Final Results 2016

RNS Number : 5954B

Learning Technologies Group PLC

05 April 2017

 

5 April 2017

Learning Technologies Group plc

 (AIM: LTG)

Final Results 2016

"Excellent progress during 2016"

Learning Technologies Group plc ("LTG" or the "Company"), a market-leader in the fast growing learning technologies sector, is pleased to announce its audited results for the year ended 31 December 2016.

Financial highlights:

·	Revenue increased to £28.3 million (2015: £19.9 million) - up 42%
·	Recurring revenues increased to 27% (2015: 10%) - up 170%
·	Revenues generated outside of the UK increased to 36% (2015: 12%) - up 200%
·	Adjusted EBITDA increased to £7.7 million (2015: £4.3 million) - up 77%
·	Significantly improved adjusted EBITDA margin of 27% (2015: 22%) - up 29%
·	Statutory loss before tax of £1.2 million after accounting for acquisition related deferred consideration as deemed remuneration
·	Adjusted diluted earnings per share of 1.184 pence (2015: 0.756 pence per share) - up 57%
·	Proposed dividend for the full year of 0.21 pence per share (2015: 0.15 pence) - up 40%
·	Strong balance sheet with shareholders' equity of £30.7 million (2015: £25.1 million)

Operational highlights:

·	Excellent progress in delivering on LTG's strategic ambition to build an international comprehensive digital learning offering for corporate and government clients
·	Successful acquisition in January 2016 of Rustici Software, the acknowledged global leader in e-learning interoperability standards; results significantly ahead of expectations
·	27.3% stake in Watershed Systems in January 2016 developing suite of analytical tools to capture rich data on learners and measure performance
·	Acquisition of NetDimensions post year-end in March 2017; leading global enterprise solutions provider of talent and learning management systems
·	Leveraging of LTG's blended service strategy reinforcing strong organic growth
·	Successful, on time and on budget implementation of landmark Civil Service contract with revenues anticipated to grow significantly in 2017
·	Strong start to 2017 with trading in line with management's expectations and order book significantly ahead of the prior year on a like for like basis

Commenting, Jonathan Satchell, CEO of LTG, said:

"2016 was another fantastic year for LTG during which we delivered strong revenue and profit growth as well as completing the acquisition of Rustici Software and investment in Watershed Systems.

LTG is very well placed in its digital learning segment of the global corporate training market and it is pleasing to see that recurring revenues increased to 27% and revenues outside of the UK to 36%."

Commenting, Andrew Brode, Chairman of LTG, said:

"The Group has enjoyed a strong start to 2017 and is trading in line with management's expectations, and significantly ahead of last year.  We expect the current financial year to benefit from a healthy order book, increased sales resulting from our compelling blended learning capability and continuing strong margins.  LTG has substantially diversified its geographical reach in the past year and has developed a broad client base both across corporate and government sectors.  The Board is excited by the opportunities already identified that the acquisition of NetDimensions offers the Group.  The Board is therefore confident in the Group's prospects and expects to report enhanced progress during 2017."

Enquiries:

Learning Technologies Group plc Jonathan Satchell, Chief Executive Neil Elton, Group Finance Director	[phone]
Numis Securities Limited Stuart Skinner/Michael Wharton (Nominated Adviser) Ben Stoop (Corporate Broker)	[phone]
Hudson Sandler LLP Andrew Hayes/Bertie Berger	[phone]

 

Chairman's Statement

Learning Technologies Group plc ("LTG"), a market-leader in the fast growing learning technologies sector, has made excellent progress during 2016.  In addition to the acquisition in January 2016 and strong subsequent performance of Rustici in the US, LTG's other businesses have delivered a solid performance and improved margins.

As a result revenues increased by 42% to £28.3 million (2015: £19.9 million), adjusted EBITDA by 77% to £7.7 million (2015: £4.3 million) and adjusted diluted EPS by 57% to 1.184 (2015: 0.756).  Adjusted EBITDA margins have improved from 21.8% in 2015 to 27.1% in 2016 and we expect sustainable adjusted EBITDA margins in the mid-twenties in future periods. Statutory loss before tax for the year was £1.2 million compared with a restated profit before tax of £1.2 million for 2015, after accounting for acquisition related deferred consideration as deemed remuneration. 

The 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 27% (2015: 10%), and over the same period revenues generated outside of the UK have risen from 12% in 2015 to 36% in 2016.

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, of which LTG is focused on the digital learning segment, is estimated to be worth £140 billion in 2016 with a five year compound annual growth rate (CAGR) of 23%. Organisations are now looking to measure more precisely which learning interventions are most effective, using adaptive models which draw data from multiple sources to establish returns on e-learning investment.

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 29 January 2016 we announced that LTG had acquired the entire issued share capital of Rustici Software LLC ('Rustici'), the expert in digital learning interoperability.  Rustici is the acknowledged global leader in SCORM conformance (the de facto industry standard for e-learning interoperability), which enables online learning content and management systems to communicate and work together.  I am pleased to report that, since acquisition, this business has performed significantly ahead of expectations.

At the same time, we acquired a 27.3% stake in Watershed Systems Inc ('Watershed').  Watershed has developed a SaaS-based learning analytics capability, which evaluates the impact and effectiveness of learning programmes, which is a significant advance for the e-learning industry. The acquisition of Rustici and our investment in Watershed have substantially enhanced the Group's ability to capture rich data about the learner and analyse and assess the impact of learning on organisational performance.  Watershed has made good progress during the year developing its suite of analytical tools and working alongside clients to implement learning analytics solutions and we look forward to the company further demonstrating the powerful insights that its product suite offers clients, and to extending its market reach.

