 

-

7,144

286

974

8,404

At 31 December 2017


-

11,813

590

1,901

14,304








Carrying amount







At 31 December 2016


26,608

11,523

505

1,314

39,950

 

At 31 December 2017


46,050

33,207

1,198

2,954

83,409

 

Goodwill and acquisition-related intangible assets recognised have arisen from acquisitions.  Refer to Note 7 for further details of acquisitions undertaken during the year.  IP and software development reflects the recognition of development work undertaken in-house.

 

The amortisation charge for the year of £8,404,000 includes £7,756,000 relating to acquired intangibles. Included within IP and software development are acquired intangibles with a cost of £1,432,000 and cumulative amortisation of £326,000.

 

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units ('CGUs') that are expected to benefit from that business combination. The Group has four CGUs.  Following the acquisition of LINE and its merger with Epic in July 2014, to form LEO, management have determined that LEO represents one CGU. The carrying amount of goodwill has been allocated as follows:

 

CGU

Goodwill

 

Growth rate

Pre-tax discount rate


2017

2016

2017

2016

2017

2016


£'000

£'000

%

%

%

%

LEO

7,435

7,435

8%

8%

11.0%

11.0%

Preloaded

2,180

2,180

9%

9%

12.5%

12.5%

Eukleia

2,764

2,764

9%

9%

12.5%

12.5%

Rustici

12,911

14,229

9%

9%

12.5%

12.5%

NetDimensions

20,760

-

9%


12.5%



46,050

26,608





 

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use. The key assumptions for the value in use calculations are those regarding the discount rates (being the companies cost of capital), growth rates (based on past experience and pipeline in place) and future EBIT margins (which are based on past experience). The Group monitors its pre-tax Weighted Average Cost of Capital and those of its competitors using market data. In considering the discount rates applying to CGUs, the Directors have considered the relative sizes, risks and the inter-dependencies of its CGUs. The impairment reviews use a discount rate adjusted for pre-tax cash flows. The Group prepares cash flow forecasts derived from the most recent financial plan approved by the Board and extrapolates revenues, net margins and cash flows for the following four years based on forecast growth rates of the CGUs. Cash flows beyond this five-year period are also considered in assessing the need for any impairment provisions. The growth rates are based on internal growth forecasts of between 8% and 9% for the first five years. The terminal rate used for the value in use calculation thereafter is 2.25%.

 

If the growth rate or the discount rate used increased or decreased by 10%, with all other factors being equal, there would be no impact on the goodwill impairment assessment.

 

Customer contracts, relationships and branding

 

These intangible assets include the Group's aggregate amounts spent on the acquisition of industry-specific knowledge, software technology, branding and customer relationships. These assets arose from acquisition as part of business combinations.

 

The fair value of these assets is determined by discounting estimated future net cash flows generated by the asset where no active market for the assets exists.

 

The cost of these intangible assets is amortised over the estimated useful life of each separate asset of between two and five years.

 

IP and software development

 

IP and software development costs principally comprise expenditure incurred on major software development projects and the production of generic e-learning content where it is reasonably anticipated that the costs will be recovered through future commercial activity.

 

Capitalised development costs are amortised over the estimated useful life of between three and five years.



 

9.      Trade receivables

 



31 Dec

31 Dec



2017

2016



£'000

£'000





Trade receivables


12,253

4,286

Allowance for impairment losses


(186)

(57)



12,067

4,229

 

Impairment losses:

 

At 1 January


57

40

Additions on acquisition


111

-

Additions


18

17

Amounts written-back


-

-

At 31 December


186

57

 

The Group's normal trade credit term is 30 days. Other credit terms are assessed and approved on a case-by-case basis.

 

The fair value of trade receivables approximates their carrying amount, as the impact of discounting is not significant. No interest has been charged to date on overdue receivables.

 

 

10.     Other receivables, deposits and prepayments

 

Current assets






31 Dec

31 Dec



2017

2016



£'000

£'000





Sundry receivables


577

238

Prepayments


1,786

1,757



2,363

1,995

Non-current assets






31 Dec

31 Dec



2017

2016



£'000

£'000





Prepayments


-

1,293



-

1,293

 

 

 



 

 

11.        Deferred tax assets/(liabilities)

 











Short-term




Share options

Tax losses

timing differences

Total

Deferred tax assets


£'000

£'000

£'000

£'000







At 1 January 2016


1,029

-

-

1,029

Acquisition of subsidiaries


-

-

-

-

Deferred tax charge directly to the income statement


38

-

2

40

Deferred tax charged directly to equity


648

-

-

 

648

At 31 December 2016


1,715

-

2

1,717







Acquisition of subsidiaries


-

-



Deferred tax charged/(credited) directly to the income statement


(143)

521

6

384

Deferred tax charged directly to equity


1,331

-

-

1,331

Exercise of share options


(1,499)

-

-

(1,499)

At 31 December 2017


1,404

521

8

1,933

 

 









Accelerated tax




Intangibles

depreciation

Total

Deferred tax liabilities


£'000

£'000

£'000






At 1 January 2016


(996)

(186)

(1,182)

Deferred tax on acquired intangibles and via acquisition


(3,094)

-

(3,094)

Deferred tax charge directly to the income statement


919

(34)

885

Exchange rate differences


(506)

-

(506)

At 31 December 2016


(3,677)

(220)

(3,897)





Deferred tax on acquired intangibles and via acquisition


(5,733)

-

(5,733)

Deferred tax charge directly to the income statement


2,443

16

2,459

Exchange rate differences


694

-

694

At 31 December 2017


(6,273)

(204)

(6,477)

 

 

The deferred tax balances relate to temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. Deferred tax assets are recognised to the extent that it is probable that the future taxable profits will allow the deferred tax assets to be recovered. Deferred tax assets of £664,000 relating to carried forward tax losses have not been recognised as it is not probable that future taxable profits will allow these deferred tax assets to be recovered.

