Learning Technologies Group Regulatory News (LTG)

Learning Technologies Group plc

FULL YEAR RESULTS 2020

Resilient performance; high recurring revenues and robust cash position

Learning Technologies Group plc ("LTG" or the "Company"), the provider of services and technologies for digital learning and talent management, announces its full year results for the twelve months ended 31 December 2020.

Strategic highlights

Financial summary

Operational Highlights

Current trading and outlook

Jonathan Satchell, Chief Executive of LTG, said:

"LTG delivered a resilient financial performance in 2020, building recurring revenues while maintaining EBIT margin against a challenging macroeconomic backdrop. Our balance sheet strength was bolstered by an £82 million equity placing to accelerate our future growth and we have used that capital to good effect with acquisitions that extend our capabilities and scale in the global market for digital learning and talent management.

In light of the year gone by, we placed an added importance on delivering for all stakeholders, with a particular focus on our environmental, social and governance responsibilities and those of our clients. We are proud that our people and technology are able to reduce the environmental impact of thousands of organisations and improve workplace equality for millions of people.

LTG enters 2021 with organic growth momentum, supported by a more diversified business and enhanced capabilities to capture long term structural growth opportunities."

Enquiries:

About LTG

Learning Technologies Group plc (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, South America and Asia-Pacific.

*Prior 12-month revenue at acquisition date

Chairman's Statement

At our January trading update we were pleased to confirm that results for 2020 would see us report a resilient performance with revenue, adjusted EBIT and cash ahead of market expectations. In 2020 we continued to make excellent progress with our strategy to build a global leader in software and services in the learning and talent sectors to meet growing demand from corporate and government customers.

During 2020, LTG broadened its offering and addressable market substantially. Notably, the acquisitions of Open LMS, eCreators and eThink have given us a large-scale capability in the open-source Moodle™ market. This enables us to offer open-source Learning Management System ('LMS') solutions alongside our broad range of proprietary software products, address new customers, sell new solutions to existing customers, and deepen our presence in Latin America, Australia and North America. We expect this to improve the growth profile of the Group, as it becomes less concentrated on the large-enterprise market. The acquisitions of Bridge and Reflektive in 2021 further strengthen our expansion into the mid-market.

In 2020, a share placing raised c.£81.8 million in gross proceeds to take advantage of the opportunity to accelerate future growth and gain further share of the c.$358 billion corporate learning market, and the talent management market. At the placing LTG introduced new strategic financial objectives to achieve run-rate revenues of c.£230 million and run-rate adjusted EBIT of c.£66 million by the end of 2022 and we are on track to meet these objectives.

Revenues in 2020 increased by 2% on a statutory basis. This included a decrease of 8% on an organic constant currency basis, which was more than offset by the contribution from acquisitions in the year. As anticipated, our Software & Platforms division saw high growth across the majority of our platforms, offset by a year-on-year decline in large enterprise solutions due to deployment delays during COVID-19. Also as anticipated, our Content & Services division saw revenues decline by 24% on a like-for-like basis as corporates postponed certain projects. Content & Services sales have performed very strongly in the past six months, and we expect this division to return to 2019 levels in the coming year. Adjusted EBIT was £40.3 million (2019: £41.0 million), with adjusted EBIT margins of 30.5% (2019: 31.5%). Adjusted diluted EPS decreased by 1% to 4.294 pence (2019: 4.351 pence). Over the last five years the Group has delivered compound annual growth of 50% in adjusted diluted EPS. The Group's net cash position at 31 December 2020 of £70.2 million (2019: £3.8 million) was ahead of market expectations. This was primarily due to our continued strong operating cash conversion.

Environment, Social and Governance ('ESG')

During 2020 LTG made a concerted effort to review and extend best practice in its ESG initiatives and report more fully on measures in place. More importantly, LTG also empowers its clients to achieve their ESG priorities. As a business that helps companies to manage and develop their human capital our platforms and services have helped to directly improve the talent development of more than 200 million people around the world during the past year.

Current trading and outlook

Current trading for the year has started well and in line with management expectations. We expect a strong recovery in our Content & Services division, reflecting excellent momentum for sales in the past six months.

LTG has made three acquisitions in 2021 so far, Reflektive, PDT Global and Bridge, deploying the balance of the capital raised in 2020 and further increasing the proportion of Group recurring revenues. LTG's balance sheet remains strong, with net cash of c.£25 million at the end February, and the Board continues to pursue an exciting pipeline of further acquisition opportunities.

We have made clear progress in our ambition to serve small, mid-size and enterprise tier clients with our targeted, multi-product solutions. The appreciation by corporates of the necessity, appropriateness and effectiveness of digital learning and talent management solutions will, in the Board's view, lead to increased levels of spending in 2021 and beyond, as the impact of lockdowns starts to recede.

Board matters, dividend and Annual General Meeting

On 1 October 2020 Simon Boddie joined the Board as our fourth Non-Executive Director ('NED'). Simon's appointment brings supplemental expertise to the Group including experience of acquisitions and integrations in emerging markets. This appointment takes the number of Board members and officers to eight, of whom four are NEDs and three are women.

The Board is committed to a progressive dividend policy. Based on strong cash generation and an improved trading outlook and promising recent acquisitions, the Board is confident about the year ahead. It is therefore recommending a final dividend of 0.50 pence per share (2019: 0.50 pence), giving a total dividend for the year of 0.75 pence per share, in line with the prior year.

