Learning Technologies Group Regulatory News (LTG)

26 April 2023

Learning Technologies Group plc

FULL YEAR RESULTS 2022

Strong momentum in 2022 with proforma constant currency organic growth of 5%

Revenues and profit ahead of expectations, as previously announced

Achieved margin targets for GP Strategies as part of successful integration

Learning Technologies Group plc, a global market leader in digital learning and talent management, announces results for the year ended 31 December 2022. All figures relate to that period unless otherwise stated.

Strategic highlights

Financial highlights

Dividend

Current trading and outlook

Jonathan Satchell, Chief Executive of Learning Technologies Group, said:

"2022 was a transformational and successful year for LTG. We have delivered a step-change in our scale, more than doubling revenues and almost doubling profits. We also focused on our core priorities of organic growth, margin improvement in the businesses we acquire and excellent cash generation.

Our progress reflects the successful integration of GP Strategies, which has broadened and strengthened our offering to help us pursue the $100 billion addressable market for digital learning and talent management. Our resilient model, with high levels of recurring revenues from diversified end markets - combined with cross-selling opportunities from this greater scale - support our confidence of further progress in 2023. We remain confident of meeting our goal of £850m run-rate revenues and £175m run-rate EBITDA by the end of 2025."

Financial summary: 

* Organic growth on a constant currency basis

Analyst and investor presentation:

LTG will host an analyst and investor webcast at 09:00 today, 26 April 2023. The registration link can be found below:

https://attendee.gotowebinar.com/register/6682424185328547674

Telephone audio is available via the following numbers:

Long distance: +44 330 221 9914

Toll-free: 0 800 169 0433

Access code: 455-919-430

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.

Chief Executive's Review 

"After more than a year of ownership of GP Strategies, we are thrilled with the results and progress made to date, delivering significant shareholder value as expected. This continues our excellent track record of delivering value from acquisitions."

A new go-to-market to drive growth

We are a global provider of integrated talent management and learning software and services. Following the transformational acquisition and successful integration of GP Strategies, we have a powerful combined offering that is expected to drive new growth opportunities in the >$100 billion market that we address. We made a firm commitment in 2022 to work together to achieve an outstanding commercial transformation. We are delighted to report that, with our GP Strategies colleagues taking the lead, we've successfully delivered on this initiative. Consequently, GP Strategies' adjusted EBIT margin has increased from c.5% prior to acquisition to Q4 2022 margins of 14%. This is a significant achievement and a testament to the hard work and dedication of our teams.

We have a differentiated and well-integrated customer offering, including a leading digital presence. In the fourth quarter, we announced a new go-to-market strategy to provide an integrated solution to talent transformation with GP Strategies as the Group's lead market-facing brand.

Effective January 1, 2023, LEO Learning, a digital learning specialist, integrated with GP Strategies' global content design team to create the world's largest and most creative custom content and learning experience design offering. Simultaneously, PDT Global joined GP Strategies to create a combined force in Diversity, Equity and Inclusion (DE&I). These additions to GP Strategies' portfolio enhance its capabilities as a world-leading learning and talent transformation company.

In addition, LTG's BAFTA-winning games studio, PRELOADED, is expected to join GP Strategies later in 2023, offering a unique brand within the GP Strategies portfolio. With deep expertise in developing immersive experiences, PRELOADED will help GP Strategies to establish a new global presence in the practical application of emerging technologies such as XR and AI. Meanwhile, LTG's existing software and product brands, such as Bridge, Rustici, PeopleFluent, Watershed and Open LMS, will continue to operate under their own market-facing brands. These product offerings will be channelled via GP Strategies when part of an integrated solution, creating a powerful suite of services and solutions.

We have seen sustained business momentum through 2022 which has helped deliver good Group organic revenue growth, 5% on a proforma basis and 3% on an underlying basis, with GP Strategies, Software & Platforms and businesses in Content & Services contributing. We have also seen a significant increase in adjusted EBIT and adjusted diluted Earnings per Share, substantially enhanced by the contribution of GP and other acquisitions made in 2021. The quality of earnings is further strengthened by GP Strategies' long-term contracts, which are backed by embedded customer relationships.

As a result of the significant strategic and operational progress we made in 2022, in the fourth quarter we announced new financial objectives for the business that capture LTG's opportunities in the digital learning and talent management industry and the compelling prospects for the Group.

In October, the Board outlined its ambition to achieve run-rate revenues of £850 million and run-rate adjusted EBIT1 of £175 million by the end of 2025 despite the current challenging economic environment. To attain these financial objectives, we aim to achieve c. 5% organic revenue growth, in line with our medium-term targets, and deliver strategic acquisitions that focus primarily on SaaS (Software as a Service) businesses. This approach will allow us to rebalance services and SaaS revenues, which will assist in providing long-term visibility. It is anticipated that future acquisitions will be funded using internally generated cash flows and prudent debt financing with year-end net debt/adjusted EBITDA in the range of 1.0-1.25x.