We are beginning to see the significant benefits of our blended service strategy, through increasing take-up by our customers.  Our consultative and comprehensive approach is driving organic growth and, with the integration of our businesses and implementation of best practice, we realised impressive increases in adjusted EBITDA and adjusted EBITDA margins in 2016.

The success of our strategy was best exemplified by the landmark deal announced in December 2015, to design and develop a new learning architecture and to create and deliver blended courses that incorporate a combination of digital, informal and classroom components for the entire UK Civil Service, alongside our strategic partner KPMG UK LLP.  Civil Service Learning ('CSL') delivers learning to more than 400,000 civil servants for whom we have designed and developed blended learning across 15 curriculum areas, from leadership & management, diversity, EU practices, through to project management and digital delivery.  We successfully completed our implementation on time and on budget. Revenues have begun to accrue in 2016 in line with our plans and will grow significantly in 2017 onwards.  This demonstrates the credibility and scale of LTG's offering and capabilities.

People

The Group has enjoyed a transformational year in which we have seen margins improve and the benefits of our blended offering begin to have a marked effect.  This could not have been achieved without the skill, passion and dedication of all our staff.  On behalf of the Board, I would like to thank them for their efforts during the year.

Post Year-End

On 20 March 2017 the acquisition of NetDimensions Holding Limited ('NetDimensions') by LTG was declared unconditional.  NetDimensions is a leading global enterprise solutions provider of talent and learning management systems.  It provides companies, government agencies, and other organisations with talent management solutions to personalise learning, share knowledge, enhance performance, foster collaboration, and manage compliance programs for employees, customers, partners, and suppliers via mobile learning, social collaboration and other extended enterprise management tools. 

The acquisition brings to LTG the final major pillar of its strategic ambition to build a comprehensive full-service digital learning offering encompassing strategic consultancy, content, delivery and analytics capabilities for corporate and government clients. It deepens our expertise in highly regulated sectors such as financial services, defence and security whilst opening up access to the South East Asian market. Other LTG businesses will also have the opportunity to offer their technical capability and vertical sector specialisms to an extended client base.

On 29 March 2017, the Group also announced that it signed a new debt facility for £20 million that will be provided by Silicon Valley Bank ("SVB") and comprises a £10m term loan and £10m revolving credit facility, both available to LTG for five years. SVB is a bank focused on innovation businesses, enterprises and their investors and it will be able to support LTG with its global growth aspirations.

Board Changes

Following the acquisition of NetDimensions and with effect from today Peter Gordon steps down as a Non-Executive director to take on the role of Managing Director at NetDimensions.  I would like to thank Peter on behalf of the Board for his invaluable work and advice over the past two years, particularly in his role in the successful acquisitions of Eukleia in 2015, Rustici in 2016, and latterly NetDimensions. We look forward to his continued contribution to the Group.

Dividend and Annual General Meeting

 

In light of the results for 2016 and to demonstrate our confidence in the prospects for the Group in 2017, the Board is recommending an increased final dividend of 0.14p per share (2015: 0.10p per share), giving a total dividend for the year of 0.21p per share (2015: 0.15p per share).  This final dividend is subject to shareholder approval at the forthcoming Annual General Meeting to be held on 18 May 2017.

If approved, the final dividend will be paid on 7 July 2017 to all shareholders on the register at 9 June 2017.

Current trading and outlook

The Group has enjoyed a strong start to 2017 and is trading in line with management's expectations, and significantly ahead of last year.  We expect the current financial year to benefit from a healthy order book, increased sales resulting from our compelling blended learning capability and continuing strong margins.  LTG has substantially diversified its geographical reach in the past year and has developed a broad client base both across corporate and government sectors.  The Board is excited by the opportunities already identified that the acquisition of NetDimensions offers the Group.

The Board is therefore confident in the Group's prospects and expects to report enhanced progress during 2017.

Andrew Brode

Chairman

4 April 2017

Strategic Report for the year ended 31 December 2016

Financial results

In the year ended 31 December 2016, the Group generated revenue of £28.3 million (2015: £19.9 million), delivering a 42% increase.

Adjusted EBITDA increased by 77% to £7.7 million (2015: £4.3 million). The Group measures adjusted EBITDA to provide a better understanding of the underlying operating business performance. Adjusted EBITDA is defined as the Group profit or loss before tax, excluding the amortisation of acquisition-related intangible assets, the amortisation of internally capitalised development costs, depreciation, 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.

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 EBITDA margins in the year to 27% (2015: 22%). 

On a like-for-like basis, as if the businesses that LTG owned at the end of 2016 had been owned at the end of 2015, the order book is substantially ahead of prior year, bolstered by forecast revenues that will be delivered by the Civil Service Learning (CSL) multi-year contract during 2017 and beyond.  The order book is defined as the value of contracts won but not yet delivered. 

The amortisation charge for acquisition-related intangible assets was £3.2 million (2015: £1.2 million) and is discussed further in Note 8. The amortisation charge for internally generated development costs was £0.4 million (2015: £0.2 million) and relates to the development of '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 decreased from £0.8 million in 2015 to £0.6 million in 2016.

Integration costs of £0.1 million (2015: £0.1 million) relate to restructuring costs following the acquisition of Rustici in January 2016.

Statutory loss before tax was £1.2 million compared with a restated profit before tax of £1.2 million and unadjusted operating loss wwas £142k compared to restated unadjusted operating profit of £1.4 million. These are stated after deferred contingent consideration and earn-out charges of £3.2 million (2015: £0.4 million) relating to the acquisitions of Eukleia and Rustici and reflect the strong incremental revenue growth of the businesses post acquisition (see below for details on prior year adjustments). Costs of acquisitions in 2016 were £0.1 million (2015: £0.2 million) and finance charges related to contingent consideration of the acquisitions of Preloaded, were £57,000 (2015: £0.1 million).  Interest charges on the debt facility were £0.4 million (2015: nil) and net foreign exchange losses were £0.3 million (2015: nil).  Adjusted profit before tax (see Note 5) increased by 66% to £6.4 million in 2016 (2015: £3.8 million).