If approved the final dividend will be paid on 25 June 2021 to all shareholders on the register at 4 June 2021.

The Board looks forward to updating shareholders on progress during 2021. The Annual General Meeting will be held on 26 May 2021.

Andrew Brode

Chairman

24 March 2021

Strategic Report for the year ended 31 December 2020

Chief Executive's Review

Market Overview

The learning and talent management markets are highly fragmented and fast evolving. There is a large number of specialised operators, but few are able to offer a full range of products and services, enabling them to orchestrate the kind of holistic solutions required by leading corporations or government organisations. LTG is a specialised product and services provider that can address these more demanding needs with broader, data-driven solutions to help drive successful workforce development and transformation outcomes.

Five forces are driving the need for corporates and governments to reskill and transform their workforces: the complexity of business and work; the pace of change; unprecedented demographic shifts; the need to compete through productivity; and changing relationships to work.

The global corporate training market was estimated to be worth approximately $358 billion in 2020 and is forecast to grow at approximately 3% in 2021. A survey conducted by LTG in December 2020 suggested that 78% of respondents expect 2021 training budgets to increase by more than 3%. The training 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 complementary talent management market refers to the wide array of integrated applications that help companies to optimise the recruitment, performance management, learning & development, diversity and inclusion and compensation management of employees. This software enables companies to track individual employees from the date of hiring through the complete employee lifecycle in the organisation, facilitating employee engagement and retention as well as helping companies to align their business strategies with the professional development of their workforce. LTG is meeting the needs of organisations to re-skill their workforces and close the gap between current and future capability.

Strategic Goals

In November 2018, the Board announced its ambition to achieve run-rate revenues of £200 million and run-rate adjusted EBIT of at least £51 million by the end of 2021, under LTG's current accounting policies. This target still stands, and the Board is confident about achieving these stated goals given the Group's underlying performance supported by the acquisitions made during 2020 and early 2021.

On 28 May 2020 LTG announced a share placing that raised £81.8 million in gross proceeds at a share price of 127.0 pence. In 2020 LTG introduced new strategic financial objectives to achieve run-rate revenues of circa £230 million and run-rate adjusted EBIT of circa £66 million by the end of 2022. As before, LTG intends to meet these financial objectives through a combination of organic growth and additional strategic acquisitions that are complementary to the current business, financed through the proceeds of the May 2020 placing, operating cash flows and moderate debt leverage, but without further dilution to shareholders.

The purpose of the May 2020 placing was to take advantage of the macroeconomic backdrop to accelerate future growth within the growing corporate talent development market. The funds raised were to be used to finance a 12-month pipeline of acquisition opportunities in a highly fragmented market where LTG's management believed high quality assets were becoming available at compelling valuation levels. As at the date of this report, the Company has delivered on this objective.

The Group continues to target highly relevant acquisitions in both the Software & Platforms and Content & Services segments. Our strategy is to expand into new areas of the talent management ecosystem, acquire best-of-breed products and build a multi-solution offering for our clients that combines specialist products with class-leading advisory services. We aim to achieve a level of quality, functionality and experience in both software and services that enables us to provide customers with a unique and valuable offering. The Directors further believe that COVID-19 will accelerate these trends by creating a greater willingness to continue to use digital learning in place of classroom formats and a greater desire to manage human capital more efficiently and effectively in a more remote working world.

We will continue to evaluate strategic acquisitions of scale that would be additive to the targets outlined above. Strict criteria are used in assessing all acquisitions including the financial effects, integration risk and prospective returns.

Expanding the Group's market opportunity with open-source software

Two key elements of LTG's acquisition strategy are to expand its addressable market and to focus on cross-selling opportunities for its largest 50 customers to build a global market leader in the digital learning and talent management software sector. Part of this strategy is to build a substantial open-source software ('OSS') offering to complement LTG's large enterprise, mid- and small-market proprietary software solutions. Many clients have a requirement for a flexible, value-for-money orientated LMS solution which they can either develop, host and service themselves or which they can partner with a trusted agency to deliver their chosen OSS solution.

During 2020, through the execution of three acquisitions, the Group became the largest global supplier of expertise, hosting and services for the market's leading open-source LMS, Moodle™. The purchase of Open LMS in March 2020, followed by the acquisition and integration of eCreators and eThink under the Open LMS brand, has made LTG the global leader in this market. LTG aims to professionalise this market by bringing scalable hosting expertise, world-class service delivery levels and complementary products and services whilst also championing the ideals of the open-source market by making its OSS products truly available to all.

In addition to giving LTG a significant presence in the open-source market, these acquisitions have enabled the Group to address new higher education customers, as well as broadening its ecosystem offering to an extensive and growing customer base that were not previously served. The acquisitions also substantially extend LTG's geographical footprint to Latin America and Australia.

Investment Case

The Group provides investors with access to organic growth, high levels of profitability, strong cash generation and a proven acquisition strategy in a growing and fragmented market with plentiful opportunities for the future.

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 of these together in pursuit of business performance goals. The complexity of workforce transformation demands integrated products with broad and rich functionality and highly-skilled staff to deliver a complete solution. LTG has made strong progress in recent years to build an increasingly unique set of capabilities that we believe others will find hard to match.

