Learning Technologies Group Regulatory News (LTG)

Learning Technologies Group plc

Final Results for the year ended 31 December 2014

2014 ahead of expectations, excellent start and strong order book for 2015

Learning Technologies Group plc ("LTG" or "the Company"), Europe's leading e-learning company, announces its final results for the year ended 31 December 2014.

Highlights

· Operating performance ahead of expectations

· Revenue for the Group grew 97% to £14.9m (2013: £7.6m)

· Adjusted EBITDA increased by 42% to £2.1m (2013: £1.5m)

· Strong balance sheet with £4.4m of cash (2013: £1.2m) and no debt

· Successful acquisitions of LINE and Preloaded and merging of LINE and Epic to form LEO, deepening and extending the Group's capabilities, expertise and client base

· A strong order book in Q4 2014 has been further enhanced in Q1 2015. Recent substantial wins alongside key strategic partners include multi-year contracts with the Ministry of Defence, a significant project for a central government department, and an innovative learning games campaign for a global restaurant chain

· The pipeline of new business opportunities is now at record levels

· gomo 2.0, LTG's self-authoring tool has been well received and the recent launch of gomo 3.0 generates further significant opportunities

· Proposed final dividend of 0.07 pence equating to a full year dividend of 0.10 pence

Andrew Brode, Chairman of LTG, commented:

"LTG has made good progress in 2014 delivering on its strategy of consolidating the fragmented e-learning industry. The successful formation of LEO creates the European market leader in custom e-learning solutions and Preloaded has seen marked success in the exciting, early stage, 'games with purpose' space. We continue to pursue further acquisition opportunities as part of our strategy to build a £50m revenue business.

We have enjoyed an excellent start to 2015 and anticipate further profitable progress from a strong foundation." 

30 March 2015

Enquiries:

Chairman's Statement

I am delighted to report Learning Technologies Group plc's ('LTG') results for the financial year ended 31 December 2014.

The global demand for digital learning, from both corporate and government sectors, continues to grow strongly, however the learning technologies market has few dominant players. LTG's aim is to create a group of market leading businesses with complementary services which forms a business of size and scale that can meet the demanding expectations of global customers.

LTG was formed via the reverse takeover of In-Deed Online plc by Epic Group Limited ('Epic') in November 2013. Epic was a long established market leader in the UK and Europe, delivering bespoke e-learning solutions with an acknowledged expertise in multi-device learning.

Business summary and Operational Review

During 2014, we made substantial progress towards our goal of consolidating the industry with the acquisition of LINE Communications Holdings Limited ('LINE') and Preloaded Limited ('Preloaded'). The subsequent merger of LINE and Epic to form LEO in July, created the largest e-learning services business in the UK with significant presence in the defence, retail, leisure and automotive sectors. Furthermore, LEO enjoys strong relationships with the UK Government, in particular Civil Service Learning.

LINE also brought consulting expertise and long-standing relationships with strategic partners such as KPMG and Xerox HR, with whom we are tendering for many substantial contracts. In December 2014, we announced that LEO had become the first 'Go to market' partner of the Open University; we expect this to generate significant opportunities during 2015.

Merging two competitors often presents numerous challenges. I am therefore delighted to report that we have achieved a fully integrated business by the end of 2014, resulting in improved operating margins by the year end. The reorganisation was delivered on budget with annualised synergy savings of circa £0.7 million which will benefit our results in 2015.

Whilst the acquisition of LINE was about creating a substantial platform and channel for the Group's expanded service offering, Preloaded was about adding further expertise and capability. Preloaded creates 'games with purpose'; games which deliver a balance between being an engaging, enticing game whilst still delivering a genuine learning gain to the audience. Since joining LTG, Preloaded's team has exceeded our expectations by delivering strong growth in revenue and profit while broadening its customer base. We expect that Preloaded will build on these firm foundations in 2015.

LTG's self-authoring tool, 'gomo', made good progress in 2014 with sales in line with expectations and a particularly strong performance in the US. The launch of gomo 3.0 in March 2015 brings new services which double the potential revenue per customer which, when combined with subscription renewals, should deliver substantial growth in 2015. We remain confident that gomo's recurring revenues will become an important part of our revenue mix in the next few years.