[1] Alternative performance measures used by the Group are defined in the Glossary

Results and operations

The Group more than doubled revenue in the period, delivering £596.9 million (2021: £258.2 million). Organic constant currency revenue growth on a pro forma basis was 5%. On an underlying basis, organic constant currency revenue growth was 3% including the contribution from our 2021 acquisitions. GP Strategies (67% of Group revenue) delivered 5% for the comparable period of ownership, Software and Platforms (25% of Group revenue) delivered 5% growth, 12% excluding the more mature PeopleFluent, and Content and Services (8% of Group revenue) declined 7%. GP Strategies pro forma revenue growth for the year was 6%, and 8% in H2. Combined, pro forma GP Strategies and Content and Services businesses delivered 6% organic constant currency revenue growth for the full year and 7% in H2.

Adjusted EBIT increased by 84% to £100.9m (2021: £54.8 million), driven by organic growth and the full year contribution from 2021 acquisitions. Statutory operating profit was £50.5 million (2021: £11.7 million), including adjusting items of £50.4 million (2021: £43.1 million).

We have a strong track record of cash generation, and this remains a top priority for us with net cash generated from operating activities of £71.9 million (2021: £37.5 million), equivalent to an adjusted operating cash flow conversion rate of 82% (2021: 81% on a like-for-like basis, 76% on reported basis).

Net debt was £119.8 million at 31 December 2022 (31 December 2021: £141.4 million), excluding £14.9 million (31 December 2021: £21.8 million) of lease liabilities. The covenant net debt/adjusted EBITDA ratio was 1.1 times (2021: 1.9).

Large addressable market opportunity

We operate within a very large global learning and training market, estimated to be worth approximately $390 billion in 20232. This market which comprises internal, external and tuition remains fragmented. With our new go-to-market strategy and integrated businesses, we have a powerful combined offering that can address the >$100 billion external corporate training segment of this market.

We also operate in the smaller, complementary talent management market. This is the future evolution of learning and development, encompassing software applications that enable all facets of the employee 'lifecycle' to be brought together in one place. It includes recruitment, performance management, learning and development, diversity and inclusion, talent mobility and compensation management. It represents a logical progression from the disparate systems and processes that prevent businesses from aligning strategy with workforce learning and development.

Our focus is on the faster-growing digital training and development segment. As a result of the range of services and software products available to us, we can offer comprehensive learning and development solutions to our corporate and government customers in a unique way that sets us apart from others, in what remains a fragmented market. Our suite of analytic tools enables us to track the performance of our learning and development solutions, demonstrating to customers the cost- effectiveness of the services and software we provide. We can selectively 'bolt on' technology capabilities, additional geographic reach or differentiated service offerings to further enhance our customer proposition. The learning services market is forecast to grow approximately 5% in 2023.3

We continue to believe that there are five forces that are rapidly evolving our marketplace, underpinning its attractiveness by increasing the need for the range of learning and development solutions we provide. These five forces are driving the need for corporates and governments to continually reskill and transform their workforces, as follows:

In addition to these five forces, Dave Ulrich, PhD and Professor at The University of Michigan has designed the "human capability framework"4 model to provide a tool to help CEOs and other stakeholders think about how to treat people and organisational matters interdependently versus independently. The model helps provide a framework based on four pathways to ultimately make informed choices about how to prioritise people-related initiatives to drive key business outcomes. The focus on talent, leadership, organisation and the HR function offers an opportunity to focus on where employees have the most impact while also uncovering strengths and weaknesses. This type of data provides an opportunity for us to work with customers to understand where they fit within their framework to ultimately provide solutions that help meet needs. We continue to be excited by our markets and the huge opportunities they provide.

2 Training Industry, Inc. Research Data 2022/2023

3 Training Industry, Inc. Learning Services Market 2022

4 Dave Ulrich: How human capability creates value for all stakeholders (hrdconnect.com)

Investment case

We have a strong track record of value creation. This includes a proven ability to grow organically and drive strong margins, as well as pursue an acquisition strategy that increases the Group's capabilities and market reach and delivers accretive earnings. All of this has enabled us to generate strong cash flows, which have underpinned swift deleveraging and a progressive dividend policy.

The main drivers that have enabled us to deliver a robust financial performance over a sustained period are as follows:

The requirement for our services and software is becoming more acute as training and development becomes a pressing need in many industries. This is delivered through a high proportion of predictable and recurring revenue streams, comprising SaaS-related subscriptions and long-term service contracts.

Creating value through investment in innovation

Investment in innovation is a high capital allocation priority, and we have a strong track record of creating value in this area. Part of our investment strategy is to leverage value from complementary technologies acquired through our selective M&A programme. We invest in consolidating products to provide integrated and cohesive solutions. In this way, our investment is aligned to the strategy of providing differentiated and comprehensive capabilities to customers. Where possible, we adopt a lower-risk approach to innovation by applying our existing technology to different markets. During 2022, we continued to make investments consistent with our strategy. Examples include:

Our ability to integrate our offerings enables us to offer holistic solutions and cross-sell to customers. We have had a particularly notable success providing a learning ecosystem for the partners, distributors and third-party audiences of a global energy business. This involved services and integrated software provision from six of our businesses, working together in close collaboration. We now have a good range of strategic cross sell examples. For example, selling services to software customers (a global investment bank) and software to services customers (bringing LTG technology to a global automotive rebid) and tactical solutions (e.g., bringing the PDT specialist DE&I portfolio into an MLS aerospace client).