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. We believe that certain structural trends are increasing demand for our solutions and COVID-19 has acted as an accelerator of these trends by driving increased use of digital learning and on-line working.

Strategy and Business Model

Since its inception in 2013, LTG has grown to become a market leader in the fast-growing workplace digital learning and talent management markets. The Group now employs just over 1,100 people in 15 locations across Europe, the United States, Asia-Pacific and South America.

We continue to pursue our strategy of helping organisations to 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 aim to deliver transformational results through learning innovation and the effective use of best available learning and talent management technology. For the 5th successive year LTG has been named as a 'Strategic Leader' in the respected industry analyst Fosway Digital Learning report.

The management team has a proven track record of delivering and integrating 16 acquisitions over the past 7 years to February 2021, increasing scale and capabilities across multiple geographies, and contributing materially to shareholder value. LTG's acquisition approach is to either acquire fast-growing businesses with strong software and/or services and high quality leadership, or to take on underperforming businesses with strong underlying assets and drive improvements in the operating model, integrating with LTG's core capabilities and focusing on managing the cost base, improving utilisation and margins, and driving strong cash generation.

The Directors expect that acquisitions are most likely to come from its well-researched and developed pipeline of target companies.

During 2020 LTG's capabilities were extended to the high-growth, Moodle™ open-source LMS market, and our offering for small and mid-sized customers was strengthened. LTG now has the capability to deliver multiple best-of-breed SaaS solutions encompassing talent acquisition (recruitment and onboarding), talent management (performance, succession, compensation, diversity and inclusion and organisational planning), organisational agility (talent mobility and engagement), and market leading learning management, data analytics and self-authoring tools.

Investment in innovation for long-term growth

LTG continues to innovate in two principal domains. The first is working with customers and partners to build bespoke solutions in real environments. Rather than invest in speculative solutions, LTG prefers to partner with clients to build innovative solutions, using real data to prove genuine business impact. The second domain relates to the rationalisation of an expanding product portfolio so that products gradually move towards each other and we are able to deliver more valuable and cohesive solutions.

Recent examples of moving products towards each other have included the integration of Instilled's next generation Learning Experience Platform (LXP) with PeopleFluent. This has allowed PeopleFluent customers to elevate their users' experiences by enabling them to build, share and recommend content, empowering them to create their own 'learning journeys'. Another example has been sharing the success of Breezy's mid-market recruitment software capabilities with the PeopleFluent Recruiting enterprise solution.

LTG has three key principles underlying its R&D strategy. 'Never in isolation' means that products are kept customer and market informed, particularly for customers that indicate conviction through their spending. Applying 'familiar technology' via new approaches is a low risk way to apply existing technology to different markets. Rustici for example has used this principle to create a new line of business with dual focus: multi-LMS support for organisations and support for the extended enterprise; delivering content to different audiences. The third principle is to 'invent only when appropriate'. An example of this is PRELOADED's application of XR (extended reality including AR and VR) technologies.

As well as re-invigorating established software solutions, LTG has also developed new products to address changing requirements in the marketplace. With more than 5,000 customers LTG has excellent market access which allows for real-time 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 particularly suits large and medium sized 'traditional' businesses facing substantial transformation challenges in the coming years. For example, we have deployed PeopleFluent's Instilled and Rustici's Content Controller home grown products into a range of new and existing customers including a large oil company that is transforming to becoming a global energy business.

Divisional review

Software & Platforms

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

Overview and performance

In 2020 Software & Platforms accounted for £100.0 million or 76% of Group revenues, up 13% from £88.6 million (68%) in 2019. This increase was primarily due to the 9 month maiden contribution from Open LMS. On an organic, constant currency basis revenues were flat for the full year. As anticipated the enterprise talent management software market, where deployments can take 6-9 months was briefly impacted by COVID-19 as corporates delayed procurement; this substantially affected PeopleFluent's sales pipeline in the second and third quarters of 2020 where revenues declined compared with 2019. However, LTG's other core software products showed strong growth in the year.

The Software & Platforms division contributes 90% (2019: 89%) of the Group's recurring revenues. Adjusted EBIT margins were lower at 32.2% versus 35.6% in 2019 due partly to acquisitions in the year delivering lower margins in the short-term and a greater proportion of central overheads allocated to the division based on share of Group revenue.

For the Software & Platforms division 2020 was a year of demonstrable resilience with organic growth in the small and mid-size markets ('SMB') coupled with three acquisitions that brought global expertise in high-growth open-source solutions. Signs of our customers' procurement processes being unlocked at the enterprise end of the market started to appear in the fourth quarter.

LTG strengthened its PeopleFluent talent development software offering in 2019 with the development and integration of the Instilled LXP providing a world-class user-experience, and the integration of the market leading Watershed Learning Analytics Platform ('LAP'). In 2021 we are bringing Gomo, LTG's cloud-based authoring and distribution platform which enables customers to create and deliver eLearning content online, in a device agnostic manner, under the PeopleFluent umbrella. This move is designed to support team collaboration and further expand the Group's offering horizontally, so that it can leverage LTG's deep expertise and ecosystem-leading technologies into a multi-solution software and service offering with best-of-breed capabilities.

