Full Year Results 2019

RNS Number : 8096J

Learning Technologies Group PLC

16 April 2020

 

Learning Technologies Group plc

FULL YEAR RESULTS 2019

Excellent profit and cash performance, ahead of expectations

Strong liquidity position and a robust balance sheet

Learning Technologies Group plc ("LTG" or the "Company"), the provider of services and technologies for digital learning and talent management, is pleased to announce its full year results for the twelve months ended 31 December 2019. This is further to the publication of a summary of its unaudited results on 24 March 2020 following the Financial Conduct Authority's request of the Group, and other listed businesses, to delay any forthcoming announcements of preliminary statements of annual results.

FY19 strategic highlights

·	Good organic momentum from cross-selling initiatives and investment in product development
·	Content & Services returned to organic constant currency growth, as expected
·	Highly complementary acquisition of Open LMS, post period-end, has added expertise in a market-leading Learning Management System ('LMS') predominantly for higher education institutions an--d is immediately earnings enhancing

Financial summary:

£m unless otherwise stated	2019	2018	Change
Revenue	130.1	93.9	+39%
Recurring Revenue %	74%	68%
Revenue Outside UK %	80%	74%
Adj. EBIT	41.0	26.0	+58%
Adjusted EBIT margin	31.5%	27.7%
Statutory PBT	14.3	3.4	+316%
Adj. Diluted EPS (pence)	4.7	3.2	+47%
Proposed final dividend per share (pence)*	0.50	0.35
Net Cash/(Debt)	3.8	(11.5)

*Proposed 2019 final dividend postponed until market conditions normalise

Current trading
 

·	Current financial year has started well and is in line with management expectations; we have not yet seen a material impact from the ongoing COVID-19 outbreak on our performance
·	We anticipate our multi-year recurring revenues to continue largely unaffected by the current market uncertainty although new business wins may be delayed
·	A small number of content and services projects have been delayed and we anticipate that new business wins may be impacted and payment periods extended as customers manage their own cash positions
·	We have seen an increase in activity in our Instilled LXP and our newly acquired Open LMS businesses resulting in a large number of new contract wins
·	Gross cash as of 31 March 2020 was £25.0 million, following completion of the acquisition of Open LMS for cash consideration of $31.7 million (less customary price adjustments)

Actions in response to COVID-19

In light of the potential impact of COVID-19, management has taken proactive measures to prioritise the strong liquidity and net cash position of the Group and to follow WHO and government guidance to protect the safety of our workforce, customers and partners.
 

Prioritising our people, continuing our business and making a positive social impact

·	With all our staff working from home we initiated a number of measures to encourage continued interaction between colleagues including regular one-on-one and team calls, on-line social events and a weekly 'all-hands' call with the Chief Executive
·	We have made a number of resources available to staff including on-line welfare programs and support through the HR service desk
·	We have postponed Director cash bonuses until market conditions normalise; however, we have honoured our substantial bonus payments to our staff to reflect their significant and positive contribution to our performance in 2019
·	We have made available to corporates, free-of-charge, LTG's new LXP 'Instilled', for a period of 3 months to enable them to connect their remote workforces.  To date c.30 large corporates have initiated use of the software
·	We have worked with long-term LEO client, Resuscitation Council UK, to deliver the required healthcare e-learning courses to all the former NHS doctors and clinicians returning to the NHS in response to the COVID-19 pandemic via the 'Your NHS Needs You' scheme. The content was designed using Gomo and provided through a free 6-month Instilled licence for 100,000+ clinicians

Sustaining our position of financial strength
 

·	The Board is adopting a prudent approach to shareholder distributions, and will postpone the final dividend (proposed at 0.50 pence per share) until market conditions normalise
·	We have funded the deferred consideration of BreezyHR through the issue of shares in lieu of a cash payment of $4.0 million that was due at end of March 2020
·	We have taken a number of other measures to protect LTG's strong financial position including a reduction in marketing, travel and capital expenditure budgets.  We have also postponed salary increases for all staff until 2021, terminated the majority of contractors, implemented a 20% salary deferral scheme with effect from 1 May 2020 and ceased recruitment
·	The Chief Executive, two members of the leadership team and the Non-Executive Directors have deferred their entire salaries for the period of the staff deferral scheme.  The Chairman has never taken a salary since LTG listed in 2013
·	We estimate the combined cash saving in 2020 from these measures is in excess of £20.0 million

COVID-19 creates uncertainty for the remainder of the financial year but the Board has further cash preservation measures that it is willing to implement if appropriate, recognising that maintaining our dedicated and talented workforce is a key priority in anticipation of the upturn. We have run a number of sensitised business models and the Board is confident that the Group's strong balance sheet, large proportion of recurring revenues, and diverse blue-chip customer base - both in terms of vertical markets and geographical reach - put it in a strong position through this uncertain period and beyond.

Jonathan Satchell, CEO of LTG, said:

"Despite the current market uncertainty I'm reassured by the strong and resilient position of LTG.  We are well positioned to further consolidate the digital learning and talent sector as opportunities emerge."

Analyst and investor presentation

LTG will host an analyst and investor webcast at 09:00 today, Thursday 16 April 2020.

The registration link can be found here: https://attendee.gotowebinar.com/register/84915689006595597

To join via telephone, attendees can dial: [phone]

Webinar ID: 876-199-731

Access code: 507-982-456

Enquiries:

Learning Technologies Group plc Jonathan Satchell, Chief Executive Neil Elton, Chief Financial Officer	[phone]
Numis Securities Limited (NOMAD and Corporate Broker) Stuart Skinner , (NOMAD), Nick Westlake, Ben Stoop	[phone]
Goldman Sachs International (Joint Corporate Broker) Bertie Whitehead, Adam Laikin	[phone]
FTI Consulting  (Public Relations Adviser) Rob Mindell, Jamie Ricketts, Chris Birt	[phone]

About LTG

LTG is a leader in the growing workplace digital learning and talent management market. The Group offers end-to-end learning and talent solutions ranging from strategic consultancy, through a range of content and platform solutions to analytical insights that enable corporate and government clients to close the gap between current and future workforce capability.

LTG is listed on the London Stock Exchange's Alternative Investment Market (LTG.L) and headquartered in London. The Group has offices in Europe, North America and Asia-Pacific.

 

 

Chairman's Statement

The Board is delighted to report a year of excellent progress in its ambition to build a group of market leading businesses in the learning and talent sectors that can meet the demanding expectations of corporate and government customers.  During 2019 Learning Technologies Group ('LTG') has successfully completed the integration of PeopleFluent into the Group, further improving operating practices, and providing a solid platform from which to scale the business.   

LTG has continued to invest in its product development roadmap and made encouraging progress in its cross-selling initiatives.  In April 2019 we announced the acquisition of BreezyHR, a fast-growing talent acquisition software business.  BreezyHR has delivered exceptional growth during the year and has enabled us to significantly increase the pace of development of the Group's Talent Acquisition suite of products allowing us to service small, mid and enterprise tier clients with targeted solutions.

The Group has continued to deliver increased revenues, seeing organic revenue growth in both its Software & Platforms and Content & Services divisions (excluding the acquired PeopleFluent business).  It has further improved its operating margins and has continued to deliver good cash generation. 

R evenues increased by 39% to £130.1 million (2018: £93.9 million) primarily driven by the full-year contribution of PeopleFluent (acquired May 2018) and the acquisition of BreezyHR in April 2019.  LTG delivered like-for-like organic revenue growth, on a constant currency basis, of 6% in our Software & Platforms division (11% on a 3 year CAGR basis; excluding the acquired PeopleFluent business) and 4% in its Content & Services division (5% on a 3 year CAGR basis; excluding the large one-off CSL contract). 

The acquired PeopleFluent business delivered revenues of $93 million (2018: $96 million on a full-year basis), ahead of previously announced expectations of c$91.0 million, supported by a significantly improved retention rate for its software licences and a good sales performance by Affirmity.  The Board is confident that, as guided at the time of the acquisition in 2018, the acquired PeopleFluent business is now stabilised and will return to growth as market conditions normalise.

Adjusted EBIT (refer to the Strategic Report section for definition) increased by 58% to £41.0 million (2018: £26.0 million) and adjusted EBIT margins have improved from 27.7% in 2018 to 31.5% in 2019.  Adjusted diluted EPS increased by 47% to 4.736 pence (2018: 3.232 pence).  In the six years since LTG listed on the London Stock Exchange the Group has delivered compound annual growth of 57% in adjusted diluted EPS. 

The Group's net cash position at 31 December 2019 of £3.8 million (2018: £11.5 million net debt) was better than anticipated due to substantial cash generation in the second half of the year and places the Group on a sound footing to weather a downturn and be well positioned to invest in selective M&A opportunities as they arise.

Corporate Governance

LTG adopted the QCA Corporate Governance Code in September 2018.  The Group continues to review and improve its investment in good governance initiatives and further details are provided in the Corporate Governance section of this report.

In December 2019, Claire Walsh, the Group's Head of Legal was appointed as Company Secretary to the plc Board.  The Board is actively searching for a fourth Non-executive Director and I look forward to updating shareholders in due course.

Current trading and outlook

In 2019, the Group continued its track record of delivering strong margins, benefiting from enhanced leadership positions in our key markets.  LTG has proven that it can successfully integrate, improve and grow the businesses we acquire, delivering excellent value for shareholders and comprehensive, innovative and industry-leading capabilities and services for our clients.  These achievements would not be possible without the dedication and professionalism of all our staff across the globe and on behalf of the Board I would like to thank them for their efforts during the year.