The income tax expense of £133,000 in 2016 (2015: £258,000) 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 and adjusted operating profit during the year, adjusted basic EPS increased by 59% to 1.286 pence (2015: 0.809 pence).  On a statutory basis, basic earnings per share ('EPS') decreased to a loss of 0.317 pence (2015: restated profit of 0.256 pence) primarily as a result of the deferred consideration charged to profit or loss relating to Rustici following its successful performance post acquisition. Further details are provided in Note 5.

On 28 January 2016, LTG acquired Rustici, the global market leader in digital learning interoperability, for an initial consideration of USD 23.6 million of which USD 18.0 million was paid in cash and USD 5.6 million in newly issued LTG shares at 30.25 pence per share.  Further performance based payments, capped at USD 11.0 million, are payable based on ambitious revenue growth targets over the next 3 years.  80% of Rustici's current revenues are from recurring subscription fees.  Goodwill on acquisition has been calculated at £12.2 million with acquisition-related intangibles of £8.8 million represented mainly by customer relationships. Rustici delivered revenue of £6.3 million and £2.8 million profit before tax to the Group for the eleven months of 2016.  LTG also acquired a 27.3% investment in Watershed, the developer of the next generation learning analytics platform, for USD 3.0 million.  Further details of the Rustici acquisition are provided in Note 7.

The Group has a strong balance sheet with shareholders' equity at 31 December 2016 of £30.7 million, equivalent to 7.3 pence per share (2015: restated shareholders' equity of £25.1 million, equivalent to 6.3 pence per share).

In January 2016 LTG secured a USD 20.0 million term loan with Barclays, in order to part-finance the acquisition of Rustici.  The loan is subject to quarterly repayments of USD 1.0 million with the balance repayable on the expiry of the loan in January 2019.  The loan balance is charged interest at a 2.0% margin above USD LIBOR, and is subject to various financial covenants.  Net USD cash receipts to the business have operated as an effective internal hedge against the depreciation of Sterling against the USD in the second half of the year.  Management regularly review the foreign exchange exposure of the Group.  On 29 March 2017 LTG agreed a new debt facility with SVB and repaid the existing Barclays loan.  Further details are provided in Note 19.

The gross cash position at 31 December 2016 was £5.3 million (2015: £7.3 million).  The Group's net debt at 31 December 2016 was £8.5 million (2015: net cash of £7.3 million).

Net cash generated from operating activities was £2.1 million (2015: £4.3 million).  Operating cash flow in 2016 includes the upfront investment in the CSL project against which revenue receipts are expected in future periods and a bonus, accrued at the time of acquisition, payable to Rustici staff.  Underlying operating cash flows were strong; debtor days were 54 days (2015: 64 days), and combined debtor and WIP days were 29 days (2015: 34 days), reflecting the Group's implementation of accelerated invoicing and effective credit control.  Corporation tax payments were £0.6 million (2015: £0.5 million).  Cash outflows from investing activities were £15.8 million (2015: £6.0 million).  Cash inflows from financing activities were £11.6 million (2015: £5.1 million) and are stated after dividend payments which increased to £0.7 million from £0.4 million in 2015.

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, 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. 

Strategic Consultancy

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, Zurich in Switzerland, and through its Brazilain joint venture, in Rio de Janeiro and Sao Paulo.

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.

LTG is also developing sector expertise both organically and by acquisition.

Most notably LEO has developed a reputation as an industry leader in the automotive sector.  For example, LEO has developed learning technologies that are used by dealers and customers throughout JLR's global network to learn about the latest vehicle models as they are launched.  This involves the complex assignment of configuring the learning content for different territories, vehicle specifications and languages as well as different launch dates.

In certain instances LTG will acquire sector expertise.  In July 2015, we acquired Eukleia Training Limited ('Eukleia'), a specialist provider of blended learning services to the financial services sector.  Eukleia has performed well during the period and in October 2016 set-up an office in New York, sharing premises with its sister company LEO.  The US office has already had success in winning new assignments and we are excited about the opportunities to service our existing and new clients from both sides of the Atlantic.

Content

There are myriad types of learning content ranging from face-to-face training through to a variety of e-learning formats.  Tailoring the correct content and delivery mechanism to the needs of the learner is imperative in ensuring that learning is as effective as possible in driving business performance.  LTG is at the forefront of developing this blended learning approach.

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 has generated some revenues in 2016 as the courses have been launched during the year and expects these revenues to increase substantially during 2017 and 2018.  CSL has the option to extend this contract into 2019.

LTG continues to invest in developing other forms of compelling learning content.  Through its BAFTA award-winning business, Preloaded, LTG is at the forefront of the 'gamification' of learning content, or more particularly 'games with purpose'.

Preloaded worked with Eukleia in developing a training game, 'Zero Threat', that brings to life for employees and managers the importance of cyber-security in mitigating risks for all organisations.  The game emotionally engages learners by showing, rather than describing, the consequences of getting cyber-security wrong. It takes a 'pull' rather than a 'push' approach to training, inviting learners to replay and try to improve their score.

Preloaded has also developed other immersive technologies such as 'augmented' and 'virtual' reality games.  The company developed the Handley Page virtual reality experience for the Science Museum, an immersive 3D simulation that illustrates the mathematical principles of air flow through compelling graphics, sound effects and narration.

Delivery

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.

Moodle is an open-source Learning Management System ('LMS') platform used by organisations throughout the world and LEO has attained the recognition of becoming an accredited Moodle partner.  LEO has helped clients build new Moodle systems and provides ongoing support and service desk assistance to clients around the world with particular success in the US.