Breezy, the talent acquisition specialist acquired in April 2019, produced another excellent year in 2020. Breezy has a highly scalable, self-service, SaaS-based model serving the small and mid-size markets ('SMB'). Breezy is currently focused on the self-service recruitment market but the Directors see an opportunity, working with PeopleFluent and the recently acquired Reflektive, to create a broader talent management solution for SMBs, with its own performance management and analytics offering. This will help LTG to build on Breezy's success with a broader and differentiated offering in this high-growth market segment.

The Open LMS acquisition in April 2020, followed by the acquisition and integration of eCreators and eThink, has meant that LTG can now leverage open-source software to deliver an effective and engaging learning experience to a new segment of the market. As the largest commercial Moodle™ services provider in the world, Open LMS helps organisations and institutions deliver a dynamic and customisable learning platform designed to meet their specific needs. eThink brings a strong presence in North America, eCreators is the market leader in Australia, and combined with Open LMS's presence in other emerging markets such as Latin America, the combined Open LMS business has a truly global footprint.

LTG remains uniquely positioned as the global leader in eLearning standards through its Rustici business. This expertise is foundational to making digital learning and training content and platforms work together. Rustici therefore plays a key role across all facets of the learning technology space, from content creation and testing, to distribution and tracking. Rustici serves around 2,000 customers worldwide across the spectrum from learning platforms and content publishers to large organizations and government agencies. During 2020, increased demand for digital learning tools led to increased interest in standards based solutions and this helped LTG to perform strongly once again in this area.

LTG's solutions in learning analytics are spearheaded by Watershed. Its SaaS products provide actionable insights to customers who want to adapt their learning strategies, create more effective learning experiences and ultimately generate verifiable business results. There are significant cross-selling opportunities with other LTG customers and Watershed has established itself as the proven leader in learning analytics, with large scale global deployments by many large corporates including Verizon, Johnson & Johnson and PwC.

VectorVMS enables LTG to provide solutions to help clients manage all non-employee labour through the full sourcing and management life-cycle. During the year the business built out its mobile app, adding functionality and compliance by driving accessibility to all individuals. However, 2020 saw the business impacted by a steep drop in contractor usage across the client base due to COVID-19. Corporations and governments made rapid shifts to reduce or eliminate their temporary workforces and the business saw an increase in customer churn as a result but also some significant new client wins including Jacobs Engineering Group in the UK and Lenovo in the US.

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. As a result the division has consistently achieved industry leading margins.

Overview and performance

In 2020 the Content & Services division accounted for £32.2 million or 24% of Group revenues (2019: £41.4 million; 32%). The organic revenue decline at constant currency of 24% was in line with previous guidance, gross margins remained constant from year-to-year, aided by LTG's flexible operating model, and adjusted EBIT margins increased from 22.6% in 2019 to 24.9% in 2020, driven by a lower central overhead charge (allocated between divisions based on revenue share).

As anticipated, corporates postponed projects in the second and third quarters as they assessed the impact of COVID-19 on their businesses. LTG also saw a reduction in new systems implementation fees as corporates delayed the procurement of enterprise software.

LEO, the Group's innovative digital learning specialist, continued to deliver organisational transformation. Its world class consultancy and strategic learning-blend design capabilities, supported by creative content, rich media, tools and platform integration are all driven by an expert global team on the front line of custom digital learning. LEO's reputation is exemplified by its prestigious contract wins and industry awards which included a coveted Gold award at Brandon Hall 2020 for its work with Sellafield Ltd and Lane4, and an Investment Week Marketing and Innovation award for its work with Fidelity International. 

During the year Eukleia, the Group's financial services subject matter expert, was merged into LEO to form LEO GRC ('Governance, Risk & Compliance). This new team combines Eukleia's specialist GRC expertise with LEO's industry leading production studio and related services to provide a compelling offering to corporates in highly regulated markets.

Although, as predicted, LEO and LEO GRC saw a substantial year-on-year reduction in revenue as clients postponed projects, particularly in the heavily impacted travel and hospitality sectors, sales towards the end of 2020 accelerated and have continued to do so in early 2021 giving the Board confidence that revenues will fully recover to pre-pandemic levels this year. LEO is seeing significant interest from global corporates who are urgently looking to advance their talent development programs in a world of increased remote working and where traditional face-to-face training models are also being impacted by environmental sustainability concerns.

LTG's highly regarded games studio, PRELOADED continued to support the Group's position as a leader in immersive learning by innovating at the edges of Extended Reality (XR) and AI technologies. 

PRELOADED developed a series of corporate learning experiences in virtual reality including a physical therapy experience for a major US rehabilitation platform; enabling end-to-end learning in XR, and scalable ROI, connecting real-time data with real-world behaviours. Together with Oxford University, the business created Tracing Tomorrow, a game designed to encourage a debate around mental health issues, reaching over 17,000 students within four weeks of launch. PRELOADED also began the development of a game with Save The Children to improve the front-line training and emergency response of field managers, scheduled to launch later in 2021.

2020 saw significant interest in Diversity & Inclusion ('D&I') practices in the workplace as awareness increased following the 'Black Lives Matter' protests and increased regulatory and governance scrutiny of corporate ESG actions. Affirmity, LTG's D&I affirmative action specialist solutions provider, responded by authoring several new eLearning modules and expanded its capabilities in existing diversity analytics software and services. Affirmity also launched a software tool for managing Employee Resource Groups and this is already being adopted by several large corporates. Diversity related new business remains buoyant and we are excited by the enhanced opportunities presented by the acquisition of PDT Global in early 2021. From 2021 we will report the Affirmity and PDT Global businesses within the Content & Services division as the majority of their combined revenue is consultancy in nature; the allocation of reported numbers between divisions in Note 4 is unaffected by this presentational change.