On 10 March 2020 LTG announced the proposed acquisition of the business and assets of Open LMS from Blackboard Inc for cash consideration of $31.7 million (subject to customary price adjustments), to be funded from the Group's existing cash and bank facilities.  This acquisition will complement LTG's existing proprietary software solutions through the addition of expertise in the market's leading open-source Learning Management System, Moodle, and will be immediately earnings enhancing.  The deal completed on 31 March 2020.

Over the past few weeks it has become evident that COVID-19 will have a marked impact on the global economy, business and the welfare of workforces and their families.  LTG has experienced a good start to the current year and we have not yet seen a material impact of COVID-19 on the performance of the business.  However, COVID-19 creates uncertainty for the remainder of the financial year and may result in delays to the sales pipeline, curtailment of content and services projects and delays in customer payments.  LTG is underpinned by a strong balance sheet, a high proportion of recurring multi-year revenues and excellent cash generation.  More details on the actions that we have taken are included in the Strategic Report section of this report.

Dividend and Annual General Meeting

LTG continued its track record of excellent cash generation in 2019.  Our liquidity position is very strong, with net cash ahead of expectations and a robust balance sheet.  To sustain this position of strength, in light of uncertainty for the remainder of the financial year resulting from the impact of COVID-19, the Board is adopting a prudent approach to shareholder distributions.  The Board will therefore postpone the final dividend (which would have been 0.5 pence per share) until market conditions normalise.

The Annual General Meeting will be held on Friday 19 June 2020.

It is core to LTG's business model to enable corporates and governments to train and manage the performance improvement of their workforces through digital learning and talent management platforms, and we believe our clients will continue to use our platforms during these difficult times.  The realisation by corporates of the necessity, appropriateness and effectiveness of digital learning and talent management solutions today will, in the Board's view, only serve to accelerate their adoption tomorrow. 

The Board looks forward to updating shareholders on progress during 2020.

Andrew Brode

Chairman

15 April 2020

Strategic Report for the year ended 31 December 2019

Chief Executive's Review

Market Overview

Hiring and retaining good people is becoming an increasingly competitive pursuit across global business. This is predicted to become acute over the next decade with five forces driving the need to reskill large parts of the workforce:

· the complexity of business and work;

· the pace of change;

· unprecedented demographic shifts;

· the need to compete through productivity;

· changing relationship to work.

As a result of these forces the effectiveness of the functions within business that are tasked with developing the talent and learning of employees and the 'extended enterprise' such as HR and L&D departments are increasingly moving up the Boardroom agenda.

The pace of change presents a challenge to corporates and governments in choosing the best technologies driving workforce development, determining the most appropriate use of these technologies and addressing how this transformation is achieved. This is the market that LTG is addressing.

The global corporate training market is estimated to be worth approximately $376 billion and is growing at approximately 3% per annum. The market 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 outsourced digital learning segment of this market which is disrupting the more traditional methodologies.

The 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 comprehensive services, which meet their evolving requirements for data-driven solutions, and have the scale and breadth of experience to service large corporations and government organisations.

The complementary talent market is estimated to be worth more than $7 billion and growing at approximately 7% per annum. Talent management software refers to the wide array of integrated applications that companies use for recruitment, performance management, learning & development, and compensation management of employees. Talent management software plays an important role in keeping track of individual employees from the date of hiring to the complete employee lifecycle in the organisation, facilitating employee engagement and retention as well as helping companies align their business strategies with the professional development of their workforce.

The emerging market requirement is for workforce transformation; providing a data-driven mix between learning and talent to allow for greater insights and enable predictive decision-making for performance improvement.

Many organisations struggle to deliver the transformation required because there are so many interrelated parts to drive success; even the largest organisations rarely possess the range of skills, technologies and processes necessary to lead the whole change.

Strategic Goals

In November 2018 LTG set out its strategic financial objectives to achieve run-rate revenues of £200 million and run-rate EBIT of at least £55 million by the end of 2021 through a combination of organic growth and strategic acquisitions that complement the current business, to be financed through the use of internally generated operating cash flows and prudent debt financing.

In addition, we will continue to evaluate strategic acquisitions of scale that may require shareholder financing and would be additive to these targets. Strict criteria will continue to be used in assessing all acquisitions including the financial effects, integration risk and prospective returns.

Investment Case

As set out above the market opportunity for LTG is attractive, driven by our clients' desire to close the gap between current and future workforce capability in an increasingly competitive market.

LTG is building a unique set of capabilities that covers services, products and a wide range of partnerships. The complexity of the requirement for workforce transformation requires a varied mix of skills and technologies matched to the culture and strategic goals of the client organisation.  This is a subtle process requiring best-in-class solutions at each stage. 

Each business in the LTG family brings a component of the best in class expertise required to drive strategic results for our customers. These include specialist solutions across recruitment, learning, performance, learning analytics, succession, compensation, vendor management, diversity & inclusion, immersive virtual, augmented and mixed reality experiences, as well as consulting on how to combine all these in pursuit of business performance goals.

It remains our intention to leverage the technical and professional capabilities we have already developed by deepening our presence in specific geographical markets, particularly the US; expanding our global   offering in highly regulated, high consequence vertical markets, such as life sciences, healthcare, energy, automotive, finance and aviation and broadening and deepening our offering to existing customers. 

LTG continues its aim to deliver strong earnings growth over the medium to long-term through a combination of top line organic growth, appropriate cost control, investment in innovation, robust operating cash conversion and strategic M&A as well as improving the operating business models and performance of the businesses that we acquire.

Strategy and Approach

LTG is creating a group of market-leading businesses providing complementary services in the growing learning and talent sectors to form an international business of size and scale that is able to meet the demanding expectations of corporate and government customers whether that be for large global corporates or mid-sized organisations looking to stand-up solutions speedily. 

This strategy is being delivered through a mixture of 'best in class' acquisitions that will help us create a comprehensive solution for our customers, strategic partnerships to deliver 'blended' solutions combining digital and more traditional forms, as well as through targeted investment in internally-generated intellectual property and the extension of best working practices to deliver organic growth.

The Group's focus remains on the US and European markets where LTG already has a significant operational presence, supplemented by other regional centres that provide the Group with a differentiated service offering for companies with globalisation strategies.

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 and talent technology. 

The managed service market, where organisations source the entirety of their requirement from external suppliers, is a part of the market that has been growing steadily over the past few years as organisations seek out the expertise and varied and wide-ranging skillsets to transform their organisations.  LTG is well placed to partner with global organisations to help them bring about this evolution.

Investment in innovation for long-term growth

R&D

The Board continues to see R&D as a core enabler of future growth and for the fourth year in a row LTG has been identified by independent industry analyst Fosway as a strategic leader in digital learning.

Most of LTG's software solutions are well-established products developed over many years and enjoy high customer retention rates.  The Group's policy is to work closely with its customers to understand their requirements in developing LTG's product roadmap.  The benefits of this increased focus on customer requirements and increased efficiency and productivity in delivering change has already had a demonstrable impact in customer satisfaction and increased retention rates, particularly with the PeopleFluent product suite. 

Rather than invest in speculative solutions LTG prefers to partner with clients to build and innovate solutions, using data to prove business impact results each step of the way. 

As well as re-invigorating established software solutions LTG has also developed new products to address changing requirements in the marketplace.  With more than 4,000 customers LTG has excellent market access which allows for realtime insights that when combined with the Group's specialist expertise and R&D capacity allow for the fast evolution of new and innovative products and services underpinned by an understanding of demand requirements.  This suits large and medium sized 'traditional' businesses who are facing a substantial transformation in the coming years.

In early 2019 LTG's designers and engineers brought together powerful components of the Group technology to provide a next generation approach. The result was the launch of Instilled, a 'Learning Experience Platform' ('LXP'), that places the user experience at its heart, enabling learners to create, share and recommend content, empowering them to create their own 'learning journeys'. This has landed well both with customers and analysts, with one leading US commentator writing:

"I wish I could work for Instilled. I've been doing this for 30 years and I think Instilled has such a huge opportunity and can own a category. This happens very rarely."

The system has already been taken by such organisations as Shell, PNC Bank, Comcast and Johnson Controls. 

The Group also continues to invest in its Content & Services division offering, whether that be as part of PRELOADED's award-winning work in VR and AR solutions, or LEO's strategic learning programs, combining 'blended' solutions incorporating products and services from within the Group or alongside strategic partners.  Eukleia, now combined with LEO so that it can bring the benefits of its compliance capability to the broader market, has invested in new titles across the governance, risk and compliance suite which it can provide off-the-shelf or modify for specific customer requirements.

During the year LEO, PRELOADED, Instilled and Watershed, partnered with Jaguar Land Rover, to bring a new learning game to market called 'Product Genius'. This game provides an engaging way to help employees in the extended enterprise retailer network stay on top of continually evolving product and brand developments, encouraging learning and participation through elements such as competitions amongst peers.
 

Divisional review

Software & Platforms

The Software & Platforms division comprises on-premise and SaaS licenced product solutions as well as hosting, support and maintenance services. 

Overview and performance

In 2019 Software & Platforms accounted for £88.6 million or 68% of Group revenues, up from £59.8 million (64%) in 2018 primarily as a result of the full-year contribution by PeopleFluent and Watershed, a post-acquisition contribution from BreezyHR and organic growth from the other Group businesses.  The Software & Platforms division contributes 89% of the Group's recurring revenues.  Adjusted EBIT margins increased from 32% to 36%.

For the Software & Platforms division 2019 has been a year of consolidation and focus on R&D resulting in a number of highlights. 

Having merged the NetDimensions Learning Management System ('LMS') under the PeopleFluent brand and management team in 2018, PeopleFluent now delivers a 'best-of-breed' set of SaaS solutions encompassing talent acquisition (recruitment and onboarding), talent management (performance, succession, compensation and organisational planning) and now market leading learning management.