The US business exceeded our expectations in 2014 buoyed by two substantial new contracts. We expect continued progress in 2015 as LEO establishes itself as a strong brand in the North American market. We have recognised the importance of making our joint venture in Brazil operate a similar model to LEO to achieve the margins and customer satisfaction enjoyed in the UK. Following a significant training programme delivered by LEO staff in Rio in the first half of 2014, we have seen good signs of improvement and therefore expect the operating loss in 2014 to be substantially reduced in 2015.

Despite the significant change and addition to the Company during 2014, the Group has achieved results ahead of management expectations. This has been achieved by the hard work and dedication of our highly capable staff and I would like to thank them, on behalf of the Board, for all their efforts in a busy and transformational year.

Board Changes

In June 2014 we welcomed Leslie Ann-Reed (Non-executive Director), Piers Lea (Chief Strategy Officer), Dale Solomon (Chief Operating Officer) and Richard Jones (Group Finance Director) to the Board.

Peter Mountford, Deputy Chairman, stepped down from the Board in September 2014. Peter expertly assisted with the reverse takeover of Epic by LTG in 2013 and the acquisitions undertaken earlier in 2014. Following Peter's departure, Leslie-Ann Reed became Chairman of the Audit Committee in September 2014, and Harry Hill became Deputy Chairman in December 2014.

Neil Elton joined the Board as Group Finance Director in November 2014, with Richard Jones stepping down from the Board but remaining with LTG as Group Financial Controller. Neil has helped build a number of fast growing listed companies including Concateno plc and most recently Sagentia Group plc.

Current Trading

The Group has enjoyed an excellent start to 2015 with sales in the first quarter ahead of target. Substantial new contract wins have created a very strong order book which when combined with a record sales pipeline of large scale contracts through our strategic partners, underpins the Board's confidence that 2015 will again deliver substantial progress in our financial performance.

In light of the results for 2014 and our confidence in the prospects for 2015 the Board recommends, subject to shareholder approval at the forthcoming Annual General Meeting to be held on 21 May 2015, a final dividend of 0.07 pence, making the total dividend for the year 0.10 pence per share. The final dividend will be paid on 5 June 2015 to all shareholders on the register at 22 May 2015.

Andrew Brode

Chairman

Strategic Report for the year ended 31 December 2014

Financial Results

On 8 November 2013, LTG acquired Epic Group Limited ('Epic') by way of a reverse takeover. During 2014, LTG acquired two further businesses: LINE Communications Holdings Limited ('LINE') and Preloaded Limited ('Preloaded'). Unless otherwise stated the financial results presented in this report reflect the results of the Group based on the performance of the businesses whilst under the ownership of LTG.

In the year ended 31 December 2014, the Group generated revenue of £14.9 million (2013: £7.6 million), a 97% increase.

Unadjusted operating profit decreased by 71% to £0.3 million (2013: £1.1 million).

To provide a better understanding of the underlying business performance, adjusted EBITDA excludes the amortisation of acquisition related intangible assets, the amortisation of internal capitalised development costs, depreciation, share based payment charges and other exceptional items. Adjusted EBITDA increased by 42% to £2.1 million (2013: £1.5 million). The resulting adjusted EBITDA margin was 14% (2013: 19%).

Whilst 2013 represented margins at the higher end of expectation, the year-on-year reduction reflects the acquisition of LINE which had been generating lower margins. The restructuring plan and roll-out of new business practices in the second half of 2014 produced an improvement in margins towards the end of 2014.

On a like-for-like basis, as if the businesses that LTG owned at the end of 2014 had been owned at the end of 2013, the 'Order Book' is in line with the prior year. The Order Book is defined as the value of contracts won but not yet delivered. On a like-for-like basis, the prospective sales pipeline has increased markedly as at 31 December 2014.

The amortisation charge for acquisition related intangible assets was £0.6 million (2013: nil) and is discussed further in Note 11. The amortisation charge for internally generated development costs was £0.1 million (2013: £0.1 million) and relates to the development of 'gomo', the Group's award winning multi-device content authoring tool. The share based payment charge increased from £0.2 million in 2013 to £0.6 million in 2014.