Creating value through acquisitions - GP Strategies

In October 2021, we completed the transformational acquisition of NYSE-listed GP Strategies. During the year, we spent a significant amount of time and effort on the commercial transformation and planning for the integration of our core capabilities, managing costs of IT systems and back-office, and increasing staff utilisation. These actions have improved execution and delivery and increased operating margins and cash generation.

The GP Strategies acquisition brought many strategic and customer benefits, including new and complementary capabilities; expertise in target customer markets in highly regulated, complex industries; an expanded geographic footprint, including in the US and faster-growing Asian markets; and an outstanding reputation servicing 125 of the US Fortune 500 and 121 of Global 500 constituents. Almost three-quarters of its revenue is from customers of more than ten years.

We worked through many integration activities in 2022 and realised the benefits early on from the opportunities GP Strategies offered to cross-sell products and services to a combined customer base of more than 6,000 customers. We achieved our target of launching our combined strategic customer offering by sharing our new go-to-market strategy in the fourth quarter.

We have an excellent track record of enhancing our margin over many years, including from acquisitions. The priority for GP Strategies management was to deliver cost efficiencies and savings from a range of actions, including improved commercial governance and enhanced procurement controls, shared procurement efficiencies and a reduction of spend on third-party subcontractors, all of which were successfully achieved. GP Strategies management put in place new commercial and supplier approvals and controls, and it made substantial progress on the rationalisation of the supplier base, achieving significant supplier cost efficiencies.

We are delighted with the progress made this year in operational performance as reflected by the significant increase in adjusted EBIT margins from c.5% pre-acquisition to an impressive 14% in Q4 2022. We remain confident that there is potential for further margin improvement.

In 2022, we did not acquire any additional businesses as our focus and priority remained on the new go-to-market strategy and the commercial transformation of GP Strategies. The Group anticipates acquisitions will resume in 2023, looking for strategic opportunities with an emphasis on the Software & Platforms division.

Non-core assets

In the company's half-year results announced in September 2022, we disclosed that two UK businesses, based within GP Strategies, had been identified as non-core and planned to exit as soon as practicable. A further update was provided in December 2022, confirming we intended to close the UK apprenticeship business following a decision by the Board that the nature of the customer relationships and quality of the offering in the business did not match the high standards elsewhere in GP Strategies and the Group, especially following a negative Ofsted report in late 2022.

The other non-core asset is trading well, has an increased order book and is a candidate for disposal in 2023.

LTG remains focused on delivering the integration of GP Strategies, the new go-to-market strategy and future value-enhancing acquisitions.

People

Our new Chief People Officer, Liz Freedman, joined us in May. Liz came from Intercontinental Hotels where she was Head of Global Talent. Prior to IHG, she held regional and global leadership roles at The Coca-Cola Company and Procter & Gamble. Liz has brought a unique combination of sales and customer marketing, operations, human capital management and large-scale transformational change experience with some of the world's largest multinational companies. She has made progress this year with integrating the global HR teams, allowing for process improvement and efficiency.

Our new Chief Customer Strategy Officer, Karie Willyerd, joined us in September 2022. As an award-winning Chief Learning Officer, including two-time winner of the prestigious #1 ATD Best award and with over 30 years of experience in learning and development, Karie is focusing on helping our customers with their learning and talent strategies and helping embed the benefits of our new combined go-to-market strategy with the C-Suite in multiple organisations.

Our new Chief Information Officer joined us in January 2023. David Anderson came to us from Pilgrims Shared Services where he was Chief Information Officer, leading a team of 150 IT professionals. During his time there, he was responsible for a range of international IT functions and held overall responsibility for IT Shared Services strategy and transformation. David brings to us a wealth of experience and knowledge that we are excited to leverage, with proven experience in:

Outlook

2022 was another exciting and successful year for LTG, despite a challenging macroeconomic backdrop. Our strong organic revenue growth reflects the pressing and growing need for organisations to recruit, train, motivate and retain talent and LTG's ability to meet these demands. We have also continued our track record of improving the operating model and performance of businesses we acquire.

Our transformational GP Strategies acquisition has given us a platform to capture a greater proportion of the circa $100 billion and growing, addressable market in digital learning and talent management. We have a deeper offering to serve a global customer base facing greater complexity, change and need for productivity. We launched our new go-to-market strategy, announcing that GP Strategies would be the Group's lead market-facing brand representing the breadth and depth of the expertise and experience our solutions provide. We began significant work on combining several of our businesses, allowing us to become the world-leading learning and talent transformation company.

While mindful of the current macroenvironment, the Board's confidence for the year ahead is underpinned by LTG's resilient model for sustained organic growth, strong business momentum continuing into the new financial year and a robust balance sheet to support further strategic acquisitions in the future.

Jonathan Satchell

Chief Executive

25 April 2023

Chief Financial Officer's Review  

Revenue

In 2022, the Group delivered a strong performance, ahead of expectations with revenue more than doubling to £596.9 million (2021: £258.2 million) benefitting from the full-year contribution of 2021 acquisitions, including the transformational acquisition of GP Strategies in October 2021, and FX tailwinds due to the strength of the US dollar. On a pro forma basis, constant currency organic revenue growth was 5% and 3% on an underlying basis.