In 2020 the PeopleFluent product suite is being strengthened further with the Instilled LXP providing a world-class user-experience interface combined with the market leading Watershed Learning Analytics Platform ('LAP') underpinning the function-rich PeopleFluent Learning Management System ('LMS') to deliver a unique and powerful solution to clients.

The PeopleFluent product suite is particularly suited to complex global businesses where staff and contractors require unique and sophisticated human capital solutions, where multiple languages and other localisations are required, and which operate in regulated 'high consequence' industries where security, auditability and configurability are important requirements. 

As stated at the time of the acquisition in 2018 not all of PeopleFluent's products had the same high retention rates that LTG enjoys amongst its other product offerings.  Management guided that it had an ambitious goal to arrest the decline during 2019 and build the foundations for net sales growth in 2020.  With our focus on product development, substantial R&D investment and an open and regular dialogue with customers, LTG has been successful in increasing retention rates from c73% prior to acquisition to c83% in 2019, well ahead of our expectations.  Although new sales were slower to develop in the first half of the year, notable successes in the second half have meant that net new sales equalled lost renewals in 2019 (on an annual contract value basis) and the Board is confident that PeopleFluent will return to sales and revenue growth once the market normalises after the COVID-19 outbreak.

Rustici Software has built on its reputation as the global leader in elearning standards-based solutions (Rustici's SCORM Engine sits at the heart of more than half of the world's leading learning systems) to develop more partnership and proprietary API-based solutions.  In 2019 Rustici added support for the use of Zoomi Inc's AI-powered learning tools to be used in conjunction with SCORM Cloud, began building reusable integrations between content publishing houses such as GO1 (one of the world's fastest growing course aggregators) and learning platforms using the Rustici Engine product and released an embeddable solution to allow learning platforms to leverage Watershed-powered reporting within their own application. 

Rustici has continued its uninterrupted top line growth with significant wins with publishers of learning content like the SANS Institute (the largest source for information security training in the world) and AICPA (the American Institute Of Certified Public Accountants, the world's largest member association representing the accounting profession).  Within LTG, Rustici was able to provide efficiencies across the Group with the creation of a new Hosting Operations team. This team was able to take over the hosting needs of the Watershed platform and significantly reduce the burden on its development staff. 

Gomo , LTG's cloud-based authoring and distribution platform which enables customers to create and deliver elearning content online, supporting team collaboration and producing rich and responsive HTML5 content that will work seamlessly on desktop, tablet and smartphone devices continues to grow its enterprise customer base with a number of major contracts in 2019 including WhatsApp, TDK and Royal Mail. AICPA, a shared client with Rustici (see above), has now published more than 3,000 courses to its 413,000 members in 143 countries using Gomo.

Watershed, headquartered in Nashville, is a 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. 

After more than 4 years of product development and client case studies, Watershed now has a robust platform used as part of large scale global deployments by many large corporates including Visa, Caterpillar, Verizon, PwC, and Fidelity.  Watershed grew revenue by 27% during 2019, marking its first year of profitability and, with many exciting pilots underway, management is confident of continued strong growth in 2020.

Affirmity returned to growth in 2019 in its platform and services business focusing on US affirmative action plans and global diversity.  The business is the leader in the US market accounting for a quarter of US affirmative action plans. By separating the business from the PeopleFluent brand, giving it its own market-face and investing appropriately the business has reversed declining revenue, generating year-on-year revenue growth of 12%.

With the increased focus on global diversity and gender pay gap, Affirmity will continue to meet the expanding opportunities and grow through new diversity software and service offerings in 2020.

VectorVMS provides solutions that allow its clients to successfully manage all non-employee labour through the full sourcing and management lifecycle.  VectorVMS reversed the historic slow product feature enhancement by launching a large range of new features demanded by its customers. Most notably, it launched a mobile app for use by contractors.  The business continued to see a moderate revenue decline in 2019 primarily as a result of licences that were ceased prior to acquisition, however, the major product enhancements in the year helped VectorVMS secure large brand names like Strategic Staffing Solutions (S3), Energy Resources Group and SDI International.

Content & Services

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 and as a result the division achieves consistent and industry leading margins.

Overview and performance

In 2019 the Content & Services division accounted for £41.4 million or 32% of Group revenues (2018: £34.0 million; 36%).  Organic revenue was up 8% in the division's three content businesses, LEO, PRELOADED and Eukleia, in line with previous guidance.  Overall, excluding the acquisitions of PeopleFluent and the Civil Service Learning ('CSL') contract, and adjusting revenues as if all businesses that were part of the Group in 2018 reported on a full year basis, organic revenue on a constant currency basis increased by 4% from £23.5 million to £24.6 million.  This reflects a small revenue decline of c.£0.6 million in the services division of NetDimensions (now PeopleFluent Learning), following our strategic decision to stop further client customisation to the LMS SaaS platform, in line with established good practice.  Adjusted EBIT margins increased from 20% to 23%.

LEO Learning ('LEO') is the Group's integrated innovative digital learning specialist, providing world-class strategic consultancy for transformation through learning, supported by creative blended learning design and content. With a continued drive to deliver measured results, LEO has worked ever more closely with clients during 2019 on creating the data-rich connected environments for learning that provide an evidenced foundation for growth.  In 2019 LEO expanded its main office in Atlanta complementing its other main US office in New York, alongside its network of offices in London, Brighton and Sheffield in the UK, and Rio de Janeiro and São Paulo in Brazil.

Working across a broadening range of industries, LEO has seen an increase in services and content in the area of innovative learning journeys, social and networked learning, behaviour change programmes and supporting the complex technical integration of learning tools into more effective learning ecosystems. LEO has recently announced a new customer in Toyota Motors North America. Aimed at 45,000 people across the network this blended learning programme will support the transformation of safety culture within the business at all levels of the organisation.

In 2019 LEO integrated LTG's specialist GRC team, Eukleia, into its production and management structure bringing together a naturally close set of skills and services as well as a successful generic course catalogue.

LEO won several major awards during the year including winning the Demofest at DevLearn in Las Vegas for the fourth year in a row with one of its projects for Shell.

Eukleia has also continued its work for eight out of the top ten global banks and seven out of the top ten investment banks with its specialist expertise in governance, risk and compliance. While having a tough year in terms of the market with a lack of new compliance legislation to drive growth, the company is now deriving benefit from a re-engineered catalogue of specialist titles ranging from Financial Crime to Personal Conduct. At the end of 2019 it launched a series of courses aimed specifically at the US market. Now merged with LEO, Eukleia is responding to the market requirement for innovation in the way compliance learning is delivered.  A recent joint win with one the largest global banks on 'Personal Conflicts' is testimony to the strength of the combination.

PRELOADED , the Group's multi-award-winning games studio, remains at the forefront of immersive learning content, focusing on its 'play with purpose' mission.  In 2019, PRELOADED collaborated with BBC Studios on 'BBC Earth - MicroKingdoms: Senses', an educational Mixed Reality experience for the Magic Leap One headset,  launching in 2020, as part of Magic Leap's prestigious Independent Creator Program.  This work in the consumer learning market is helping PRELOADED, together with other LTG companies, lead the way in the corporate learning space with immersive projects for companies like Bayer and Anglo American where 'mixed reality' technologies are being used for clinical diagnosis and critical safety training. PRELOADED, which grew in 2019 by 41%, also won a coveted BAFTA Award in November 2019 for their work on 'A Brief History of Amazing Stunts by Astounding People' for Los Angeles-based WITHIN. 

Cross-Selling and Partnerships

In 2019 LTG launched a Group selling initiative to more than 200 of its customer-facing staff utilising the Group's own Instilled platform and incentivised through a new Group-wide cross-selling commission plan. This learning initiative is beginning to yield results through an increase in new opportunities across the business.  The Group is also leveraging off its PeopleFluent reseller network to deliver new products such as Instilled to a global market. 

One notable introduction led to a new customer rising to a $3m account from a standing start in May 2019. Bringing together LEO, PeopleFluent, Instilled, Rustici and Watershed, LTG has produced a global content, system and analytics solution for a major home systems supplier, reaching more than 100,000 distributors and 70,000 contractors. 

Shell continues to be a major customer for Instilled, Gomo, Rustici and LEO with on-going work winning awards for both content and new technology in 2019.

LTG offers 31 discrete product and service offerings. On average LTG's clients took 1.3 (2018: 1.2) of these services in 2019 compared with an average of 4.1 (2018: 3.2) across LTG's top ten clients, who together represent approximately 12% (2018: 15%) of Group revenues.

Many of these cross-selling opportunities are bi-lateral between LTG's business units but more are now multilateral.

Group Services

The Board believes that by building a comprehensive offering of scale 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 people in a myriad of languages and through many delivery platforms. 

The Software & Platforms and Content & Services 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 deliver cost efficiencies.

In Q4 2019 LTG appointed a Chief People Officer and a new Head of Legal to strengthen the LTG leadership team.

Acquisitions

A core part of the LTG's strategy is the execution of strategic M&A that enhances the Group's offering.  During 2019 the Group completed the following acquisition;

BreezyHR

On 17 April 2019 LTG completed the acquisition of BreezyHR, a fast-growing talent acquisition software business, providing small to medium sized businesses with feature-rich, intuitive and user-friendly recruitment software to optimise their recruitment processes and maximise productivity. BreezyHR is headquartered in Jacksonville, Florida and has become a business within PeopleFluent, part of LTG's Software & Platforms division.

BreezyHR was acquired for £9.7 million in cash, funded by the Group's existing cash and bank facilities. Transaction costs charged to the income statement totalled £0.2 million.  Goodwill on acquisition has been calculated at £6.3 million and acquisition-related intangibles of £3.7 million are represented by IP and customer relationships. 