Working across a broadening range of industries, and supporting long term clients during a challenging year, LTG has seen an increase in services and content in the area of innovative learning blends, social and networked learning, and gamified learning programmes. Our technical teams have continued supporting the complex technical integration of learning tools into more effective learning ecosystems. Further, new programmes from a major multi-platform and content roll-out for a global energy organisation, to a new customer learning brand for a major social networking provider lead some of our major projects into 2021.

Acquisitions

Open LMS

On 31 March 2020 LTG completed the acquisition of Open LMS, the largest global supplier of services, hosting and support to the market's leading open-source LMS, Moodle™.

The business and assets of Open LMS were acquired from Blackboard Inc. for a consideration of $27.2 million (£21.9 million), funded by the Group's existing cash and bank facilities. In the year ended 31 December 2019 Open LMS generated unaudited revenue of c.$16 million, approximately 70% of which were recurring subscription fees. Transaction costs charged to the income statement totalled £0.3 million.

eCreators

On 1 October 2020 LTG completed the acquisition of eCreators, Australia's largest provider of services supporting Moodle™. Cash consideration at completion was A$6.0 million (c.£3.3 million) with performance payments capped at A$6.5 million (c.£3.6 million) based on ambitious revenue growth targets in the three years to 2023. In the year to June 2020, eCreators generated unaudited revenues of A$4.6 million (c.£2.6 million) of which approximately 70% were recurring subscription fees.

eThink Education

On 4 December 2020 LTG completed the acquisition of eThink Education, an industry leader in the North American, Moodle™ LMS services market.

The cash consideration at completion was $19.1 million (c.£14.4 million). Further performance payments are capped at $16.0 million (c.£12.0 million) based on ambitious revenue growth targets in the three years to 2023. eThink has delivered strong and consistent growth and achieved unaudited revenues of c.$9.5 million and c.$2.8 million of EBIT in 2020.

The three Moodle™ LMS services businesses will operate closely under the Open LMS brand and bring LTG global coverage of this growing market. On a combined basis the Open LMS business now generates proforma revenues of c.£25 million, manages more than 1,400 cloud-based Moodle™ clients, and services more than 8 million users globally. As part of our commitment to the principles of open source software we will make available a range of our Open LMS software, for no licence fee, so that users can operate it in their own environments and with the hosting and service providers of their choice. This includes our leading Moodle™-based, open-source LMS, Learnbook, which we are rebranding as Open LMS Work.

During 2020 we also completed two bolt-on acquisitions to complement the Group's software offering: Patheer and JCA. The former is the provider of the foundational technology behind the PeopleFluent's new Talent Mobility platform which is addressing organisations' increasing focus on developing and retaining their own internal staff. The latter is complementary to and has been incorporated within Rustici.

Further details on these acquisitions are provided in Note 9.

In early 2021 LTG completed three further acquisitions which are summarised below.

Reflektive

On 31 January 2021 LTG completed the acquisition of Reflektive for an initial cash consideration of $14.2 million (c.£10.4 million), a leading performance management software provider headquartered in San Francisco. This highly complementary acquisition brings agile performance management software, expanding PeopleFluent's capabilities with flagship engagement and analytics tools. Reflektive offers a collaborative goal setting, continuous feedback and analytics platform that enables users to provide measurable results for boosting productivity, engagement, and retention. The business achieved unaudited revenues of c.$14.2 million in 2020, of which the vast majority were derived from recurring annual and multi-year contracts. Although Reflektive generated an EBITDA loss of c.$7.0 million in 2020, LTG expects the acquired business to be earnings accretive in the second half of 2021 and aligned with typical software division margins by early 2022.

PDT Global

On 5 February 2021 LTG completed the acquisition of UK-based PDT Global, a leading provider of D&I training solutions, for an initial cash consideration of £13.2 million. Further performance payments capped at £7.0 million are payable in cash, based on ambitious incremental revenue growth targets in each of the years ending 31st December 2021, 2022 and 2023. PDT Global will operate alongside Affirmity, LTG's existing D&I business based in Irving, Texas. The two businesses bring together highly complementary offerings which will enable clients to objectively measure and track their D&I performance and implement the tools, processes and learning required to make appropriate changes. In 2020 PDT Global delivered unaudited revenues of c.£4.8 million and EBIT of c.£2.0 million.

Bridge

On 26 February 2021 LTG completed the acquisition of getBridge LLC and related assets ('Bridge') for a cash consideration of $50.0 million (c. £36.1 million). Bridge provides a highly user-focused learning management system in addition to performance, engagement and skills development products on a SaaS-based platform and represents a significant extension of LTG's mid-enterprise offering for digital learning and talent management. The acquisition is highly complementary to PeopleFluent, which serves the large enterprise market, and Breezy HR, which serves the small and mid-sized market, and consistent with LTG's strategy of providing multi-product solutions to meet the needs of small, mid-size and large enterprises alike. In 2020 Bridge delivered unaudited revenues of circa $21.0 million and an EBIT loss of circa $1.3 million in the same period. With the operational synergies that will be created with the rest of the Group, LTG expects Bridge to become earnings accretive from the second half of 2021 and to align with its typical software division margins by early 2022. 

