Learning Technologies Group Regulatory News (LTG)

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

Financial summary:

*Proposed 2019 final dividend postponed until market conditions normalise

Current trading 

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

Sustaining our position of financial strength 

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: +44 330 221 9914

Webinar ID: 876-199-731

Access code: 507-982-456

Enquiries:

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.

Revenues 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:

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, the 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:

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

Adjusted earnings per share:

Consolidated Statement of Changes in Equity

Year ended 31 December 2019

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:

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:

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

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.

Revenue by nature

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

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

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:

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

6. 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 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.