The SPA contains provisions for additional deferred contingent consideration, payable to the sellers of BreezyHR who remain employed by the Group, up to maximum of $17.0 million payable on ambitious revenue growth targets (the maximum being $15.0 million in FY2021) over the period 2019-2021.  In addition to this, there is a contingent earn-out bonus equal to approximately 6% of the total deferred contingent consideration.  The total consideration and fair value adjustments to the assets and liabilities are set out on in Note 8. 

COVID-19 Update

We have not yet seen a material impact from the ongoing COVID-19 outbreak on business performance.  We anticipate that our recurring revenues will continue, but that some content and services projects may be impacted and new business wins delayed.  We anticipate that some customers may seek to delay payments. 

In light of the potential impact of COVID-19, management has taken proactive measures to prioritise the strong liquidity and cash position of the Group and to follow WHO and government guidance to protect the safety of workers, customers and partners.  These measures include:

·	with effect from 16 March we implemented a work-from-home policy for all our staff including restrictions on travel
·	we initiated a number of measures to encourage continued interaction between colleagues including regular one-on-one and team calls, on-line social events and a weekly 'all-hands' call with the Chief Executive
·	we have made a number of resources available to staff including on-line welfare programs and support through the HR service desk
·	we have made available to corporates, free-of-charge, LTG's new LXP 'Instilled', for a period of 3 months to enable them to connect their remote workforces.  To date c.30 corporates have signed-up to this initiative
·	to sustain LTG's position of financial strength:

o  the Board is adopting a prudent approach to shareholder distributions and has postponed the proposed final dividend of 0.5 pence per share until market conditions normalise

o  Directors have agreed to postpone their 2019 cash bonuses until market conditions normalise

o  all salary increases have been postponed until 2021

o  with effect from 1 May 2020 all employees have been given the option of moving to a 4-day week or remaining on a 5-day week but with pay for their fifth day deferred until market conditions normalise.  Certain protections have been put in place including minimum salary levels below which employees will not see a deferral in their salary

o  a freeze on all new recruits and the termination of the majority of the contractors; UK workers have been furloughed where appropriate

o  contingent deferred consideration for BreezyHR vendors following the exceptional performance of the business in 2019 funded through shares in lieu of a cash payment of $4.0m

o  reduction in other opex items including marketing and facilities costs as well as termination of non-critical capital expenditure

The estimated combined cash savings in 2020 resulting from these actions is in excess of £20.0 million.  The Board has further cash preservation measures that it is willing to implement if appropriate, recognising that maintaining our dedicated and talented workforce is a key priority in anticipation of the upturn.  We have run a number of sensitised business models and the Board is confident that the Group's strong balance sheet, large proportion of recurring revenues, and diverse blue-chip customer base (both in terms of vertical markets and geographical reach) put it in a strong position to trade through this uncertain period and beyond.

LTG's gross cash at 31 March 2020 was £25.0 million (following completion of the Open LMS acquisition).  The Group has supportive banks and a non-committed finance facility in place of $28.0 million.

Jonathan Satchell

Chief Executive

15 April 2020

Chief Financial Officer's Review

Financial results

In the year ended 31 December 2019, the Group generated revenue of £130.1 million (2018: £93.9 million), delivering a 39% year-on-year increase.  Like-for-like revenues on a constant currency basis (excluding the post-acquisition contribution of BreezyHR, the acquired PeopleFluent businesses, and excluding the exceptional contribution from the Civil Service Learning ('CSL') contract) increased by 5%. On the same basis above, t he Software & Platforms division grew by 6%, and the Content & Services division grew by 4%. In total, the Software & Platforms division accounted for 68% of Group revenue whilst the Content & Services division accounted for 32% of Group revenue. Further details on the divisional performance are provided in the Chief Executive's Review.

With effect from 1 January 2019 LTG has adopted the new accounting standard IFRS 16 - Leases.  In addition Adjusted EBIT has been restated to include the impact of share based payments. Further details of these adjustments are provided below.

Adjusted EBIT increased by 58% to £41.0 million (2018: £26.0 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 acquisition-related deferred consideration and earn-outs, finance expenses, the Group's share of profits or losses in associates and joint ventures, integration costs and costs of acquisition and amortisation of acquired intangibles as well as other specific items. Integration, costs of acquisition, amortisation of acquired intangibles and 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.

Adjusted EBIT margins increased substantially during the year to 32% (2018: 28%) due to the inclusion of a full year's results for PeopleFluent, the successful integration of BreezyHR, a favourable adjustment of £0.9 million in 2019 relating to IFRS16, and operational synergies achieved ahead of plan.  The Group continues to focus on operational best practice and tight cost control, whilst the increased economies of scale, and a change in the revenue mix of the Group towards higher margin recurring licence sales with a greater opportunity for operational leverage help underpin margins.  As announced at the time of the Group's 2019 Interim results management will continue to re-invest in incremental sales initiatives to help drive organic revenue growth with the aim of delivering Adjusted EBIT margins in the high twenties or low thirties over the medium to long term.

The share-based payment charge increased from £1.3 million in 2018 to £3.1 million in 2019 primarily as a result of the increase in senior management awards following the acquisition of PeopleFluent.  The Group also launched its first Employee Stock Purchase Plan ('ESPP') in the United States following the success of the UK ShareSave plan launched in 2014.  It is anticipated that the annual share-based payment charge will increase further in 2020, reflecting a full annualised charge on a run-rate basis.  The total number of outstanding share options at the end of 2019 was 35.3 million (2018: 28.3 million).

The amortisation charge for acquisition-related intangible assets increased to £20.9 million (2018: £15.2 million) due to a full year charge related to the acquired PeopleFluent businesses, and the BreezyHR acquisition in April 2019.  Further details are set out in Note 9. The amortisation charge for internally generated development costs was £2.4 million (2018: £1.1 million) and relates to the development of the various PeopleFluent talent and learning platforms; BreezyHR's talent acquisition platform; 'Gomo', the Group's award-winning multi-device authoring and hosting platform; Instilled, the newly launched LXP; Watershed, a SaaS analytics platform; various software tools used within the Eukleia business including an internally generated library of governance, risk and compliance ('GRC') materials used to service clients; as well as internally developed software in Rustici including SCORM and xAPI tools.  Whilst capitalised investment in R&D is expected to remain relatively constant on a pro-forma basis into 2020 it is anticipated that the amortisation charge for internally generated development costs related to the post-acquisition PeopleFluent business will increase compared with the prior year.   

Acquisition-related deferred consideration and earn-out charges of £3.5 million (2018: £3.8 million) relate primarily to the first year of BreezyHR's three year contingent earn-out agreement awarded based on achieving substantial incremental revenue growth.  As anticipated BreezyHR's revenue grew approximately 60% during the year; further details are provided in Note 8 .  Acquisition-related deferred consideration and earn-out charges also include £0.1 million relating to the Watershed acquisition as does the finance charge on contingent consideration of £0.2 million (2018: £0.1 million).  Integration costs related to the acquisition of BreezyHR were de minimus and have been included above Adjusted EBIT (2018: £2.4 million).

Statutory profit before tax was £14.3 million compared with £3.4 million in the prior year and unadjusted operating profit was £16.6 million compared to an unadjusted operating profit of £4.0 million in 2018. Statutory profit before tax is stated after costs of acquisitions in 2019 of £0.2 million related to the acquisition of BreezyHR (2018: £2.6 million), interest charges on the debt facility of £1.5 million (2018: £1.5 million), finance charges due to IFRS 16 of £0.5 million (2018: £nil) and a net foreign exchange gain of £nil million (2018: exceptional gain of £3.6 million resulting from the conversion of £72.0 million of placing proceeds into USD prior to completion of the PeopleFluent acquisition).  Adjusted profit before tax (see Note 6) increased by 60% to £42.2 million in 2019 (2018: £25.6 million).

The income tax charge of £3.4 million in 2019 (2018: credit of £0.7 million) 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 5.

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 47% to 4.736 pence (2018: 3.232 pence).  On a statutory basis, basic earnings per share ('EPS') increased from 0.655 pence in 2018 to 1.628 pence in 2019.  Further details are provided in Note 6 .

The Group has a strong balance sheet with shareholders' equity at 31 December 2019 of £174.0 million, equivalent to 26.0 pence per share (2018: shareholders' equity of £168.8 million, equivalent to 25.3 pence per share).

The gross cash position at 31 December 2019 was £42.0 million (2018: £26.8 million).  The Group's net cash at 31 December 2019 was £3.8 million (2018: net debt of £11.5 million). Net debt/cash is defined by gross cash less borrowings.

Net cash generated from operating activities was £37.0 million (2018: £19.7 million) equivalent to an adjusted operating cash flow conversion rate of 84% (2018: 83%). Adjusted operating cash flow conversion is defined by net operating cash flows after adjusting for acquisition-related deferred consideration and earn-out payments, transaction and integration costs, interest and tax paid, payments of lease liabilities and the movement of deferred upfront investment outflows relating to the CSL project as a proportion of adjusted EBITDA.  Operating cash flows in 2018 include receipts from the CSL project whereas the upfront investment outflows were paid in 2016.  Payments of lease liabilities would have been included within operating cash flows before the adoption of IFRS 16 on 1 January 2019 but are now included in cash flows from financing activities so the 2019 adjusted operating cash conversion ratio has been adjusted to include these payments.

Debtor days decreased to 81 days (2018: 97 days) reflecting the Group's effective credit control post-acquisition of PeopleFluent, whilst combined debtor, WIP and deferred income days stayed fairly constant at minus 56 days (2018: minus 57 days), reflecting the large proportion of Group revenues generated from recurring software licences where payments are received annually in advance.