GP Strategies' (67% of Group revenue) organic constant currency growth on a pro forma basis was 6%, with increased revenue from customers in EMEA and the Americas, along with large individual project work within Effective People and enterprise technology services businesses. Organic constant currency growth for the comparable period of ownership was 5%.

There was 5% organic constant currency revenue growth in the Software & Platforms division (25% of Group revenue). This comprised of continued strong performance in the Rustici e-learning standards business, Breezy HR, a leading-edge talent acquisition platform business and Watershed, a learning analytics business, which more than offset expected lower revenue in the PeopleFluent talent management product line.

Our Content & Services division revenue (8% of Group revenue) declined 7% on an organic constant currency basis with good growth in PRELOADED and PDT Global. This growth was more than offset by lower service revenue from software businesses due to large implementation contracts in 2021 not repeated in 2022, and a combination of better H2 2021 revenue following a rebound after COVID lockdowns and clients taking longer to finalise and proceed into the delivery phase.

SaaS-based subscription and long-term contract revenue was 71% (2021: 75%) of total Group revenue, reflecting a full-year change in revenue mix primarily from GP Strategies.

Adjusted Earnings Before Interest and Tax (EBIT) and operating profit

Adjusted EBIT1 increased by 84% to £100.9 million (2021: £54.8 million), driven by the full-year contribution from 2021 acquisitions and organic revenue growth. As anticipated, the Group's adjusted EBIT margin was lower at 16.9% (2021: 21.2%) due to a full-year ownership of GP Strategies, a predominantly service-related business which has a lower adjusted EBIT margin, and portfolio mix resulting from varying growth rates across the business. We intend to continue to invest in the business on an organic basis to drive both revenue and adjusted EBIT synergies with the aim of delivering Group adjusted EBIT margins of around 20% in the medium term.

Included within adjusted EBIT was a share-based payment charge which increased to £6.7 million (2021: £5.2 million), including granting new unapproved options to GP employees. An additional share-based payment charge of £0.5 million related to the acquisition of GP Strategies is included in adjusting items.

Also included within adjusted EBIT was an amortisation charge for internally generated development costs which increased to £7.5 million (2021: £5.6 million), as set out in note 9. As relevant projects are completed, they are amortised over their useful economic lives, with the increase in the amortisation charge reflecting the increased investment in capitalised development costs in prior years. The Group does not include £12.0 million (2021: £8.7 million) of amortization of acquired software and IP within adjusted EBIT due to an expectation that the quantum exceeds that which would have been incurred if internally developed, and therefore is not representative of a true ongoing cost of the business.

The Group's statutory operating profit was £50.5 million (2021: £11.7 million), including adjusting items of £50.4 million (2021: £43.1 million).

1Alternative performance measures used by the Group are defined in the Glossary.

Divisional review

GP Strategies

GP Strategies is a global workforce transformation provider of organisational and technical performance solutions. It improves the effectiveness of organisations by delivering innovative and superior training, consulting and business improvement services customised to meet the specific needs of its clients. The division is well diversified with clients from Fortune 500 companies, automotive, financial services, technology, aerospace and defence industries, and other commercial and government customers.

*GP Strategies acquired 14 October 2021

GP Strategies comprised 67% of 2022 Group revenue (2021: 32%) and in the year, 66% (2021: 68%) of the revenue was from long-term contracts.

Revenue increased to £398.8 million (2021: £82.9 million) reflecting a full year of revenue following acquisition on 14 October 2021, with organic constant currency growth of 5% for the comparable period of ownership and pro forma organic constant currency growth of 6%. The drivers of revenue growth were primarily due to increased revenue with multiyear managed learning services customers in both the EMEA and Americas regions. In addition, these regions saw strong organic growth in large project work within its Effective People and enterprise technology adoption services businesses. The strength of the global business model was demonstrated with significant, new post-acquisition awards from blue-chip customers in Asia, Middle East and South America.

Adjusted EBIT increased to £48.7 million (2021: £7.7million), representing a full year of ownership. The adjusted EBIT margin was 12.2% (2021: 9.2%) as we delivered on the commercial and operational margin enhancements identified at the time of acquisition. As expected, these margins continue to improve steadily throughout the year with Q4 margins of 14%.

Statutory profit before tax was £22.8 million (2021: £1.6 million loss) after deducting adjusting items including amortisation of acquisition-related intangible assets, acquisition and integration costs and acquisition-related contingent consideration, and finance expenses.

GP Strategies has continued to demonstrate the quality of its customer service within its embedded relationships through being awarded Supplier of the Year by General Motors in the US for a sixth consecutive year. This is a significant achievement, being one of only 125 companies chosen out of 20,000 of its suppliers. Feedback indicates that satisfaction levels from other major customers also continue to be high.

We are delighted by GP Strategies' achievement of the initial commercial transformation programme and are confident of substantial further progress in 2023.

As a result of the acquisition of GP Strategies, LTG owned a 10% stake in National Aerospace Solutions LLC (NAS). This shareholding was not considered to be core and on 18 April 2022, was disposed of for $3.0 million. The GP Strategies employees supporting this business transferred to NAS as part of the transaction.

Software & Platforms

The Software & Platforms division comprises Software as a Service (SaaS) and on-premise solutions as well as hosting, support and maintenance services.