Group Services

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 ensure the consistent application of best practice, as well as helping to maximise cost efficiencies.

COVID-19 Update

In order to sustain LTG's position of financial strength during a turbulent year, in early 2020 we adopted a number of prudent measures including a freeze on salary increases and new recruits, a postponement of the proposed final dividend and the Directors agreed to postpone their 2019 performance bonuses. Due to our resilient financial performance since then we have been able to reverse all of these precautionary measures including ending a salary deferral scheme for all staff in July and repaying furlough payments to the government.

Since the outbreak of the pandemic in March 2020, we have followed WHO and government guidance to protect the safety of our workers, customers and partners. We implemented a work-from-home policy with effect from 16 March 2020 for all staff, putting in place a number of measures to enable effective remote working. These measures have proved to be highly successful and as a result we have implemented a 'flexible' working policy that will enable the vast majority of our staff to combine working in the office when required, with working from home to suit their needs.

We have undertaken regular communications with our employees during the year and numerous surveys and working groups to monitor and address concerns. It is gratifying to see in the survey results that LTG's approach and actions have been well received by staff. I would like to thank the more than 1,100 staff who work for us around the world for their professionalism, fortitude and good humour during this difficult year.

Jonathan Satchell

Chief Executive

24 March 2021

Chief Financial Officer's Review

Financial results

In the year ended 31 December 2020, the Group generated revenue of £132.3 million (2019: £130.1 million), an increase of 2%. Although like-for-like revenues on a constant currency basis decreased by 8%, this was more than offset by the contribution from acquisitions in the year. On the same like-for-like, constant currency basis, the Software & Platforms division was broadly flat, while the Content & Services division fell by 24%. In total, the Software & Platforms division accounted for 76% of Group revenue whilst the Content & Services division accounted for 24% of Group revenue. Recurring revenue increased from 74% of Group revenue in 2019 to 81% in 2020. Further details on the divisional performance are provided in the Chief Executive's Review.

Adjusted EBIT was broadly flat at £40.3 million (2019: £41.0 million). The Group uses adjusted EBIT to provide a better understanding of the underlying operating business performance. These adjustments to Operating profit are set out in Note 5. Acquisition and integration costs, amortisation of acquired intangibles and acquisition-related contingent consideration and earn-outs are primarily driven by acquisition activity, therefore they are excluded from adjusted EBIT to provide a more accurate reflection of the underlying business performance.

Adjusted EBIT margins were 30.5% compared with 31.5% in 2019. These industry leading margins and resilient performance in difficult market conditions reflect the strong cost control and flexible working practices that LTG is able to deploy. 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 balancing the returns generated by the operational leverage of its software businesses with investment in high-growth products and services.

In 2020 LTG raised £81.8million in an equity placing to take advantage of various M&A opportunities to help accelerate future growth. This enabled the Group to complete five acquisitions for a combined initial consideration of £40.6 million. During the year these businesses contributed a combined £12.2 million to revenues and would have contributed an additional £12.2 million if they had been owned for the full year. Further details are provided in Note 9.

As a result of the market upheaval created by COVID-19 some employee LTIPs with performance criteria based on 2020 financial targets set before the pandemic would not have been met. The Board has agreed that, rather than rebase the 2020 targets, to extend the effected option agreements by a further year, subject to the original cap on total reward. The extension to the term of LTIPs does not apply to the Directors of LTG. As a result of this variation certain share-based payment charges are now amortised over a longer period and as a result the charge is lower in 2020 than originally anticipated at £3.3 million (2019: £3.1 million). The total number of outstanding share options at the end of 2020 was 36.1 million (2019: 35.3 million).

The amortisation charge for internally generated development costs was £4.2 million (2019: £2.4 million) as set out in Note 10. The Directors note that this charge was £1.9 million less (down £1.4 million from a £3.3 million difference in 2019) than related capitalised development costs of £6.1m; the difference primarily reflects the lag between post-acquisition capitalised development and the related build-up of the associated amortised charge over the useful economic life of the related asset. This difference will reduce over time, assuming a constant rate of spend on capitalised R&D, and excluding the impact of further acquisitions.

The following acquisition related costs are excluded from Adjusted EBIT as set out in Note 5. The amortisation charge for acquisition-related intangible assets increased to £21.4 million (2019: £20.9 million) due largely to the Open LMS acquisition early in the year. Further details are set out in Note 9. Acquisition-related contingent consideration and earn-out charges of £3.5 million (2019: £3.5 million) relate primarily to the second year of BreezyHR's contingent earn-out agreement awarded based on achieving substantial incremental revenue growth. As noted at the time of the 2019 Results, following the impact of COVID-19, the earn-out period has been extended from 3 to 4 years, subject to the original cap on total contingent consideration of $18.0 million. A credit of £1.4 million (2019: nil) reflects the movement in the fair value of the contingent consideration anticipated to be paid in relation to the Watershed acquisition for the earnout period 2019-2021. A net foreign exchange loss of £1.1 million (2019: nil) arose on the acquisition of Open LMS and reflects the movement in the USD/GBP exchange rate between the $21.0 million revolving credit facility ('RCF') being drawn for the purposes of the acquisition and completion of the acquisition at the end of March 2020. Acquisition and integration costs amounted to £0.9 million (2019: £0.2 million) and related primarily to the acquisitions of Open LMS, eCreators and eThink.