LTG has also 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 2016 and through its SaaS based annual licences is achieving retention rates of in excess of 90%. 

In March 2017 LTG acquired NetDimensions, one of the leading global proprietary LMS providers.  This proprietary offering will complement LEO's Moodle offering enabling LTG to offer clients a full suite of delivery options.

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.  In January 2016 LTG acquired Rustici, the acknowledged global leader in SCORM related solutions.   Since acquisition, Rustici has exceeded expectations, and has developed and launched a further SaaS based product Content Controller.

Analytics

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.

Rustici was asked by Advanced Distributed Learning, a US Government body, to lead the industry in creating the next generation of learning interoperability standards.  It created a global standard to capture rich data on every aspect of learning experiences - xAPI.

When LTG acquired Rustici it also acquired a 27.3% stake in Watershed for an investment of $3.0 million.  Watershed 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 2016 in developing its suite of analytical tools and working alongside blue-chip clients.  We look forward to Watershed making significant progress during 2017.

Prior year adjustments

Following a review of the Group's Annual Report and Accounts for the year ended 31 December 2015 by the Financial Reporting Council's Conduct Committee, adjustments have been recognised relating to two matters: deferred consideration and tax on share options.

Deferred Contingent Consideration

The terms of the acquisition of Eukleia completed in July 2015 allow for the payment of contingent deferred consideration to the vendors based on challenging incremental revenue targets being achieved by the company during the period 1^st January 2016 to 31^st December 2017.  These contingent deferred consideration payments may be forfeited by employee vendors should they, in certain circumstances, leave the company prior to the end of the earn-out period.  The Board of LTG believe that such protections safeguard the value of the investment made by the Group.  Under IFRS3, the inclusion of this substantive service condition requires that the fair value of the contingent payments are accounted for as remuneration charged to profit or loss rather than being capitalised as part of the business combination.  The net effect of this adjustment in 2015 is a reduction in profit of £335,000.  The underlying commercial effect of the acquisition agreement is unchanged and other financial measures such as cash, adjusted EBITDA and adjusted EPS are unaffected.

Tax on share options

Part of the 2015 current tax deduction on share options exercised in the year should have been recognised directly in equity rather than as a credit to the tax expense recognised in the Statement of Comprehensive Income.  The comparative figures have been restated, reducing profit by £138,000.  This has not had an effect on the Statement of Financial Position.

Further details are provided in Note 18.

Jonathan Satchell

Chief Executive Officer

4 April 2017

 

Consolidated Statement of Comprehensive Income

Year ended 31 December 2016			Year ended 31 Dec	(Restated) Year ended 31 Dec
			2016	2015
	Note		£'000	£'000
Revenue	3		28,263	19,905
Operating expenses (excluding acquisition related deferred consideration and earn-outs)			(25,194)	(18,075)
Operating profit (before acquisition related deferred consideration and earn-outs)			3,069	1,830
Acquisition related deferred consideration and earn-outs			(3,211)	(414)
Operating (loss)/profit			(142)	1,416
Adjusted EBITDA			7,672	4,338
Depreciation	6		(320)	(214)
Amortisation of intangibles	8		(3,605)	(1,419)
Share-based payment costs			(605)	(776)
Integration costs			(73)	(99)
Acquisition related deferred consideration and earn-outs			(3,211)	(414)
Operating (loss)/profit			(142)	1,416
Fair value movement on contingent consideration			-	198
Costs of acquisition	7		(99)	(234)
Share of losses on associates/joint ventures			(205)	(62)
Finance expense:
Charge on contingent consideration			(57)	(116)
Interest on borrowings			(358)	-
Net foreign exchange difference on borrowings			(333)	-
Interest receivable			1	12
(Loss)/profit before taxation			(1,193)	1,214
Income tax expense	4		(133)	(258)
(Loss)/profit for the year			(1,326)	956
(Loss)/profit per share attributable to owners of the Parent:
Basic (pence)	5		(0.317)	0.256
Diluted (pence)	5		(0.317)	0.239

Consolidated Statement of Comprehensive Income

Year ended 31 December 2016 (continued)

Adjusted earnings per share:

Basic (pence)	5		1.286	0.809
Diluted (pence)	5		1.184	0.756

		Year ended 31 Dec	(Restated) Year ended 31 Dec
		2016	2015
		£'000	£'000
(Loss)/profit for the year		(1,326)	956
Other comprehensive (loss)/income:
Items that may be subsequently reclassified to profit or loss
Exchange differences on translating foreign operations		1,183	33
Total comprehensive (loss)/income for the year attributable to owners of the parent Company		(143)	989

Consolidated Statement of Financial Position
		31 Dec 2016 £'000	(Restated) 31 Dec 2015 £'000
	Note
Non-current assets
Property, plant and equipment	6	708	543
Intangible assets	8	39,950	17,930
Deferred tax assets	11	1,717	1,029
Investments accounted for under the equity method		1,890	-
Other receivables, deposits and prepayments	10	1,293	-
		45,558	19,502
Current assets
Trade receivables	9	4,229	4,201
Other receivables, deposits
and prepayments	10	1,995	554
Amounts recoverable on contracts		2,642	1,853
Cash and bank balances		5,348	7,305
		14,214	13,913
Total assets		59,772	33,415
Current liabilities
Trade and other payables	12	9,215	5,835
Borrowings	14	3,252	-
Corporation tax		546	309
Amount owing to related parties		45	2
		13,058	6,146
Non-current liabilities
Deferred tax liabilities	11	3,897	1,182
Other long term liabilities	13	1,426	844
Borrowings	14	10,582	-
Provisions	15	99	99
		16,004	2,125
Total liabilities		29,062	8,271
Net assets		30,710	25,144
Shareholders' equity
Share capital	16	1,580	1,506
Share premium account		17,044	15,988
Merger reserve		31,983	28,120
Reverse acquisition reserve		(22,933)	(22,933)
Share-based payment reserve		3,245	2,273
Foreign exchange translation reserve		1,233	50
Accumulated profits/(losses)		(1,442)	140
Total equity attributable to the owners of the parent		30,710	25,144