Software & Platforms comprised 25% of 2022 Group revenue, (2021: 51%) reflecting the change in portfolio mix as a result of the GP Strategies acquisition.

Revenue increased 14.7% to £149.7 million (2021: £130.5 million) with organic constant currency growth of 5% driven by good growth in Rustici, Watershed and Breezy HR in addition to FX tailwinds due to the strength of the US dollar and a full year of Bridge and Reflektive. Excluding the more mature PeopleFluent, organic growth was 12%.

Continued strong growth from the Rustici e-learning standards business drove organic growth, as it continued to benefit from increasing demand for digital learning tools from new customers, from existing customers purchasing extra functionality and a higher benefit in 2022 from on-premise renewals. In Breezy HR, the division's cloud-based software product for talent acquisition for small and mid-size customers, there was continued strong organic growth in H1 which trended towards the divisional growth rate in H2. Watershed also delivered a strong performance across the year. The Open LMS business delivered growth at constant currency with customers continuing to benefit from its open-source software. This uses a platform that is customizable to specific needs within customers, including universities and educational establishments.

Partially offsetting this was higher churn in Reflektive as budgets for our customers within the technology sector tightened as we focus on building Reflektive into the Bridge platform, and the expected revenue decline in the more mature PeopleFluent talent management product line, an integral part of the Group's differentiated software offering. The product, which has good functionality and is highly configurable, continues to be well-embedded with its larger and more complex corporate customers. It is expected that customers requiring its more complex functionality will continue to use the product while some of those with less complex needs will migrate over the coming years to the division's fast-growing talent management solutions. One of PeopleFluent's largest customers, a large healthcare organisation, expanded its licence of the Performance product to 100,000 users, from 50,000 during its June 2022 renewal, setting the stage for future expansions as it continues to use our technology across its hospital network. In addition, an IT service management company with 10,000 employees, has expanded its initial licence into two additional products within the last 12 months.

In 2022, 97% (2021: 97%) of the revenue in Software & Platforms was related to SaaS-based subscriptions and long-term contracts.

Adjusted EBIT increased in the year to £40.3 million (2021: £36.4 million) driven by organic revenue growth and a full-year contribution of the 2021 acquisitions of Reflektive and Bridge. Underpinning this was a strong performance from Rustici offset by the expected lower performance in PeopleFluent. The adjusted EBIT margin was 26.9% (2021: 27.9%), reflecting the varying growth rates of the portfolio.

Statutory profit before tax increased to £12.6 million (2021: £5.8 million) after deducting adjusting items including amortization of acquisition-related intangible assets, acquisition and integration costs, acquisition-related contingent consideration and earn-out charges, other income and finance expenses.

Content & Services

Content & Services (excluding GP Strategies) includes LEO Learning, the Group's innovative digital learning specialist which delivers organisational transformation through world-class consultancy and strategic learning blend design and creative content generation and PRELOADED, LTG's highly regarded games and immersive experiences studio. The division also includes PDT Global, a leading provider of diversity, equity and inclusion training solutions, Affirmity, LTG's affirmative action provider, and the services departments of our software businesses.

Content & Services comprised 8% of 2022 Group revenue (2021: 17%), the reduction reflecting. the change in portfolio mix as a result of the transformational GP Strategies acquisition.

Revenue increased to £48.2 million (2021: £44.8 million) reflecting FX tailwinds and a full year of PDT Global, partially offset by a 7% organic constant currency decline. This reflected lower services revenue from software businesses due to large implementation contracts in 2021 not repeated in 2022, in addition to a combination of a stronger comparative in LEO in H2 2021 following the COVID rebound, and clients taking longer to finalise and proceed into delivery phase. Partially offsetting these challenges was good growth in PRELOADED as it delivered on contracts for highly innovative projects with significant clients, including a global entertainment company and an international social media company. PDT Global achieved better growth in H2 as the sales pipeline in the first half of the year was delivered as expected. Affirmity delivered growth through the year, underpinned by excellent renewal rates although attenuated in the second half following the introduction of new US legislation in H2 2021 not repeated in 2022. Excluding the lower services revenue from software businesses, the organic constant currency revenue decline was 2%.

Adjusted EBIT also increased to £11.7 million (2021: £10.6 million), driven by the contribution from increased revenue. The adjusted EBIT margin was 24.4% (2021: 23.7%), reflecting a change in portfolio mix.

Statutory profit before tax was £4.9 million (2021: £5.1 million) after deducting adjusting items including amortisation of acquisition-related intangible assets, acquisition and integration costs and acquisition-related contingent consideration and earn-out charges, and finance expenses.

LEO's market is anticipated to continue to benefit from large corporates looking to advance their talent development programmes in an environment where employees increasingly work remotely. The market is also expected to benefit as traditional face-to-face training models, involving business travel, are impacted by environmental and sustainability issues, including the increased focus in reducing Scope 3 emissions.

In January 2023, LEO and PDT Global were integrated with GP Strategies, and PRELOADED is expected to follow later in the year.