Integration costs of £0.3 million (2013: nil) relate to one-off restructuring costs following the acquisition of LINE and its merger with Epic to form LEO in July 2014. This delivered annualised savings of £0.7 million.

Loss before tax reduced from £0.9 million in 2013 to £0.1 million in 2014. Adjusted PBT (being adjusted EBITDA less depreciation and amortisation of internally generated intangible assets) was £1.8 million in 2014 (2013: £1.3 million). Costs of acquisitions in 2014 were £0.3m (2013: £1.0 million), finance charges related to deferred consideration of the acquisition of Preloaded were £0.2 million (2013: nil) and in 2013 there were deemed costs of listing of £1.1 million.

The income tax expense of £35,000 in 2014 (2013: £0.2 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 3.

On a statutory basis, basic and diluted earnings per share ('EPS') from continuing operations reduced to a loss of 0.049 pence (2013: 0.429 pence). Based on the average number of shares in issue and adjusted operating profit during the year, adjusted basic EPS from continuing operations increased by 24% to 0.613 pence (2013: 0.495pence).

On 7 April 2014, the Group acquired 100% of the issued share capital of LINE, an e-learning solutions consultancy, for total consideration of £9.0 million, comprising £5.1 million cash and £3.9 million in LTG shares. Goodwill on acquisition has been calculated at £7.4 million with acquisition related intangible assets of £1.0 million represented mainly by customer relationships. LINE was merged with Epic in July 2014 to form LEO.

On 12 May 2014, the Group acquired 100% of the issued share capital of Preloaded, a designer of educational computer games for an initial consideration of £2.2 million comprising £1.6 million cash and £0.6 million in LTG shares. Contingent deferred consideration of up to £2.4 million may be paid dependent on revenue performance in the period to 31December 2015. Preloaded contributed £1.5 million revenue and £0.5 million profit before tax to the Group in the final 8 months of 2014. Goodwill on acquisition has been calculated at £2.2 million with acquisition related intangible assets of £1.1 million represented by customer relationships and the Preloaded brand. Further details of the two acquisitions are provided in Note 7.

LTG part funded its acquisition of LINE and Preloaded through the placing of 50,000,000 shares at 16 pence per share, raising £8.0 million. The Group has a strengthened balance sheet with Shareholders' Funds at 31 December 2014 of £14.4 million, equivalent to 4.1 pence per share (2013: Shareholders' Funds of £1.5 million equivalent to 0.5 pence per share). The gross cash position at 31 December 2014 was £4.4 million (2013: £1.2 million). The Group has no debt.

Net cash generated from operating activities was £0.9 million (2013: £1.2 million), cash outflows from investing activities was £4.9 million (2013: £1.4 million) and cash inflows from financing activities was £7.2 million (2013: £0.3 million outflow). Debtor days were 58days (2013: 45 days) and combined debtor and WIP days were 66 days (2013: 34 days). This increase reflects the greater proportion of projects being undertaken with large corporate and government agencies in 2014 following the acquisitions of LINE and Preloaded.

Service Offering

We know that today's businesses are moving faster than ever, while at the same time becoming more complex. Organisations are required to achieve results in an increasingly globalised and competitive environment, meaning new strategies are needed. With both business needs and technology changing all the time, they are struggling to keep up.

It is critical for organisations to equip their people with skills and knowledge to remain agile, resilient and effective to keep up in today's fast-paced workplace. Organisations are increasingly turning to technology to find the answer, but that's just part of the challenge. With a wealth of new and existing learning technologies to choose from, there is a lack of understanding of how to deploy learning technology effectively to achieve results.

We believe that the right answer to that challenge lies in helping organisations adopt learning at a strategic level. 'Moving learning to the heart of business strategy' is our answer. LTG's end-to-end service offering enables us to partner with global clients throughout the creation, implementation and maintenance of their learning transformation. We deliver transformational results through learning innovation and the effective use of learning and performance technologies including content, games with purpose, moving image and platforms. We do this for a broad mix of public, private and not-for-profit clients across a range of sectors.We ask questions which allow us to get to the root of an organisation's challenges, enabling us to craft learning architectures which move beyond disparate or traditional learning elements, such as e-learning or standalone solutions. Instead, we create complete learning programmes which seamlessly fit into businesses and improve performance throughout the organisation.