Consolidated Statement of Changes in Equity

Year ended 31 December 2016

		Share capital	Share premium	Merger reserve	Reverse acquisition reserve	Share based payments reserve	Translation reserve	Retained earnings	Total equity
	Note	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2015 reported in the 2015 financial statements		1,329	13,098	22,269	(22,933)	1,203	17	(574)	14,409
Adjustment regarding prior years	18		(4,377)	4,377					-
Balance at 1 January 2015 (Restated)		1,329	8,721	26,646	(22,933)	1,203	17	(574)	14,409
Profit for the period as reported in the 2015 financial statements		-	-	-	-	-	-	1,429	1,429
Adjustment regarding prior year	18							(473)	(473)
Restated profit for the period								956	956
Exchange differences on translating foreign Operations		-	-	-	-	-	33	-	33
Total comprehensive income for the period		-	-	-	-	-	33	956	989
Issue of shares		177	7,484	1,474	-	-	-	-	9,135
Costs of issuing shares		-	(257)	-	-	-	-	-	(257)
Sale of treasury shares		-	40	-	-	-	-	-	40
Share based payment charge credited to equity		-	-	-	-	776	-	-	776
Deferred tax credit on share options		-	-	-	-	362	-	-	362
Transfer on exercise and lapse of options		-	-	-	-	(68)	-	68	-
Tax deduction on exercise of share options recognised directly in equity	18	-	-	-	-	-	-	138	138
Dividend paid		-	-	-	-	-	-	(448)	(448)
Transactions with owners		177	7,267	1,474	-	1,070	-	(242)	9,746
Balance at 31 December 2015 (Restated)		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 loss 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
Dividends 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

Consolidated Statement of Cash Flows			(Restated)
		Year ended 31 Dec	Year ended 31 Dec
		2016	2015
		£'000	£'000
Cash flows from operating activities
Profit/(loss) before taxation		(1,193)	1,214
Adjustments for:
Share based payment charge		605	776
Cash costs of acquisition		99	234
Amortisation of intangible assets		3,605	1,419
Depreciation of plant and equipment		320	214
Share of loss of joint venture/investment		205	62
Finance expense		57	116
Interest on borrowings		358	-
Net foreign exchange difference on borrowings		333	-
Fair value movement on contingent consideration		-	(198)
Acquisition related deferred consideration and earn-outs		3,211	414
Interest income		(1)	(12)
Operating cash flows before working capital changes		7,599	4,239
(Increase)/decrease in trade and other receivables		(2,030)	(49)
(Increase) in amount recoverable on contracts		(788)	(62)
Increase/(decrease) in payables		(1,760)	607
		3,021	4,735
Interest paid		(275)	-
Interest received		1	12
Income tax paid		(645)	(483)
Net cash flows from operating activities		2,102	4,264
Cash flows used in investing activities
Purchase of property, plant and equipment		(422)		(232)
Development of intangible assets		(796)		(310)
Acquisition of subsidiaries, net of cash acquired		(12,389)		(5,617)
Cash costs of acquisition		(99)		(234)
Investment in associates/joint ventures		(2,095)		(46)
Net cash flows in investing activities		(15,801)		(6,439)
Consolidated Statement of Cash Flows (Continued)
Cash flows from financing activities
Dividends paid		(712)		(448)
Proceeds from borrowings		13,909		-
Issue of ordinary share capital net of share issue costs		647		7,379
Repayment of bank loans		(2,278)		-
Sale of treasury shares		-		40
Contingent consideration payments in the period		-		(1,882)
Net cash flows from/(used) in financing
activities		11,566		5,089
Net increase/(decrease) in cash and cash
equivalents		(2,133)		2,914
Cash and cash equivalents at beginning of the year		7,305		4,358
Exchange (losses)/gains on cash		176		33
Cash and cash equivalents at end of the year		5,348		7,305

Significant non-cash transactions

During the year, the Group issued 19,732,163 ordinary shares in the Company.  14,367,082 shares were issued as part consideration for the acquisition of Rustici Software LLC, of which 12,930,374 shares were issued to the vendors and the balance to key staff members as pre-acquisition remuneration.

The Group also issued 1,284,641 shares in payment of part of the deferred contingent consideration to the vendors of Preloaded Limited and 4,080,440 in settlement of the exercise of employee share options. 

 

 

 

 

Notes to the Consolidated Financial Statements for the year ended 31 December 2016

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 2016 the Group had £5.3 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.

The Directors do not expect that the adoption of these 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, IFRS 15 may have an impact on revenue recognition and related disclosures and IFRS 16 will have an impact on the recognition of operating leases. The Directors are completing their detailed review of these standards and will give a clearer indication of the potential impact in the next set of financial statements. At this point it is not practicable for the Directors to provide a reasonable estimate of the effect of these standards as the Directors wish to complete a detailed review of these standards on a Group wide basis following the acquisition of Net Dimensions.  

(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 2015 and 2016.

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	Switzerland	Italy	Rest of Europe	United States	Canada	Rest of the world	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
31 December 2016
revenue	18,205	777	257	334	7,736	613	341	28,263
Non-current assets	45,270	-	-	-	288	-	-	45,558
31 December 2015
revenue	17,528	539	-	20	1,638	110	70	19,905
Non-current assets (Restated)	19,481	-	-	-	21	-	-	19,502

Information about major customers

In both the year ended 31 December 2015 and the year ended 31 December 2016, no customer accounted for more than 10 per cent of reported revenues.