Statutory operating profit

The Group's statutory operating profit was £50.5 million (2021: £11.7 million), including adjusting items of £50.4 million (2021: £43.1 million), which comprised:

Amortisation of acquired intangible costs, including acquired software and IP, are excluded from the adjusted results of the Group since the costs are non-cash charges arising from investing activities. As such, they are not considered reflective of the core trading performance of the Group.

Impairment of goodwill and intangibles are excluded from the adjusted results of the Group since the costs are one-off, non-cash charges related to closure of the non-core UK apprenticeship business in early 2023 announced on 19th December 2022.

The costs of acquiring and integrating subsidiaries purchased in the year or in prior periods, deemed to be incremental costs not part of the normal course of business. In 2022, this includes £0.3 million costs of acquisition and £3.5 million of integration costs, primarily related to acquisitions completed in a prior year. Within integration costs was £3.4 million relating to the integration of GP Strategies and legacy Content & Services businesses. These costs included staff-related costs such as retention bonuses, severance and recruitment costs as well as consulting costs.

The cost of acquisition-related contingent consideration and earn-out charges are mechanisms included in the purchase agreements of business combinations, relating to Breezy HR and eCreators, which are awarded based on the achievement of substantial incremental revenue growth. The former owners of each respective business are required to remain employed by the Group and, as such, the earn-out is considered to be post-combination remuneration, rather than contingent consideration which would be included in the purchase consideration of each respective acquisition.

Other income includes amounts received in relation to a contract and is an adjusting item due to its quantum and non-recurring nature.

Closure provisions of £1.0 million relating to expected severance and future lease costs with respect to the closure of the non-core UK apprenticeship business are excluded from the adjusted results as they are restructuring in nature and not part of the normal operating costs of the ongoing Group.

Cloud computing configuration and customisation costs reflect the impact of a change in accounting policy following review of IFRIC guidance issued in March 2021 relating to capitalisation of cloud computer software implementation costs. Where there is no underlying intangible asset over which we retain control, the Group recognises configuration and customisation costs as an expense.

A joint venture was acquired through the acquisition of GP Strategies and represented the Group's investment in National Aerospace Solutions, LLC, which has a Test Operations and Sustainment (TOS) Contract for the management and operations of the Arnold Engineering Development Complex in Tullahoma, Tennessee.

On 18th April 2022, the Group sold its 10% investment in National Aerospace Solutions LLC for proceeds of $3.0m (£2.3 million), realising a gain on sale of £1.2 million (see note 10).

For further details of the items excluded from statutory operating profit, see note 4.

Net finance charge and profit before tax

The net finance charge was £10.0 million (2021: £2.3 million), with the increase driven by the higher average level of debt in the year, due to acquisition-related cash outflows and increased interest rates.

After the net finance charge, adjusted profit before tax was £90.9 million (2021: £52.5 million) and statutory profit before tax was £40.5 million (2021: £9.3 million).

Taxation charge

The adjusted tax charge was £24.3 million (2021: £12.8 million), resulting in an adjusted effective tax rate of 27% (2021: 24%). The statutory tax charge was £10.1 million (2021: £5.6 million credit).

The increase in tax reflects the inclusion of full-year results of GP Strategies for 2022 compared to results for 2021, representing the post-acquisition period from 14 October. The adjusted tax charge includes £2.9m relating to foreign exchange gains on borrowings, payable at the entity level. On a statutory basis, this tax charge is matched with the foreign exchange gain within other comprehensive income.

During the year, the Group completed a tax study to confirm the availability and future use of the balance of losses carried forward and determined that tax-effected losses amounting to £24.7 million are available for recognition, consisting of £12.9 million for the period 2022-2038 and £11.8 million to be carried forward indefinitely. The Group has recognised a deferred tax asset for losses of £5.5 million, of which £2.6 million has been utilised in the current year and £2.9 million is expected to be utilised over the subsequent three-year period to 2025 in line with the forecast period prepared for the Group. In subsequent years, the Group will consider recognition of the further deferred tax assets on the remaining losses on an annual basis. Further details are provided in notes 5 and 13.

Foreign exchange

The Group is exposed to a number of currencies resulting from its geographical spread, with the majority of exposure to the US Dollar. The strengthening of the US Dollar has resulted in FX tailwinds for the Group and £31.0 million (2021: £1.7 million) exchange differences on translating foreign operations within other comprehensive income, largely due to the retranslation of foreign operations as well as £55.6 million of foreign currency gains generated on goodwill and acquired intangible assets. This is largely due to a significant proportion of these items being designated in USD and the weakening of the British Pound against the Dollar by c.10% year on year.

Earnings Per Share

Adjusted diluted EPS increased to 8.121 pence (2021: 5.010 pence), driven by the increase in adjusted EBIT. This was partially offset by the higher adjusted effective tax rate and higher average number of shares outstanding, resulting from the exercise of employee stock options during the year.

On a statutory basis, basic EPS increased to 3.857 pence (2021: 1.959 pence).

Cash generation

As per the Consolidated Statement of Cash Flows, cash generated from operations finished strongly at £92.1 million (2021: £46.9 million) and net cash flows from operating activities were £71.9 million (2021: £37.5 million).