LEO

Merging two long established market leaders was not without its challenges however the prize was more than worth it. LEO is a stronger, more dynamic business than its predecessors with a genuinely expanded service offering. Reassuringly, the provenance of Epic and LINE is still very apparent even though the new brand has its own values which we deliberately set out to make bolder and more pioneering. Most importantly, our existing customers have begun to notice the difference already, commenting on the refreshing approach we take on our mission to 'Move learning to the heart of business strategy'.

Preloaded

In the 7 months since Preloaded joined the Group it has achieved a phenomenal amount. LEO is now fully capable of offering 'games with purpose' to its clients whilst Preloaded has continued to expand its own client base with a high profile strategic contract to create playful learning games at the centre of a global digital marketing campaign for an international restaurant company.

It also continues to operate in the vanguard of the fast growing learning games sector through its R&D programme, most notably resulting in virtual reality learning games for the new Samsung Gear VR headset which utilises a Galaxy phone. Our first proof of concept was a virtual reality tour of a new car model, enabling staff to interact with the car before it arrived in showrooms.

We are now proposing solutions where 'games with purpose' form the kernel of a comprehensive learning programme and believe that this approach can better engage the audience resulting in a greater learning gain and corresponding competence.

gomo

After a slow start, gomo sales increased month on month and achieved target for the year, with a particularly strong performance in the US, the world's largest market for e-learning authoring tools. Judging by the number of projects customers are creating, we are confident that subscription renewals, that are just commencing, will be high.

gomo 3.0, launched in March 2015, brings an entirely new feature set including data analytics and hosting, enabling customers to create and subsequently deploy learning content to any device globally. This doubles the potential revenue per customer and opens up new opportunities. Furthermore, gomo subscribers are hiring LEO's experts to assist them in creating learning content.

International

Our joint venture, LEO Brazil had a challenging year caused by local factors such as the World Cup and latterly the economic downturn. Project margins were consistently much lower than the UK business and we invested in a comprehensive upskilling programme during the first half of the year resulting in significant improvements by the year end. Sales performance in Q1 2015 has been encouraging.

LEO US enjoyed a fantastic year, turning its first year loss into a substantial profit. As planned, Ruth Haddon, the US COO who went from the UK in 2012 to establish the business, returns in April to take a senior role at Preloaded. Bill West, the new Senior VP for North America is an experienced e-learning entrepreneur who will lead our growth in this important market. We are also actively seeking to expand by acquisition.

Jonathan Satchell

Chief Executive Officer

Consolidated Statement of Comprehensive Income

Year ended 31December 2014

Adjusted earnings per share:

Consolidated Statement of Changes in Equity

Year ended 31 December 2014

Notes to the Consolidated Financial Statements for the year ended 31 December 2014

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 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 52 Old Steine, Brighton, East Sussex, BN1 1NH. 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 of Learning Technologies Group plc are presented in pounds sterling, which is the presentation currency for the Consolidated Financial Statements. The functional currency of each of the group entities is the local currency of each individual entity and figures have been rounded to the nearest thousand.

The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in note 3.

On 8 November 2013 the Company, then named In-Deed Online Plc, became the legal parent of Epic Group Limited. The Consolidated Financial Statements for the year ended 31 December 2013 were presented as proforma to present the substance of the transaction.

This transaction is deemed outside the scope of IFRS 3 (Revised 2008) and not considered a business combination because the Directors have made a judgement that prior to the transaction, In-Deed Online Plc was not a business under the definition of IFRS 3 Appendix A and the application guidance in IFRS 3.B7- B12 due to In-Deed Online Plc being a shell company that had no processes or capability for outputs (IFRS 3.B7).

On this basis, the Directors have developed an accounting policy for this transaction, applying the principles set out in IAS 8.10-12, in that the policy adopted is: 

· relevant to the users of the financial information;

· more representative of the financial position, performance and cash flows of the Group;

· reflects the economic substance of the transaction, not merely the legal form; and

· free from bias, prudent and complete in all material aspects. 