 

4.      Income tax

		(Restated)
	31 Dec	31 Dec
	2016	2015
	£'000	£'000
Current tax expense:
- UK Current Tax on profits for the year	565	684
- Adjustments in respect to prior years	(35)	(169)
- Foreign Current Tax on profits for the year	528	56
Total current tax	1,058	571
Deferred tax (Note 11):
- Origination and reversal of temporary differences	(943)	(341)
- Adjustments in respect to prior years	2	28
Change in deferred tax rate	16	-
Total deferred tax	(925)	(313)
Income tax expense	133	258

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:

			(Restated)
		31 Dec	31 Dec
		2016	2015
		£'000	£'000
Profit / (loss) before taxation		(1,193)	1,214
Tax calculated at the domestic tax rate of 20% (2015: 20.25%):		(239)	246
Tax effects of: -
Income not subject to tax		(157)	(70)
Expenses not deductible for tax purposes		467	187
Joint venture/associate results reported net of tax		41	12
Tax deductions not recognised as an expense		(234)	-
Tax losses for which no deferred tax is recognised		2	-
Difference of deferred rate and current tax rate		38	3
Adjustments in respect to prior years		(33)	(141)
Effect of different international tax rates		248	21
		133	258

The aggregate current and deferred tax directly credited to equity amounted to £823,000 (2015: £500,000).

 

5.      Earnings per share

				(Restated)
			31 Dec	31 Dec
			2016	2015
			Pence	Pence
Basic profit/loss per share			(0.317)	0.256
Diluted profit/loss per share			(0.317)	0.239
Adjusted basic earnings per share			1.286	0.809
Adjusted diluted earnings per share			1.184	0.756

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.

				(Restated)
	2016			2015
	(Loss) after tax	Weighted average number of shares	Pence per share	Profit after tax	Weighted average number of shares	Pence per share
	£'000	'000		£'000	'000
Basic earnings per ordinary share	(1,326)	418,619	(0.317)	956	373,505	0.256
Effect of adjustments:
Amortisation of acquired intangibles	3,200			1,203
Share based payment costs	605			776
Integration costs	73			99
Cost of acquisitions	99			234
Fair value movement on contingent consideration	-			(198)
Deferred consideration and earn-outs from acquisitions	3,211			414
Net foreign exchange differences on borrowings	333			-
Interest receivable	(1)			(12)
Finance expense	57			116
Income tax expense	133			258
Effect of adjustments	7,710	-	1.842	2,890	-	0.774
Adjusted profit before tax	6,384	-	-	3,846	-	-
Tax impact after adjustments	(1,000)	-	(0.239)	(824)	-	(0.221)
Adjusted basic earnings per ordinary share	5,384	418,619	1.286	3,022	373,505	0.809
Effect of dilutive potential ordinary shares:
Share options	-	30,031	(0.086)	-	26,406	(0.053)
Deferred consideration payable (conditions met)		1,819	(0.005)		-	-
Deferred consideration payable (contingent)		4,412	(0.011)		-	-
Adjusted diluted earnings per ordinary share	5,384	454,881	1.184	3,022	399,911	0.756

6.      Property, plant and equipment

	Computer equipment	Fixtures and fittings	Leasehold improvements	Total
	£'000	£'000	£'000	£'000
Cost
At 1 January 2015	1,088	226	104	1,418
Additions on acquisitions	48	21	117	186
Additions	160	58	14	232
At 31 December 2015	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
Accumulated Depreciation
At 1 January 2015	820	165	94	1,079
Charge for the year	135	62	17	214
At 31 December 2015	955	227	111	1,293
Charge for the year	168	116	36	320
At 31 December 2016	1,123	343	147	1,613
Net book value
At 31 December 2015	341	78	124	543
At 31 December 2016	403	212	93	708

7.         Acquisitions

Rustici Software LLC

On 28 January 2016 LTG acquired the entire issued share capital of Rustici Software LLC ("Rustici"), the global market leader in digital learning interoperability.  Rustici was established in Nashville, USA in 2002 and has been instrumental in the support and development of the universal technical standards for the e-learning software industry. It is the acknowledged global leader in SCORM (Sharable Content Object Reference Model) conformance. SCORM is the de facto industry standard for e-learning interoperability, allowing online learning content and learning management systems to communicate and work together.

Rustici is also the co-creator of the next generation of learning interoperability standards, Tin Can API, or xAPI.  This global standard was created to capture rich data on every aspect of learning experiences. 

The consideration for Rustici comprised an initial payment of USD 23.6 million of which USD 18.0 million was paid in cash and USD 5.6 million in new LTG shares to the vendors (issued at a price of 30.25 pence per share). The fair value of these shares was determined using the quoted price as required by IFRS 3. Cash consideration was adjusted to take account of surplus cash in Rustici at completion. Merger relief has been taken on recognising the excess over nominal value of the shares issued on acquisition.

Further performance based payments, capped at USD 11.0 million, are payable to the Rustici vendors and key employees based on ambitious revenue growth targets in each of the years ending 31 December 2016, 2017 and 2018, payable with up to 25% in new LTG shares at the option of the Company, and the remainder in cash. Although the directors consider that these payments are in substance contingent consideration, they have been accounted for as a remuneration expense in line with the requirements of IFRS 3 and will be recognised directly in the Statement of Comprehensive Income over the service period.

The following table summarises the consideration paid for Rustici, the fair value of assets acquired and liabilities assumed at the acquisition date.

