Learning Technologies Group Regulatory News (LTG)

19 March 2018

Learning Technologies Group plc

 (AIM: LTG)

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

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

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

Financial highlights:

Operational highlights:

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

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

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

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

Platforms (41% of Group revenues in 2017)

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

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

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

Outlook:

· Current trading ahead of management expectations

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

· Strong pipeline of strategic acquisition opportunities being actively pursued

Commenting, Jonathan Satchell, CEO of LTG, said:

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

Commenting, Andrew Brode, Chairman of LTG, said:

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

Enquiries:

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

Forward looking statements:

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

Chairman's Statement

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

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

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

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

Market opportunity

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

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

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

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

Strategic progress

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

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

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

People

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

Dividend and Annual General Meeting

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

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

Current trading and outlook

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

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

Andrew Brode

Chairman

16 March 2018

Strategic Report for the year ended 31 December 2017

Financial results

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Acquisition of NetDimensions

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

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

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

Our strategy

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

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

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

Content & Services

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

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

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

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

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

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

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

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

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

Platforms

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

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

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

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

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

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

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

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

Group Services

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

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

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

Adoption of IFRS15

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

Jonathan Satchell

Chief Executive Officer

16 March 2018

Consolidated Statement of Comprehensive Income

Year ended 31 December 2017

Adjusted earnings per share:

Consolidated Statement of Changes in Equity

Year ended 31 December 2017

Significant non-cash transactions

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

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

1. General information

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

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

2. Summary of significant accounting policies

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

a) Basis of preparation

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

Going concern

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

Adoption of new and revised International Financial Reporting Standards

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

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

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

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

(b) Basis of consolidation

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

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

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

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

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

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

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

3. Segment analysis

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

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

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

Geographical information

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

Revenue by nature

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

Information about major customers

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

4. Income tax

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

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

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

5. Earnings per share

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

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

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

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

6. Property, plant and equipment

7. Acquisitions

NetDimensions (Holdings) Limited

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

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

option).

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

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

the Philippines.

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

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

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

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

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

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

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

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

acquired and liabilities assumed at the acquisition date.

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

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

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

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

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

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

8. Intangible assets