The accounting policy adopted by the Directors applies the principles of IFRS 3 in identifying the accounting acquirer and the presentation of the Consolidated Financial Statements of the legal parent (Learning Technologies Group Plc) as a continuation of the accounting acquirer's Financial Statements (Epic Group Limited). This policy reflects the commercial substance of this transaction as follows: 

· the original shareholders of the subsidiary undertakings were the most significant shareholders post initial public offering, owning 92.45 per cent. of the issued share capital; and

· the cash consideration paid as part of the initial public offering returned equity to the original shareholders of the legal subsidiary undertaking and as a consequence diluted their shareholding.

Accordingly, the following accounting treatment and terminology was applied in respect of the reverse acquisition:

· the assets and liabilities of the legal subsidiary Epic Group Limited are recognised and measured in the Group Financial Statements at the pre-combination carrying amounts, without reinstatement to fair value;

· the retained earnings and other equity balances recognised in the Group Financial Statements reflect the retained earnings and other equity balances of Epic Group Limited immediately before the business combination, and the results of the year from 1 January 2013 to the date of the business combination are those of Epic Group Limited. However, the equity structure appearing in the Group Financial Statements reflects the equity structure of the legal parent, including the equity instruments issued under the share for share exchange to effect the business combination; the cost of the combination has been determined from the perspective of Epic Group Limited.

The fair value of the shares in Epic Group Limited has been determined from the admission price of the Learning Technologies Group Plc shares on re-admission to trading on AIM for 9 pence per share. The value of the consideration shares was £22,950,000. The fair value of the notional number of equity instruments that the legal subsidiary would have had to have issued to the legal parent to give the owners of the legal parent the same percentage ownership in the combined entity was 7.41 per cent of the market value of the shares after issues, being £1,836,000. The difference between the notional consideration paid by Learning Technologies Group Plc for Epic Group Limited and the Learning Technologies Group Plc net assets acquired of £728,000 was charged to the Consolidated Statement of Comprehensive Income in the year ended 31 December 2013 as a deemed cost of listing amounting to £1,108,000 with a corresponding entry to the reverse acquisition reserve. 

Transaction costs of equity transactions relating to the issue and re-admission of the Company's shares are accounted for as a deduction from equity where they relate to the issue of new shares and listing costs are charged to the Group Income Statement.

At 31 December 2014 the Group had £4.4m of net 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.

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 consummate 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 each of the two years ended 31 December 2014.

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.

Information about major customers

In the year ended 31 December 2014, no single customer accounted for more than 10 per cent of reported revenues. In the year ended 31 December 2013 one customer generated revenues of £760,000 being for more than 10 per cent of reported revenues.

3. Income tax

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 weighted average statutory applicable tax rate was 27.7% (2013: 23.3%). The increase in the current year reflects an increase in profits generated overseas which are subject to higher rates of tax than in the UK.

4. Earnings per share

Basic earnings per share is calculated by dividing the loss/profit 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. The share options in issue during the year to 31 December 2014 are anti-dilutive and therefore are not included in the above calculation of diluted earnings per share.

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 loss/profit after tax attributable to equity holders of the Group for certain charges as set out in the table below.

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

In calculating the weighted average number of ordinary shares outstanding during the pro forma year ended 31 December 2013 the number of ordinary shares outstanding from the beginning of the period to the acquisition date was computed, on the basis of the weighted average number of ordinary shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement, and the number of ordinary shares outstanding from the acquisition date to the end of the period was the actual number of ordinary shares of the legal acquirer (the accounting acquiree) outstanding during the period.

5. Intangible assets

Goodwill and acquisition related intangible assets recognised have arisen from acquisitions during the year.

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. Following the acquisition of LINE and its merger with Epic in July 2014, to form LEO, management have determined that LEO represents on CGU. The carrying amount of goodwill has been allocated as follows:

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 and growth rates. The Group monitors its post-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 post-tax cash flows. The Group prepares cash flow forecasts derived from the most recent financial plan approved by the Board and extrapolates revenues, net margins and cash flows for the following four years based on forecast growth rates of the CGUs. Cash flows beyond this five year period are also considered in assessing the need for any impairment provisions. The growth rates are based on internal growth forecasts of between 8% and 9% for the first five years. The terminal rate used for the value in use calculation thereafter is 2.25%.