	Book value	Fair value
Consideration	£'000	£'000
Cash		12,999
Equity instruments (12,930,374 ordinary shares)		3,911
Contingent consideration due in 2017		1,860
Contingent consideration due in 2018		1,684
Contingent consideration due in 2019		1,525
Less: Contingent consideration on acquisitions accounted for as a remuneration expense		(5,069)
Total consideration		16,910
Recognised amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	610	610
Property, plant and equipment	17	17
Internally generated intangible assets - software	249	249
Gross trade and other receivables	732	732
Trade and other payables	(2,677)	(2,677)
Deferred tax liabilities on acquisition	-	(3,094)
Intangible assets identified on acquisition	-	8,840
Total identifiable net assets	(1,069)	4,677
Goodwill		12,233
Total		16,910

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 Rustici CGU. Fair value adjustments have been recognised for acquisition-related intangible assets and related deferred tax and in alignment with accounting policies.

Acquisition related intangible assets of £8.6 million relate to the valuation of the customer relationships which are amortised over a period of five years and £0.26 million which relates to the value of the Rustici brand and is amortised over five years.

Acquisition costs of £99,000 have been charged to the statement of comprehensive income in the year relating to the acquisition of Rustici.

A deferred tax liability of £3.1 million in respect of the acquisition-related intangible assets was established on acquisition (refer to Note 11). An amortisation charge on this goodwill which is not recognised in the accounts is expected to be deductible for income tax purposes.

Rustici contributed £6.3 million of revenue for the period between the date of acquisition and the balance sheet date and £2.8 million of profit before tax. If the acquisition of Rustici had been completed on the first day of the financial year, Group revenues would have been £0.5 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 Rustici 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 2015		9,615	1,880	180	565	12,240
Additions on acquisitions		2,764	4,411	248	252	7,675
Additions		-	-	-	310	310
At 31 December 2015 (Restated)		12,379	6,291	428	1,127	20,225
Additions on acquisition		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
Accumulated amortisation
At 1 January 2015		-	546	24	306	876
Amortisation charged in year		-	1,063	140	216	1,419
At 31 December 2015		-	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
Carrying amount
At 31 December 2015 (Restated)		12,379	4,682	264	605	17,930
At 31 December 2016		26,608	11,523	505	1,314	39,950

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.

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
	2016	2015	2016	2015	2016	2015
	£'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	14,229	-	9%	-	12.5%	-
	26,608	12,379

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 EBITDA 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%.

No reasonably possible change in a key assumption would produce a significant movement in the carrying value of goodwill allocated to a CGU and therefore no sensitivity analysis is presented.

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
		2016	2015
		£'000	£'000
Trade receivables		4,286	4,241
Allowance for impairment losses		(57)	(40)
		4,229	4,201

Impairment losses:

At 1 January		40	10
Additions		17	30
Amounts written-back		-	-
At 31 December		57	40

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
		2016	2015
		£'000	£'000
Sundry receivables		238	38
Prepayments		1,757	516
		1,995	554
Non-current assets
		31 Dec	31 Dec
		2016	2015
		£'000	£'000
Prepayments		1,293	-
		1,293	-

 

11.        Deferred tax assets/(liabilities)

			Short-term
		Share options	timing differences	Total
Deferred tax assets		£'000	£'000	£'000
At 1 January 2015		548	70	618
Acquisition of subsidiaries		-	-	-
Deferred tax charge directly to the income statement		119	(70)	49
Deferred tax charge directly to equity		362	-	362
At 31 December 2015		1,029	-	1,029
Acquisition of subsidiaries		-	-	-
Deferred tax charged 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

			Accelerated tax
		Intangibles	depreciation	Total
Deferred tax liabilities		£'000	£'000	£'000
At 1 January 2015		(313)	(133)	(446)
Deferred tax on acquired intangibles and via acquisition		(932)	(68)	(1,000)
Deferred tax charge directly to the income statement		249	15	264
Exchange rate differences		-	-	-
At 31 December 2015		(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)

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.

12.     Trade and other payables

	31 Dec	31 Dec
	2016	2015
	£'000	£'000
Trade payables	871	814
Payments received on account	2,711	1,858
Tax and social security	1,002	1,140
Contingent consideration	59	405
Acquisition related deferred consideration and earn outs	2,824	-
Accruals	1,748	1,618
	9,215	5,835

The contingent consideration relates wholly to the acquisition of Preloaded Limited. The acquisition related deferred consideration and earn-outs balance relates wholly to the acquisition of Rustici Software LLC.

13.     Other long-term liabilities

		(Restated)
	31 Dec	31 Dec
	2016	2015
	£'000	£'000
Acquisition related deferred consideration and earn-outs	1,055	414
Contingent consideration	371	430
	1,426	844

The contingent consideration relates wholly to the acquisition of Preloaded Limited and is repayable over the period 2018 to 2019. The acquisition related deferred consideration and earn-outs balance relates wholly to the acquisition of Eukleia Training Limited and is payable in 2018.

14.        Borrowings

The acquisitions of the subsidiary Rustici Software LLC and the associate Watershed LLC were part funded by a USD 20.0 million debt facility which was entered into on 29 January 2016 with Barclays Bank plc. The duration of the loan is 3 years and attracts interest at 2% above US Dollar LIBOR with quarterly repayments of USD 1.0 million with the balance repayable on the expiry of the loan in January 2019.

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
	2016	2015
	£'000	£'000
Current interest-bearing loans and borrowings	3,252	-
Non-current interest-bearing loans and borrowings	10,582	-
	13,834	-

15.        Provisions

	31 Dec	31 Dec
	2016	2015
	£'000	£'000
Property costs
At 1 January - brought forward	99	49
Paid in the year	-	-
Addition via acquisition	-	50
Addition	-	-
	99	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 2016	401,679,817	1,506	15,988	28,120	45,614
Issue of shares to acquire Rustici Software LLC	14,367,082	54	429	3,863	4,346
Issue of shares on payment of Preloaded contingent consideration	1,284,641	5	456	-	461
Shares issued on the exercise of options	4,080,440	15	171	-	186
At 31 December 2016	421,411,980	1,580	17,044	31,983	50,607

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 2016 the EBT holds 404,340 ordinary shares in the Company.  These shares are held in treasury.  