There was a cash outflow of £18.4 million (2021: £11.6 million) from working capital with increased trade and other receivables, payables and inventory partially offset by a decrease in amount recoverable on contracts. Debtor days decreased to 81 days (2021: 91 days) and combined debtor work-in-progress and deferred income days (combined days) decreased to 41 days (2021: 57 days). The combined days metric benefits from payments being received annually in advance for recurring software licences.

Free cash flow1 was £50.3m, £27.5m higher than 2021. Cash conversion1 was strong at 82% (2021: 81% on a like-for-like basis, 76% on reported basis), as set out below.

[1] Alternative performance measures used by the Group are defined in the Glossary.

Net corporation tax payments increased to £20.2 million (2021: £9.4 million) reflecting the inclusion of full-year results of GP Strategies for 2022, compared to results for 2021 representing the post-acquisition period from 14 October. Net finance payments of £4.3 million (2021: £0.3 million) were lower than the £10.0 million net finance charge for the year as the final loan notice period for the year fixed the interest rate for six months becoming payable in January 2023. Payment of acquisition-related contingent consideration and earn-outs totalled £6.1 million (2021: £1.2 million) related to Breezy HR, Watershed, eCreators, eThink, PDT Global and Moodle News.

There were cash outflows from investment activities of £9.3 million (2021: £320.1 million) comprising of £10.0 million (2021: £8.4 million) of outflows relating to capitalised investment in internally generated IP, £1.6 million (2021: £0.6 million) from investment in property, plant and equipment, and £2.3 million cash inflow from the sale of the NAS joint venture in April 2022. The 2021 cash outflow of £311.2 million relating to acquisitions is stated net of cash acquired of £34.2 million and other closing adjustments.

Net cash outflows from financing activities were £58.8 million (2021: inflow of £277.6 million). This includes £38.5 million (2021: £18.1 million) for repayment of bank loans. In addition, there were £1.0 million (2021: £85.6 million) of proceeds from the issue of ordinary share capital, net of share issue costs. In 2021, this was primarily the equity placing in July 2021 which part funded the acquisition of GP Strategies, as well as the exercise of employee stock options. There were also lease payments of £6.7 million (2021: £4.4 million), as well as a payment of deferred contingent consideration £0.7 million (2021: £0.5 million) and dividend payments of £9.1 million (2021: £6.1 million).

Capital allocation, funding priorities and dividend

The Board remains committed to a capital allocation policy that prioritises investment in the business to drive growth, a progressive dividend policy and selectively acquiring value-enhancing businesses.

The Board's progressive dividend policy, while taking into account earnings cover, also considers other factors such as the expected underlying growth of the business, its capital and other investment requirements. The strength of the Group's balance sheet and its ability to generate cash are also considered.

The Group considers these factors in the context of the Group's Principal Risks and the overall risk profile of the Group.

Given the strong operational performance during the year and the significant increase in EPS, the Board is recommending a final dividend of 1.15 pence per share (2021: 1.00 pence). The total cash cost of the final dividend is approximately £9.1. million.

Together with the interim dividend of 0.45 pence, this gives a total dividend for the year of 1.6 pence, an increase of 60% on the prior year.

If approved, the final dividend will be paid on 21 July 2023 to all shareholders on the register on 30 June 2023.

Net Debt and Gearing

At 31 December 2022, the Group's net debt was £119.8 million (31 December 2021: £141.4 million), excluding £14.9 million (31 December 2021: £21.8 million) of lease liabilities. On a constant currency basis, net debt was £106.6 million on 31 December 2022 at the 2021 exchange rate.

The Group's net debt comprised £214.6 million of debt (31 December 2021: £225.3 million) and £94.8 million of cash (31 December 2021: £83.9 million).

On the acquisition of GP Strategies, the existing debt facility with Silicon Valley Bank ('SVB') was repaid and a new facility with HSBC UK Bank, SVB UK, Barclays Bank, Fifth Third Bank, and the Governor and Company of the Bank of Ireland was put in place. This was made up of two variable rate committed term loans. The Term Facility A, with an original commitment of $265.0 million is available to the Group until October 2025, with the Term Facility B of $40.0 million subsequently fully repaid in March 2022. The facilities also include a $50.0 million (£41.3 million at year-end exchange rates) Revolving Credit Facility and a $50 million (£41.3 million at year-end exchange rates) uncommitted accordion, both available to July 2025. For further details of the Group's debt facility see note 16.

The Group's covenant basis net debt/adjusted EBITDA ratio was times (2021: 1.8 times).

Silicon Valley Bank

HSBC UK Bank plc ("HSBC") purchased Silicon Valley Bank UK Limited ("SVB UK") on 13 March 2023. SVB UK, a direct wholly-owned subsidiary of HSBC, remains as the facility agent and security agent for the debt facility (see note 16).

Closure of non-core operations

Prior to the 31 December 2022, it was announced by management that it planned to exit the UK apprenticeship business. The relevant closure provisions (note 18) and impairment charges (note 9) have been recognised in the year ended 31 December 2022. The UK apprenticeship business ceased trading on 31 March 2023.

There have been no other notifiable events between 31 December 2022 and the date of this Annual Report.