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

Customer contracts, relationships and branding

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

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

The cost of these intangible assets is amortised over the estimated useful life of each separate asset of between 2 and 5 years.

Software Development

Software development costs principally comprise expenditure incurred on major software development projects 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 3 years.

7. Acquisitions

LINE Communications Holding Limited

On 7 April 2014, the Company acquired 100% of the issued share capital of Line Communications Holdings Limited ('LINE'), a company engaged in the design of fully blended e-learning solutions. The investment was made in order to enable LTG to combine LINE with its existing company Epic to create a European leader in the e-learning custom content market ('LEO').

The consideration paid comprised £5,130,000 in cash and £3,870,000 in the form of 24,187,500 newly issued LTG shares. There is no deferred consideration payable. Acquisition costs of £206,000 were expensed in the year.

The following table summarises the consideration paid for LINE, 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. Fair value adjustments have been recognised for acquisition related intangible assets and related deferred tax and in alignment of accounting policies.

Acquisition related intangible assets of £1.0 million relates to the valuation of the customer relationships and software and will be amortised over a period of 2-5 years.

A deferred tax liability of £0.2 million in respect of the acquisition related intangible assets was established on acquisition. None of the goodwill is expected to be deductible for income tax purposes.

The trade and other receivable amounts acquired, noted in the table above, are before allowance for any uncollectable amounts. The Directors do not consider any such allowance is needed.

Following the integration of LINE with Epic to form LEO, goodwill arising from the acquisition has been allocated to the LEO CGU.

LINE is estimated to have contributed £5.1 million of revenue for the period between the date of acquisition and the balance sheet date and £0.4 million of profit before tax. If the acquisition of LINE had been completed on the first day of the financial year, Group revenues would have been £2.3 million higher and group profit attributable to equity holders of the parent would have been £0.1 million higher.

Preloaded Limited

On 12 May 2014, the Company acquired 100% of the issued share capital of Preloaded Limited ('Preloaded'), a company engaged in the design of educational computer games. As a result of the acquisition, the Group is expected to increase its presence in this market.

The consideration paid comprised an initial consideration of £2,200,000 comprising £1,590,625 cash; of which £1,200,000 was paid immediately with the remaining £390,625 to be paid within 12 months, and £609,375 in newly issued LTG shares. In addition, contingent consideration of up to £3,400,000 is payable based on the achievement of revenue targets in 2014 and 2015. Contingent consideration has been reassessed to take account of any recent estimates in the contingent consideration and the other deferred consideration payments have been discounted using a discount factor of 10% and are held as liabilities on the balance sheet and are payable in cash or LTG shares at the option of LTG. A finance expense of £162,000 in the year reflects the prorated finance charge for the discounted element of the contingent deferred consideration. Acquisition costs of £90,000 were expensed in the year.

The following table summarises the consideration paid for Preloaded, 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. Fair value adjustments have been recognised for acquisition related intangible assets and related deferred tax and in alignment of accounting policies.

Acquisition related intangible assets of £0.9 million relate to the valuation of the customer relationships which are amortised over a period of 2 years and £0.2 million which relates to the value of the Preloaded brand and is amortised over 5 years.

A deferred tax liability of £0.2 million is respect of the acquisition related intangible assets was established on acquisition. None of the goodwill is expected to be deductible for income tax purposes.

The trade and other receivable amounts acquired, noted in the table above, are before allowance for any uncollectable amounts. The Directors do not consider any such allowance is needed.

Goodwill arising from the acquisition has been allocated to the Preloaded CGU.

Preloaded contributed £1.5 million of revenue for the period between the date of acquisition and the balance sheet date and £0.5 million of profit before tax. If the acquisition of Preloaded had been completed on the first day of the financial year, Group revenues would have been £0.6 million higher and group profit attributable to equity holders of the parent would have been £0.1 million higher.