Net corporation tax payments increased to £4.5 million (2018: £0.4 million receipts) primarily as a result of the acquisition of PeopleFluent in 2018.  Cash outflows from investing activities were £15.1 million (2018: £111.5 million) and comprised the acquisition of BreezyHR for £8.8 million net of cash acquired (2018: £107.4 million net of cash acquired), plus capitalised investment in internally generated IP and property, plant and equipment of £6.4 million (2018: £4.1 million).

Cash outflows from financing activities were £6.0 million (2018: inflows of £102.4 million). Under the newly adopted IFRS 16 accounting standard payment of lease liabilities of £3.3 million are disclosed as a financing activity.  In 2018 lease payments of £2.1 million were included within net cash flows from operating activities.  Cash outflows from financing activities also include proceeds from the exercise of employee share options of £0.7 million (2018: £0.9 million from employee share options and £82.8 million from a share placing) and dividend payments of £4.0 million (2018: £2.4 million). The balance of the cash flows from financing activities is made up of net loan receipts of £0.6 million (2018: net receipts £21.3 million).  There were no payments of contingent deferred consideration in 2019 (2018: £0.2 million).

Impact of adoption of new accounting policies and alignment of acquisitions with Group policies

With effect from 1 January 2019 the Group has adopted the new accounting standard: IFRS 16 - Leases. As a result the Group has recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities are measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019.

Further, with effect from 1 January 2019 the Board has resolved to report Adjusted EBIT inclusive, rather than exclusive, of the share based payment charge. This is to align the Group with guidance from the FRC's Corporate Reporting Thematic Review and to recognise that share based payment charges are a valid cost of the business and relieve the Group of an alternative cash expense.

The financial comparatives used for prior periods in this report are restated to reflect the impact on the financial results for the Group as if the new accounting policy with regards share based payments had been adopted in the prior year.

The modified retrospective approach has been applied to the prior period changes in respect of IFRS 16 so the financial comparatives used for prior periods have not been restated. There was a net charge to retained earnings as at 1 January 2019 of £2.5 million and a net credit to retained earnings in 2019 of £0.4 million as a result of these changes.   Further details are provided in Note 3.

The table below shows the effects of these adjustments on Adjusted EBIT:

	2018	2019
	£'000	£'000
Adjusted EBIT pre accounting policy changes	27,245	43,255
Adjusted EBIT margin %	29.0%	33.2%
Share Based Payment charge adjustment	(1,254)	(3,111)
IFRS 16 adjustment	-	878
		-
Revised Adjusted EBIT	25,991	41,022
Revised Adjusted EBIT margin %	27.7%	31.5%

Key Performance Indicators

The Key Performance Indicators ('KPIs') are sales, profit and cash flow. The sales of the business are tracked through new wins across both divisions and retention rates and upsells in our Software & Platforms division. The profitability of the business, with its relatively low fixed-cost base, is managed primarily via the review of revenues in both divisions with secondary measures of consultant utilisation and monthly project margin reviews for the Content & Services division. Cash flow is reviewed on a Group basis aided by rolling cash flow forecasts and, linked to this KPI, working capital is reviewed by measures of debtor days and combined debtor, WIP and deferred income days.

Neil Elton

Chief Financial Officer

15 April 2020

Consolidated Statement of Comprehensive Income Year ended 31 December 2019
					Year ended 31 Dec	Year ended 31 Dec
					2019	2018 (restated)
			Note		£'000	£'000
Revenue			4		130,103	93,891
Operating expenses (excluding acquisition-related deferred consideration and earn-outs and share based payments)					(106,842)	(84,917)
Operating profit (before acquisition-related deferred consideration and earn-outs and share based payment charge)					23,261	8,974
Acquisition-related deferred consideration and earn-outs					(3,509)	(3,761)
Share based payment charge					(3,111)	(1,254)
Operating profit					16,641	3,959
Adjusted EBIT					41,022	25,991
Amortisation of acquired intangibles Acquired intangibles written down			9		(20,872) -	(15,193) (681)
Integration costs					-	(2,397)
Acquisition-related deferred consideration and earn-outs					(3,509)	(3,761)
Operating profit					16,641	3,959
Fair value movement on contingent consideration					-	183
Costs of acquisition			8		(249)	(2,621)
Share of losses on associates/joint ventures					-	(132)
Loss on disposal of fixed assets					(2)	-
Finance expense:
Charge on contingent consideration					(248)	(54)
Interest on borrowings					(1,487)	(1,512)
Net foreign exchange differences					-	3,608
IFRS 16 finance expense					(468)	-
Interest receivable					111	10
Profit before taxation					14,298	3,441
Income tax (expense)/credit			5		(3,426)	730
Profit for the year					10,872	4,171
					Year ended 31 Dec		Year ended 31 Dec
					2019		2018 (restated)
					£'000		£'000
Profit attributable to owners of the Parent					10,872		4,171
Earnings per share attributable to owners of the parent:
Basic (pence)	6				1.628		0.655
Diluted (pence)	6				1.584		0.641

Adjusted earnings per share:

Basic (pence)	6		4.865	3.300
Diluted (pence)	6		4.736	3.232

Profit for the year		10,872	4,171
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Exchange differences on translating foreign operations		(4,293)	6,231
Total comprehensive income for the year attributable to owners of the parent Company		6,579	10,402

Consolidated Statement of Financial Position
		31 Dec 2019 £'000	31 Dec 2018 £'000
	Note
Non-current assets
Property, plant and equipment	7	1,687	2,144
Right of use assets	7	9,864	-
Intangible assets	9	228,468	242,458
Deferred tax assets	12	4,761	2,858
Investments accounted for under the equity method		-	-
Other receivables, deposits and prepayments	11	120	161
Amounts recoverable on contracts		713	421
		245,613	248,042
Current assets
Trade receivables	10	28,911	34,314
Other receivables, deposits
and prepayments	11	2,478	3,897
Amounts recoverable on contracts		4,699	3,397
Amount owing from related parties		18	7
Cash and bank balances		42,032	26,794
Restricted cash balances		330	336
		78,468	68,745
Total assets		324,081	316,787
Current liabilities
Lease liabilities	15	2,880	-
Trade and other payables	13	62,791	72,470
Borrowings	15	6,344	6,602
Corporation tax		2,386	1,631
ESPP scheme liability		203	-
		74,604	80,703
Non-current liabilities
Lease liabilities	15	9,077	-
Deferred tax liabilities	12	25,257	26,299
Other long-term liabilities	14	8,443	9,008
Borrowings	15	31,858	31,657
Provisions	16	853	301
		75,488	67,265
Total liabilities		150,092	147,968
Net assets		173,989	168,819
Shareholders' equity
Share capital	17	2,509	2,501
Share premium account		148,216	147,560
Merger reserve		31,983	31,983
Reverse acquisition reserve		(22,933)	(22,933)
Share-based payment reserve		4,413	1,608
Foreign exchange translation reserve		(352)	3,941
Accumulated profits		10,153	4,159
Total equity attributable to the owners of the parent		173,989	168,819

Consolidated Statement of Changes in Equity

Year ended 31 December 2019

		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 2018		2,145	64,208	31,983	(22,933)	1,092	(2,290)	1,220	75,425
Profit for the period		-	-	-	-	-	-	4,171	4,171
Exchange differences on translating foreign operations		-	-	-	-	-	6,231	-	6,231
Total comprehensive loss for the period		-	-	-	-	-	6,231	4,171	10,402
Issue of shares		356	85,521	-	-	-	-	-	85,877
Costs of issuing shares		-	(2,169)	-	-	-	-	-	(2,169)
Share-based payment charge credited to equity		-	-	-	-	1,254	-	-	1,254
Tax credit on share options		-	-	-	-	-	-	425	425
Transfer on exercise and lapse of options		-	-	-	-	(738)	-	738	-
Dividends paid		-	-	-	-	-	-	(2,395)	(2,395)
Transactions with owners		356	83,352	-	-	516	-	(1,232)	82,992
Balance at 31 December 2018		2,501	147,560	31,983	(22,933)	1,608	3,941	4,159	168,819
1 January 2019 restatement for IFRS 16	3							(2,529)	(2,529)
Profit for the period		-	-	-	-	-	-	10,872	10,872
Exchange differences on translating foreign operations		-	-	-	-	-	(4,293)	-	(4,293)
Total comprehensive profit for the period		-	-	-	-	-	(4,293)	10,872	6,579
Issue of shares		8	656	-	-	-	-	-	664
Share-based payment charge credited to equity		-	-	-	-	3,111	-	-	3,111
Tax credit on share options		-	-	-	-	-	-	1,352	1,352
Transfer on exercise and lapse of options		-	-	-	-	(306)	-	306	-
Dividends paid		-	-	-	-	-	-	(4,007)	(4,007)
Transactions with owners		8	656	-	-	2,805	-	(2,349)	1,120
Balance at 31 December 2019		2,509	148,216	31,983	(22,933)	4,413	(352)	10,153	173,989