 

 

 

 

 

 

12.     Trade and other payables

 

 





31 Dec

31 Dec


2017

2016


£'000

£'000




Trade payables

946

871

Payments received on account

13,930

2,711

Tax and social security

1,673

1,002

Contingent consideration

168

59

Acquisition-related deferred consideration and earn-outs

2,641

2,824

Accruals

4,398

1,748


23,756

9,215

        

The contingent consideration relates wholly to the acquisition of Preloaded Limited and is a financial instrument held at fair value within the scope of IAS 39. The acquisition-related deferred consideration and earn-outs balance relates wholly to the acquisition of Rustici Software LLC. This is treated as post-combination remuneration and is accrued over the service period.

 

13.     Other long-term liabilities

 





31 Dec

31 Dec


2017

2016


£'000

£'000

Acquisition-related deferred consideration and earn-outs

-

1,055

Contingent consideration

192

371


192

1,426

 

The contingent consideration relates wholly to the acquisition of Preloaded Limited and is repayable during 2019 (see Note 12).

 

14.        Borrowings

 

On the acquisition of NetDimensions the debt facility with Barclays Bank plc was fully repaid and a new debt facility of £30 million was entered into with Silicon Valley Bank on 29 March 2017. Part of this facility was applied to settle a portion of the consideration payable to NetDimensions (Holdings) Limited shareholders. The facility comprises a £10 million equivalent multicurrency term loan, a £10 million equivalent multicurrency revolving credit facility and a £10 million accordion facility, all available to the Group for 5 years. The facility attracts variable interest between 1.6% and 2.1%, based on the Group's leverage, above LIBOR for the currency of the loan. The term loan was drawn down in USD ($12.4 million) and is repaid with quarterly instalments of $0.622 million with the balance repayable on the expiry of the loan in March 2022. 

The bank loan is secured by a fixed and floating charge over the assets of the Group and is subject to various financial covenants.


31 Dec

31 Dec


2017

2016


£'000

£'000

Current interest-bearing loans and borrowings

1,849

3,252

Non-current interest-bearing loans and borrowings

12,765

10,582


14,614

13,834

 

 

15.        Provisions

 





31 Dec

31 Dec


2017

2016


£'000

£'000

Property costs



At 1 January - brought forward

99

99

Paid in the year

-

-

Addition

158

-


257

99

 

The provision relates to the Group's share of dilapidation costs in respect of costs to be incurred at the end of property leases. 

 

16.     Share capital

 

Shares were issued during the year as follows:

 


Number of shares

Share capital

Share premium

Merger reserve

Total



£'000

£'000

£'000

£'000







At 1 January 2017

421,411,980

1,580

17,044

31,983

50,607

Placing of shares

124,000,000

465

46,035

-

46,500

Cost of issuing shares

-

-

(1,122)

-

(1,122)

Issue of shares on payment of Rustici contingent consideration

1,931,911

7

620

-

627

Shares issued on the exercise of options

24,656,614

93

1,631

-

1,724

At 31 December 2017

572,000,505

2,145

64,208

31,983

98,336

 

The par value of all shares is £0.00375. All shares in issue were allotted, called up and fully paid.

On 3 March 2015 the Group incorporated Learning Technologies Group (Trustee) Limited, a wholly owned subsidiary of the Company.  The purpose of the company is to act as an Employee Benefit Trust ('EBT') for the benefit of current and previous employees of the Group.  At 31 December 2017 the EBT holds 404,340 ordinary shares in the Company.  These shares are held in treasury.  

On 3 February 2017, the Company announced its proposed recommended cash offer for the acquisition of NetDimensions (Holdings) Limited ('NetDimensions') and the conditional placing of 124,000,000 shares to raise approximately £46.5 million. On 20 February 2017 at the General Meeting the Resolutions were passed and the Placing Shares were admitted to trading on AIM on 30 March 2017. Further details of the acquisition are provided in Note 7.

During the year, 1,931,911 new ordinary shares were issued as part payment of the acquisition-related deferred consideration due on the acquisition of Rustici Software LLC.

24,656,614 ordinary shares were issued during the course of the year as a result of the exercise of employee share options. 

 

17.     Dividends paid

 





31 Dec

31 Dec


2017

2016


£'000

£'000




Final dividend paid

Interim dividend paid

766

513

418

294


1,279

712

                       

 

18.        Events since the reporting date

 

The Company appointed Goldman Sachs International as joint corporate broker on 15 February 2018.

 

 

 

 

 

 

 


 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Final Results 2017 - RNS