Statutory profit before tax was £13.5 million compared with £14.3 million in the prior year and unadjusted operating profit was £14.9 million compared to an unadjusted operating profit of £16.4 million in 2019. Statutory profit before tax is stated after finance charges of £1.4 million, down on 2019 (£2.1 million), primarily as a result of the reduction in gross borrowings.

The income tax credit of £3.9 million in 2020 (2019: £3.4 million charge) is stated after adjusting for the recovery of prior year tax losses at acquisitions in the US, 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 6.

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 decreased by 1% to 4.294 pence (2019: 4.351 pence). On a statutory basis, basic earnings per share ('EPS') increased from 1.628 pence in 2019 to 2.450 pence in 2020. Further details are provided in Note 7.

The Group has a robust balance sheet with shareholders' equity at 31 December 2020 of £269.1 million, equivalent to 36.4 pence per share (2019: shareholders' equity of £175.5 million, equivalent to 26.2 pence per share). The gross cash position at 31 December 2020 was £88.6 million (2019: £42.0 million). The Group's net cash at 31 December 2020 was £70.2 million (2019: £3.8 million). Net cash is defined as gross cash less borrowings.

Despite the market turbulence resulting from COVID-19, cash collections remained strong during the year. Net cash generated from operating activities was £39.9 million (2019: £37.0 million) equivalent to an adjusted operating cash flow conversion rate of 85% (2019: 84%). Adjusted operating cash flow conversion is defined by net operating cash flows after adjusting for acquisition-related contingent consideration and earn-out payments, transaction and integration costs, interest and tax paid, and payments of lease liabilities as a proportion of adjusted EBITDA.

Debtor days increased marginally to 87 days (2019: 81 days) and combined debtor, WIP and deferred income days reduced marginally to minus 47 days (2019: 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 were £3.4 million (2019: £4.5 million). Cash outflows from investing activities were £45.2 million (2019: £15.1 million) and comprised the acquisitions of Open LMS, eCreators, eThink, Patheer and JCA for £39.0 million (2019: £8.8 million) net of cash acquired, plus capitalised investment in internally generated IP of £6.1 million (2019: £5.7 million) and property, plant and equipment of £0.1 million (2019: £0.7 million).

Cash inflows from financing activities were £53.1 million (2019: outflows of £6.0 million). Cash inflows from financing activities primarily include proceeds from the May 2020 share placing as well as on the exercise of employee share options totalling £80.6 million (2019 £0.7 million) less net loan re-payments (RCF movements and term loan repayments) of £18.5 million (2019: receipts £0.6 million), lease payments of £3.3 million (2019: £3.3 million) and dividend payments of £5.5 million (2019: £4.0 million). Payments of contingent deferred consideration in 2020 were £0.1 million (2019: £nil).

Following a review of the application of the revenue recognition policy to term licence contracts in the Rustici CGU the 2018 and 2019 balance sheets have been restated to recognise a proportion of the revenue on delivery rather than all revenue being recognised over time as had previously been reported. The effect of this adjustment is to bring forward reported revenue to earlier periods and has resulted in a restatement of the opening reserves, deferred income and tax provisions at 1 January 2019, reducing the carried forward deferred revenue balance by £2.1 million. There is no impact on the income statement for the year ended 31 December 2019 and the underlying contractual position and cash generation is unaffected by this accounting adjustment. Further details are given in Note 3. 

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

24 March 2021

Consolidated Statement of Changes in Equity

Year ended 31 December 2020

Notes to the Consolidated Financial Statements for the year ended 31 December 2020

1. General information

The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 December 2020 or 31 December 2019.

Statutory accounts for the year ended 31 December 2019 have been filed with the Registrar of Companies and those for the year ended 31 December 2020 will be delivered to the Registrar in due course; both have been reported on by independent auditors. The independent auditors' report for the year ended 31 December 2020 is unmodified.

The independent auditors' reports on the Annual Report and Accounts for the year ended 31 December 2020 and 31 December 2019 were unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

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 accounting standards in conformity with the requirements of the Companies Act 2006. 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

The Group meets its day-to-day working capital requirements from the positive cash flows generated by its trading activities and its available cash resources. These are supplemented when required by additional drawings under the Group's committed $21.0 million revolving credit facility (RCF) and an uncommitted $28.0 million accordion facility, which are available until 2023. During the period, the Group drew down the RCF facilities to fund the acquisition of Open LMS in March. In May, following the successful equity placing raising gross proceeds of £81.8 million (£79.6 million net of fees) the RCF drawdown was fully repaid and the lenders agreed to postpone the term loan repayments in the second half of 2020; these postponed term loan repayments which total $4.2 million will be paid in equal quarterly instalments from the first quarter of 2021 until the termination of the loan in April 2023.

In early 2020 the Board took a number of actions to protect operating cash flow given the uncertainty of the impact of COVID-19. As the year progressed and cash flows remained resilient the Board was able to reverse many of the precautionary actions that had been taken including ending a salary deferral scheme, the repayment of all furlough grants received from the UK government and the payment of the postponed 2019 final dividend. The Group continues to hold a strong liquidity position overall at 31 December 2020, with gross cash and cash equivalents of £88.6 million and net funds of £70.2 million (see Note 16) (31st December 2019: gross cash was £42.0 million and net funds £3.8 million). Whilst there are a number of risks to the Group's trading performance, including from the COVID-19 pandemic and its impact on the global economy, the Group is confident of its ability to continue to access sources of funding in the medium term.