Balance sheet

The Group has a strong balance sheet with total shareholder equity of £426.3 million at 31 December 2022 (31 December 2021: £371.3 million). This is equivalent to 54.0 pence per share (2021: 47.1 pence per share). Key movements on the balance sheet in 2022 include:

Key Performance Indicators (KPIs)

The Group's KPIs are revenue and organic revenue growth, adjusted EBIT, cash conversion and adjusted diluted EPS. A discussion of performance against each KPI is contained within the narrative above.

The profitability of the business, which has a relatively low fixed-cost base, is managed primarily via the divisional revenue review, with secondary measures addressing employee utilisation and project margin reviews in Content & Services and in GP Strategies.

Cash flow is reviewed at a Group level, aided by rolling cash forecasts and monitoring cash balances. There is a focus on working capital which is reviewed primarily against debtor days and combined debtor, WIP and deferred income days measures.

Adjusted diluted EPS, as well as incorporating all the elements of the above KPIs, is additionally impacted by the Group's treasury and taxation activities. These activities are carried out within the Group's finance team and seek to manage the Group's net finance and taxation charge.

Kath Kearney-Croft

Chief Financial Officer

25 April 2023

Consolidated Statement of Changes in Equity

Year ended 31 December 2022

1. General information

The financial information for the year ended 31 December 2022 and the year ended 31 December 2021 does not constitute the company's statutory accounts for those years. 

Statutory accounts for the year ended 31 December 2021 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2022 will be delivered to the Registrar of Companies in due course. 

The auditors' reports on the accounts for 31 December 2022 and 31 December 2021 were unqualified, did not draw attention to any matters by way of emphasis, 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 have been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

Going concern

The Directors report that the going concern basis is appropriate from at least 12 months from the approval of these financial statements. 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 $50.0 million revolving credit facility (RCF) and an uncommitted $50.0 million accordion facility, which are available until 2025.

The Group has a debt facility dated 15 July 2021 with HSBC UK Bank PLC, Silicon Valley Bank UK Limited, Barclays Bank PLC, Fifth Third Bank NA and The Governor and Company of the Bank of Ireland.

At the outset this comprised two committed term loans, Term Facility A, with an original commitment of $265.0 million available to the Group until October 2025 and Term Facility B for $40.0 million, subsequently fully repaid in March 2022. 

Subsequent to the year end, HSBC UK bank plc ("HSBC") purchased Silicon Valley Bank UK Limited ("SVB UK") on 13 March 2023. SVB UK, a direct wholly-owned subsidiary of HSBC, remains as the facility agent and security agent for the debt facility (see note 21).

The facilities available also include a $50.0 million committed Revolving Credit Facility (£41.3 million at the year-end exchange rate) and a $50.0 million uncommitted accordion facility (£41.3 million at the year-end exchange rate), both available until July 2025. The term facility attracts variable interest based on LIBOR plus a margin of between 1.25% and 2.00% per annum, based on the Group's leverage to December 2022, following this it attracts SOFR plus the margin discussed above and an adjusted credit spread until repaid.

In addition, a 12 month extension request is available to the Group for Term Facility A and the RCF.

Term Facility A is repayable with quarterly instalments, starting December 2022, of $9.6 million (c £8.0 million at the year-end exchange rate) with the balance repayable on the expiry of the loan in October 2025. Term Facility B was repayable in full in April 2022 but was fully repaid early in March 2022.

The Group continues to hold a strong liquidity position overall at 31 December 2022, with gross cash and cash equivalents of £94.8 million and net debt of £119.8 million (see note 16) (31 December 2021: gross cash was £83.9 million and net debt of £141.4 million). Whilst there are a number of risks to the Group's trading performance, 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 31 December 2023 and beyond. In addition, 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 to date and we have modelled downside scenarios such as:

i. 10% and 25% reductions in revenues;

ii. increasing customer payment days (DSO) by 15 days;

iii. combining 10% reduction in revenues and increasing DSO by 15 days;

iv. increasing costs by 8% from H1 2023; and

v. modelling high cost inflation above that in (IV) above to determine the level where a covenant breach could occur.

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 2023 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 2022

New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2022 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 (refer to Note 4) 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 share based payments charges, contingent consideration and earn-outs, cloud computing configuration and customisation costs (see below) joint venture profits and losses, profit on the sale of a joint venture and fixed asset or right-of-use asset disposal gains or losses.

Cloud computing configuration and customisation costs

In accordance with the March 2021 International Financial Reporting Interpretations Committee (IFRIC) agenda decision regarding the capitalisation of cloud computing software implementation costs incurred under Software as a Service ("SaaS") arrangements, where there is no underlying intangible asset over which we retain control, the Group recognises configuration and customisation costs as an expense. Amounts paid to a software supplier in advance of the commencement of the service period, including for configuration and customisation, are treated as a prepayment.

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 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. 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 four reportable segments, being the Software & Platforms division, the Content & Services division, the GP Strategies segment and an Other segment which includes rental income. A majority of sales were generated by the operations in North America in the year ended 31 December 2022 and in the year ended 31 December 2021.

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

SaaS, long-term contract and transactional revenue is defined in the in the Glossary.

Geographical information

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

1. The values as presented for Canada and the United States for the year ended 31 December 2021 have been combined into 'North America' to align with the geographical segmentation as reported to the Board of Directors internally.

2. The non-current assets has been represented following the prior year acquisition measurement adjustment - see note 8

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

Revenue and expenses by nature

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