Consolidated Statement of Cash Flows
		Year ended 31 Dec	Year ended 31 Dec
		2019	2018
	Note	£'000	£'000
Cash flows from operating activities
Profit before taxation		14,298	3,441
Adjustments for:
Loss on disposal of PPE		2	-
Share-based payment charge		3,111	1,254
Amortisation of intangible assets		23,305	16,300
Depreciation of plant and equipment		3,672	1,000
Share of loss of joint venture/investment		-	132
Finance expense (including IFRS 16 charge)		716	54
Interest on borrowings		1,487	1,512
Fair value movement on contingent consideration		-	(183)
Acquisition-related deferred consideration and earn-outs		3,509	3,761
Payment of acquisition-related deferred consideration and earn-outs		(2,321)	(3,166)
Impairment of acquired intangibles		-	681
Interest income		(111)	(10)
Operating cash flows before working capital changes		47,668	24,776
(Increase)/decrease in trade and other receivables		7,392	(9,740)
(Increase)/decrease in amount recoverable on contracts		(1,593)	424
Increase/(decrease) in payables		(10,633)	5,064
		42,834	20,524
Interest paid		(1,449)	(1,224)
Interest received		111	10
Income tax received/(paid)		(4,518)	422
Net cash flows from operating activities		36,978	19,732
Cash flows used in investing activities
Purchase of property, plant and equipment		(687)	(778)
Development of intangible assets		(5,690)	(3,304)
Acquisition of subsidiaries, net of cash acquired		(8,764)	(107,436)
Net cash flows in investing activities		(15,141)	(111,518)
Cash flows from financing activities
Dividends paid		(4,007)	(2,395)
Proceeds from borrowings		16,057	47,110
Issue of ordinary share capital net of share issue costs		664	83,708
Repayment of bank loans		(15,468)	(25,803)
Contingent consideration payments in the period		-	(193)
Payment of lease liabilities (IFRS 16)		(3,275)	-
Net cash flows from financing
Activities		(6,029)	102,427
Net increase in cash and cash
equivalents		15,808	10,641
Cash and cash equivalents at beginning of the year		26,794	15,662
Exchange gains/(losses) on cash		(570)	491
Cash and cash equivalents at end of the year		42,032	26,794

 

Notes to the Consolidated Financial Statements for the year ended 31 December 2019

1.  General information

Learning Technologies Group plc ('the Company') and its subsidiaries (together, 'the Group') provide a range of talent and learning solutions; content, services and digital platforms, 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 15 Fetter Lane, London, EC4A 1BW. 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 instruments 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 2019 the Group had £42.0 million of gross cash and strong cash generation. Furthermore, as at 31 March 2020, following the completion of the acquisition of Open LMS, the Group had £25.0m of gross cash. Given the current COVID-19 pandemic and resulting market uncertainty, in addition to the 2020 annual budgeting exercise undertaken at the end of 2019, management have prepared a detailed reforecast during April 2020 that extends beyond 2020 into 2021. 

This reforecast has modelled for varying degrees of reductions in content & services project revenues, delay in new sales wins, extended customer payment days and various cost reductions, most of which are set out in the Strategic Report.  Management have reviewed the impact this reforecast has on gross cash, net debt and bank covenants under the existing facilities agreement.  Based on this reforecast and relevant stress tests the Group is forecast to remain highly profitable and have sufficient gross cash to continue as a going concern without recourse to additional financing.   

As a result of this detailed review, the Group's strong balance sheet, high levels of multi-year recurring revenues, a diversified business model across a number of geographies and vertical markets, with clients predominantly comprising blue-chip corporates and government bodies, 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

The Group has adopted IFRS 16 Leases from 1 January 2019.

IFRS 16 Leases

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019.

The incremental borrowing rate used was based on the 3 month LIBOR rates in the respective asset territories (98% of which were based in either the US or UK) plus a 1.6% margin commensurate with the margin payable under the Group's current debt finance facility as at 1 January 2019.

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

i)          The use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

ii)  Reliance on previous assessments on whether leases are onerous;

iii)         The accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases;

iv)  The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application;

v)          The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

A modified retrospective approach has been used meaning comparatives have not been restated but an adjustment has been made to opening equity.

The Group has taken the accounting policy choice to measure the right of use assets as if IFRS 16 had applied since the inception of the lease.

The Directors do not expect that the adoption of any new standards currently in issue but not in force will have a material impact on the financial statements of the company in future periods.

 (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.

Business combinations other than the share for share acquisition of Epic Group Limited by In-Deed Online plc in 2013 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. Intragroup losses may indicate an impairment which may require recognition in the consolidated financial statements. Where necessary, adjustments are made to the Financial Statements of subsidiaries to ensure consistency of accounting policies with those of the Group.

3.  Changes in accounting policies

As noted above, the Group has adopted IFRS 16 Leases from 1 January 2019.

On transition to IFRS 16 the weighted average incremental borrowing rate applied to the lease liabilities recognised under IFRS 16 was 3.5%. The incremental borrowing rate used was based on the 3 month LIBOR rates in the respective asset territories (98% of which were based in either the US or UK) plus a 1.6% margin commensurate with the margin payable under the Group's current debt finance facility as at 1 January 2019.

See Note 2 (a) for details on the practical expedients and accounting policy choices taken.

The change in accounting policy affected the following items in the balance sheet as at 1 January 2019 and 31 December 2019:

	As at		As at
	31 December 2019		1 January 2019
	£'000		£'000
Right-of-use asset	9,864		11,938
Lease liability:
- Current lease liability		2,880	2,831
- Non-current lease liability		9,077	11,634
Total lease liability		11,957	14,465

	Year ended
	31 December 2019
	£'000
Rental lease expense under IAS 17	3,378
Replaced by:
Depreciation of right-of-use asset	(2,489)
Adjustment for sublease	(11)
Finance charges on lease liability	(468)
Total expense to profit and loss		(2,968)
Net reduction in expense		410

  The net impact on retained earnings on 1 January 2019 was a decrease of £2.5 million.

The following is a reconciliation of total operating lease commitments at 31 December 2018 (as disclosed in the financial statements to 31 December 2018, restated) to the lease liabilities recognised at 1 January 2019:

		£'000
Total operating lease commitments disclosed at 31 December 2018 (restated)		15,366
Recognition exemptions:
-  Leases with remaining lease terms of less than 12 months		(33)
Operating lease liabilities before discounting		15,333
Discounted using incremental borrowing rate at 1 January 2019 (3.5%)		14,465
Total lease liabilities recognised under IFRS 16 at 1 January 2019		14,465

The operating lease commitments disclosed at 31 December 2018 per the Annual Report 2018 were £12,724,000, which was an error due to a missing property lease not included within this figure. The balance has been corrected in the reconciliation above. No further financial statement line items have been affected by this error.

Additional profit or loss and cash flow information

	Year ended 31 December 2019
	£'000
Income from subleasing office premises	210
Total cash outflow in respect of leases in the year	(3,275)
Expense related to short term leases not accounted for under IFRS 16	(77)

Additions to right of use assets during 2019 totalled £429,000.

See Notes 7 and 15 for further details on IFRS 16.

4.  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), in order to allocate resources to the segment and to assess its performance.

The Directors of the Company consider there to be three reportable segments, being the Software & Platforms division, the Content & Services division, and an Other segment which includes rental income. A majority of sales were generated by the operations in the United States in the year ended 31 December 2019 and in the year ended 31 December 2018.

Income and expenses relating to the Group 's administrative functions have been apportioned to the operating segments identified.

Geographical information

The Group's revenue from external customers and non-current assets by geographical location are detailed below.

	UK	Mainland Europe	United States	Canada	Asia Pacific	Rest of the world	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
31 Dec 2019
Revenue	25,808	8,738	84,454	5,165	2,459	3,479	130,103
Non-current assets	31,029	-	194,658	29	15,136	-	240,852
31 Dec 2018
Revenue	24,859	7,263	52,912	3,766	2,253	2,838	93,891
Non-current assets	28,412	-	197,969	68	18,735	-	245,184

Revenue by nature

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

	Software & Platforms					Content & Services							Other
	On-premise Software Licences	Hosting & SaaS	Support & Mainte-nance		Total	Content		Platform Develop-ment		Consulting  & Other		Total	Rental Income	Total
	£'000	£'000	£'000		£'000	£'000		£'000		£'000		£'000		£'000
31 December 2019
Recurring	13,861	67,014	4,666		85,541	-		1,623		9,298		10,921	101	96,563
Non-Recurring	1,633	759	697		3,089	18,345		6,903		5,203		30,451	-	33,540
	15,494	67,773	5,363		88,630	18,345		8,526		14,501		41,372	101	130,103
Depreciation & amortisation					(4,162)							(1,943)	-	(6,105)
EBIT					31,577							9,344	101	41,022
Amortisation of acquired intangibles					(15,771)							(5,101)	-	(20,872)
Share of losses of associates					-							-	-	-
Profit / (Loss) before tax					10,309							3,888	101	14,298
Additions to intangible assets					15,729							-	-	15,729
Total Assets					223,987							100,094	-	324,081
31 December 2018
Recurring	12,572	41,328	4,088		57,988	-		1,071		4,963		6,034	58	64,080
Non-Recurring	1,166	4	676		1,846	19,262		5,765		2,938		27,965	-	29,811
	13,738	41,332	4,764		59,834	19,262		6,836		7,901		33,999	-	93,891
Depreciation & amortisation					(1,746)							(361)	-	(2,107)
EBIT					19,111							6,822	58	25,991
Amortisation of acquired intangibles					(11,873)							(3,320)	-	(15,193)
Share of losses of associates					(132)							-	-	(132)
Profit / (Loss) before tax					(274)							3,657	58	3,441
Additions to intangible assets					162,071							3,972	-	166,043
Total Assets					279,928							36,859	-	316,787

Information about major customers

In the year ended 31 December 2019 and the year ended 31 December 2018, no customer accounted for more than 10 per cent of reported revenues.

 

5.  Income tax

	31 Dec	31 Dec
	2019	2018
	£'000	£'000
Current tax expense:
- UK Current Tax on profits for the year	511	1,179
- Adjustments in respect to prior years	706	(416)
- Foreign Current Tax on profits for the year	4,156	1,682
Total current tax	5,373	2,445
Deferred tax (Note12):
- Origination and reversal of temporary differences	(1,369)	(2,395)
- Adjustments in respect to prior years	(662)	(780)
Change in deferred tax rate	84	-
Total deferred tax	(1,947)	(3,175)
Income tax expense/(credit)	3,426	(730)

Adjustments in respect to prior years primarily relates to the 2018 tax charge for Learning Technologies Group (Hong Kong) Limited (formally known as NetDimensions Limited) of £611,000. The remaining difference relates to other minor variances between prior period provisions and final tax returns, and changes in the market value of LTG shares when calculating the share-based payment deferred tax assets.