On 29 January 2016, the Company announced that it had agreed to acquire the entire issued share capital of Rustici Software LLC ('Rustici'). 12,930,374 new shares were issued in the Company in part consideration of the acquisition of Rustici along with 1,436,708 new shares issued to certain employees as pre-acquisition remuneration, this resulted in £3.8 million being recognised in the merger reserve. Further details of the acquisition are provided in Note 7.

During the year, 1,284,641 new ordinary shares were issued as part payment of the deferred contingent consideration due on the acquisition of Preloaded.

4,080,440 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
	2016	2015
	£'000	£'000
Final dividend paid	418	248
Interim dividend paid	294	200
	712	448

On 24 October 2016, the Company paid an interim dividend of 0.07 pence per share (2015: 0.05 pence per share). The Directors propose to pay a final dividend of 0.14 pence per share for the year ended 31 December 2016 (totalling £763,000 based on the issued share capital of the Company at the date of this report), equating to a total payout in respect of the year of 0.21 pence per share (2015: 0.15 pence per share). The final dividend paid in 2016 relates to the year ending 31 December 2015.

18.        Prior year adjustments

Following a review of the Group's Annual Report and Accounts for the year ended 31 December 2015 by the Financial Reporting Council's Conduct Committee adjustments have been recognised relating to three matters; deferred consideration, tax on share options and the merger reserve.

Deferred consideration

The 2015 comparative figures have been restated to incorporate the impact of an adjustment to the deferred contingent consideration payable to the vendors of Eukleia Training Limited ('Eukleia') on acquisition.

It has been decided that the deferred contingent consideration which had been accounted for as part of the business combination, and so capitalised, does not meet the requirements of IFRS 3, as there is a substantive post-acquisition service condition and the employees who leave voluntarily automatically forfeit the contingent payments. On this basis this should be accounted for as a separate arrangement and charged through profit or loss as remuneration.

The impact on the 2015 figures have been summarised in the table below:

	Effect on 2015
	£'000
Acquisition related deferred consideration charged to the income statement	(414)
Decrease finance expense to reverse the unwinding of the discounted deferred consideration	79
Prior year adjustment - decrease in profit	(335)
	£'000
Decrease in goodwill by the fair value of the deferred consideration at the acquisition date	(1,873)
Increase in non-current liabilities by the accrual of the deferred consideration charged to the income statement	(414)
Decrease in non-current liabilities by the fair value of the deferred consideration at the balance sheet date	1,952
Prior year adjustment - increase in equity	(335)

Tax on share options

Part of the 2015 current tax deduction on options exercised in the year should have been recognised directly in equity rather than the Statement of Comprehensive Income. The comparative figures have been restated to correct this with the impact shown below. This has not had an effect on the Statement of Financial Position.

	Effect on 2015
	£'000
Increase in current tax charge	(138)
Prior year adjustment - decrease in profit	(138)

Merger reserve

On review of the business combinations where the company's equity was used as part of the consideration it was concluded that section 612 of the Companies Act 2006 applies and a merger relief adjustment in the merger reserve should have been recorded.

The results of these adjustments on each relevant line in the Statement of Comprehensive Income and the Statement of Financial Position are detailed below.

	2015 reported	Adjustment	2015 restated
	£'000	£'000	£'000
Acquisition related deferred consideration	-	(414)	(414)
Finance expense	(195)	79	(116)
Profit before taxation	1,549	(335)	1,214
Taxation	(120)	(138)	(258)
Profit for the year	1,429	(473)	956
Total comprehensive income	1,462	(473)	989
Earnings per share:
Basic (pence)	0.382	(0.126)	0.256
Diluted (pence)	0.357	(0.118)	0.239
Intangible assets	19,803	(1,873)	17,930
Other long term liabilities	2,382	(1,538)	844
Share premium account	21,839	(5,851)	15,988
Merger reserve	22,269	5,851	28,120
Accumulated profits/(losses)	475	(335)	140

19.        Events since the reporting date

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 an approximate value of £53.6 million.

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 an estimated equivalent basis to LTG's accounting policies under IFRS, NetDimensions generated audited revenues of USD 25 million and EBITDA loss of USD 0.5 million in the year-ended 31 December 2015.  It is anticipated that there will be Goodwill arising on the acquisition due to the synergies created and the opportunities of access to new markets for the Group.

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 and as at 28 March 2017 LTG had received acceptances against 97.05% of the shares to which the Offer related.

The completion accounting has not been finalised at the date of signing these financial statements so the value of acquired assets, liabilities, contingent liabilities and goodwill has not been disclosed.

The acquisition was part funded by a Placing of 124,000,000 new ordinary shares in LTG at a price of 37.5 pence per share.  The Placing raised £46.5 million.

At the time of the Placing the Company entered into a £5 million loan facility with Andrew Brode for an arrangement fee of £75,000.  The arrangement is deemed to be on an arm's length basis.

On 29 March 2017 LTG entered into a new Debt Facility with Silicon Valley Bank ('SVB') for £20.0 million.  This debt facility is for a term of five years, comprises a £10 million term loan and a £10 million revolving credit facility, is secured on the assets of the Group and is subject to various financial covenants. The new debt facility was used to repay the existing USD 16.0 million facility held with Barclays Bank plc and as a result of the SVB facility the Group has not drawdown on the Andrew Brode loan facility.

 

 

END

 

 

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