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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Learning Technologies Group Plc | LSE:LTG | London | Ordinary Share | GB00B4T7HX10 | ORD 0.375P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.40 | 0.54% | 74.70 | 73.40 | 75.70 | 76.10 | 74.50 | 74.50 | 1,274,425 | 16:35:14 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Agents & Mgrs | 562.34M | 29.45M | 0.0372 | 20.32 | 598.12M |
From Apr 2019 to Apr 2024
TIDMLTG
RNS Number : 0588I
Learning Technologies Group PLC
19 March 2018
19 March 2018
Learning Technologies Group plc
(AIM: LTG)
PRELIMINARY RESULTS FOR THE YEARED 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:
Hot Features
Premium
FY17 FY16 change
---------------------- --------- ---------- -------
Revenue GBP52.1m GBP28.3m +84%
---------------------- --------- ---------- -------
Recurring Revenue
% 39% 27%
---------------------- --------- ---------- -------
Revenues Outside
UK % 46% 36%
---------------------- --------- ---------- -------
Adjusted EBIT GBP14.0m GBP7.0m +102%
---------------------- --------- ---------- -------
Statutory PBT GBP0.7m (GBP1.2m)
---------------------- --------- ---------- -------
Adj. Diluted EPS 2.064p 1.184p +74%
---------------------- --------- ---------- -------
Proposed Full
Year Dividend
per share 0.30p 0.21p +43%
---------------------- --------- ---------- -------
Net Cash / (Debt) GBP1.0m (GBP8.5m)
---------------------- --------- ---------- -------
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 +44 (0)20 Neil Elton, Group Finance Director 7402 1554 Numis Securities Limited (NOMAD and Joint Corporate Broker) Stuart Skinner Michael Wharton +44 (0)20 Ben Stoop 7260 1000 Goldman Sachs International (Joint Corporate Broker) James A Kelly +44 (0)20 Adam Laikin 7774 1000 FTI Consulting (Public Relations Adviser) +44 (0)20 Rob Mindell / Jamie Ricketts 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 GBP52.1 million (2016: GBP28.3 million), adjusted EBIT by 102% to GBP14.0 million (2016: GBP7.0 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 GBP0.7 million compared with a loss before tax of GBP1.2 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 GBP50 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 GBP100 million and for run-rate adjusted EBIT to exceed GBP25 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 GBP52.1 million (2016: GBP28.3 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 GBP14.0 million (2016: GBP7.0 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 GBP7.8 million (2016: GBP3.2 million) and is discussed further in Note 8. The amortisation charge for internally generated development costs was GBP0.6 million (2016: GBP0.4 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 GBP0.6 million in 2016 to GBP0.7 million in 2017.
Integration costs of GBP1.2 million (2016: GBP0.1 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 GBP5.7 million have been realised.
Statutory profit before tax was GBP0.7 million compared with a loss before tax of GBP1.2 million and unadjusted operating profit was GBP2.6 million compared to an unadjusted operating loss of GBP0.1 million in 2016. These are stated after acquisition-related deferred consideration and earn-out charges of GBP1.9 million (2016: GBP3.2 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 GBP0.9 million (2016: GBP0.1 million) and a net credit related to contingent consideration on the acquisition of Preloaded, was GBP11,000 (2016: charge of GBP57,000). Interest charges on the debt facility were GBP0.6 million (2016: GBP0.4 million) and net foreign exchange losses were GBP0.2 million (2016: GBP0.3 million). Adjusted profit before tax (see Note 5) increased by 109% to GBP13.4 million in 2017 (2016: GBP6.4 million).
The income tax credit of GBP1.2 million in 2017 (2016: charge of GBP133,000) 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 GBP76.8 million, equivalent to 13.4 pence per share (2016: shareholders' equity of GBP30.7 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 GBP30 million. The facility comprises a GBP10.0 million term loan repayable in quarterly instalments of GBP0.5 million, a GBP10.0 million revolving credit facility, and a GBP10.0 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 GBP15.7 million (2016: GBP5.3 million). The Group's net cash at 31 December 2017 was GBP1.0 million (2016: net debt of GBP8.5 million). Net cash is defined by gross cash less borrowings.