A reconciliation of income tax expense applicable to the profit 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
		2019	2018
		£'000	£'000
Profit before taxation		14,298	3,441
Tax calculated at the domestic tax rate of 19.00% (2018: 19.00%):		2,717	654
Tax effects of: -
Income not subject to tax		(1,036)	(184)
Expenses not deductible for tax purposes		188	1,325
Joint venture/associate results reported net of tax		-	25
Tax deductions not recognised as an expense		(246)	(232)
Utilisation of previously unrecognised or acquired tax losses		-	(1,475)
Tax losses in the year for which no deferred tax is recognised		1	125
Difference between deferred and current tax rate		1,030	-
Adjustments in respect to prior years		44	(1,196)
Difference in foreign exchange rates		(70)	-
Effect of different international tax rates		882	228
Changes in deferred tax rate		(84)	-
		3,426	(730)

The aggregate current and deferred tax directly credited to equity amounted to £1,352,000 (2018: £425,000).

6.  Earnings per share

			31 Dec	31 Dec
			2019	2018
			Pence	Pence
Basic profit per share			1.628	0.655
Diluted profit per share			1.584	0.641
Adjusted basic earnings per share			4.865	3.300
Adjusted diluted earnings per share			4.736	3.232

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 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.

 

	2019							2018
	Profit 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 attributable to the owners of the parent	10,872		668,045			1.628		4,171	637,326	0.655
Effect of adjustments:
Amortisation of acquired intangibles	20,872							15,193
Acquired intangibles written down	-							681
Share-based payment costs	3,111							1,254
Integration costs	-							2,397
Cost of acquisitions	249							2,621
Fair value movement on contingent consideration	-							(183)
Deferred consideration and earn-outs from acquisitions	3,509							3,761
Net foreign exchange differences on financing activities	-							(3,608)
Interest receivable	(111)							(10)
Finance expense	248							54
Income tax expense	3,426							(730)
Effect of adjustments	31,304		-			4.686		21,430	-	3.362
Adjusted profit before tax	42,176		-			-		25,601	-	-
Tax impact after adjustments	(9,674)		-			(1.449)		(4,572)	-	(0.717)
Adjusted basic earnings per ordinary share	32,502		668,045			4.865		21,029	637,326	3.300
Effect of dilutive potential ordinary shares:
Share options	-		18,233			(0.129)		-	13,267	(0.068)
Deferred consideration payable (conditions met)	-		-			-		-	-	-
Deferred consideration payable (contingent)	-		-			-		-	-	-
Adjusted diluted earnings per ordinary share	32,502		686,278			4.736		21,029	650,593	3.232
Diluted earnings per ordinary share attributable to the owners of the parent	10,872		686,278			1.584		4,171	650,593	0.641
7.  Property, plant and equipment
								Right of use assets
		Computer equipment		Fixtures and fittings	Motor vehicles		Leasehold Improve-ments	Computer equipment	Property	Total
		£'000		£'000	£'000		£'000	£'000	£'000	£'000
Cost
At 1 January 2018		1,997		611	8		261	-	-	2,877
Additions on acquisitions		1,417		74	-		59	-	-	1,550
Additions		216		384	-		178	-	-	778
Foreign exchange differences		51		25	-		4	-	-	80
Disposals		(129)		(116)	(8)		(136)	-	-	(389)
At 31 December 2018		3,552		978	-		366	-	-	4,896
Additions on transition to IFRS 16		-		-	-		-	83	11,855	11,938
Additions on acquisitions		18		11	-		-	-	266	295
Additions		506		55	-		126	-	163	850
Foreign exchange differences		(9)		(18)	-		18	-	94	85
Disposals		(1,477)		(180)	-		(220)	-	(123)	(2,000)
At 31 December 2019		2,590		846	-		290	83	12,255	16,064
Accumulated Depreciation
At 1 January 2018		1,359		460	8		208	-	-	2,035
Charge for the year		844		99	-		57	-	-	1,000
Disposals		(58)		(116)	(8)		(136)	-	-	(283)
At 31 December 2018		2,145		478	-		129	-	-	2,752
Charge for the year		898		180	-		93	60	2,441	3,672
Disposals		(1,385)		(284)	-		(215)	-	(27)	(1,911)
At 31 December 2019		1,658		374	-		7	60	2,414	4,513
Net book value
At 31 December 2018		1,407		500	-		237	-	-	2,144
At 31 December 2019		932		472	-		283	23	9,841	11,551

8.  Acquisitions

Breezy HR, Inc.

On 17 April 2019, LTG announced the acquisition of Breezy HR ('BreezyHR') for initial cash consideration of $12.7 million funded by the Group's existing cash and bank facilities. The acquisition supported LTG's strategic goal to achieve run-rate EBIT of at least £55 million by the end of 2021.

BreezyHR is a fast-growing talent acquisition software business, providing small to medium sized businesses (SMB) with feature-rich, intuitive and user-friendly recruitment software to optimise their recruitment processes and maximise productivity.  BreezyHR now operates as a separate business within PeopleFluent.

Further performance based payments, capped at $17.0 million are payable in cash to the BreezyHR sellers based on ambitious revenue growth targets in each of the years ending 31 December 2019, 2020 and 2021. In addition to this, there is a contingent earn-out bonus equal to approximately 6% of the above payable to staff. These payments are linked to continuous employment so are excluded from the acquisition consideration and instead are recognised as an expense over the service period within the Statement of Comprehensive Income.

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

	Fair value
Consideration	£'000
Cash paid	9,726
Total consideration	9,726
Recognised amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	962
Property, plant and equipment	20
Trade and other receivables	138
Trade and other payables	(597)
Impact of IFRS 16 adjustments on acquisition	(9)
Deferred tax assets on acquisition	134
Deferred tax liabilities on acquisition	(961)
Intangible assets identified on acquisition	3,698
Total identifiable net assets	3,385
Goodwill	6,341
Total	9,726

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 BreezyHR 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 £1.5 million relate to the valuation of the customer relationships which are amortised over a period of five years, and £2.2 million relates to the value of the acquired intellectual property and software development which is amortised over four years.

Acquisition costs of £0.2 million have been charged to the statement of comprehensive income in the year relating to the acquisition of BreezyHR.

A deferred tax liability of £1.0 million in respect of the acquisition-related intangible assets was established on acquisition (refer to Note12).

BreezyHR contributed £3.5 million of revenue for the period between the date of acquisition and the reporting date and £0.7 million of statutory profit before tax. This excludes the effect on the Group profit before tax of increased amortisation of acquired intangibles. If the acquisition of BreezyHR had been completed on the first day of the financial year, Group revenues would have been £1.0 million higher and Group profit attributable to equity holders of the parent would have been £1.6 million lower including adjustments to include a full year of amortisation on acquired intangibles.

9.  Intangible assets

		Goodwill	Customer contracts and  relationships	Branding	Acquired IP	Internal Software Development	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January 2018		46,050	45,020	1,788	1,445	3,410	97,713
Additions on acquisitions		80,968	44,635	1,723	35,413	-	162,739
Additions		-	-	-	-	3,304	3,304
Disposals/impairment		-	-	(1,048)	-	(178)	(1,226)
Foreign exchange differences		5,240	3,084	114	1,574	153	10,165
At 31 December 2018		132,258	92,739	2,577	38,432	6,689	272,695
Additions on acquisition		6,341	1,454	-	2,244	-	10,039
Additions		-	-	-	-	5,690	5,690
Foreign exchange differences		(3,614)	(1,661)	(53)	(996)	(90)	(6,414)
At 31 December 2019		134,985	92,532	2,524	39,680	12,289	282,010
Accumulated amortisation
At 1 January 2018		-	11,813	590	464	1,437	14,304
Amortisation charged in year		-	11,956	447	2,790	1,107	16,300
Disposals/impairment		-	-	(367)	-	-	(367)
At 31 December 2018		-	23,769	670	3,254	2,544	30,237
Amortisation charged in year		-	15,125	298	5,449	2,433	23,305
At 31 December 2019		-	38,894	968	8,703	4,977	53,542
Carrying amount
At 31 December 2018		132,258	68,970	1,907	35,178	4,145	242,458
At 31 December 2019		134,985	53,638	1,556	30,977	7,312	228,468

Goodwill and acquisition-related intangible assets recognised have arisen from acquisitions.  Refer to Note 8 for further details of acquisitions undertaken during the year.  Internal software development reflects the recognition of development work undertaken in-house.

The amortisation charge for the year of £23.3 million includes £20.9 million relating to acquired intangibles. Amortisation is included within operating expenses in the Statement of Comprehensive Income.

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 ten CGUs.  The carrying amount of goodwill has been allocated as follows:

CGU	Goodwill		Growth rate		Pre-tax discount rate
	2019	2018	2019	2018	2019	2018
	£'000	£'000	%	%	%	%
LEO	7,742*	7,435	4%	4%	11.0%	11.0%
Preloaded	2,180	2,180	4%	4%	12.5%	12.5%
Eukleia	2,764	2,764	4%	4%	12.5%	12.5%
Rustici	13,280	13,726	9%	9%	12.5%	12.5%
PeopleFluent	42,761	43,875	7%	7%	11.5%	11.5%
Affirmity	18,864	19,496	4%	4%	11.0%	11.0%
VectorVMS	37,300	38,552	4%	4%	10.0%	10.0%
Gomo	1,381*	1,746	7%	7%	14.0%	14.0%
Watershed	2,404	2,484	12%	-	12.5%	-
BreezyHR	6,309	-	12%	-	12.0%	-
	134,985	132,258

*Part of the acquired Gomo business on the acquisition of PeopleFluent has been reallocated to the LEO CGU.