The Directors report that they have re-assessed the principal risks, reviewed current performance and forecasts, combined with expenditure commitments, including capital expenditure, business acquisitions, and borrowing facilities. The Group's forecasts demonstrate it will generate profits and cash in the year ending 31st December 2021 and beyond. In addition, following the completion of the acquisitions of Reflektive, PDT Global and Bridge (refer to Note 20) in February and March of 2021 for a total of c£59.7 million, the Group continues to have sufficient cash reserves to enable it to meet its obligations as they fall due, as well as operate within its banking covenants, for a period of at least 12 months from the date of signing of these financial statements.

The Group has also assessed a range of downside scenarios to assess if there is a significant risk to the Group's liquidity position. The forecasts and scenarios prepared consider our trading experience during the pandemic to date and we have modelled downside scenarios such as varying degrees of reductions in content & services project revenues, delay in new sales wins, extended customer payment days and various cost reductions. The directors have concluded that it is appropriate to adopt the going concern basis of accounting in preparing the Annual Report, having undertaken a review of a detailed forecast for 2021 and the impact this forecast has on the Group's gross cash, net debt and ability to meet bank covenants under the existing facilities agreement.

Changes in accounting policies

(i) New standards, interpretations and amendments adopted from 1 January 2020

New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2020 are:

The Group has considered the above new standards and amendments and has concluded that, they are either not relevant to the Group or they do not have a significant impact on the Group's consolidated financial statements.

(ii) New standards, interpretations and amendments not yet effective

At the date of authorisation of these consolidated Group financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU). Management are currently assessing the impact of these new standards on the group.

Alternative performance measures

The Group has identified certain alternative performance measures ("APMs") that it believes will assist the understanding of the performance of the business. The Group believes that Adjusted EBIT, adjusting items, Shareholders' funds and net cash / debt provide useful information to users of the financial statements. The terms are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other companies. They are not intended to be a substitute for, or superior to, IFRS measures and are discussed further in the Glossary.

Adjusting items

The Group has chosen to present an adjusted measure of profit and earnings per share, which excludes certain items which are separately disclosed due to their size, nature or incidence, and are not considered to be part of the normal operating costs of the Group. These costs may include the financial effect of adjusting items such as, inter alia, restructuring costs, impairment charges, amortisation of acquired intangibles, costs relating to business combinations, one-off foreign exchange gains or losses, integration costs, acquisition related contingent consideration and earn-outs, joint venture profits and losses and fixed asset, right-of-use asset and lease liability disposal gains or losses.

 (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. Prior year adjustment

Following a review of the IFRS 15 revenue recognition policy applied in the Rustici CGU, the Group has concluded that Rustici contracts include an additional distinct performance obligation, for which the revenue should be recognised at a point in time on delivery, rather than all over time as the more conservative policy previously applied. As a result of this correction in the accounting, the Group has restated the balance sheet at 1 January 2019 as outlined below. There has been no impact on the income statement for the years ended 31 December 2019 or 2020.

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 2020 and in the year ended 31 December 2019.

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

Geographical information

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

The total non-current assets figure is exclusive of deferred tax assets in each of the periods above.

Revenue by nature

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

Adjusted EBIT is the main measure of profit reviewed by the Chief Operating Decision Maker.

The total assets figure is inclusive of deferred tax assets in each of the periods above.

Total liabilities by Operating Segment are not regularly review by the Chief Operating Decision Maker and as such, are not included in the table above.

Information about major customers

In the year ended 31 December 2020 and the year ended 31 December 2019, no customer accounted for more than 10 per cent of reported revenues.

5. Adjusting items

These items are included in normal operating costs of the business, but are significant cash and non-cash expenses that are separately disclosed because of their size, nature or incidence. It is the Group's view that excluding them from Operating Profit gives a better representation of the underlying performance of the business in the period.

As outlined above, the material adjustments are made in respect of:

6. Income tax

In the 2021 budget it was announced the UK corporation tax rate would increase to 25 per cent from 1 April 2023.

The deferred tax credit arising from the origination and reversal of temporary differences primarily relates to the deferred tax liability releases associated with acquired intangible amortisation and other temporary differences such as accelerated depreciation, share based payments, provisions and deferred revenue.

Current tax adjustments in respect to prior years primarily relates to minor variances between prior period provisions and final tax returns.

The deferred tax adjustments in respect to prior years primarily relate to the reversal of a short term timing difference recognised in the prior year, the recognition of deferred tax assets relating to tax losses carried forward and changes in the market value of LTG shares when calculating the share-based payment deferred tax assets; refer to Note 13 for further details.

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 £1,137,000 (2019: £1,352,000).

7. 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.

Adjusted earnings per share is stated after the impact of the adjusting items disclosed in Note 5, excluding profit or losses on disposal of fixed assets and right-of-use assets and additional non-cash finance expenses and non-operational interest income. This is to reflect the underlying operational performance of the Group, and exclude interest income earned from cash reserves held by the Group.

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

8. Property, plant, equipment and right of use assets