Net cash generated from operating activities was GBP10.8 million (2016: GBP2.0 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 GBP0.7 million (2016: GBP0.6 million). Cash outflows from investing activities were GBP47.5 million (2016: GBP15.7 million) and comprised the acquisition of NetDimensions for GBP53.6 million (GBP45.7 million net of cash acquired) and investment in internally generated IP and property, plant and equipment. Cash inflows from financing activities were GBP47.6 million (2016: GBP11.6 million) and include net proceeds from a share placing (GBP45.4 million) and net debt finance raised of GBP1.8 million pertaining to the NetDimensions acquisition, proceeds from the exercise of employee share options (GBP1.7 million) and dividend payments which increased to GBP1.3 million from GBP0.7 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 GBP53.6 million for NetDimensions, as at 31 December 2017 GBP53.5 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 GBP0.9 million. Goodwill on acquisition has been calculated at GBP21.9 million with acquisition-related intangibles of GBP34.3 million represented mainly by customer relationships and the acquired IP. NetDimensions delivered revenue of GBP12.9 million and GBP3.5 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 GBP30.5 million or 59% of Group revenues (2016: GBP19.4 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 GBP21.6 million or 41% of Group revenues, up from GBP8.9 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 GBP0.7 million to GBP51.4 million and GBP13.4 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 Year ended
31 Dec 31 Dec
2017 2016
Note GBP'000 GBP'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 52 -
on contingent
consideration
Costs of acquisition 7 (920) (99)
Share of losses
on associates/joint
ventures (201) (205)
Profit/(loss) (36) -
on disposal of
fixed assets
Finance expense:
Charge on contingent
consideration (41) (57)
Unwinding onerous (11) -
lease
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 Year ended
31 Dec 31 Dec
2017 2016
GBP'000 GBP'000
Profit/(loss)
attributable
to owners of
the Parent 2,013 (1,326)
Profit/(loss) (150) -
for the year
attributable
to non-controlling
interests
----------- -----------
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
Note 31 Dec 31 Dec
2017 2016
GBP'000 GBP'000
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 Share Merger Reverse Share-based Translation Retained Non-controlling Total
capital premium reserve acquisition payments reserve earnings interest equity
reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ote
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 Year
ended ended
31 Dec 31 Dec
2017 2016
GBP'000 GBP'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 (52) -
on contingent consideration
Acquisition-related
deferred consideration
and earn-outs 1,853 3,211
Payment of acquisition-related (2,211) -
deferred consideration
and earn-outs
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 16 -
disposal of property,
plant and equipment
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 (59) -
payments in the period
--------- ----------
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, 5(th) 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 GBP15.7 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 GBP0.7 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 GBP3 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 United Canada Asia Rest Total
Europe States Pacific of
the
world
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Hosting Support
Software and SaaS and Consul- Platform
Licences Licences Mainte-nance Content ting develop-ment Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
e-Learning
recurring 9,460 10,173 441 - - - - 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
GBP'000 GBP'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 GBP805,000 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
GBP'000 GBP'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 (486) -
previously unrecognised
or acquired tax
losses
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 GBP1,331,000 (2016: GBP823,000).
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 Weighted Pence (Loss) Weighted Pence
after average per share after average per
tax number tax number share
of shares of shares
GBP'000 '000 GBP'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 (52) -
movement on
contingent
consideration
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
Fixtures
Computer and Motor Leasehold
equipment fittings vehicles im-provements Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP53.6 million (GBP1 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 GBP0.984 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 GBP1.48 million in cash; this represents the reconciling difference between the GBP52.1 million total consideration shown in the table below and the GBP53.6 million cash Offer disclosed above. The GBP0.82 million difference between the cash paid to acquire the non-controlling interest (GBP1.48 million) and the carrying value of the non-controlling interest (GBP0.67 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 GBP'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 GBP31.8 million relate to the valuation of the customer relationships which are amortised over a period of five years, and GBP1.1 million which relates to the value of the NetDimensions brand which is amortised over five years, and GBP1.4 million which relates to the value of the acquired intellectual property which is amortised over 3 years.
Acquisition costs of GBP920,000 have been charged to the statement of comprehensive income in the year relating to the acquisition of NetDimensions.
A deferred tax liability of GBP5.7 million in respect of the acquisition-related intangible assets was established on acquisition (refer to Note 11).
NetDimensions contributed GBP12.9 million of revenue for the period between the date of acquisition and the balance sheet date and GBP3.5 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 GBP4.5 million higher and Group profit attributable to equity holders of the parent would have been GBP0.2 million higher.
Details regarding the strategic decision to acquire NetDimensions can be found in the Chairman's statement and Strategic report.
8. Intangible assets
Customer
contracts IP and
Goodwill and relationships Branding Software Total
development
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP8,404,000 includes GBP7,756,000 relating to acquired intangibles. Included within IP and software development are acquired intangibles with a cost of GBP1,432,000 and cumulative amortisation of GBP326,000.
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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'000
Sundry receivables 577 238
Prepayments 1,786 1,757
2,363 1,995
======== ========
Non-current assets
31 Dec 31 Dec
2017 2016
GBP'000 GBP'000
Prepayments - 1,293
- 1,293
======== ========
11. Deferred tax assets/(liabilities)
Short-term
Share options Tax losses timing Total
differences
Deferred tax assets GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'000 GBP'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 GBP664,000 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
GBP'000 GBP'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
GBP'000 GBP'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 GBP30 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 GBP10 million equivalent multicurrency term loan, a GBP10 million equivalent multicurrency revolving credit facility and a GBP10 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
GBP'000 GBP'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
GBP'000 GBP'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 Share Share Merger Total
of shares capital premium reserve
GBP'000 GBP'000 GBP'000 GBP'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 GBP0.00375. 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 GBP46.5 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
GBP'000 GBP'000
Final dividend
paid 766 418
Interim dividend
paid 513 294
-------- --------
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
END
FR GGUGUWUPRGBQ
(END) Dow Jones Newswires
March 19, 2018 03:00 ET (07:00 GMT)
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