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 4% and 12% for the first five years. The terminal rate used for the value in use calculation thereafter is 2.5%.

In the case of the recently acquired Watershed and BreezyHR CGUs, the businesses are at an early stage of development.  Although the CGUs generated revenue growth of c30% and c60% respectively in 2019 management has cautiously assumed average annual growth rates of only 12% during the next 5 years.  In the case of VectorVMS CGU revenues declined c10% in 2019 and are anticipated to decline by c3% in 2020 primarily as a result of multi-year licences terminated prior to acquisition.  Management have assumed the business will grow by an average rate of 4% over the next five years.

Management have assessed that there is a reasonably possible change to the discount rate assumption for VectorVMS that could give rise to an impairment in the next 12 months. If the discount rate were to increase to 11.5% an impairment would be indicated.

Customer contracts, relationships, branding and Acquired IP

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 ten years.

Internal software development

Internal 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 two and ten years.

10.  Trade receivables

		31 Dec	31 Dec
		2019	2018
		£'000	£'000
Trade receivables		29,815	35,646
Allowance for impairment losses		(904)	(1,332)
		28,911	34,314

Impairment losses:

At 1 January		1,332	186
Additions on acquisition		-	570
Additions/(disposals)		(418)	545
Foreign exchange		(10)	31
At 31 December		904	1,332

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.

11.  Other receivables, deposits and prepayments

Current assets
		31 Dec	31 Dec
		2019	2018
		£'000	£'000
Sundry receivables		326	1,118
Prepayments		2,152	2,779
		2,478	3,897
Non-current assets
		31 Dec	31 Dec
		2019	2018
		£'000	£'000
Sundry receivables		120	161
		120	161

Sundry receivables includes rent deposits and other sundry receivables.

12.  Deferred tax assets/(liabilities)

				Short-term
		Share options	Tax losses	timing differences	Total
Deferred tax assets		£'000	£'000	£'000	£'000
At 1 January 2018		1,404	521	280	2,205
Acquisition of subsidiaries		-	778	-	778
Deferred tax charge directly to the income statement		(15)	337	61	383
Deferred tax charged directly to equity		425	-	-	425
Exercise of share options		(1,084)	-	-	(1,084)
Exchange rate differences		-	67	84	151
At 31 December 2018		730	1,703	425	2,858
Acquisition of subsidiaries		-	134	-	134
Deferred tax charged directly to the income statement		441	(202)	362	601
Deferred tax charged directly to equity		1,352	-	-	1,352
Exercise of share options		(183)	-	(1)	(184)
Exchange rate differences
Changes in tax rate
At 31 December 2019		2,340	1,635	786	4,761

			Accelerated tax	Short-term timing
		Intangibles	depreciation	differences	Total
Deferred tax liabilities		£'000	£'000	£'000	£'000
At 1 January 2018		(6,273)	(204)	-	(6,477)
Deferred tax on acquired intangibles and via acquisition		(21,251)	(124)	(236)	(21,611)
Deferred tax charge directly to the income statement		3,250	(694)	236	2,792
Exchange rate differences		(1,177)	174	-	(1,003)
At 31 December 2018		(25,451)	(848)	-	(26,299)
Deferred tax on acquired intangibles and via acquisition		(961)	-	-	(961)
Deferred tax charge directly to the income statement		4,772	(1,180)	(2,246)	1,346
Exchange rate differences		657	-	-	657
At 31 December 2019		(20,983)	(2,028)	(2,246)	(25,257)

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 £20.0m (2018: £0.3m) 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. The Group has performed a continuing evaluation of its deferred tax asset valuation allowance on an annual basis to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

On the basis of this evaluation, as of 31 December 2019, the Group has concluded that it is not likely that PeopleFluent Inc and the wider Group will generate sufficient taxable income within the applicable net operating loss carry-forward periods to realise a portion of its deferred tax assets. This conclusion, and the resulting partial reversal of the deferred tax asset valuation allowance, is based upon consideration of a number of factors; particularly the impact of COVID-19 on the wider market.

13.  Trade and other payables

	31 Dec	31 Dec
	2019	2018
	£'000	£'000
Trade payables	1,508	924
Deferred income	49,219	56,417
Tax and social security	603	2,109
Contingent consideration	-	8
Acquisition-related deferred consideration and earn-outs	3,230	3,205
Accruals	8,231	9,807
	62,791	72,470

The acquisition-related deferred consideration and earn-outs balance in 2019 relates wholly to the acquisition of BreezyHR.  The balance in 2018 relates partly to the acquisition of Rustici Software LLC and partly to the acquisition of Watershed Systems Inc. This is treated as post-combination remuneration and is accrued over the service period.

The deferred income balance relates mainly to the Group's right to access licences, support and maintenance and hosting contracts which are recognised over the contract term as the customer receives and consumes the benefits of the service. All of the current liability deferred income balance at 31 December 2018 was recognised as revenue in 2019 and the currently liability deferred income balance at 31 December 2019 is expected to be recognised as revenue in 2020.

14.  Other long-term liabilities

	31 Dec	31 Dec
	2019	2018
	£'000	£'000
Acquisition-related deferred consideration and earn-outs	165	20
Contingent consideration	2,542	2,378
Contract liabilities	5,449	6,603
Other long-term liabilities	287	7
	8,443	9,008

The contingent consideration relates wholly to the acquisition of Watershed Systems Inc and is a financial instrument held at fair value within the scope of IFRS 9 repayable during 2020, 2021 and 2022.

The acquisition-related deferred consideration and earn-outs balance in 2019 relates partly to the acquisition of Watershed Systems Inc and partly to the acquisition of BreezyHR. The acquisition-related deferred consideration and earn-outs balance in 2018 relates wholly to the acquisition of Watershed Systems Inc. This is treated as post-combination remuneration and is accrued over the service period.

The contract liabilities balance relates mainly to the Group's right to access licences, support and maintenance and hosting contracts which are recognised over the contract term as the customer receives and consumes the benefits of the service. The non-current contract liabilities balance at 31 December 2019 is expected to be recognised during 2021 and 2022.

15.  Borrowings

On the acquisition of PeopleFluent Holdings Corp. in 2018 the existing debt facility with Silicon Valley Bank ('SVB') was repaid and a new debt facility with SVB and Barclays was entered into for a total of $63.0 million.  

This is made up of a $42.0 million term loan and a $21.0 million multicurrency revolving credit facility, both available to the Group for 5 years. The facility attracts variable interest based on LIBOR for the currency of the loan plus a margin of between 1.6% and 2.1%, based on the Group's leverage.

The term loan is repayable with quarterly instalments of $2.1 million with the balance repayable on the expiry of the loan in April 2023.

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

The lease liabilities have arisen on adoption of IFRS 16 and are secured by the related underlying assets.

	31 Dec	31 Dec
	2019	2018
	£'000	£'000
Current interest-bearing loans and borrowings	6,344	6,602
Non-current interest-bearing loans and borrowings	31,858	31,657
Current lease liabilities	2,880	-
Non-current lease liabilities	9,077	-
	50,159	38,259

16.  Provisions

	31 Dec	31 Dec
	2019	2018
	£'000	£'000
At 1 January - brought forward	301	257
Paid in the year	(50)	-
Addition	602	44
Total	853	301

Provisions primarily relate to regulatory and legal costs that management consider are likely to be incurred as a result of historic events in the ordinary course of business.  These include the Group's share of dilapidation costs in respect of costs to be incurred at the end of property leases. 

17.  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 2019	666,892,349	2,501	147,560	31,983	182,044
Shares issued on the exercise of options	2,227,739	8	656	-	664
At 31 December 2019	669,120,088	2,509	148,216	31,983	182,708

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 2019 the EBT holds 404,340 ordinary shares in the Company.  These shares are held in treasury.  

A total of 2,227,739 ordinary shares were issued during the course of the year as a result of the exercise of employee share options. 

18.  Dividends paid

	31 Dec	31 Dec
	2019	2018
	£'000	£'000
Final dividend paid Interim dividend paid	2,337 1,670	1,396 999
	4,007	2,395

On 8 November 2019, the Company paid an interim dividend of 0.25 pence per share (2018: 0.15 pence per share). Due to the impact of COVID-19, the Board is adopting a prudent approach to shareholder distributions and will therefore postpone the final dividend until market conditions normalise. The final dividend for the year ended 31 December 2019 would have been 0.50 pence per share, equating to a total pay-out in respect of the year of 0.75 pence per share (2018: 0.50 pence per share). The final dividend paid in 2019 relates to the year ending 31 December 2018.

 

19.  Events since the reporting date

On 10 March 2020 Learning Technologies Group plc announced the proposed acquisition of the business and assets of Open LMS from Blackboard Inc for cash consideration of $31.7 million (subject to some customary price adjustments), to be funded by the Group's existing cash and bank facilities.

The proposed acquisition of Open LMS adds complementary expertise to the Group's existing proprietary software solutions, through the addition of expertise in the market's leading open-source Learning Management System (LMS), Moodle.

Following completion, Open LMS will be run as a standalone brand within LTG's portfolio of best-in-class businesses. LTG will support Open LMS through its existing operational infrastructure and, under a partnership arrangement, LTG will resell Blackboard's suite of products that integrate with Moodle to meet the demands of current and future customers.

Open LMS will be acquired by way of a combined asset carve-out and entity acquisition from Blackboard. In the year ended 31 December 2019 the Open LMS business generated unaudited revenues of c.$16 million. Approximately 70% of Open LMS's revenue is derived from recurring subscription fees.

All conditions relating to the acquisition of Open LMS were satisfied and the transaction completed on 31 March 2020.

There have been no other notifiable events between the 31 December 2019 and the date of this Annual Report.

 

END

 

 

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